February 15th, 2010
Is First-Mover Advantage a Myth? (With Graphs!)
First-mover advantage (FMA, not to be confused with FML) is one of those things they teach you in business school as *doctrine*. Be first, or don’t bother. This leads to much malaise when, upon coming up with, say, a brilliant idea for a mobile coupon business, hopes and dreams are shattered when it becomes known that hordes of other entrepreneurs are working on the same idea.
I have been thinking about how FMA applies to web startups, and after some thought, I now believe first-mover advantage is a myth in the web world.
If the premise of FMA relies on the fact that a first-mover will gain resources and advantages that later entrants will not be able to match, then these advantages have to be compelling enough to warrant fighting to be first. And I’m not sure they are any more.
Argument below. Thoughts/criticism welcome. Put this together pretty quickly (and highly unscientifically) so I’m sure there are lots of holes.
1. Moore’s Law and speed.
Moore’s law is one of those “golden rules” in the tech world. Everybody looooves to cite it. Moore’s law is to tech nerds what Foucault is to philosophy junkies.
It’s because there’s a lot of brilliance in Moore’s law. As I understand it – the real brilliance here was the observation that technology progresses much quicker than people would think possible (or more accurately, that the number of transistors on a chip doubles every 24 months).
If you think about how this plays out in the consumer world, it means that consumers will become socialized to adopting more advanced technology faster. So the amount of time it takes for a market to develop, hit a peak, and become saturated (say, photo sharing) is shrinking.
How does this affect first-mover advantage? Take a look at my lovely graph below. If a technology markets develop more quickly, this will seriously reduce the potential upside for a first-mover. The top graph is what we think is FMA, the bottom is what I believe it really looks like.
If this is true, the potential upside you can gain from FMA is shrinking.
2. Underestimated importance of initial users (adoption) and marketing.
I know a lot of entrepreneurs who have the “if you build it they will come” mentality. No one will admit to this, obviously. They talk to you all day about marketing and user acquisition, but it seems like very very few web startups actually do this well.
I know I’m not alone here – Dave McClure wrote an excellent rant on this about a month ago.
Initial users are the ones that will evangelize your service and make it zeitgeisty and remarkable. I saw this great video last night on the importance of “first followers” and how they help to create mass movements.
Sharp marketing and committed users have nothing to do with FMA and seemingly everything to do with popularity and adoption.
3. Zero barriers to entry, commodification of apps, low switching costs.
Have you noticed all of those “hey look at what I built in a weekend” links on Hacker News? The ease-of-use afforded by these new slick web frameworks like Rails and Django make it pretty easy and quick to build a site and enter a market.
Web sites and mobile apps are undergoing a process of commodification as they become easier and easier to make, and the move toward cloud-based apps makes the switching costs for the user nearly zero. It’s no longer enough to have a single hit with a single great app.
All of these trends are really cutting into the upside of being first.
4. “Early is the same as wrong”. This is something I heard a lot in Silicon Valley. I don’t necessarily agree – if you are early but are smart enough about your cash to hold on until the market matures, then you’re not necessarily wrong. Seems like the emphasis on being first is flawed – it’s about timing.
The tough part is finding the trade-off. There’s this sweet spot between the first-mover land-grab and market readiness, but you have to hold on until the wave hits. Everyone’s favorite example here is online video – there were plenty of video sites pre-YouTube but they were slow and mostly annoying. The strategic use of flash and rise in broadband internet in homes helped to make the market timing nearly perfect, though with the dominance window narrowing I think even trying to time the market is an exercise in futility.
Market Dominance in the Brave New Web World
So, if not from FMA, where does real market dominance come from?
I suppose in a way I’m making an argument for extreme iteration. But it’s more than that. I think the consumer web industry – similar to fashion and music – is incredibly driven by trends and timing. If you can hit a curve at the point right before widespread adoption, and do this consistently, you will become more invaluable to your user.
See the graph below – the point here is that it’s no longer a single curve and a single market. Instead, the companies that will do the best, in my mind, are the ones that can take advantage of many markets consecutively.
The company that I believe does this best is Facebook. If they had stayed a profile -n- poke site, they’d surely be dead by now. Instead, each product launch happens right around the top end of a curve – photos, videos, Twitter-style-messages, and now talk of geo-enabled features and even “check-ins”.
While FMA as a concept is not dead to me completely – it can be incredibly helpful in many many other markets, to me in the app-driven world of the web (and increasingly mobile too) it just doesn’t seem all that important.
Conclusion: “someone’s already doing this” should be a crappy deterrent.
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