Saturday, April 23, 2011

Is it good to be first?

Being the first business to enter a particular market is difficult. Often, a first-mover's biggest problem is trying to forge a market and create demand where it doesn't exist yet. Many fail to solve this problem, but even those that do rarely become the biggest players in the market they helped create.

Neither Google, Facebook, or the iPod were the first search engine, social network, or mobile music player on the market. But when they entered the scene, there was clearly a demonstrated, actual market for such products. These markets had been forged by prior entrants, but that didn't matter. Customers don't care who's first. Once they know they want something (thanks to the first movers), they want the best version of it. Google, Facebook, and Apple just came along and built a better product for a well-established market. 

So the question stands: is it good to be first? Or is it better to wait out and see which markets really flourish and which wither? The first-mover has to focus on building the market, whereas the late arrivals can just focus on building the product. Is it really a wonder, then, that the second-mover builds a better product? Of course, the second mover faces his own challenge: converting customers to his product. And with high-switching costs, this can be an unsurmountable problem. But this problem seems easier than the first-mover's problem of creating demand. Why should you ever be first then? Can anyone think of examples were being first was the decisive advantage?

--Arkajit