Facebook IPO filing dispels first mover advantage myth, again

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In the summer of 2011, a panel of distinguished VC’s was convened for a typical Silicon Valley morning symposium on the state of funding for startups. In early 2011, it seemed like every entrepreneur was pitching an idea or shifting their startup’s strategy to offer a Groupon-like service. In their opening remarks, each VC quipped to the audience of aspiring entrepreneurs, “don’t bring me another coupon deal”. Were they acting in a manner any less herd-like than the entrepreneurs? No.

The VC’s were really saying, “If your company is not the first to market with an idea, we’re not interested”, the conventional “first mover advantage” theory.

But Facebook’s S-1 is another piece of growing evidence that first mover advantage is not the most important criteria for success. Nor is it a guarantee for success. In fact, a highly visible market first mover might be the critical and essential element for the success of a market follower. Let’s explore this.

Here is a list of some companies and products that were highly touted as innovative market leaders: Novell Netware, Lotus 123, @Home, Yahoo, Palm, RCA, Sun Microsystems, Wang, Ashton Tate, AOL, Monster, Digital Equipment, 3Com, MySpace.

Several of these companies are gone and, of the ones that are still around, it could be argued that they are irrelevant. Yet, the products and services they created are not gone. In every case, they have been out paced by a second or third generation of similar products created and marketed by other entrepreneurs.

For example, @Home was the leader in cable modem. Now, Comcast is. Novell, Lotus, Wang and Ashton-Tate were all out-paced by Microsoft (Wang first by WordStar). Monster by LinkedIn; Palm, first by Blackberry and ultimately by Apple; 3Com by Cisco; MySpace, crushed by Facebook. Groupon? We’ll see.

To be sure, some first movers have maintained their lead: FedEx, Kimberly-Clark, Public Storage. But, for the majority of first movers, there may be a first mover disadvantage.

Imagine you’re trying to cut your way through a mile of thick forest with a machete. You blaze a trail but, emerge from the forest exhausted. Now imaging a bicyclist who happens upon the trail you just opened. They ride right through and pass you like you’re standing still because you are.

First movers have to expend massive resources on design, manufacturing, building product awareness, distribution, educating users, marketing and sales. Second movers get to study the market, assess the overall demand and look for the deficiencies in existing products. Isn’t that what the Sony did with televisions and what Honda and Toyota did with cars and trucks?

Plus, second movers, may be able to take advantage of new technology and start from a more advanced position. Think of the expansion in China. The US is saddled with an infrastructure that was designed and evolved from World War II era technology. China is building out with modern equipment, computerized design and knowledge of all of the shortcomings of western infrastructure.

More importantly, in any field, if you can produce a product of equal or higher quality at lower cost, shouldn’t you go for it? You might even have a similar or inferior product but, with superior marketing and better customer service, capture a huge market share. Does Southwest Airlines come to mind? Heck, if you throw in convenience, you might even have a commodity product and sell it at a premium price just like Starbucks.

So, just because someone who appears to be an authority on business and investing tells you that you shouldn’t try something, don’t give up and don’t be discouraged. Just think what Mark Zuckerberg would have done.

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