First vs. Late Movers Strategic Management First

FIRST vs. LATE MOVERS

Strategic Management

First vs. late-mover theory

First mover theory seems intuitively 'correct' given the commonly-cited cliche that the 'early bird gets the worm.' This could also be interpreted as 'the early bird gets the customers,' as was the case in the VHS-Beta wars of the 1970s. Despite second-mover Beta's superior technology, Sony VHS's first-mover advantage in locking in customers proved insurmountable (Wong 2003: 8-9). 'Switching costs' for consumers also keep consumers' locked into their initial choices, as can be seen with the oft-maligned Microsoft Windows. Because computer operating systems are so difficult and costly to switch, many people and organizations cannot afford to start from scratch. First movers get to shape the use of the available technology to their needs, just as Apple was able to have great influence upon the shaping of legally downloaded music, fusing the design of its iPod to iTunes. Finally, consumer preferences based upon habit can be very easy to 'lock in,' as is seen in how Coca-Cola, one of the first mass-marketed soft drinks, is now synonymous with soda (First mover definition, 2012, Investopedia).

However, not all firms make use of their first-mover advantage. Sometimes being first gives insufficient time for the firm to solidify its approach to consumers. This was the case of the first company formed by Alexander Bell, American Bell Telephone Company (ABT). "ABT chose to extract its monopoly rents and continued to charge high prices throughout the period of its patent monopoly. Consequently, competitors were able to effectively enter the market by the turn of the century" and lower prices (Wong 2003: 13). First mover status can lock a company into a particular business model, allowing it to grow quickly out-of-date, as was the case of AOL as a dial-up Internet service provider. Later-movers can also build upon the available technology and integrate it into their business model in a way that first movers cannot, securing an advantage and using the knowledge of first movers against them: Amazon.com was not the first mega-chain bookstore, but it was the first to do away with the brick-and-mortar model its competitor Barnes & Noble still embraced, which enabled Amazon to cut costs. First movers may also grow complacent, and not shift with enough alacrity to the needs of the times, as can be seen with GM and other American car manufacturers, which eventually ceded their predominance to newer Japanese and other foreign automakers like Toyota.