Raj Jain, the president of WalMart India and managing director & CEO of Bharti Walmart, made an interesting observation at a recent Business Standard event. The first-mover advantage, he told the audience, is a grossly over-rated business tactic. In their eagerness to be the first to hit the market, companies often come out with an incomplete or imperfect product. Those who do well, said Jain, are often the second or the third movers. They learn from the mistakes made by the first mover. Other speakers agreed with Jain that the first-mover advantage has outlived its utility. The audience, which comprised men and women from the world of marketing and advertising, nodded in agreement. Jain had articulated what many of them had felt for a long time. The buy-in was more or less universal.
The thinking behind the concept of first-mover advantage is that you come out with a product before your rivals, and sell at a premium because there is no competition in the marketplace. Once rivals move in, the premium is lost; but you have made a killing by then. But the first mover may not have the final laugh.
Look at some global examples from the new economy. The first mover in personal computers was Altair in 1975; the market leader is Hewlett Packard. In word-processing software, the first off the block was WordStar in 1979; the leader is Microsoft Word. Mosaic was the first web browser launched in 1992; the segment is led by Microsoft Internet Explorer. The first search engine was Excite (1993), while the leader by a wide margin is Google. The first to hit the market does not necessarily stay the market leader for long. Similarly, Amazon was not the first online retailer. Before Jeff Bezos set up Amazon in 1994, there were several others who had tried their hand at the business. In fact, nobody seems to remember who first started an online book store.
Closer home, there are enough examples that show that the first mover can often be at a disadvantage. Before the Indian Premier League (IPL) burst on the scene, the Essel group had come out with the Indian Cricket League (ICL) with teams from India and Pakistan. It got completely blown away in the IPL tornado. Capt Gopinath started India’s first budget carrier with Air Deccan. It won him a lot of recognition in India and abroad, but the venture ran up huge losses in double-quick time. Strapped for cash, Capt Gopinath sold it to Vijay Mallya’s Kingfisher Airlines. The brand is dead; the Air Deccan fleet was brought under Kingfisher Red. Subsequently, airlines like IndiGo and SpiceJet have shown how to run low-cost operations profitably. Both the airlines have turned profitable. They avoided the mistakes Air Deccan had made. Much before others could think of modern retail stores, Anil Nanda had come out with Nanz stores. It was the first experiment in the country in the modern retail format. The venture proved unsuccessful and the stores had to down their shutters eventually. Now, of course, there are a lot of people who run larger stores with greater efficiency. Or take the example of home shopping. Years after others made a hash of it, a bunch of new players is going about it in a systematic way.
Actually, marketers at all levels have now begun to talk of the second-mover and third-mover advantage. These people learn from the mistakes of the first mover and then come out with a business proposition that is foolproof. The first mover has to charter his course in unknown waters. For this, technology has to be invented, a distribution network has to be established and consumer insights need to be gathered. This can push the costs up, and make it an unviable business proposition. Of course, the returns can be high if the product clicks in the market; but the risks are high too. The second mover knows the do’s and the don’ts from the experience of the first mover; so his is likely to be a more sustainable model.
So, is the first-mover advantage totally irrelevant? Not really. In many cases, it is inherent in the nature of the business. Take generic medicine, for example. In the United States, the world’s largest pharmaceutical market, any drug maker who is the first to file an application with the Food & Drug Administration to launch the generic version of a drug once it goes off patent, gets exclusive rights to sell it for 180 days. Prices may fall by over 90 per cent once the patents come off, but there is still decent money to be made. This is what generic companies, including several of those from India, thrive on — such is the nature of the beast. Same is the case with telecommunication services. At a time when voice calls and SMSs have become commodities, features and applications are driving the business. Those who come out with new features and applications can expect to stay ahead of rivals for some time. Or look at consumer electronics. There is a mad rush amongst incumbents to come out with new technologies because that’s how they can capture mind space. Technology is everything in consumer electronics. The first off the block scores with the consumers. Clearly, there is mixed evidence on the ground.
