What Is a First Mover?

A first mover is a service or product that gains a competitive advantage by being the first to
market with a product or service. Being first typically enables a company to establish strong
brand recognition and customer loyalty before competitors enter the arena. Other advantages
include additional time to perfect its product or service and setting the market price for the new
item.

First movers in an industry are almost always followed by competitors that attempt
to capitalize on the first mover's success and gain market share. Most often, the first mover has
established sufficient market share and a solid enough customer base that it maintains the
majority of the market.

 A first mover is a company that gains a competitive advantage by being the first to bring
a new product or service to the market.
 First movers typically establish strong brand recognition and customer loyalty.
 The advantages of first movers include time to develop economies of scale—cost-
efficient ways of producing or delivering a product.
 The disadvantages of first movers include the risk of products being copied or improved
upon by the competition.
 Examples of First Movers
 Businesses with a first-mover advantage include innovators, Amazon (NASDAQ:
AMZN) and eBay (NASDAQ: EBAY). Amazon created the first online bookstore, which
was immensely successful. By the time other retailers established an online bookstore
presence, Amazon had achieved significant brand recognition and parlayed its first-
mover advantage into marketing a range of additional, unrelated products. According to
Forbes's "The World's Most Innovative Companies" 2019 ranking, Amazon ranks
second. It has annual revenues of $280 billion and, through the end of 2019, had a 20%
annual sales growth rate.
 eBay built the first meaningful online auction website in 1995 and continues to be a
popular shopping site worldwide. It ranked 43rd on the Forbes list of innovative
 companies. The company generates $287 billion in annual revenues, with a 2.8% annual
sales growth rate.

Mechanisms Leading To First-Mover Advantages

The three primary sources of first-mover advantages are technological leadership, preemption of
scarce assets, and switching costs / buyer choice under uncertainty.

1. Technological leadership

The first of the three is technological leadership. A firm can gain FMA when it has had a unique
breakthrough in its research and development (R&D). A new, innovative technology can provide
sustainable cost advantage for the early entrant; if the technology, and the learning curve to
acquire it, can be kept proprietary, and the firm can maintain leadership in market share. The
diffusion of innovation can diminish the first-mover advantages over time, through workforce
mobility, publication of research, informal technical communication, reverse engineering, and
plant tours. Technological pioneers can protect their R&D through patents. However, in most
industries, patents confer only weak protection, are easy to invent around, or have transitory
value given the pace of technological change. With their short life-cycles, patent-races can
actually prove to be the downfall of a slower moving first-mover firm.

Examples of technological leadership

1. In a 1981 paper Michael Spence discusses how the technological learning curve can be

kept proprietary, making for a huge barrier to entry on the part of others. Although the
starters in a FMA market have complete control for a period of time, the competition still
remains, trying to chase the originators. Spence states that firms trying to emerge as first-
movers will usually sell their products below cost in an effort to understand the market better
(i.e. gain intelligence); and then, once established, turn the market around and control the
market's cost. Though Spence states that this sort of competition reduces profitability, most
of the time it is needed to break into the new markets.
2. Procter & Gamble is an example where a company's technology leadership helped propel
their product (disposable diapers) into the US market. They used a learning-based
preemption to help invest in low-priced European synthetic fiber, which helped keep costs
down, and allowed for selling the diapers profitably at a cheaper price.
2. Pre-emption of scarce assets

If the first-mover firm has superior information, it may be able to purchase assets at market
prices below those that will prevail later in the evolution of the market. In many markets there is
room for only a limited number of profitable firms; the first-mover can often select the most
attractive niches and may be able to take strategic actions that limit the amount of space available
for subsequent entrants. First-movers can establish positions in geographic or product space such
that late-comers find it unprofitable to occupy the interstices. Entry is repelled through the threat
of price warfare, which is more intense when firms are positioned more closely. Incumbent
commitment is provided through sunk investment cost. When economies of scale are large, first-
mover advantages are typically enhanced. The enlarged capacity of the incumbent serves as a
commitment to maintain greater output following entry, with the threat of price cuts against late
entrants.

Examples of pre-emption of scarce assets

1. Main (1955) provides an example of preemption of input factors achieved by controlling

natural resources. He states that the concentration of high-grade nickel in a single geographic
area made it possible for the first company in the region to gain almost all of the supply. It
has since controlled a vast proportion of the world’s production and distribution of the
product.

3. Switching costs and buyer choice under uncertainty

Switching costs are extra resources that late entrants must invest in order to attract customers
away from the first-mover firm. Buyers may rationally stick with the first brand they encounter
that performs the job satisfactorily. If the pioneer is able to achieve significant consumer trial, it
can define the attributes that are perceived as important within a product category. For individual
customers the benefits of finding a superior brand are seldom great enough to justify the
additional search costs that must be incurred. Switching costs for corporate buyers can be more
readily justified because they purchase in larger amounts.

