The Quick Follower Advantage

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It ain’t about who did it first, It’s ’bout who did it right – Drake on Wu-Tang Forever

The first law discussed in Al Ries & Jack Trout’s book, The 22 Immutable Laws of Marketing: Violate Them at Your Own Risk is the law of leadership. The rule says that it’s better to be first than it is to be better. The justification behind it is that It’s much easier to get into the mind first than to convince someone you’re better than the product that got there first.

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The book used Heineken as an example to substantiate the law. Heineken was the first imported beer in America. Some beers tastes better but Heineken still no. 1 imported beer.

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Even Biggie Smalls loved Heineken beer

In the same way, the first domestic light beer was Miller Lite, which is now the best-selling light beer in America. Many energy drinks taste better than Red Bull, but it’s still the leader. Gillette was the first safety razor, Tide the first laundry detergent. They convinced the readers that people stick with what they’ve got.

First mover advantage is a myth.

Some disagree. They’re wrong. Or if they aren’t wrong, perhaps we could rephrase my point this way: it is exceedingly difficult for a first mover to keep their advantage. This worked in the 90s when the book was written (1994) where the network effects were not as viral and people didn’t have the ability to reconsider their options with just a touch of a button (smartphones).

First movers had a 47% failure rate and companies that took control of a product’s market share after the first movers pioneered them had only an 8% failure rate. Like early pioneers crossing the American plains, first movers have to create their own wagon trails, but later movers can follow in the ruts. – Forbes (A research done on 500 brands and 50 categories)

More often than not, the first movers will end up spending a significant amount of energy ‘defending’ their position, not advancing their position. In the long run, the sales advantages are less than the advantages of increased costs.

First movers are required to spend a huge sum of money educating the market and to convince people to buy your product. The late entrant can learn from the mistakes of pioneer and can save a huge amount of money that can be spent in experimenting new product extensions.

When startups compete with large incumbents In a traditional industry (banking, education, legal, insurance, agriculture, property developments, etc), it’s not an advantage at all. This is due to the heavy regulation gained by the incumbents by lobbying efforts with regulators to protect their interests. For instance,

  1. Airbnb’s problems with the rental industry
  2. Uber’s issues with the transportation industry

In these cases above, the problem of product market fit isn’t something that can be solved on the product side. It is the market that needs to be fixed. Once fixed, a late, but carefully observant, entrant may easily come in and benefit from the first-mover’s efforts. For example, Grab with grabcar as opposed to uber who started the private driver movement.

Second mover advantage works better.

The point being, get there second, better, and hit them faster. Let me line up some examples of products that effectively did this:

  • Google was the 11th Search Engine and now has a dictionary entry of its own.
  • Facebook as a social network trumped both Friendster and MySpace.
  • LinkedIn has moved way past Monster, CareerBuilder, HotJobs.
  • YouTube launched significantly after Google Video.
  • In Peer-to-Peer lending in the US, Lending Club rapidly outsmarted and distanced Prosper.
  • iPod, iPhone and iPad were not the first music player, phone and tablet.
  • AirBnB won the market although Couchsurfing and VRBO have both been around for a long time.
  • Netflix won against blockbuster and other similar services.
  • Spotify won with free service to get users thru the door and then up sell their premium.

Case study: Flipkart vs Amazon India

In India, Flipkart was widely celebrated as the first mover that got most things right. Since then, many Flipkart clones came and lost in the market in an effort to bite off some of the pie.

Amazon came to the party once it’s over and done with. In effect, Amazon entered a landscape conveniently created by its potential competitors, most of whom are either too exhausted or on the verge of joining the dead pool. In effect, Amazon knew all along that there was a significant ‘First-mover Disadvantage’ to launching in India.

Hence, it waited for Flipkart and others to educate the market with investments from VCs who wanted to see growth at the expense of all other factors. With the operation know-how and funding of Amazon HQ, Amazon took over Flipkart and now is the #1 online retailer in India.

The Beginning: 2007

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When Flipkart was launched with an initial investment of less than USA $10,000, Indian e-commerce industry was taking its beginner steps. Sachin Bansal and Binny Bansal, who were working for Amazon had an idea to start an e-commerce company in India, Flipkart.

