What it is: The first-mover advantage is what supposedly occurs when a company is the first one to enter a market. This lead is supposed to give the company an advantage over other companies who follow into that same market.
Look at every market that Apple entered and they were almost never the first ones in that market. The iPod wasn’t the first portable MP3 digital player on the market, the iPhone wasn’t the first smartphone, the iPad wasn’t the first tablet, and the Macintosh wasn’t even the first personal computer with a graphical user interface. Being the first company in each of those markets didn’t help those companies when Apple steamrolled over them to take market share away from them. Judging from Apple’s history alone, this first-mover advantage needs to be set aside as a myth like BigFoot or the Loch Ness Monster.
While being first in any market can be an advantage, it’s often not a sustainable advantage. When you’re the first company in a market, that market is usually very small. Palm Computing was one of the first companies to turn personal digital assistants (PDAs) into mobile phones. Yet Palm quickly lost their lead as rivals crowded into the market.
When your the first company into a market, you can capture a majority of the small number of customers in that market. As that market expands, it attracts more customers and that’s when rivals flood into the market as well. Now any company with first-mover advantage loses it as new customers enter that market and choose from a variety of options. These new customers don’t care who was first in that market. These new customers only care about buying the product that they like the best, and that’s where the first-move advantage runs out of steam.
Palm Computing had the smartphone market all to itself back when mobile phones were still a small market. Once rivals saw the market potential, they flooded in and quickly knocked Palm aside. At one time, Palm was so desperate to stay in the mobil phone market that they even licensed Microsoft’s Windows Mobile operating system because their own PalmOS wasn’t keeping up with its rivals.
Blackberry and Nokia dominated the smartphone market back then along with Microsoft’s Windows Mobile family of devices, which represented up to 20% of the smartphone market at the time. Then Apple introduced the iPhone and Google quickly morphed Android from a Blackberry clone to an iPhone clone. The combination of iOS and Android spelled the end for Blackberry, Nokia, Microsoft, and Palm.
Being first to market is only a minor, temporary advantage. What’s more important isn’t being first but one of the first companies in a market. The mobile phone market was still growing when Apple and Google entered. How much success would either company have today? Just look at Microsoft’s Windows Phone operating system that’s decent, but came out too late to compete after most people had already migrated to iOS or Android. Being first is just a temporary advantage, but being too late is a major disadvantage that can never be overcome.
Look at the PC operating system market. it’s way too late for anyone to challenge Microsoft Windows. Look at the office suite market. Nobody will waste time challenging Microsoft Office. The only way rivals can compete against Windows and Office is by offering their products for free like Linux, OS X, iWork, and LibreOffice. Even by giving away their products, they still can’t dominate Windows and Microsoft Office.
Every market begins with uncertainty because it caters to a small market. First-movers get into these early markets, gain a temporary advantage, and then face a flood of competition shortly afterwards. This is the time to enter a market because now the parameters are fairly well-defined with its drawbacks and benefits. The key isn’t to offer another me-too product, but to offer something radically better, which is how the iPhone slaughtered its competition. If you offer just another me-too product, your sales results will depend on your marketing budget where you essentially have to buy your way to customers, which is never sustainable.
The better choice is to make a product so dramatically superior that it speaks for itself. The iPhone took off because people wanted such a futuristic device. Because they couldn’t get the iPhone, many settled for Android as the next best alternative while ignoring Blackberry, Nokia, and Microsoft.
The iPod wasn’t necessarily the best portable MP3 digital player on the market, but it was one of the easiest to use with iTunes making it easy to manage songs on a computer. A me-too product will simply get lost in the crowd. A product with a distinctive advantage will stand out, and this ability to stand out is what helps sell the product by itself.
As the wearable computer market heats up, watch as rivals rush in with me-too products that don’t offer anything distinctive. Wait a few years and most of these me-too products will be gone. If companies want to dominate a market, the key is to get in early (but not necessarily first) and offer products with distinctive advantages over rivals. Do that and you’ll already be ahead of most rivals, which is something many big companies still haven’t figured out by now.