Online first-movers not guaranteed success

Online first-movers not guaranteed success

Summary: Being first in online space doesn't ensure long-term success, whereas second-movers or "fast followers" possibly better positioned to capture major market share, industry watchers note.

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TOPICS: IT Employment
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Online companies that achieve first-mover status might enjoy certain benefits but this does not always ensure their long-term sustainability, observers noted. Rather, being a second mover or a "fast follower" might better position the company for success.

Ronan Gruenbaum, professor of marketing and technology at London's Hult International Business School, said while first-movers in the Internet space seem to benefit from free press, favorable public relations and having no immediate competition, it is "arguable that there is no real first-mover advantage".

He cited Pets.com, Boo.com and Kozmo.com as examples of first-movers which became defunct during the dotcom bust at the turn of the century.

Positioning for sustained success
Furthermore, current Web giants such as Facebook, Google and Amazon are "not truly first-movers", he told ZDNet Asia in an e-mail interview. For instance, MySpace was the "undisputed champion of social networks" until it was overtaken by Facebook on April 2008. Similarly, Webcrawler, Lycos and Alta Vista eventually lost out to Google in the search arena, he explained.

"[Today's Web giants] prove that second-mover advantage is far better, as you learn from the mistakes of the first-mover but are able to see there is a market with sizeable demand waiting for the product or service," Gruenbaum stated.

"In short, the first-mover has all the risks. It's the second-mover who has the advantage of being able to better identify the market, find niches, understand the consumer, and come up with a product that can be directly and favorably compared with the first-mover's."

That is why online entrepreneurs and startups should not be frightened of entering a space occupied by a dominant player, so long as their products or services are superior and give greater value to consumers, he added.

Becky Reuber, professor of strategic management the University of Toronto's Rotman School of Management, concurred. "The problem is that it's really hard to be a first-mover. Most of them don't prevail and [will] likely be eroded unless they stay ahead of the competition. It's usually preferable to be a fast follower," she said in an e-mail.

"Amazon wasn't a first mover [in the online bookstore business], Charles M. Stack was. Who's he? That's the point."

Explaining further, she said the products of Web pioneers are often flawed because it is not clear what consumers want, which also mean steep learning curves and costs.

Fast followers, on the other hand, can learn from their predecessors and have stronger marketing and distribution capabilities before entering the market. More importantly, early adopters could differ from later buyers, and it is the latter consumer demographic that usually represents market growth. This gives fast followers the opportunity to corner these consumers, she noted.

According to Reuber, there are various methods firms can use to create a fast-follower advantage for themselves in the online market. One way is to develop a "technological edge" over existing rivals in terms of the product or the distribution and marketing capabilities.

Another method is to build a customer base that is loyal or finds it costly to switch to alternative companies, she added.

On daily deals giant Groupon, Reuber said it is questionable whether the three-year-old company can stay dominant despite its first-mover advantage. She noted that its business model is easily replicable and there are already numerous Groupon-like alternatives in the market currently.

Michael Yoshikami, CEO and founder of investment company YCMNET Advisors, said companies that make use of their first-mover advantage well will remain in good stead.

Citing Facebook as an example, he said while the social networking giant was not the first such site in the space, it was the first to fill the void of social communication on the Internet. Today, Facebook is now the central hub where people share and distribute information and interact with others, making it difficult for competitors such as Google+ to wrest market share, he explained.

Ultimately, Yoshikami said first-mover advantage in the online arena is not necessary for success but it is an opportunity to accelerate and establish the company's foothold in the space.

What makes for a successful venture boils down to operating efficiently with a strategic plan, anticipating the future environment with instinct and making use of rational data to chart the company's growth, he concluded.

Topic: IT Employment

Jamie Yap

About Jamie Yap

Jamie writes about technology, business and the most obvious intersection of the two that is software. Other variegated topics include--in one form or other--cloud, Web 2.0, apps, data, analytics, mobile, services, and the three Es: enterprises, executives and entrepreneurs. In a previous life, she was a writer covering a different but equally serious business called show business.

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