Technical opinionLeveraging first-mover advantages in internet-based consumer services

On e Of the mOst enduring strate gic m an agem en t cOncepts is first-mover advantage. The face validity of first mover advantage is highly compelling with a great deal of anecdotal evidence often cited in the popular business press. The means by which first mover success is established are enormously intuitive: high levels of brand identification by being the first in the minds of consumers, the fact that inertia creates a dislike for change as long as consumer needs/wants are being met, and the creation of an emotional bond with consumers by being first to satisfy desires. The vividness of heavily publicized stories of pioneering success can mislead one into thinking there is success by simply being among the first to market. But the fact is that first mover advantages are never a guarantee of durable success. In fact, industries with a fast pace of market evolution and technological evolution find first mover advantages are highly vulnerable and tenuous. Moore’s Law is propelling incredibly fast changes in all of the technologies used in internetbased consumer services. The pace of market evolution in internet-based consumer service is also fast, propelled by the whole concept of Web 2.0 as well as the relative ease of market entry and consumer openness to new, innovative, and even radical ideas. Therefore, attention must shift toward understanding how first-mover advantages can be leveraged as the market and technology evolves. Figure 1 graphically outlines the stages of market evolution mapped onto the product/market life cycle. Once a firm is first to enter a new market they are immediately under review by potential rivals. In attractive markets other firms will soon enter. As rapid market growth occurs, new entrants emerge as a gold rush takes place. Market chaos ensues as rivals seek to create differentiation and grab market share. The next stage is market shake-out, where many firms drop out due to a myriad of reasons, most notably an inability to keep up with competitors, to effectively differentiate or create a meaningful value proposition, to manage cash flow and corporate retrenchments. As the market reaches maturity, the market leaders typically emerge. Though first mover advantages offer no guarantee of durable success, firms can leverage first mover success into market leadership. Figure 2 provides a typology of tactics for firms to leverage their first mover advantages as their markets evolve. We consider three illustrative internet-based consumer service markets and how first movers in these industries leveraged their pioneering advantages into market leadership.