Switching costs play a huge role in where, what, and why consumers buy what they buy. Over
time, users grow accustomed to a certain product and its functions, as well as the company that
produces the products. Once consumers are comfortable and set in their ways, they apply a
certain cost, which is usually fairly steep, to switching to other similar products.[9]

Examples of switching costs

1. A switching cost where the seller actually creates the cost is described in Klemperer
(1986). For instance, in the case of airline frequent-flyer miles programs, many consumers
find it important that an airline provides this service; and they are actually willing to pay
more for an airfare ticket if it means they will earn points towards their next flight.

Advantages of First Movers

In marketing strategy, first-mover advantage (FMA) is the advantage gained by the initial

("first-moving") significant occupant of a market segment. First-mover advantage may be gained
by technological leadership, or early purchase of resources.

A market participant has first-mover advantage if it is the first entrant and gains a competitive
advantage through control of resources. With this advantage, first-movers can be rewarded with
huge profit margins and a monopoly-like status.

Being the first to develop and market a product comes with many prime advantages that
strengthen a company's position in the marketplace. For example, a first-mover often gains
exclusive agreements with suppliers, sets industry standards, and develops strong relationships
with retailers. Other advantages include

 Brand name recognition is the main first-mover advantage. Not only does it engender
loyalty among existing customers, but it also draws new customers to a company's product,
even after other companies have entered the market. Brand name recognition also positions
companies to diversify offerings and services. Examples of dominant brand name recognition
of a first-mover include soft drink colossus Coca-Cola (NYSE: KO), auto-additive giant
STP (NYSE: ENR), and boxed-cereal titan Kellogg (NYSE: K).
 Economies of scale, particularly those regarding manufacturing or technology-based
products, is a massive advantage for first movers. The first mover in an industry has a longer
 learning curve, which frequently enables it to establish a more cost-efficient means of
producing or delivering a product before it competes with other businesses.
 Switching costs let a first-mover build a strong business foundation. Once a customer has
purchased the first mover's product, switching to a rival product may be cost-prohibitive. For
example, a company using the Windows operating system likely would not change to another
operating system, because of the costs associated with retraining employees, among other
costs. 

First-Mover Advantage Examples

1. Coca-Cola

While Coke wasn’t the first soda to hit the market, it was the biggest. Vernors and Dr. Pepper
actually debuted earlier, but a first-mover advantage doesn’t necessarily mean the first company
to launch has the advantage. Rather, it refers to the first company to capture large market share.

The first soda syrups started showing up around 1881. But when Coca-Cola debuted in 1886,
they immediately became the consumer favorite. By the time Pepsi launched, in 1898, Coke was
already selling a million gallons per year.

Pepsi went bankrupt twice and rebranded in the 1950s to keep up with their rival. And in the
1960s, they merged with Frito Lay giving Pepsi a successful market share in snack foods, a boost
in stocks, and the lifeline they needed to compete. But Coke’s biggest beverage brands have
reached more than $1 billion in sales -- something Pepsi has never quite been able top.

2. Kellogg’s

In 1863, James Caleb Jackson created a graham flour dough breakfast cereal called granula. He
was first to market, but never captured much consumer attention. Surgeon John Harvey
Kellogg made a similar version, called granola, shortly after. But it wasn’t until he and his
younger brother debuted Corn Flakes, added sugar, and began mass-marketing that their brand
really started to take off and they captured the first-mover advantage.
While Post and Quaker Oats created similar cereals, none of them could catch up to the brand
affinity and popularity of Kellogg’s. After WWII, Frosted Flakes, Tony the Tiger, and television
advertising further cemented their status as the favorite cereal brand.

Their 2000 acquisition of Kashi allowed Kellogg’s to evolve with the natural and organic food
boom -- key to maintaining their popularity as a brand.

3. Apple

When Apple unveiled the first iPhone in 2007, they changed the mobile phone landscape for the
first time -- and they changed it for good. In 2008, HTC became the first manufacturer to make
Android devices and other brands followed.

While Apple’s iOS and Google’s Android operating systems still have closely aligned loyalty
rates (a recent Consumer Intelligence Research Partners report has Apple’s iOS loyalty rate
topping out at 88% and Android’s at 91%) Android loses more users every year (112 million vs.
Apple’s 30 million). This allows Apple to maintain their status as the original and most
preferred smartphone on the market today.

4. Amazon

Remember when Amazon only sold books? They became the first major online bookseller and a
force longtime brick-and-mortar stalwarts like Barnes & Noble and Borders couldn’t keep up
with. Borders shuttered in 2011 and Barnes & Noble -- Where Amazon’s Jeff Bezos used to have
company meetings -- has consistently seen falling shares, revenue, layoffs, and store closures.

