First mover advantage: when it works and when it fails

First mover advantage is the edge a company gains by being first into a new market or product category: the chance to win customers, lock up scarce assets and set buyers' expectations before any rival arrives. It is real in some markets and much smaller than its reputation in most.

The useful question is not "should we be first?" but "would being first give us something a later rival could not get?"

Where first mover advantage comes from

Marvin Lieberman and David Montgomery's 1988 paper in the Strategic Management Journal, still the standard reference, identified three main sources.

Technological leadership. The pioneer moves down the learning curve first, or patents what it learns, so its costs or quality stay ahead.

Pre-emption of scarce assets. The best locations, the key suppliers, the only licence, the obvious name. Once taken, a follower has to settle for second best.

Buyer switching costs. If customers who buy first face real costs to change later, the pioneer keeps them. See switching costs.

Network effects strengthen all three. Where a product gets more valuable as more people use it, the first to gather users can make the network itself the barrier.

If none of these applies in your market, being first mostly means being first to spend money teaching buyers what the category is.

What the evidence says about pioneers

The most quoted study is Peter Golder and Gerard Tellis's "Pioneer Advantage: Marketing Logic or Marketing Legend?", published in the Journal of Marketing Research in 1993. Earlier studies had found pioneers held large, lasting shares, but they leaned on established databases that left out businesses which had failed, and on self-reports by the firms themselves. Golder and Tellis used historical records instead, covering about 500 brands in 50 product categories. They found:

• 47% of the market pioneers in their sample had failed.
• Pioneers' mean market share was 10%, against about 30% in the earlier database studies.
• Early market leaders did far better, with an 8% failure rate and a 28% mean share, and they entered on average 13 years after the pioneer.

Their tables have familiar first mover advantage examples running the other way. The personal computer was pioneered by MITS in 1975; IBM, which entered in 1981, led at the time of the study. Light beer was pioneered by Trommer's Red Letter in 1961, and Miller Lite, from 1975, led. Disposable nappies were pioneered by Chux in 1950 and led by Procter & Gamble's Pampers and Luvs, from 1961.

A later review by Lieberman and Montgomery adds a caution worth keeping: whether a first mover "won" depends on whether you measure profit, market share or survival, and those measures often conflict.

First mover disadvantages

The pioneer pays costs that followers skip.

• Educating the market. The first company has to explain why anyone needs the category. Followers arrive to buyers who already know.
• Making mistakes in public. Pricing, positioning and product errors happen in the open, and followers can read the reviews.
• Committing too early. The pioneer builds before customer needs and the technology settle, then defends that design while followers build for what the market turned out to want.
• A moving target. When technology or needs shift, a lead built on the old version can vanish.

When being first does pay

Go first when at least one of these is true:

• Network effects are strong, so each user you gather makes the product better for the next.
• Switching costs are high, so early customers stay even when better options arrive.
• Something scarce can be secured: the best site, an exclusive partner, a licence.
• You can keep investing after launch. In a 1996 MIT Sloan Management Review article, Tellis and Golder argued that lasting leaders owed more to vision, persistence, commitment, innovation and the use of existing assets than to entry order.

What it means when a competitor launches first

When a rival launches something before you, check whether the launch creates any of the three sources above. If it builds a network, locks customers in or takes a scarce asset, speed matters and you should respond quickly. If it does none of these, you have time.

Use that time to watch. Their launch page, pricing changes, ads and early reviews will show what demand exists and what they got wrong, which is the whole strategy of a fast follower. Tracking competitor website changes covers catching new pages and pricing changes without drowning in alerts. If you would rather not check by hand, Figo reports new pages, pricing changes and new ads for the competitors you name every week (ours, so judge accordingly).

Common mistakes

Defining "first" loosely. First to launch, first to be noticed and first to sell at scale are often different companies.

Learning only from survivors. The pioneers you can name are mostly the ones that won. The ones that failed are why the average is lower than it looks.

Treating speed as the strategy. Being first is a timing decision. It needs a reason that lasts beyond launch day, the kind that becomes a sustainable competitive advantage.