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.

How do firm characteristics and behavior affect i18n?

"Internet firms are born global" (Kotha et al, 2001)

There are four main factors that affect the i18n of the Internet company:

(1) Reputation (intangible asset): number of media articles

(2) Website traffic (intangible asset): unique monthly users

(3) Level of competitive activity: new products and features

(4) Level of cooperative activity: partnering agreements

In 2001 Kotha, Rindova and Rorhaerrnel researched that these 4 factors are positively related to the degree of i18n (number of foreign domain websites).

Who’s affraid of a big bad wolf? Introduction to Internet competition

Radical innovations create economic growth in the long term while some of the well established firms decline. In Internet world no leadership position is secure or sustainable.

Schumpeter & the Austrian school described the innovation as a process of creative destruction. Innovation is a dynamic market process by which firms engage in a race to get ahead of one another. Creative destruction imply that:

• innovative actions undermine the competitive advantage of established competitors 
• firms commit resources to develop new products, new technologies and distribution channels 
• the success of these innovations provokes competitive responses from existing firms and new entrants 

Competitive Actions

Are the primary mechanism that the firms deploy to establish and protect their advantage, as well as erode the advantage of competitors

Competitive action can be defined as all action that are taken in the pursuit of discovered profit opportunity

As a rule, a leader that carry out more actions will exploit more opportunities and, hence, close the potential for challengers. Firms undertaking more competitive actions have superior performance. Continous innovation may be more important to competitive advantage than protection of assets.

Competition

Internet market is always in disequilibrium. Large firms are swept into a turbulent competitive rivalry that creates winners and losers. We can observe an inevitable destruction of the competitive status quo through new competitive moves by rivals. They can embrace innovation or immitation. Either or, the leaders will lose to more aggresive rivals if they not undertake any aggressive actions of their own.

Hypercompetition

According to D’Aveni hypercompetition results from the dynamics of strategic maneuvering amongst competitors. It can easily be observed in a fast-paced industries. In hypercompetitive environment all advantages are temporary and no industry position is secure. Competitors can easily copy an advantage from the other firms; it simply becomes the cost and risk of doing business.

Firm performance is an outcome of a continous series of competitive actions. Speed allows companies to disrupt the status quo, because it creates new advantages before competitors are able to preempt these moves. Speed is negatively correlated with complexity, thus there is a danger of simplicity. Simple actions become predictable and can be easily immitated.

Successful firms ”hit” competitors from several different directions at once. Market-leader choosing a complacent strategy may lose its position, being vulnerable to more aggressive challengers.

Competitive Dynamics

The interplay of actions and response and their implications on firms’ performance is defined as competitive dynamics

Firm aggressiveness is the outcome of three factors:

• Timing/speed 
• Frequency 
• Range/complexity 

Timing of action

A company that is first to introduce a new product/service, or first to enter a market, may gain competitive advantage. The advantage may be derived from:

• Monopolistic profits 
• Technological leadership 
• Establishment of brand loyalty 
• Establishment of buyers’ switching costs 
• Economies of scale 
• Learning and experience 

The durability of such advantages is largely determined by the speed of imitation by the competitors. According to Lee et al (2000), "the faster a firm introduces a product, relatively to its rivals, the greater is the impact on shareholders’ wealth". However these advantages can be completely eroded by the sum effect of early and late imitations. Ferrier et al (1999) says that the "industry leaders were more likely to maintain their market share by acting fast against challenges". Challengers who act faster than leaders tend to gain market share.

What about the second mover?

In some cases it is actually the second mover or the imitator who has a better performance. The reason for that is the learning from the first mover mistakes and the ability to create a better product/service through reverse engineering or other methods.

It is very important to note that though the theory stresses the importance of quick reaction/imitation, it is undeceive regarding the benefits of being a pioneer.

Number of actions

Firms take actions in the pursuit of profits and untapped market opportunities. Generally, firms taking more actions are expected to exploit more opportunities and have better performance.

According to Ferrier et al (1999) "market-share leaders were more likely to be dethroned by challengers or to lose market share when they are less competitively aggressive". We expect aggressive firms, those carrying out more competitive actions than rivals, to have better performance than their competitors.

Competitive repertoire

To gain advantage, firms should constantly develop new types of actions. Firms carrying out a broader variety of actions are expected to perform better because they will be perceived as more capable and may be less predictable. On the other hand, a simple repertoire of actions may be too predictable and may erode a firm’s competitive position.

As Ferrier et al (1999) has found in his research "market leaders using a narrower set of actions (relatively to their challengers) experienced market share erosion and dethronement".

How do digital information good characteristics influence pace and modalities of international market entry?

As it was described in the previous post - Internationalization of Internet Companies - digital goods providers can deploy different internationalization strategies. In this post I will use eBay as a case, describing its internationalization process compared to three literature-streams: internationalization theory, internalization theory, and research on international new ventures.

