First-mover Advantage - Second-mover Advantage

Second-mover Advantage

First movers are not always able to benefit from being first. Whereas firms who are the first to enter the market with a new product can gain substantial market share due to lack of competition, sometimes their efforts fail. Second-mover advantage occurs when a firm who follows the lead of the first-mover is actually able to capture greater market share, despite having entered late.

First-mover firms often face high research and development costs and the marketing costs necessary to educate the public about a new type of product. A second-mover firm can learn from the experiences of the first mover firm and may not face such high research and development costs if they are able create their own similar product using existing technology. A second-mover firm also does not face the marketing task of having to educate the public about the new project because the first mover has already done so. As a result, the second-mover can use its resources to focus on making a superior product or out-marketing the first mover.

Often second-movers are able to overwhelm first movers by taking the first-mover’s product from a niche consumer market to mass markets. While firms may enjoy a first-mover advantage if they jump out to an early lead and hold onto it, the notion that winners are always the first to enter the market is a misconception.

Markides and Geroski's Fast Second describes this effect in further detail.

The following are a few examples of first-movers whose market share was subsequently eroded by second-movers:

• Atari vs. Nintendo;
• Apple’s Newton PDA vs. Palm Pilot PDA;
• Charles Stack Online Bookstore vs. Amazon.com; although the public was largely unaware of Charles Stack Online Bookstore and a compelling argument can be made that Amazon has had much more success than the second-mover BarnesandNoble.com

Second mover firms are sometimes called "fast followers".

Obviously, every market is different. Thus, while some markets may highly reward first movers, others may not.

Second mover advantage can be summarized by the adage "The second mouse gets the cheese."