The Myth of Second-Mover Advantage

Back in the 20th century, it became fashionable in business strategy circles to speak of ‘first mover advantage’.  This idea — that if you got there first and staked out a market, it would forever remain yours to dominate — was used to justify funding business plans that would have otherwise seemed, at best, sketchy.

First-movers fall short

Then people began to notice that this is not always how the world really works.  In technology, we could see this evolution in fast-motion.  The ‘first movers’ in online user-to-user communications were MCI Mail and CompuServe.  They were eclipsed (and the latter was bought out) by AOL, which in turn became the vehicle to buy the largest media conglomerate in the world (Time Inc.) — but whose more modest recent successes have come by reinventing itself as a ‘brand company’ (whatever that is).  Google and Microsoft now dominate those categories, which have in effect become loss leaders for their other businesses.

Visicalc was the first dominant electronic spreadsheet — until Lotus 123 arrived, which in turn was hugely successful — until Microsoft Excel came along.  Palm was the early leader in what we now call ‘smart phones’ — and now struggles as a division of HP.  Ashton-Tate was the king of database software — a category that has since effectively disappeared entirely.  Similar happened to just about every early tech mover.

Then, somewhere along the line, true innovation started to develop a bad reputation.

Fast followers follow

Soon the idea of intentionally being a ‘fast follower‘ began to gain adherents — then began to move toward canonization as a smart, modern business strategy.  Articles started being written on it.  ‘Everyone knew’ that Microsoft, poster child for the concept, became what it was largely by copying others and by buying existing innovations that others had created — Windows largely copied the Apple Macintosh, and they bought Word and even the original DOS from others.  Microsoft’s subsequent successes helped legitimize ‘fast follow’ as a strategy to be seriously considered.

The canon goes, “Let them make the investments in R&D. Let them create the markets.  Let them make the mistakes.  Then we’ll just adopt what they do.”  In poker logic, this goes, “We’ll see you and (maybe) raise you one — then we’ll reap most of the return without making much investment.”  Put that way, it seems to make sense.

However, I submit (though few dare say it) that it’s also because it’s easier than determining what the market wants and will want in the future.  It becomes an ‘E-Z Strategy Finder’.  There is even a whole management discipline (competitive intelligence), aspects of which tacitly encourage and thrive on this (often hidden) assumption/myth.

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