First Mover

A first mover is a service or product that gains the advantage by being the first to market. 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.

Examples of businesses that obtained a first mover advantage include innovators such as Amazon and 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 name 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 site 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.

The first mover advantage is not usually a single advantage, but rather a set of advantages that a company obtains by being the first to develop and market a product. Being first enables a company to obtain many prime advantages that strengthen its 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 not only engenders loyalty among existing customers but also draws new customers to a company's product, even after other companies have entered the market. It also positions companies to diversify offerings and services. Brand name recognition is the main first-mover advantage. Examples of dominant brand name recognition of a first mover include soft drink colossus Coca-Cola, auto-additive giant STP, and boxed-cereal titan Kellogg's.
• 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 allows the first mover to 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 Windows operating systems is unlikely to change to another operating system, because of the costs associated with retraining employees. 

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, later entrants capitalize on the first mover's failures to produce a product that aligns with consumer interests. The costs to create versus the costs to imitate are significantly disproportionate. To replicate a product costs approximately 60% to 75% less than it costs to create the new product.