First Mover Advantage

It sounds like something from flatmate hell, where the first person to move into a shared house gets the advantage of choosing the best room, or from sport where the racer first off the starting block has an advantage.

In fact this business term originated in the game of chess, where there is a slight statistical advantage for white who has the first move.

In the business world it has come to mean the advantage gained by the first significant company into a new market. Very often the “first move” has some transforming aspect to it, or combines two formerly separate products or services.

One commonly cited example is Netflix, a DVD rental service that outmanoeuvred the incumbent video rental giant Blockbuster. By developing a huge supply of DVDs, a fast delivery service, and a very simply business model that could be explained online Netflix could take over the market for DVD rentals in the US.

Apple are also often mentioned, although they did not develop MP3, and were not the first to think of portable music players (I had a Sony Walkman way back), they combined the two into a device that people would actually want to use, and developed an online delivery model, iTunes, that has left the rest of the music industry scrambling.

But the first mover advantage is not a guarantee of success, in many cases the first mover incurs expenses educating users, or on R&D, or on building infrastructure but competitors can move in easily before the real gains have been made.

Despite the risks it is something of the holy grail for business seeking to innovate into new space, so this term often pops up at marketing strategy meetings.

It doesn’t always work, just as in running a race where someone can trail the leader and make a last minute sprint to win the race. If I knew anything about sport I could point to examples.┬áSo instead a business example; Spotify is now the world leader in streaming music, but it wasn’t the first to come up with the service. It beat out early rivals Napster and Rhapsody by winning the war for user numbers by a factor of at least 20. In the platform economy user numbers are king, beating out profits as a predictor of success.

Sometimes being a smart follower is better than being a first mover – especially in a long race with significant headwind.

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