What is first mover advantage?

Information Rules by Carl Shapiro and Hal Varian is a classic business book. While today’s post will be a bit cranky it isn’t really about the book and I’ll be appropriately positive next week. The book descriptions of business scenarios are dated but the ideas are relatively timeless. Plus the dated examples make you feel young — battles between doomed encyclopaedias interlaced with descriptions of the mighty AOL and Netscape. Even younger readers can benefit from seeing how the world has changed since 1999.

My argument today is against a concept that is widely used in business: first mover advantage.

To be clear I’m not saying that there aren’t often advantages to moving first. (Although that isn’t always the case — sometimes it pays to wait for others to move and reveal their hands.) That said let us assume that going first is good in your market. If this is true then first mover advantage is just another way of saying that it is good to go first. This is what we have just assumed so the term first mover advantage provides no additional information. We must know what the source of the advantage is. Saying first mover advantage just obscures this — it sounds meaningful but is actually a pretty meaningless term.

First mover advantage is also a somewhat confused term. To see this confusion note that Shapiro and Varian introduce “First Mover Advantage” in a title on page 168. They then immediately proceed to describe “first mover advantages”. Is the advantage singular or plural? Probably plural as a collection of advantages are offered on page 30 — economies of scale, easier differentiation etc… These may accrue to the first mover but first mover advantage isn’t just another way of saying these. For example, the second mover can often gain economies of scale. If gaining economies of scale is what you think will come from moving first why not say going first will allow you to build a customer base and benefit from economies of scale. If you say this we know what you mean and you can be right or wrong. If you say first mover advantage you can’t really be right or wrong because you haven’t said anything meaningful.

Read: Carl Shapiro and Hal R. Varian (1999) Information Rules, Harvard Business School Press.