A first-mover advantage is a term that refers to the competitive advantages associated with being the first significant company, product, or service to occupy a particular market segment.
The idiom, “The early bird catches the worm,” encapsulates this idea.
It’s important to note that first-mover advantage does not necessarily refer to the first company ever to occupy a given market segment. Rather, it refers to the first company to effectively capture a given market segment (which may or may not be the first company to launch in that space).
Benefits of being a first-mover
There are many rewards a first-mover may be able to reap, hence the term, “first-mover advantage.” Some examples include the ability to:
- Become a market leader, especially if there is no comparable competition.
- Establish industry standards.
- Develop a brand identity and brand recognition early on.
- Secure a loyal customer base over a longer term than competitors.
- Lock in partnerships, contracts, and talent before any competitors do.
- Develop new products and services, as well as tweak existing ones, over a longer time frame.
- Minimize acquisition costs, due to the lack of competition.
- Capture investor attention, if the product, service, or company is seen as a promising investment opportunity.
Disadvantages of being a first-mover
While it can be advantageous to be a first-mover, it isn’t necessarily a recipe for success. There are also many disadvantages first-movers may encounter. This includes the risk of:
- Paving the way for new companies to improve and expand upon the company’s existing products or services.
- Higher financial costs, given the need to establish a whole new market segment, among other first-mover costs.
- Being knocked back by regulators, as well as banks and investors, as they may be hesitant to support an entirely new product, service, or company.
- Failing to ‘keep up with the times’ if the company’s competitors are more successful with innovating and responding to customers’ demands.
- Not being able to learn from the successes and failures of competitors, while competitors are able to do so with your company — even before they launch.
- Being perceived by consumers as passé once newer, more advanced options become available.
- Being scrutinized more acutely due to having a first-mover status.
Real-life examples of companies with first-mover advantage
The following are examples of well-known companies that are said to have benefited from first-mover advantage:
- Amazon — The first significant online bookstore.
- Tesla — The first company that successfully pioneered electric vehicles.
- eBay — The first major online auction website.
Real-life examples of successful companies that did not have first-mover advantage
Due to the possible disadvantages of being a first-mover, some experts argue that entrepreneurs and companies should instead aim to be a “second-mover,” rather than a first-mover.
Such experts assert that it’s easier to achieve success in the business world without the baggage associated with being a pioneer.
They point to the fact that many of the world’s most profitable companies were not first-movers and were therefore about to benefit from their predecessors’ successes and failures.
Some examples of companies that have enjoyed “second-mover advantage” include:
- Google — Yahoo, Ask Jeeves, and AltaVista are a few of the many search engines that preceded Google.
- Facebook — Myspace, Friendster, and Google Plus, among others, were once-famous social media platforms before Facebook took over.
- Instagram — Vine and Snapchat may have been popular in their heyday, but Instagram eventually dominated the space despite launching after.
First-mover advantage is a concept that describes the benefits that may come with being the first significant company, product, or service to occupy a particular market segment. While there are indeed many advantages that first-movers may benefit from, there are also numerous disadvantages to keep in mind.
