The First-mover advantage is a business term used to describe the marketing advantage gained by the initial (or early) entrant into a market. The first or early entry into a market enables companies or businesses to edge their competitors and establish themselves in the market before other competitors come around.
In other words, it is a significant advantage enjoyed by the first company that commercializes a new product or service. Many studies show that being a market leader gives you considerable power and “the ability to define a market.” An excellent example of this was Windows which has been around since 1985 and now holds 93% of the desktop operating system market.
The first-mover advantage occurs because companies can establish themselves before their competitors arrive in the marketplace. The first-mover can carve out its niche within the market without fear of competition. This allows them to show their brand reputation, develop strong customer relationships (by managing all interactions with customers), pioneer new distribution channels, increase sales volume/capacity utilization levels, etc.
The first-mover advantage also allows companies to make the most of economies of scale and more efficient distribution. It can also help increase market share, recognition, and brand equity, which is beneficial when potential customers decide what company they would like to do business with. In addition, the first mover in a market has a better chance of securing its intellectual property rights with patents before its competitors arrive in the marketplace. Lastly, since the pioneer is alone, it can establish pricing strategies without fear of competition influencing prices.
Advantages of the First Mover
The advantages of the first movers are typically limited to the first entrant into the market. They enable early entrants to reap benefits before other competitors enter and compete for market share.
-First-Mover Advantage: A company that is the very first in any given industry or market has a unique opportunity to establish itself and gain significant traction before other players come into the picture and create competition. The first movers often experience an increase in sales and profits until more competitors begin to make their way into the market.
-The First Mover Advantage is not only about making a profit, but about establishing a foothold in a new business venture or product category, sometimes even patents can be taken advantage of, such as if Apple had patented multitouch technology (first phone with multitouch), then not only would they have a significant footprint in the mobile industry but have been able to sue other companies as well.
-The First Mover Advantage is also known as the first-mover or pioneer advantage. The initial market entrant gains market share due to its position as first movers. It can be challenging for later entrants into the industry to overtake the leading company of that industry, especially if large amounts of capital back it. For example, Facebook dominates social networking sites and has made billions in profit each year since it launched.
-First movers may even benefit from network effects, which allow their customers to benefit from owning one brand over another, so they are more likely to stick with them. This gives them an even greater lead on competitors than just being first in the market alone allows them to have an additional boost of confidence when developing the product.
-The first mover is at a significant advantage, as they can set standards and define industry standards for themselves to follow. For example, Google dominated search engine market share until 2010 because of its dominance in technologies such as indexing, keyword selection algorithms, and applications.
-The first mover has a better chance than later entrants of establishing itself as the leader in an industry and creating network effects that will provide it with an insurmountable lead over other competitors.
For example, Facebook made $4 billion in revenue in 2011 using their social networking site, giving them a significant edge on other social media sites such as Google+ simply because Facebook users do not want to split up their friends into different networks, so they typically stick with Facebook.
-The First-Mover Advantage is not always an advantage at all. There are many reasons why the first mover may have a disadvantage over other competitors in the industry. The first movers typically have to invest significant amounts of capital before they begin to see any profits generated, which can take much longer for them than it would for later entrants into the industry.
Additionally, this advantage by no means guarantees that you will be successful or profitable because your competition may simply create similar products to yours at lower prices, leading to your company running into losses.
For example, Kodak was one of the first companies to launch digital cameras but failed to keep up with technology and eventually filed for bankruptcy in 2012. It didn’t help that they were working with a format (Kodachrome) that is no longer used, and they stopped development on another one (Kodak disc). They lost ground to Sony and Canon for the first movers in the market.
-First movers often have to invest more time, research, and money into developing their product than later entrants as well. This means they have to spend more money on R&D before even rolling out their product, so the total cost of production from day one can be higher than competitors who launch a new product or service a bit later on.
-Patents are another way that first movers may have an advantage over latecomers, but this is also not always true as patents only protect the product from being copied for a specific time, typically 20 years. To keep this protection valid, they must pay an annual fee and update any claims that may have been altered during development otherwise;, the patent is invalidated.
Patents are typically only granted if a new invention or innovation has not already been seen before in a similar form resulting in patents for relatively minor innovations and major ones. This means first movers can run into situations where their novelty could be undermined by existing patents, allowing competitors to use those patented processes freely.
Although first movers have many possible disadvantages, these do not mean it is impossible to succeed as a first-mover. Instead, you should make sure your product or service is substantially different from existing products or services within your industry first-mover advantage can be achieved.
First-mover Advantage Example:
Google’s first product was a search engine called BackRub which they launched in 1996, and 3 years later, it rebranded its name to Google. Since there were not very many search engines at the time and none of them offered all of the features and qualities that their search engine did, this made it easy for people to switch over to using Google instead of the other search engines such as Yahoo or AltaVista which already existed during that period.
Google also invested $25 million into creating AdWords, which allowed businesses to pay upfront to have their website pop up when specific keywords were searched. They also created the AdSense program, which will enable people to post advertisements on their website and make money off of those advertisements.
These were both highly innovative ideas, making it easier for Google to entice users to come to their sites instead of competitors because there was very little search engine advertising compared to what exists now, such as sponsored ads, YouTube ads, or even just pop up ads.
There are many advantages to being a first-mover in an industry. The most important one is that it is much easier to be ahead of your competitors if you can release your product or service before they do. This does not mean that every first-mover automatically wins, but it makes it easier for them than it would be otherwise.
Many disadvantages accompany this advantage, so you must make sure your product is vastly different from any existing products within the same industry. This will allow you to take more market share and prevent future entrants from copying your idea quickly.