First Mover Advantage : The Gospel Truth?

A first mover is a service or product that gains a competitive advantage by being the first to market with a product or service. Being first typically enables a company to establish strong brand recognition and customer loyalty before competitors enter the arena.

Some management concepts have such intuitive appeal that their validity is almost taken for granted. First Mover Advantage is one such concept. While FMA is one of the most appealing and diffused concepts in strategy, there is still no conclusive evidence either in favour or against it. A lot depends upon the positive relationship between the age of the firm and the sub-markets it operates in, as much as also the negative correlation between such statistics and the probability of exit. I consider factors favouring the emergence and protection of the advantage lie with the leadership, preemption of assets and switching costs for consumers, thus collectively constituting the entry barrier.

There are examples of where the first-mover advantage paid off. Amazon’s head start in e-commerce turned into hundreds of millions of customers, with a substantial number of them paying an annual subscription just to get free shipping. More often than not, however, the company that beats everyone to the punch doesn’t end up the long-term champion. While being a trailblazer might turn you into an icon, most early entrants end up being also-rans when the dust settles.

There are some benefits to being the first to move:

• Capture customers that can’t fathom the switching costs once competition arrives
• Patents, if any, can protect you and your incumbent technology, methods, and ideas from getting  copied or duplicated by the competitors 
• Branding is easier when you don’t have to differentiate yourself from a similar offering
• Wherever applicable, in case of limited amount or source of resources, a first mover can snatch them up before others come to the party

Meanwhile, being the first business in an industry may not always guarantee an advantage- 

• Later entrants would benefit from the informed buyers and would not need to spend as much on educating consumers
• Later entrants can avoid mistakes made by the first mover
• If the first mover is unable to capture consumers with their products, later entrants can take advantage of this
• Later entrants can reverse-engineer new products and make them better or cheaper
• Later entrants can identify areas of improvement left by the first mover and take advantage of them

New products and categories are constantly emerging around us. In most cases, companies and teams struggle not with whether to enter with a new product category or line of solution altogether but with whether to enter now or later. Practically, first-mover advantage occurs not when you enter a market, but when you start making real dividends out of it, like you say in chess it is not about whether you are blacking white or black, it is about when you start making inroads and "move into an advantageous position".

To make real money in an evolving market, we need to continue to innovate, evolve and analyze the kind of environment that surrounds the new category; to assess the character and depth of our resources, technological as well as economical; and then decide on the type of mover we want to be, whether to play white, play black or go-with the flow and play along when others jump into the pool. Remember, once you have taken the jump or plunge into the water, whether or not you drown or survive, you have one chance and option, to at least swim with or against the waves.