Ironically, Amazon has even encroached on Barnes & Noble’s physical store stronghold over the
past few years. Fast shipping, an increasing number of Prime members, and low prices have
powered Amazon to seemingly unbeatable market share.

5. Uber

By the time it burst onto the scene in 2009, Uber was not the first ridesharing company, but it
was the largest and most successful, beating out pioneer Sidecar for eventual market domination.
Debuting in 2012, Lyft became Uber’s most ferocious competitor. But even a damaging year of
scandal in 2016 -- which saw them lose their founder and CEO and weather the “Delete Uber”
campaign -- didn’t dilute Uber’s market share too much. USA Today reports 48 million people
will ride Uber in 2018 to Lyft’s 29.9 million riders.

6. eBay

Founded in 1995, eBay managed to survive the dot-com bubble and do the unthinkable --

withstand Amazon’s online auction spinoff, “Amazon Auction.”
Acquisitions of companies including iBazar and PayPal, and the 2009 sale of Skype, have helped
it maintain market relevancy and dominance. It’s still the world’s largest online auction
site, with 175 million active users in 2018.
Disadvantages of First Movers

Not all first-movers are rewarded. If the first-mover does not capitalize on its advantage, its
"first-mover disadvantages" leave opportunity for new entrants to enter the market and compete
more effectively and efficiently than the first-movers; such firms have "second-mover
advantage".

Despite the many advantages associated with being a first mover, there are also
disadvantages. For example, other businesses can copy and improve upon a first mover's
products, thereby capturing the first mover's share of the market.

Also, often in the race to be the first to market, a company may forsake key product features to
expedite production. If the market responds unfavorably, then later entrants could capitalize on
the first mover's failure to produce a product that aligns with consumer interests; and the cost to
create versus the cost to imitate is significantly disproportionate. 

Although being a first-mover can create an overwhelming advantage, in some cases products that
are first to market do not succeed. These products are victims of first-mover disadvantages.
These disadvantages include “free-rider effects, resolution of technological or market
uncertainty, shifts in technology or customer needs, and incumbent inertia.”[2]
Free-rider effects

Secondary or late-movers to an industry or market have the ability to study first-movers and their
techniques and strategies. “Late movers may be able to ‘free-ride’ on a pioneering firms
investments in a number of areas including R&D, buyer education, and infrastructure
development.” The basic principle of this effect is that the competition is allowed to benefit and
not incur the costs which the first-mover has to sustain. These “imitation costs” are much lower
than the “innovation costs” the first-mover had to incur, and can also cut into the profits the
pioneering firm would otherwise enjoy.

Resolution of technological or market uncertainty

First-movers must deal with the entire risk associated with developing a new technology and
creating a new market for it. Late-movers have the advantage of not sustaining those risks to the
same extent. While first-movers have nothing to draw upon when deciding potential revenues
and firm sizes, late-movers are able to follow industry standards and adjust accordingly. The
first-mover must take on all the risk as these standards are set, and in some cases they do not last
long enough to operate under the new standards.

Shifts in technology or customer needs

“New entrants exploit technological discontinuities to displace existing incumbents.” Late

entrants are sometimes able to assess a market need that will cause an initial product to be seen
as inferior. This can occur when the first-mover does not adapt or see the change in customer
needs, or when a competitor develops a better, more efficient, and sometimes less-expensive
product. Often this new technology is introduced while the older technology is still growing, and
the new technology may not be seen as an immediate threat.

Incumbent inertia

While firms enjoy the success of being the first entrant into the market, they can also become
complacent and not fully capitalize on their opportunity. According to Lieberman and
Montgomery:

Vulnerability of the first-mover is often enhanced by 'incumbent inertia'. Such inertia can have
several root causes:
 1. the firm may be locked into a specific set of fixed assets,
2. the firm may be reluctant to cannibalize existing product lines, or
3. the firm may become organizationally inflexible.[2]

Firms that have heavily invested in fixed assets cannot readily adjust to the new challenges of the
market, as they have less financial ability to change. Firms that simply do not wish to change
their strategy or products and incur sunk costs from "cannibalizing" or changing the core of their
business, fall victim to this inertia. Such firms are less likely to be able to operate in a changing
and competitive environment. They may pour too much of their assets into what works in the
beginning, and not project what will be needed long term.

Examples of First-Mover Disadvantage

TiVo, Redbox, Friendster, and Yahoo are examples of first-mover companies that lost out
second-mover companies (i.e., cable provider DVR and streaming services, Netflix, Facebook,
and Google).

These once-powerful pioneers break down the myth that first to market is always strongest or
best. They also serve as cautionary tales for first-movers.

While being first to market might give entrepreneurs the ability to establish their

product/service as the industry standard and make a strong first impression on consumers and
future competitors alike, it’s important to keep an eye on those who follow.
Maintaining open lines of communication and an always evolving product can help you hold
onto your advantage and build a blue chip brand that’s almost impossible to beat.