Second Mover Advantage

This article (and this one) pokes a hole in the idea that there’s a sustainable first-mover advantage for businesses. That is, being the first search engine or social networking service did not give those innovators any advantage in the market; in fact, most of those first generation companies are gone (Excite & SixDegrees). This strikes me as obvious, yet VCs insist that being first to market is critically important. Has Microsoft ever built the first of anything? Is the iPhone the first ever smartphone? Even Amazon came several years after Book Stacks Unlimited. There are few successful tech companies that were the original pioneer in that market. Most were second (or third or fourth) movers. How many search engines came before Google? They couldn’t get much funding because that market was seen as a dead end.

The problem with being a first mover is (1) you have to create everything yourself and (2) you have to convince customers to take a chance on your crazy new product. These are especially difficult if you are a startup. The problem with (1) is it takes a lot of trial-and-error to come up with something. You may have to invent some tech to make it work. You may rely on tech or standards that ultimately limit what you can do. The issue with (2) is that you spend all your time and money convincing Innovators and Early Adopters, and then someone else jumps in right when the Early Majority is ready to buy. The second mover will save time and money on (1) because you’ve done all the work. And they free ride on your evangelism and enter the market after you’ve generated demand.

So the right tactic appears to be to jump into a market that the early adopters are excited about, but that isn’t implemented all that well and hasn’t hit the mainstream. I think Twitter is ripe for a second-mover takeover. They’ve validated the idea of micro-blogging, but there is still tons of innovations that can be layered on top. Twitter won’t be able to shift direction too quickly without upsetting their established user base. And their fragile infrastructure also makes it difficult to change. Now if only I had an idea…


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