Internet commerce in the late 1990s was widely characterized as a “land grab” where firmsrushed to acquire market positions before competitors had an opportunity to do so. Somepioneering entrants—such as Amazon, Yahoo and eBay—gained enormous stock marketcapitalization as investors anticipated that early entry would translate into large financial returns.High market valuations and widespread belief in first-mover advantages sustained a gold rushmentality among Internet entrants. Once the bubble burst in mid-2000, however, seriousdoubts arose about the validity of such views.Was the perception of first-mover advantages an illusion, as Michael Porter (2001) hasclaimed? Others have asserted that Internet first-mover advantages exist, but managers vastlyoverestimated their importance (Adner and Rangan, 2001). Typically, such assessments havebeen impressionistic rather than rooted in systematic empirical analysis. The aim of the presentstudy is to provide a more comprehensive appraisal of the extent of first-mover advantages inInternet markets. The study draws upon a broad sample of Internet entrants and tests forspecific conditions under which first-mover advantages might be expected to arise. The resultsshow advantages for early entrants in markets with network effects, and for pioneers withpatented innovations. Absent these factors, first-mover advantages appear minimal.The sudden rise of Internet commerce can be viewed as a natural experiment that offers aunique research opportunity. Many new “market spaces”
were created almost simultaneouslyby a common technology shock. A large proportion of Internet entrants became publiclytraded, often within a year or two of founding, leading to the availability of extensive information
In this study, the term “market space” refers to an Internet market or sub-market that is reasonably welldefined in terms of the product or service and the competitor set. Methods for identifying the competitorset are described Section 3.