When is the time right to be a first mover or when it is a clever move to be take a follower strategy?
By Suvi Nenonen and Kaj Storbacka.
It is all about timing: in love, comedy – and business strategies. Interestingly, timing seems to be the only subject which executives and entrepreneurs are comfortable attributing to chance. “I guess we were lucky. We just were in the right place in the right time.”
But is there more to timing than just luck? We don’t claim to have the crystal ball, but there are some timing cues – at least when it comes to commercialising innovations.
For some peculiar reason, many executives seem to have an innate preference for being the first mover. If we are not the first, we will miss the train and are forced to fight over scraps. In reality, it seems that the first mover advantages occur much more seldom than one would initially think.
As a rule of a thumb, companies should strive to be the first mover only if they can answer ‘yes’ to the following three questions.
- Are high levels of customer lock-in to be expected?
- Do we have sufficiently flexible core technology and/or business model to accommodate changes when (not if) the market develops in an unanticipated direction?
- And most importantly: does the new market have considerable network effects?
‘Network effect’ means that the value of the core product or service is dependent on the number of people using that particular product or service. A classic example of network effects is the telephone. A network of a single telephone is not very valuable as you cannot call anyone or receive any calls. Thus, the value of telephones increase as more and more telephones are connected to the telephone network.
However, even with clear network effects the necessity of being the absolute first is somewhat muddled.
Let’s for instance consider social networking sites; again an application with very clear network effects. Myspace (launched in August 2003) was initially much more popular than its rival Facebook (launched in February 2004). However, in 2008 Facebook overtook Myspace as the most visited social networking side worldwide. So, at least in this case being a first mover and building a strong initial position did not protect Myspace from Facebook.
So, in many instances it may be better to fight the egoistic urge to be the first and opt for a follower strategy instead. The follower strategy is especially suitable if the innovation’s ability to create value to its customers is dependent on complementary products and infrastructure.
The importance of complementary factors is illustrated nicely by comparing the portable music player market in the early 80s and in the early 2000s. The 80s was the golden era of Sony Walkman. Launched in 1979 in Japan, Sony Walkman was first of its kind with the portable cassette player and compact headphones – and an immediate global hit.
The commercialisation of MP3 players, however, followed a very different route. In 2001 there were some 50 companies providing MP3 players in the US, sharing a meagre market with annual sales of less than 250,000 players. In October 2001 Apple launched its iPod – as the 50th-something entrant to the market – and came to command the global MP3 player market.
Why did Apple’s follower strategy work in the same market which had previously witnessed Sony’s hugely successful first mover strategy? The answer lies in complementary products and infrastructure. When Sony launched Walkman in 1979, the consumers had no problems of acquiring the cassettes or batteries – and they knew how to use them.
However, the playing field was quite different for MP3 players in 1998. In the late 90s the internet infrastructure with the dial-up modems was not really up to speed to facilitate downloading of MP3 files.
Additionally, before Napster, there were no actors that provided MP3 files for the consumers on a mass scale – and even the ones provided by Napster were not entirely legal. So, the users of early MP3 players had to be very technologically savvy, patient with slow download times, and willing to bend the law. Apple timed its entry to the MP3 market well, as by 2001 many of these bottlenecks were being eliminated.
And the final master move from Apple came in 2003 when the iTunes store was launched to the public, allowing consumers to purchase MP3 files legally and conveniently. No surprise that the sales of iPods truly took off only after 2003.
