|
First-Mover Advantage: Myth or Reality?
By J.B. Bird
A long time ago, when people used to disclose their Amazon.com holdings in public and even talk about the Nasdaq reaching 4,000, the new economy appropriated a term that summed up its irrational exuberance – “first-mover advantage.”
E-business first movers, it was thought, could gain valuable advantages over the competition by pioneering technologies, being first-to-market, and building brand loyalty.
Journalists were skeptical, but ultimately they resisted the concept no better than day traders facing an IPO. In 1998-99, “First-mover advantage” became the subject of articles and cover stories in most major business publications. Venture capitalists relied heavily on the concept—along with other new truisms like the network effect and the efficiency of online markets—as they poured money into start-ups with a reckless disregard for potential profitability.
With the stall of 2000 and slump of 2001, skepticism finally prevailed. Journalists published harsh assessments of first mover failures. But is it really a myth? Hindsight may be 20/20, but it’s still not clear what hindsight will say about the first movers in e-business.
Many online retailers may have wilted like the flowers of Garden.com, but as McCombs Professor Anitesh Barua points out, the well-publicized dot-coms are one of the smallest sectors of the Internet economy. Corporations like Dell, Cisco, and Enron that are pioneering new e-business practices represent the largest segments of the online economy, and they look pretty healthy. Even in online commerce, the titans – the eBays and Amazons, and “first followers” like AmeriTrade and Healtheon/WebMD—still have a chance at survival.
In the March 2001 edition of Forbes.com, David Simon sees strong parallels between today’s Internet slump and the adolescence of the PC industry, which hit a similar downturn in 1984-85. As Simon points out, the long-term leaders in PCs did not emerge until the first movers— Osborn, Kaypro, and Commodore—had already entered their peak years. And ultimate leaders like Gateway and Dell only went public after the first movers were bankrupt or on the way out. Simon’s ideas bode ill for first-generation e-businesses.
Tom Meredith, Managing Director of Dell Ventures and currently an adjunct professor at the McCombs School, agrees with Simon. At this year’s Austin 360 summit, the regional gathering of tech companies, Meredith forecast an Internet landscape dominated by consolidations. Entrepreneurs will give way to aggregators, and innovators will learn the hard lesson of Robert Fulton. “Fulton invented the steamboat,” says Meredith, “but it was Cornelius Vanderbilt who ran off with the shipping business.”
Allen Weiss, a marketing professor at USC’s Marshall School of Business, points out that historically, first movers have failed in a number of industries. “Have you ever heard of Fitch’s shampoo, Chux disposable diapers, Reychler laundry detergent, or Bright Star batteries?” asks Weiss. “These were all market trailblazers at one time, and they’re all gone.”
Weiss cites research showing that 47 percent of all market pioneers fail. “Only a few of the ones that don’t fail—11 percent is the estimate—maintain a market leader position several years later,” he says.
On his site, MarketingProfs.com, Weiss offers advice for would-be first movers. We’ve gathered additional views here, from executives, professors, and journalists who have covered the phenomenon full-cycle.
My own feelings? I agree with Frederick the Great, the 18th century Prussian, who said that, "History is a wonderful teacher with not enough pupils." Can you say Chux disposable diapers?
For information on specific programs at the McCombs School, consult our contacts page. For media information, contact the Communications Director by phone at 512-471-3314 or by email at CommunicationsDirector@mccombs.utexas.edu.