2008

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Sachin said that one major challenge was to get tie-ups with the major book vendors as we didn’t have an offline book store. The second major challenge was to get the approval for the credit card payment gateway. Not many people preferred online payment and the gateways were not easy to set up. (indicates the infancy of ecommerce in India)

2008

Innovating right from the start, Flipkart has been home to few of the striking features of Indian e-commerce. Flipkart was the first to implement the popular ‘Cash On Delivery’ facility, which every online shopping website in India offers as an option today.

2009

Another problem with ecommerce in India was the entire supply chain system. Flipkart addressed this issue by launching their own supply chain management system to deliver orders in a timely fashion.

First Mover Advantage: 2010

In the financial year 2010, Flipkart had made sales to the tune of 200 million Indian rupees.

2010 – 2014

Flipkart became India’s #1 ecommerce giant via acquisition. The company acquired many firms such as ‘WeRead’ in 2010, Mime360 and Chakpak.com in 2011, Letsbuy.com in 2012 and then myntra.com (India’s largest online apparel store) in 2014.

2nd Mover Amazon Enters: 2013

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Amazon enters the market
with initial focus of selling of books and movies. One advantage came off for Amazon was the online portal it provided for the small sellers of the local market layers with fast delivery and cash on delivery. Combined with large pocket budgets the Amazon HQ, it quickly gained market traction.

2015

Flipkart suffers because of funding slowdown and some bad decisions by the management. Sachin pushed the company to become an app-only platform after implementing the same move with Myntra in May 2015. An abrupt shift to marketplace model from the large inventory model alienated their customers. 

2015

The American online retailer has remained intent solely on building popularity with customers through improving product selection, discounting, advertising and offering fast delivery. Amazon had 65 million products compared to Flipkart’s 40 million. Check how Amazon did this here.

2nd Mover Takes Over: 2016

Amazon struck important exclusive partnerships with key smartphone brands such as Motorola, Xiaomi and OnePlus via Cloudtail. The Moto and Xiaomi deals were a double whammy for Flipkart, which earlier had exclusivity with these brands.

2016

Indian government disrupted the ecommerce space by preventing online ecommerce marketplaces from influencing product prices and capped the contribution of one seller at 25% of a site’s overall sales. In June, Amazon’s Bezos promised another $3 billion for the Indian unit making Amazon India the only marketplace with the funding to run sales events and extensive discount driven advertising. 

 

2nd Mover Advantage, Amazon Wins : 2016

According to the 2016 Forrester Data Consumer Technographics Asia Pacific Online Benchmark Survey, Amazon surpassed Flipkart as the preferred online retail destination for metropolitan Indian consumers for the first time since 2014.

 

The old way of innovation vs the new way.

Two decades ago, innovation happened when a few engineers, programmers and business people got in a room together to create something. They kept all the knowledge about the product as a ‘secret’. Once the product is done, huge barriers to entry was created by locking up the distribution channels (pre-ecommerce age). This also served as a way to control supply of the product to influence the price of the product.

Nowadays, it’s quite the opposite. With information abundance and network effect in mind, innovators come together with a different view on a product (no idea is original, anyway). Mostly, it’s 90% the same with the current products available in the market with one (at most, two) clear differentiator factors (e.g. Snapchat with disappearing picture messages).

Product is pushed out as quickly as possible with the mindset of to learn and iterate quick based on user feedback (e.g. Instagram tried out many features as an app before becoming a photo filter app). Once finding a good market fit, an ecosystem or community is create around the product to make use of the network effect.

With the current way innovation is done, first mover advantage is not real. The race to be the first company into a new market can be destructive. Hence, looking at what works and being a good follower with the vision of taking over the first mover by being more nimble and learning fast is a better strategy.

Is all hope lost if you end up being the first mover?

The key to keeping your advantage as the first mover comes down to these considerations:

  1. Do you invent a category defining technology? Although the patent on the product might be an advantage but it’s not a real advantage. As soon as your product is launched, your competitors will disassemble and reverse-engineer it. With that, they will be able to build the next generation of your product. You real upper hand comes in the form of expert knowledge, user data and customer feedback. You survival will depend on how well guarded are these information and how you use it to iterate quickly.
  2. Lock up the early adopters with long term contracts at a discount. A bonus will be to create a community around the product to increase loyalty as new competitors enter the market ( a strong brand is a must here).
  3. Do you have an unique supplier management pipeline? Make it all exclusive for an extended period. This will present a higher barrier to entry and will give you the time needed to monopolise the market.

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