Is it always better to be first in Internet space?

Remember the post Who is afraid of a bid bad wolf? It presented a hypothesis that the first mover doesn't always perform better. In some cases it is actually the second mover or the imitator who is winning over the market share.

As you will learn in this post, leaders are more likely to experience loss of market share when (relative to industry challengers) they are less competitively aggressive, carry out simpler repertoires of actions and carry out competitive actions slowly.

Market share leadership comes together with being more profitable that the competitors. Main reasons for that are economies of scale, market power, first mover & reputation advantages. You can read more about the in posts: Prawo rosnących przychodów (in Polish) and How do firm characteristics and behavior affect i18n?

Another important thing you need to remember is the market dynamics. According to Schumpeter dynamic market process by which market leaders & challengers are in an incessant race to get or to keep ahead of one another is the reason why companies and industries experience creative destruction. It is all about challenging the market status quo.

According to Ferrier et al (1999) leaders that carry out more competitive actions than challengers will have a lower rate of market share gap erosion and a lower rate of dethronement. They define total competitive activity as the total number of new competitive moves the firm carried out in given year.

Leaders are more likely to lose market share when they are

– less aggressive,
– carry out simpler repertoire,
– carry out competitive actions more slowly,

with relation to their competitors. Higher the industry rivalry or aggressiveness of one of the companies in the market increases higher the likelihood of market share gains. In Schumpeter's sense, competitive dynamics among market leaders affects their market position.

Managerial implications

What can we learn from the research that Ferrier and his colleagues did over 10 years ago? First of all companies need to try to understand and predict the move of rivals. Secondly, they should take more actions and undertake them more quickly than competitors. Finally, carry out a broader range of actions to confuse your rivals. 

These simple things that every company is capable of doing can increase their changes of gaining more market share (or reduce the risk of market share erosion or dethronement).

Bibliography: Ferrier, Smith and Grimm (1999): The Role of Competitive Action in Market Share Erosion and Industry Dethronement: a Study of Industry Leaders and Challengers, Academy of Management Journal, 42, 4, pp. 372-388.