First Mover's Advantage and Diffusion of innovations

The first mover's advantage in chess has been widely debated. It has been contested by many grandmasters and statisticians around that world that if a game of chess were to be played 'perfectly'(god knows what that means), the white will always end up winning.

But of course, that is not what I want to talk about today. In the business world, the first mover's advantage is a widely known business strategy whereby the business that releases a product first gains an advantage in getting a larger share of the market. You can read more about it here. Being an analytical person, I wanted to visualize this on graph. How exactly does this process work? Why when one enters a market first, he gains a larger share? Searching the web around for a while, I came across a rather familiar term I learnt 2 years ago in a crash-course/workshop for entrepreneurs - The law of Diffusion of Innovations.

Surprisingly, there is little research done between how these two concepts relate to each other. The graph and video below explains what exactly diffusion of innovation is all about.

Now, isn't it obvious how first mover's effect and diffusion of innovation are related? The first mover in the market is able to entice the innovators first, who then are able to entice the early adopters and ....Voila! They own the majority of the market. As for the second and third mover and so on, too bad. They have no innovators left to surprise. For example, once you have seen the iPad, would the Blackberry Playbook allure you to buy it? Never! even if the Playbook is actually a better device.

On the other hand, if the innovators that were roped in by the first movers find the initial product unsatisfactory, they will not adopt it straight away. In effect, the first-movers advantage is now a first-movers disadvantage. Now, the second mover can analyze the mistakes of the first mover, improve his product, improve his marketing and eventually improve his market standing.

Time and again, we have seen the first movers effect fail and allowed the second mover to take the lead. Especially so in the technology world - Microsoft, Palm Pilot, Amazon, and now the Apple iPhone.

Such a pity that the relation between these two concepts have not been explored further.

That's all for now folks!