Many executives take for granted that the first company in a new product category gets an unbeatable head start and reaps long-lasting benefits. But that doesn't always happen. The authors of this article discovered that much depends on the pace at which the category's technology is changing and the speed at which the market is evolving. By analyzing these two factors, companies can improve their odds of succeeding as first movers with the resources they possess.
Gradual evolution in both the technology and the market provides a first mover with the best conditions for creating a dominant position that is long lasting (Hoover in the vacuum cleaner industry is a good example). In such calm waters, a company can defend its advantages even without exceptional skills or extensive financial resources. When the market is changing rapidly and the product isn't, a first entrant with extensive resources can obtain a long-lasting advantage (as Sony did with its Walkman personal stereo); a company with only limited resources probably must settle for a short-term benefit.
When the market is static but the product is changing constantly, first-mover advantages of either kind--durable or short-lived--are unlikely. Only companies with very deep pockets can survive (think of Sony and the digital cameras it pioneered).
Rapid churn in both the technology and the market creates the worst conditions. But if companies have an acute sense of when to exit--as Netscape demonstrated when it agreed to be acquired by AOL--a worthwhile short-term gain is possible. Before venturing into a newly forming market, you need to analyze the environment, assess your resources, then determine which type offirst-mover advantage is most achievable. Once you've gone into the water, you have no choice but to swim.
When Does a First Mover Advantage Exist?Edit
- There is gradual evolution in both the technology and the market itself. These “calm waters” can allow a company to defend itself against competitors even without great skills or resources. This is because such gradual change makes it difficult for competitors to make significantly different products in a timely enough fashion.
- When a market is changing rapidly but a product isn’t and the company has extensive resources.
Additionally, short lived advantages can be gained when the product is changing rapidly but the market is not ONLY if a company has very deep pockets so as to withstand a period of skepticism about new technology, while also performing considerable R&D in order to stay on the cutting edge of said technology.