What Is a First Mover?
Let me explain what a first mover is: it's a service or product that secures a competitive advantage by being the first to hit the market. As the pioneer, you can build strong brand recognition and customer loyalty before any rivals show up. You also get extra time to refine your offering and even dictate the initial market price.
How First Movers Handle Competition
In any industry, first movers are usually chased by competitors looking to grab a piece of the success and market share. But if you've done it right, you'll have locked in enough market share and a loyal customer base to hold onto the majority. That's the reality you face as a first mover.
Key Takeaways
- 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.
Examples of First Movers
Consider businesses like Amazon (NASDAQ: AMZN) and eBay (NASDAQ: EBAY) that have capitalized on first-mover advantages. Amazon launched the first online bookstore, and it was a massive hit. By the time others jumped in, Amazon had built huge brand recognition and expanded into all sorts of unrelated products. According to Forbes's 2019 ranking of the world's most innovative companies, Amazon came in second, with $280 billion in annual revenues and a 20% annual sales growth rate through the end of 2019.
Then there's eBay, which created the first significant online auction site in 1995, and it remains a go-to shopping platform globally. It ranked 43rd on that Forbes list, generating $287 billion in annual revenues with a 2.8% annual sales growth rate. These examples show you how being first can pay off big.
Advantages of First Movers
When you're the first to develop and market a product, you get several key advantages that solidify your market position. You can secure exclusive supplier deals, set industry standards, and build tight relationships with retailers. Brand name recognition is the biggest one—it creates loyalty among current customers and attracts new ones, even when competitors arrive. It also lets you branch out into other offerings, like how Coca-Cola (NYSE: KO), STP (NYSE: ENR), and Kellogg (NYSE: K) dominate their fields.
Economies of scale are another major plus, especially for manufacturing or tech products. As the first mover, you have a longer learning curve to figure out cost-efficient production methods before others catch up. Switching costs further strengthen your foundation—once customers buy in, switching to a competitor can be too expensive. Think about a company stuck on Windows; retraining staff and other costs make changing impractical.
Disadvantages of First Movers
That said, being a first mover isn't all upsides; there are real disadvantages. Competitors can copy and even improve your products, stealing market share. It often costs 60% to 75% less to replicate something than to invent it from scratch—that's a fast fact you should note.
In the rush to be first, you might skip important features to speed up production. If the market doesn't like it, later entrants can swoop in and fix those flaws, capitalizing on your mistakes. The cost imbalance between creating and imitating is huge, and that's a risk you take as the pioneer.
Other articles for you
An arm's length transaction is a deal between unrelated parties acting independently to ensure fair market value.
A unitized fund pools investor money into focused investments like a single stock, providing individual unit values for efficient management in plans such as ESOPs and pensions.
Wildcat banking describes the unregulated state-chartered banks in remote U.S
Bank capital represents a bank's net worth and is regulated to absorb losses and ensure financial stability.
Excess returns measure investment performance above a benchmark, incorporating risk concepts like alpha, beta, and Sharpe ratio for better analysis.
A zero plus tick is a trade executed at the same price as the previous one but higher than the one before that, historically relevant to short selling rules.
Economic stagnation is a prolonged period of slow or no growth with high unemployment, caused by cycles, shocks, or structural issues, and can be addressed through policy measures.
The Herfindahl-Hirschman Index (HHI) measures market concentration to assess industry competitiveness and potential monopolies.
An earnout is a contractual provision in business sales where the seller receives additional future compensation if the business meets specific financial targets.
Revolving credit is a flexible borrowing option that lets you repeatedly access funds up to a set limit while making payments to restore availability.