Google Second Mover Advantage: The Complete Guide (2019)

Second Mover Advantage: The Complete Guide (2019)

  • By Andreas
  • 3 January, 2019

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Whether you’re just starting out or have years of (business) experience…

… this new guide will walk you through everything you need to know about the elusive second mover advantage.

Even if you never heard a word about it before!

And then give you actionable strategies to help you turn a late market entry into an advantage.

Sounds good?

Great, let’s get straight in…

‘Second Mover Advantage’ Basics 

First, let’s tackle the basics…

1. What Is The Second Mover Advantage?

Is the advantage a company gets by entering a market AFTER the playing field has been established by the first-mover(s).

2. What Are The Different Types of Second Movers?

a) Fast Followers: Companies that recognise a biz opportunity relatively early one (while there is competition just from the ‘first movers’) & jump straight in.

b) Late Movers: Companies that enter fairly mature markets characterised by high levels of competition.

3. Why ‘Starting Second’ Can Be An Advantage in Disguise?

In short, it boils down to this:

In an established (or reasonably established) market there are MANY more knowns than unknowns when it comes to customers’ needs, spending patterns, and priorities…

… which naturally reduces the risk for a new venture.

And with the basics out of the way, let’s dive on the main menu…

The Advantages of Being ‘Second Mover’

So, what are the benefits of being second?

Here you go:

Advantage #1: You know there is a market

Yep – and this should come as no one’s surprise.

After all, there is no better proof that a market exists than PAYING customers.

And when you enter an established market you see just exactly that…

– Competing products

– Demonstrable customer demand

– ‘Real-world’ profits

So, assuming that we all agree with Marc Andreesen, that:

Market matters most; neither a stellar team nor fantastic product will redeem a bad market. Markets that don’t exist don’t care how smart you are”…

… it’s fair to say that entering a market post-validation is a GREAT starting point.

Advantage #2: You have strong reference points

That’s right – unlike the so-called market pioneers 2nd movers can learn from others’ trials & errors.

Which in practical terms means that as a second mover you can see:

– Winning product features

– Projects shoot behind the barn

– Battle-tested marketing tactics

– Catastrophic product launches

– And many more…

So, by having some prior experience (even if its second hand) to fall back on, second movers can:

Adopt what works and throw under the bus what doesn’t!

Advantage #3: The ‘free-rider effect

And last but not least comes the ‘free-rider effect’…

What does that even mean?

Well, it’s simple:

Late movers {are often}… able to ‘free-ride’ on pioneering firms investments in a number of areas including R&D, buyer education, and infrastructure development.

Which when you think about it makes perfect sense.

Just consider for example how much time and money Match.com had to spend to educate (and ultimately convince) the market to date online.

Or maybe how much $ BlackBerry had to burn to establish the need to have an email on your phone.

Or even Tesla’s investment in creating charging points for their electric cars throughout USA.

So, the point is that by piggybacking on the first mover(s) development spending, ‘doing business’, in general, becomes much less expensive.

Real-World Examples of Companies That Made It By ‘Being Second’

Assuming that we’re all on the same page let’s put things into perspective and see…

… how companies out of this world ‘went second’ but made it BIG.

1. Amazon.com (fast-follower)

How it got started: Amazon.com started as an online bookstore back in 1995.

Who was the first mover: “Unbeknownst to many, is that Book Stacks Unlimited, was founded in 1991, and launched online in 1992. Founded by Charles M. Stack, it is considered to be the very first e-bookstore.”

The end result: You already know what happened. Amazon experienced the so-called second mover advantage, won that battle, expanded to many other verticals & finally became America’s largest online retailer. As for Bookstacks, a couple years later ended up being sold to Barnes and Noble.

2. Jet.com (late-mover)

How it got started: Jet.com founded in 2014 as an e-commerce platform by Marc Lore (ex Diapers.com founder)

Who was the first mover: “Boston Computer Exchange which was launched in 1982, was the world’s first ecommerce company. Its primary function was to serve as an e-market for people interested in selling their used computers.

