Page 38 - (DK) The Business Book

36 36 GAINING AN EDGE

research has indicated that from entering a proven market.
significant advantages accrue They are also able to avoid costly
to market pioneers, which can be investment in risky and potentially
directly attributable to the timing flawed processes or technologies;
of entry. The irony is that in a first-movers, by contrast, may have
retrospective paper that appeared accrued significant “sunk costs”
in 1998, “First-Mover (Dis) (past investment) in old, less-
Advantages,” Montgomery and efficient technologies, and may be
Lieberman themselves backed off less able to adapt as the industry
their original claims concerning matures. Followers can enter at
the benefits of being the first to the point at which technology
enter a market. and processes are relatively well
Building on the work of, among established, with both cost and
others, US academics Peter Golder risks being lower.
and Gerard Tellis in 1993, Followers may have to fight
Montgomery and Lieberman’s 1998 to overcome the first-movers’
paper questioned the entire notion brand loyalty, but simply offering
of first-mover advantage. In their a superior product that better
research, Golder and Tellis had addresses customer needs is
found that almost half the first- often sufficient to secure a market.
Gillette invented the safety razor movers in their sample of 500 Brand recognition is one thing,
in 1901 and later consolidated its brands, in 50 product categories, but technical and product superiority
first-mover advantage by developing a failed. Moreover, they found that can give that all-important
“shaving system” that made it difficult there were few cases where later competitive edge. Moreover, with
for customers to switch brands.
entrants had not become profitable investment costs being much
or even dominant players—in fact, lower, followers often have surplus
the organization enjoyed created their research identified that the cash to use on marketing, thereby
significant emotional switching failure rate for first-movers was offsetting the branding advantages
costs; even today, Amazon enjoys 47 percent, compared to only of the first-mover.
the benefits of this trust and loyalty, 8 percent for fast followers. When Google, for example,
and almost a third of all US book entered the Internet search
sales are made via Amazon.com. Learning from mistakes business in 1998, the market was
A recent example of how The challenge for first-movers is dominated by the likes of Yahoo,
important first-mover advantage that the market is often unproven; Lycos, and AltaVista, all of whom
remains are the “patent wars” industry pioneers leap into the had established customer bases
contested between most of the dark without fully understanding and brand recognition. However,
leading smartphone makers customer needs or market Google was able to learn from the
(including Apple, Samsung, and dynamics. First-movers often
HTC). Patents help a company to launch untried products onto
defend technological advantage. In unsuspecting customers; and it is
the hypercompetitive smartphone rare that they get it right first time.
industry, being first to market with Large companies may be able to
a new technological feature offers take the losses of such early-market
Good artists copy;
critical, albeit short-term, advantage. entry mistakes; small companies,
great artists steal.
In an industry in which consumers’ on the other hand, may soon find Steve Jobs
switching costs are high, even that their cash is running out and
US former CEO of Apple (1955–2011)
short-term advantages can have their tenuous business models
a significant impact on revenue. are collapsing.
Since the publication of Later entrants have the
Montgomery and Lieberman’s advantage of learning from the
original paper in 1988, academic mistakes of the first-movers, and