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Working Paper

First-mover Advantage on the Internet: Real or Virtual?

Rajan Varadarajan, Manjit S. Yadav, and Venkatesh Shankar, 2005 [05-100]

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To what extent is “received wisdom” on marketing strategy applicable in an Internet-enabled market environment? This study focuses on whether potential sources of first-mover advantage in the physical marketplace and the marketing of physical products extend to an Internet-enabled market environment and the marketing of digitized information products.

The authors delineate sources of competitive advantage accruing to a first mover in the physical marketplace and explore whether these will have greater, lower, or equal importance in the electronic marketplace and for digitized information products. They suggest that potential sources of first-mover advantage that are focused on the firm (e.g., preemptive investments in scale of operations and experience effects) and due to buyer’s choice under uncertainty are only virtual, i.e., likely to be less important. However, sources that are market focused (e.g., network externalities and noncontractual switching costs) are real, i.e., likely to be more important in the electronic marketplace.

In addition, the authors emphasize the significance of the accrued competitive advantage of the first mover in the electronic marketplace. For example, network effects—the benefits that present and potential customers derive from network size and the associated propensity of customers to favor the largest among competing networks—are a consequence of the first mover’s proactive efforts to build the size of the network. However, the first mover must actively seek to leverage what it has learned from managing the network to create value-added products and experiences for individual customers in the network. Similarly, only when the “sticky” features of a first mover’s electronic customer touch points (e.g., its website) offer additional benefits to customers do they manifest as noncontractual switching costs for customers.

A central message for first movers in the electronic marketplace is as follows: focus on sources of competitive advantage that would enable the first mover to get close to the customers fast, offer customers compelling reasons to remain with the firm, and innovate.

Rajan Varadarajan is Distinguished Professor of Marketing and Ford Chair in Marketing and E-Commerce, Manjit S. Yadav is Associate Professor of Marketing and Mays Research Fellow, and Venkatesh Shankar is Professor of Marketing and Coleman Chair in Marketing, all in the Department of Marketing at Texas A&M University.

Included in the following collections:
MSI Reports 2005

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