The end result: Jet.com while, of course, not a market leader within just 2 years managed to transition from a tiny company to a $ making machine that as of 2016 is a subsidiary of Walmart.

3. Google (fast-follower)

How it got started: Google started back in 1996 as a research project by Larry Page & Sergey Brin while being at Stanford University.

Who was the first mover: While technically speaking the first search engine was Archie, the first one to process natural language queries was Alta Vista…

The end result: As of July 2018 Google.com has 86.02% of the global market share; need to say more?

4. LinkedIn (late-mover)

How it got started: LinkedIn.com launched in 2003 by Reid Hoffman as a work-driven social networking site.

Who was the first mover: While most of you will probably be familiar with names such as AOL, MySpace and Friendster, Geocities {launched back in 1994} was the first social networking site.

The end result: “As of October 2018, LinkedIn had 590 million registered members in 200 countries, out of which more than 250 million active users

5. DuckDuckGo (late-mover)

How it got started: DuckDuckGo.com launched back in 2008 as a privacy-driven internet search engine.

Who was the first mover: While technically speaking the first search engine was Archie, the first one to process natural language queries was Alta Vista…

The end result: DuckDuckGo.com is a multi-million $ company and as of November 2018 it had 29,661,659 daily direct searches on average.

Ideal Conditions for Entering a Market Late

Yes my friends – not all markets are created equal.

What does that suppose to mean?

Put simply, past experience is telling us that…

… some markets highly reward first-movers and some others not so much!

To get specific here are a couple of factors that seem to play a role in whether a market is ‘friendly’ towards pioneers or second movers:

Expected life of the product category (the shorter the better for market pioneers)

– Switching costs (the higher the better for market pioneers) 

– Objective standards of quality (the easier is to judge a product the better for second movers)

– Reformulation costs (the lower the better for second movers)

– The pace of market evolution (the slower a market is moving the better for market pioneers)

So, with all that said, here is a quick summary of the ideal conditions for entering a market late:

1.Long expected life of a product category (aka evergreen markets)

2. Low costs for customers to switch from one brand to another

3. Highly objective standards of quality (what I like to call as objective bechmarkability)

4. Low reformulation costs (aka the ability to “borrow” elements easily from the pioneer’s prop.)

5. High pace of market evolution (which helps followers to come up with something better)

Of course, that’s not to say that with any of the above conditions absent entering a market late becomes a non-starter…

… just to highlight that, in principle, that’s what ideally you should be shooting for.

And with the conditions covered it’s time to address the elephant in the room.

Which is, of course, the so-called ‘first-mover advantage’…

The First Mover Advantage: What is Truth & What is BS

What’s the ‘first-mover advantage’?

The advantage gained by a company that first introduces a product or service to the market.” 

Yep – that straightforward!

And it’s not a secret that throughout the years’ many companies experience that effect.

Just like Uber; or Airbnb…

… which as the def. suggests they jumped super early on and made a TON of money.

But how the first movers do it?

Well, while from one business to another the recipe might be different, the below 5 factors allegedly seem to play a role:

1. Market leadership through product patenting (i.e. drugs in the pharmaceutical industry)

2. Pre-emption of scarce assets (i.e. key suppliers/geo-locations/distribution-channels/etc.)

3. Brand Recognition and customer loyalty (i.e. Coca-Cola)

4. The Network Effect (i.e. eBay)

5. High buyer switching costs (the costs often have a monetary nature or are time/effort related)

What’s the catch?

It’s simple –this “model” comes with A TON of risk…

In fact, an older research suggests that first movers are roughly six times as likely to fail as “fast followers”.

And if you think about it, it kind of makes sense…

So, what is truth and what is BS?

While the first-mover advantage is a real thing, & when achieved can yield some handsome profits…

… overall is extremely overrated & is definitely NOT a required element for building a great business.

All good?

Great – now let’s go and discuss Peter Thiel’s latest darling!

Peter Thiel and the ‘Last Mover Advantage’

Peter Thiel…

Top man, great entrepreneur!

