During the dot.com era one of the rationalizations for dot.com firms to be losing money was that they had to be the ‘first mover’ that would grab the demand-side economies of scale arising from network effects.
For a variety of reasons, including the clarity of hindsight, the current consensus if that profitability is always worth worrying about, and being first is far from a guarantee of success.
On the other hand, if the authors quoted below are correct that everyone should be a “fast follower,” then who will ever make the first move?
Maybe the problem lies in the metrics of success. Maybe the main measure of success lies in moving an important project forward, rather than being the one who ends up best positioned to monetize the advance?
So, for example, maybe those who built Netscape should be proud of what they did, even though Internet Explorer ended up dominating the market.
(I use “maybe” a lot above, not out of some rhetorical pose of modesty, but because these are issues that I am really grappling with.)
(p. R4) One of the fiercest rivalries in the information-technology world has long been over platforms–products that link users in networks, like iTunes for online music or Windows for computer operating systems. It’s often a winner-take-all business; platform leaders can earn huge profits as they tend to dominate markets with few serious competitors.
A myth, however, has attached itself to the history of platforms: that each platform’s originator has the best chance of dominating its market for years to come.
The truth is, that is rarely the case.
Instead of there being an advantage to being first, we found the opposite to be true. Most owners of leading IT platforms today did not create the markets they now rule. In almost all of the industries we studied, the current platform leaders introduced their products after a different company had already established the market with a platform of its own.
Out of the 15 platform industries that we studied, 14 of the current leaders began as followers in a market created by a competitor’s platform. In only one market, for integrated business software, was the original platform creator still the leader–SAP AG. Five were fast followers, which we define as the second, third or fourth company to enter a market. The other nine were later followers.
For the full commentary, see:
GEZINUS J. HIDDING, JEFFREY R. WILLIAMS And JOHN J. SVIOKLA. “Technology; The IT Platform Principle: The First Shall Not Be First .” The Wall Street Journal (Mon., January 25, 2010): R4.