UHY Hacker Young | Chartered Accountants

Tech companies: does being first to market really matter?

24 April 2019

Tech companies are always developing new ideas – some of which turn into products and some of which actually go to market. The innovative nature of tech companies can often mean that when a new product is launched, there are no direct competitors.

However, once the product is launched, competitors start to pop up with either an identical product or a similar, better, product.

There is a concept called the ‘first mover advantage (FMA)’ (or ‘first to market advantage’) which describes the benefits that a company has from being the first to get a product to market – and this could be a completely new product, or just a new feature within an existing product.

What is the benefit of being first to market?

Getting a product into the market before competitors means a company can set the standard for that particular product. Further new entrants to the market will generally need to ensure their product is, at very least, on par with this product.

It also allows a company to start acquiring customers before anyone else. If the product solves a genuine problem and there are no reasonably close competitors, then customers will be drawn to the product without any distractions. This is particularly beneficial when there are high switching costs or contracts in place, as it discourages customers to switch once new competitors start to appear.

Further to this, it allows the company to build an ‘innovative’ or ‘disruptive’ brand image, often giving the marketing team a lot to work with. Done well, it ensures consumers are well aware that a company is the ‘original’ company in that particular market.

What are the drawbacks of being first to market?

As with most things, where there are advantages there are also disadvantage. The main disadvantage of the FMA is that the company needs to actually perform the research to prove there is a market, to prove there is a demand and to prove the product will be a success. This is a costly exercise when there are no other companies that have already proven the market.

Competitors will start to appear with similar, better, products. They’ll have seen the first product in the market, copied it, and made it better. Customers may be inclined to switch at this point unless the first to market company continues to improve the product.

The first to market advantage is often short lived

Being first to market is excellent for marketing purposes and getting the initial traction, but after other entrants have hit the market, the advantage starts to rub off. The focus tends to shift into who currently has the best product – not who was first.

There are many great examples of this – MySpace was a very popular social media site at it’s peak, then Facebook hit the market with a superior product and ultimately caused the decline of MySpace.

Google were not first to market either, they simply had a better product than the rest.

Does being first to market really matter for my tech company?

The answer is, as always, it depends. It depends on a number of factors, some of which are:

  1. Rate of consumer uptake – if consumers are quick to adopt new products then there is usually a clear advantage. Slow uptake allows competitors to get into the market before customers have settled on the first to market product.
  2. Innovation of existing players – take the challenger banks, for example. There was a short term first mover advantage here because big banks have a lot of bureaucracy to overcome before they can get a product to market.
  3. Barriers to entry in the market – high barriers to entry for new companies will slow down the rate at which new entrants can get a product to market. High barriers to entry often allow for a first mover advantage.

Ultimately, someone needs to be first to market to start driving innovation. Whilst this advantage can be a great launchpad for a company, it isn’t a golden bullet. Tech startups must ensure they continue to push the limits and stay ahead of the curve in order to maintain a competitive advantage.