First-mover advantage is the phenomenon whereby one significant company, service, or product attains a theoretical advantage by being the first company, service, or product to enter the said market. It’s all about establishing your brand by cementing customer loyalty, accessing resources, staying on top of technology and the market, and developing clear brand recognition. A strong first-mover is able to refine its product and service and hold off competitors who may attempt to take away the first-mover’s market share.
For example, by the time the Pepsi-Cola company was founded in 1902, the first-mover Coca-Cola had already been dominating the soda pop market for over 15 years—and had never looked back. A few startups are able to take advantage of the first-mover advantage, while others will want to take advantage of the late-mover advantage or just position themselves in an existing market and carve out a successful niche. Let’s start by looking at how big brands have been using a first-mover advantage.
How does the first-mover advantage work?
Two years before Coca-Cola was invented in Columbus, Georgia, USA, two brothers in Battle Creek, Michigan came up with the iconic flake cereal that would be known as Corn Flakes. The brothers—W.K. Kellogg and Dr. John Kellogg—would get into arguments over the business, but their company, Kellogg’s, would go on to enjoy an enormous first-mover advantage in the ready-to-eat (RTE) cereal market.
What helped Kellogg’s protect itself from other RTE players?
- Economies of scale—when a business can gain cost advantages when producing many goods, such as cornflakes.
- Demand side economies of scale—where a product’s value increases with the number of users of the said product. The enormous size of Kellogg’s has allowed them to make new products such as Rice Krispies and Frosted Flakes, cereal bars and one-serving cereal cups, and snacks such as Pringles.
- Government regulations—laws on industries such as RTE cereals prevent other players from easily joining the industry.
What are some other important first-mover factors?
In a more general sense, significant companies such as Kellogg’s or Coca-Cola have taken advantage of three key first-mover ingredients:
- Brand loyalty
- Access to people or resources
- Technology and setting the standards for an industry
Brand loyalty
Both Kellogg’s and Coca-Cola—as well as Apple—have millions of loyal followers who couldn’t dream of eating anything else for breakfast besides Kellogg’s Corn Flakes, enjoying a Coke during a ballgame, or taking a selfie with an iPhone. How many friends or family members do you know who would never use Android? People these days even go on Apple cruises and proudly wear the logos of first-movers and other brands.
You might not see anyone sporting a Xerox t-shirt or tattoo, but they are compelling first-movers. Before they created the graphical user interface, or GUI—the technology that helped make Apple an iconic first-mover—Xerox completely dominated the photocopying space and then the office printer market.
Access to people or resources
Xerox’s unmatched photocopying technology has been patent-protected from competition for many years. They also enjoyed the intellectual benefits of being in the global hub of imaging technology, Rochester, New York, along with Kodak. This allowed Xerox to acquire tons of cash and develop industry-leading printers and the GUI (which they did not take full advantage of). Decades before people were not saying, “Google it,”—they were saying “Xerox it.”
Setting industry standards
Similarly, Sony took advantage of its strong cash position and brand name and rocked the audio world with the debut of the world’s first affordable personal stereo—the Walkman—in 1979. Soon, millions of people wanted one and Sony was setting the standard for the industry.
When should you use the first-mover advantage?
While brand loyalty, technological prowess, and access to resources play a huge role in whether or not you will use the first-mover advantage in your startup pitch, don’t forget about two other enormous factors:
- How fast the product or technology changes
- How fast the market changes
If we focus on products such as RTE cereal or soda pop, technology barely ever changes. A glass of Coca-Cola or bowl of Corn Flakes from 50 years ago will look and taste much the same as it does today. But—if you were to take out a mobile phone from ten years ago—people may look at you funny or wonder how you can get anything done on such an archaic device.
If you think of first-movers such as Scotch (adhesive tape) or Hoover (vacuum cleaners), the overall markets evolve quite slowly, whereas an effective SaaS will need to keep constantly changing and connecting with customers.
Hence, if you want to be a successful first-mover in a highly technological field, you should be prepared to do one or more of the following:
- Control the technology with patents.
- Control the resources—think, for example, of the components necessary to make lithium batteries.
- Consistently develop new, cutting-edge technology and stay connected with customers.
- Read the market before the market labels you a “dinosaur”.
- Set up offices where the most talented tech workers live and work—or recruit effectively to find and incorporate the best remote workers.
- Understand the phenomenon of switching costs—think about a big company that has made a huge investment into buying software and training staff to use the said software. Will your product or service be so ingrained into a company’s culture and budget that they will not want to be able to switch to a competitor? Switching from Coke to Pepsi is easy— moving from Microsoft Office to a competing software is not.
These are all extremely important factors to consider when deciding if you think your product or service has what it takes to be a first-mover. Let’s have a look at a few more famous first-movers and the phenomenon known as the second or late-mover advantage.
Who are some other big first-movers and what is the late-mover advantage?
You probably have heard of Amazon and Google. Many people think of both companies as first-movers—but that is actually not correct. Amazon was not the first online bookstore, but it was the first significant online bookstore. Amazon made such headway in the online bookstore market that it was soon sued by Barnes & Noble in 1997. The result of the suit favored Amazon and even had pundits calling Barnes & Noble a “Goliath” to Amazon’s “David.”
While Amazon continued to dominate online book sales, it then partnered with Borders and broadened its range of goods, including clothing, shoes, electronics, household goods, and toys. Ten years after settling the lawsuit with Barnes & Noble, Amazon leveraged its first-mover advantage by launching the first e-reader—Amazon Kindle—in 2007. This gave Amazon three huge advantages:
- Readers became loyal to their Kindles
- Amazon was considered to be the top e-reader
- Amazon could sell books that were hard to print or for people with limited storage space
Hence, Amazon was not the first online bookseller, but it was the first major online bookseller and leveraged this first-mover advantage to become a global giant that generates $470 billion annually. Google, meanwhile, was also not the first search engine—or even the first major search engine. Before Google, there was EINet Galaxy Lycos, Netscape, and major players Yahoo and AltaVista.
How did Google stand apart from the rest of the pack? Quite simply—they had better technology.
Google PageRank, “an objective measure of its citation importance that corresponds well with people’s subjective idea of importance,” empowered users with an incredible way to prioritize keyword searches. Google then used its spot as a top search engine to run ads corresponding to your search—creating a $150 billion cash cow. With this money, Google was able to develop Gmail and Google Docs, Google Chrome, and Android, and acquire YouTube.
Amazon and Google are now both enormous tech giants, but one was a classic first-mover and the other a classic second-mover. Both companies—along with Kellogg’s, Coca-Cola, Sony, and Xerox—give you food for thought as you put together your startup pitch deck. It’s not a task for the faint of heart or for those with light pockets.
What should you remember about the first-mover strategy?
In the pre-digital era of capitalism—it still mattered if you had the best shop located on Main Street. In the same way, successful first-movers take control of access to resources and people, enjoy economies of scale, and make it hard to shop anywhere else—due either to loyalty or because it’s too inconvenient to go elsewhere.
At the same, you could invest heavily in a product or service and then watch a company like Google come in and use all of your research and learn from your mistakes—and ultimately offer a better product or service and soon capture the market. Second or late-movers could also reverse-engineer your product and offer one for a much cheaper price.
Remember that eBay was the first significant online auction site and built enormous brand recognition and loyalty, as well as huge amounts of liquidity—whereas Facebook was not the first social media site, but soon became the king.