What Is a First Mover?
A first mover is a service or product that gains a competitive advantage by being the first to market with a product or service. Being first typically enables a company to establish strong brand recognition and customer loyalty before competitors enter the arena. Other advantages include additional time to perfect its product or service and setting the market price for the new item.
First movers in an industry are almost always followed by competitors that attempt to capitalize on the first mover's success and gain market share. Most often, the first mover has established sufficient market share and a solid enough customer base that it maintains the majority of the market.
- A first mover is a company that gains a competitive advantage by being the first to bring a new product or service to the market.
- First movers typically establish strong brand recognition and customer loyalty.
- The advantages of first movers include time to develop economies of scale—cost-efficient ways of producing or delivering a product.
- The disadvantages of first movers include the risk of products being copied or improved upon by the competition.
- Amazon and eBay are examples of companies that enjoy first-mover status.
Two Outstanding First Movers
Businesses with a first-mover advantage include innovators, Amazon (NASDAQ: AMZN) and eBay (NASDAQ: EBAY). Amazon created the first online bookstore, which was immensely successful. By the time other retailers established an online bookstore presence, Amazon had achieved significant brand recognition and parlayed its first-mover advantage into marketing a range of additional, unrelated products. According to Forbes's "The World's Most Innovative Companies" 2018 ranking, Amazon ranked fifth, with an annual growth rate of 30.8% and annual sales of $193.2 billion.
eBay built the first meaningful online auction website in 1995 and continues to be a popular shopping site worldwide. As of the second quarter of 2018, the company's revenue totaled $263 million, with 179 million customers visiting the site as of December 2018.
Advantages of First Movers
Being the first to develop and market a product comes with many prime advantages that strengthen a company's position in the marketplace. For example, a first-mover often gains exclusive agreements with suppliers, sets industry standards, and develops strong relationships with retailers. Other advantages include
- Brand name recognition is the main first-mover advantage. Not only does it engender loyalty among existing customers, but it also draws new customers to a company's product, even after other companies have entered the market. Brand name recognition also positions companies to diversify offerings and services. Examples of dominant brand name recognition of a first-mover include soft drink colossus Coca-Cola (NYSE: KO), auto-additive giant STP (NYSE: ENR), and boxed-cereal titan Kellogg (NYSE: K).
- Economies of scale, particularly those regarding manufacturing or technology-based products, is a massive advantage for first movers. The first mover in an industry has a longer learning curve, which frequently enables it to establish a more cost-efficient means of producing or delivering a product before it competes with other businesses.
- Switching costs let a first-mover build a strong business foundation. Once a customer has purchased the first mover's product, switching to a rival product may be cost-prohibitive. For example, a company using the Windows operating system likely would not change to another operating system, because of the costs associated with retraining employees, among other costs.
Disadvantages of First Movers
Despite the many advantages associated with being a first mover, there are also disadvantages. Other businesses can copy and improve upon a first mover's products, thereby capturing the first mover's share of the market.
Also, often in the race to be the first to market, a company may forsake key product features to expedite production. If the market responds unfavorably, then later entrants could capitalize on the first mover's failure to produce a product that aligns with consumer interests; and the cost to create versus the cost to imitate is significantly disproportionate.
It costs approximately 60% to 75% less to replicate a product than it costs to create a new product.