The Early Bird Gets the Worm?

By Lotte Levelt

The timing of market entry of a company has great influence on its later success, or failure. A concept related to this is the so-called ‘first-mover advantage’. Its theory, described among others by Pierson as the ‘filling up of political space’, is widely supported. Interestingly however, the real world shows both first- and second-mover advantages, of which two will be illustrated, through Amazon.com.

First-mover advantages are the benefits a company gains (e.g. economic profits) through pioneering. According to Lieberman and Montgomery, these advantages stem from three main sources: technological leadership, pre-emption of assets and buyer switching costs.

Amazon.com (launched in 1995) appears to be a success story of ‘the early bird gets the worm’, being the first significant company to enter the online book market. It gained technological leadership through learning effects (dropping costs with cumulative output) and patents, its innovation to extend with other products proved successful. Other bookstores (e.g. Barnes and Noble) soon followed with their own web site, but did not manage to even approach Amazon.com’s success. Amazon.com’s pre-emption of assets, in this case the filling up of space on the internet was dominant. Finally, other bookstores had to invest in attracting consumers away from Amazon.com, which failed: Amazon.com is now partnered with Barnes and Noble.

However, there is another side to the story. Unbeknownst by many, Book Stacks Unlimited, or books.com, was launched already in 1991 as the first online seller of books. Therefore, the original significance or size of the company entering a market also has a large impact on its success, perhaps in spite of perfect timing. 

In conclusion, the timing and sequence of companies entering a market have great – but definitely not complete- influence on their later success. Meanwhile, it remains disputed if Amazon.com is an early bird, or a case of ‘the second mouse gets the cheese’.