First Movers Definition

By Sandra Lim
Updated May 8, 2019

What is a First Mover?

A first mover is a service or product that gains a competitive advantage by being the first to
market with a product or service. Being first typically enables a company to establish strong
brand recognition and customer loyalty before competitors enter the arena. Other
advantages include additional time to perfect its product or service and setting the market
price for the new item.

First movers in an industry are almost always followed by competitors that attempt
to capitalize on the first mover's success and gain market share. Most often, the first mover
has established sufficient market share and a solid enough customer base that it maintains
the majority of the market.

The Outstanding First Mover

Businesses with a first mover advantage include innovators, Amazon (NASDAQ: AMZN) and
eBay (NASDAQ: EBAY). Amazon created the first online bookstore, which was immensely
successful. By the time other retailers established an online bookstore presence, Amazon
had achieved significant brand recognition and parlayed its first-mover advantage into
marketing a range of additional, unrelated products. According to Forbes's "The World's
Most Innovative Companies" 2018 ranking, Amazon ranked fifth, with an annual growth rate
of 30.8% and annual sales of $193.2 billion.

eBay built the first meaningful online auction website in 1995 and continues to be a popular
shopping site worldwide. As of the second-quarter 2018, the company's revenue totaled
$263 million, with 179 million customers visiting the site as of December 2018.

Key Takeaways

 A first mover is a company that gains competitive advantage by being the first to
bring a new product or service to market.
 First movers typically establish strong brand recognition and customer loyalty.

 Advantages of first movers include time to develop economies of scale—cost-

efficient ways of producing or delivering a product.

 Disadvantages of first movers include the risk of products being copied or improved
upon by the competition.

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  Amazon and eBay are examples of companies that enjoy first-mover status.

Advantages of First Movers

Being the first to develop and market a product comes with many prime advantages that
strengthen a company's position in the marketplace. For example, a first mover often gains
exclusive agreements with suppliers, sets industry standards, and develops strong
relationships with retailers. Other advantages include

 Brand name recognition is the main first-mover advantage. Not only does it
engender loyalty among existing customers, but it also draws new customers to a
company's product, even after other companies have entered the market. Brand
name recognition also positions companies to diversify offerings and
services. Examples of dominant brand name recognition of a first mover include soft
drink colossus Coca-Cola (NYSE: KO), auto-additive giant STP (NYSE: ENR), and boxed-
cereal titan Kellogg (NYSE: K).
 Economies of scale, particularly those regarding manufacturing or technology-based
products, is a massive advantage for first movers. The first mover in an industry has a
longer learning curve, which frequently enables it to establish a more cost-efficient
means of producing or delivering a product before it competes with other
businesses.

 Switching costs let a first mover build a strong business foundation. Once a customer
has purchased the first mover's product, switching to a rival product may be cost
prohibitive. For example, a company using the Windows operating system likely
would not change to another operating system, because of the costs associated with
retraining employees, among other costs. 

Disadvantages of First Movers

Despite the many advantages associated with being a first mover, there are also
disadvantages. Other businesses can copy and improve upon a first mover's products,
thereby capturing the first mover's share of the market.

Also, often in the race to be the first to market, a company may forsake key product
features to expedite production. If the market responds unfavorably, then later entrants
could capitalize on the first mover's failure to produce a product that aligns with consumer
interests; and the cost to create versus the cost to imitate is significantly disproportionate. 

Source : Lim, Sandra. “First Mover Definition.” Investopedia, updated May 8, 2019,
https://www.investopedia.com/terms/f/firstmover.asp

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