First-Mover Advantage

• Author: Deborah Ettington, Hal Kirkwood
• Pages: 297-299

Page 297

The idea of first-mover advantage is similar to the old adage, "the early bird gets the worm." In business, being the first company to sell a new product may provide long-lasting benefits or competitive advantages. Most researchers use the term, "first mover" to refer to the first company to enter a market, not the first company to develop a product (the inventor). First movers are also called market pioneers. The benefits of pioneering may result in market dominance and higher-than-average profitability over time. There are several reasons why these benefits may develop, but research has shown that being the first mover does not always provide advantages. Sometimes there are even first-mover disadvantages, where companies that enter a market later can achieve superior results to those attained by the first-mover firm.

For example, Amazon.com was the first major online bookstore, seizing a head start on later entrants. Established book retailers Barnes & Noble and Borders were quick to develop their own Web sites. Amazon maintained their first-mover advantage in two ways; by partnering with Borders and continuing to extend their product offerings into apparel, electronics, toys, and housewares. This negated any customer preference for purchasing from Barnes & Noble by becoming a much larger, one-stop-shopping destination. Company strategists need to decide if they are likely to benefit from being first, or whether it would be better to wait and follow the leader.

There are two stages to developing first-mover advantages. First, a company must have an opportunity to be first at something, either through skill or luck. Second, the firm must be able to capture the benefits of being first. In their award-winning article, professors Marvin Lieberman and David Montgomery of Stanford University described three benefits of being first: technology leadership, control of resources, and buyer switching costs.

TECHNOLOGY LEADERSHIP

First, early entrants can lead other companies in their understanding and use of technology in ways that are hard for later entrants to copy. One way this can happen is that the early entrant learns how to reduce the costs of producing a product through accumulated experience in producing it. This is called a "learning" or "experience" curve effect. Unless later entrants can learn how to produce at these lower costs faster than the first entrant did, the...