First-Mover Advantage
(chinadaily.com.cn)Updated: 2006-10-09 10:22
The first-mover advantage is the advantage gained by the first significant company to move into a new market. Being the first mover allows a company to capture market share without competition from rivals. Moreover, when competition does appear, the first mover will likely have the advantages that come from customers who are familiar with and loyal to their products.
Nevertheless, there are two obvious drawbacks to being the first mover: cost and risk. Not only is it expensive to be a pioneer, but it is risky, as the first company in a particular market cannot benefit from knowledge of successes and mistakes of others.
Obviously, every market is different. Thus, while some markets may highly reward first movers, others may not.
The basis of first-mover advantage is simple: by being the first to enter a new market, the business gains an advantage over its actual and potential rivals. This is true whether the business is seeking to develop new geographical/demographic markets or segments for existing products, or whether it is seeking to introduce new products to its existing market segments.
If the business is first into a market, so the thinking goes, it can establish what the military thinkers would call 'defensible ground'. First, it can capture market share much more easily without having to worry about rivals trying to capture the same customers. Second, when the rivals do come along – as they inevitably will – the first-mover and its management team will have advantages in the ensuing competition, such as familiar products, brand loyalty, the best retail outlets, up-and-running distribution systems, and so on. By beating rivals into the market, the first-mover can consolidate its position and compete more effectively, not only defending its previously acquired share but even continuing to expand.
Always Chased, Never Caught
The advantages claimed for first-mover advantage are real ones, and have been known for a very long time. One of the great 'first-movers' of all time was Richard Arkwright, the inventor of the modern factory system. Having devised a complete mechanised system for the spinning of cotton yarn, based around his own original patent for the water-frame, Arkwright threw himself into the diffusion of this system. Not only did he build a number of factories of his own, he also entered into partnerships with other entrepreneurs to set up further factories, and licensed his technology to still others. Within five years there were fifteen Arkwright-patent mills operating around the north of England.
The inevitable happened, and Arkwright lost control of the technology; his designs were heavily pirated, and six years after his original patent a court declared it null and void, meaning the technology was now free for use by all. But Arkwright had used this six years to give himself a priceless first-mover advantage. Not only did he have a dominant position in the spinning market, but he also had six years of knowledge and experience in using the technology which he used to make continuous improvements and achieve greater efficiency. For the rest of his life, Arkwright would be chased by his competitors but never caught.
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