But what does he think about the so-called first movers?

Here you go:

First mover isn’t what’s important — it’s the last mover. Like Microsoft was the last operating system, and Google was the last search engine.

But what’s his logic?

Thiel, on his book, Zero to One, where he first introduced this concept argues that…

… the ‘perfect time to entry’ is late enough to learn from pioneers’ mistakes and leverage technological breakthroughs but not so late that the market is already closed off to new entries.

And then he goes talking on how to actually ‘block’ new market entries (by monopolising the product category you are in).

So, does Thiel got this right?

Well, while there is no conclusive evidence to back-up his claims, the fact of the matter is…

… that Microsoft, Google (or even Facebook that also talks about on his book) are definitely NOT the last players in their respective product category.

Of course, as you know, all of them managed to have the market’s lion share, but nontheless that didn’t stop new players to have wieldy successful entries.

Just like Ubuntu, DuckDuckGo or Instagram…

So, assuming that everything is clear, let’s get back on the ‘second mover advantage’ and go and see how market followers can beat a crowded market!

Market Follower Strategies for Beating a Crowded Market

So, how you can enter a crowded market? And beat incumbents players on their own game?

Whaaat?

That’s right – past experience tells us that going head-to-head with incumbent players (as a startup) and trying to beat them on their own game it’s a rarely a sound advice.

Unless of course, you are WELL capitalised and willing to play the long game as a challenger brand.

Otherwise, the best strategy when arriving ‘late to the party’ is shifting the basis of competition. 

Which in practical terms means figuring out a way to cut through the noise and set yourself apart from the competition.

So, how you do it?

While different markets will require different strategies, here are 3 options to get the ball rolling:

Strategy #1: Hyperlocal Positioning

As the name suggests, this strategy is geo-focused.

Said differently, hyperlocal brands exclusively focus in just one geographic area with a local solution.

Want a couple of examples? No problem – here you go:

1. Cents-able Oil – Home heating oil provider for the New Haven area

2. Nutrifix – Healthy food locator for the London Area

3. 1871 Chicago – Digital entrepreneurship hub for the Chicago area

Strategy #2: Singular Customer Targeting

What does that suppose to mean?

It’s simple – serving one customer group at the exclusion of everyone else.

In other words, creating a business that zero in on just one target group.

Just like what DigiMax Dental did – which fyi is a marketing agency exclusively for dentists.

Strategy #3: Going Vertical

Going vertical, I hear you ask?

Yep, is the strategy of launching a company to offer a niche product that serves a specialised need of one tightly-defined target group.

A bit confusing?

No worries – let me now share a company that is a textbook example of verticalization done right.

Introducing Fetcher – a profit analytics tool for Amazon businesses.

Vertical: Amazon profit analytics 

Specialised Problem/Need: Amazon sellers experience the headache of trying to calculate their profits and analyse the general health of their business (in detail), due to the ‘Seller Central’ dashboard’s current limitations.

Niche Proposition: “Fetcher is a profit analytics tool for Amazon businesses. We fetch, calculate, and display your seller data from Amazon so you can see product profitability & many other key metrics. Our seller dashboard, detailed product breakdown analysis, & Profit and Loss statements make data-based analysis simple and will help you build a prosperous ecommerce platform

All good?

The Next Step For Aspiring Second Movers

So that’s my ‘definite guide’ to the second mover advantage.

I hope you enjoyed it and found it useful.

If you are keen to take the next step & join the 2nd movers club it might worth checking out my Kindle book: The Vertical Startup: A Practical Guide on How Today’s Bootstrapped Entrepreneurs Turn their Late Market Entry Into An Advantage By Going Vertical, that is now available at Amazon…

… and which as the title suggests will walk you through everything you need to know about ‘going vertical’ as a second mover.

Either way, thanks for taking the time and reading this guide.

I hope to see you soon.

Best

Andreas

P.S. Think I missed something? Or maybe you have a question about something you read? I’d love to hear from you; email me at andreas@nomorestartupmyths.com and I’ll get back as soon as I can…

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