The Internet allows small firms to become international via a website, and communication costs are reduced in international operations.

Digital information goods differ from other goods in several dimensions and their economic implication. These are:

a. experience good character
b. transportation costs
c. (re-) production costs
d. product adaptation costs 

Digital information good providers seek to enter foreign markets through entry modes that allow

a. control for branding and advertising strategies, and
b. gaining access to locked-in customer bases.

Aplikacje Mobilne - statystyki

Nie jest już żadną tajemnicą jak ogromny jest rynek aplikacji na telefony komórkowe. Co wiemy natomiast na temat jak konsumenci używają aplikacji na telefonach komórkowych?

Poniżej znajdziecie świetną infografikę, które pomoże Wam znaleźć odpowiedź na powyższe pytanie.

Internationalization of Internet Companies - Does it fit the I18N model?

Although the theory of the gradual internationalization of firms has been widely studied and supported by researchers, very little is known about the internationalization of electronic commerce firms. To address the issue more effectively, Kim (2003) has conducted a study in the context of Internet firms that are engaged in only online business.

Classic Theories

According to classic theories, e.g. Uppsala research and the Innovation research the internationalization of the comapnies happen gradually as their perceived risk of foreign market decreases. 

The gradual internationalization theory postulates that firms take the entry mode that requires less resource commitment (e.g. exporting) in the beginning of foreign market entry and then shift to another entry mode that demands more resource commitment (e.g. wholly owned subsidiary) as the perceived risks in the foreign market decrease (Uppsala).

Moreover, the gradual internationalization theory implicitly believes that firms enter markets that are psychically close to home market first and then gradually expand into other markets that have a higher psychic distance from the home market (Uppsala). Differences in language, culture, business environment, political and social system, and other factors that are heterogeneous in two markets may contribute to the psychic distance. It has been believed to be one of the most important factors that determine the gradual internationalization process of firms.

Internationalization (I18N)

In economics, internationalization has been described as a process of increasing involvement of enterprises in international markets. A variety of theories explain the existence of the multinational companies and the I18N process.The models explain why do multinationals exist? What should be the pattern of I18N? What should be the entry mode?

The Uppsala Model

Probably the most know I18N model is the Uppsala Model developed in 1977 and conceptualizing I18N as a sequential, path dependent learning process. The model is based on empirical observations from studies in international business at the University of Uppsala, that showed that Swedish firms often develop their international operations in small steps, rather than by making large foreign production investments at single points in time.

Johanson & Vahlne (1977) observed that I18N is a gradual, incremental process, lack of foreign market knowledge create uncertainty and psychic distance disturb learning (accumulation of such knowledge). As a result companies will carry out gradual market commitments (investments). The firm will start exporting to similar/well known countries and gradually expand to other countries.

Mobile Marketing w liczbach

Sektor usług internetu mobilnego rozwija się bardzo dynamicznie. Prognozy przewidują, że internet będzie częściej używany na urządzeniach mobilnych niż na komputerach stacjonarnych już w 2015 roku. Przedsiębiorstwa przygotowują się na tą zmianę inwestując w nowe platformy do sprzedaży mobilnej, strategie oraz działania marketingowe.

Podsumowując: Rynek usług mobilnych jest duży; wyszukania lokalne, gry i YouTube mają się dobrze na urządzeniach mobilnych; społeczności są znaczącym elementem usług mobilnego internetu.

Voluntary sharing of intangible assets in ICT markets: a new challenge for regulators

ICT regulators need to tackle a phenomenon of sharing intangible assets by companies in a dominant market position. It requires a new approach, a synthesis of two contradicting trends: top-down extortion by the state, targeted primarily to the companies with significant market power (essential facility), as well as bottom-up voluntary sharing of the assets (long term strategy of standard recognition and related network effect).

Top-down state regulations

State regulations are directed primarily to the companies with significant market power. These firms need to share its information and knowledge in situations where their absence makes it difficult or impossible for  other companies to conduct their business (essential facility). The business world has seen many attempts to force companies to share their confidential know-how.

Let's take for example a case IBM vs. Compaq, Digital and Intergraph who wanted IBM to share with them its know-how. The court ruled that cooperation should not interfere with intellectual and industrial property that IBM has developed on its own and which led to leading position in this field. However, this view has subsequently evolved towards wider desirability and acceptability on forced sharing of confidential knowledge (such as Microsoft sharing its proprietary source-code).

Sieci strategiczne

Jeszcze kilka lat temu w obszarze zarządzania strategicznego firmy były postrzegane jako autonomiczne jednostki konkurujące o zasoby i wiedze. Jednakże, sieć powiązań i relacji każdej firmy wpływa znacząco na jej działania i wyniki. Według Gulati, Nohria i Zaheer (2000) istnieje pięć kluczowych obszarów, które można rozpatrywać z punktu znaczenia sieci strategicznych. Są to (1) struktura sektora, (2) pozycjonowanie w sektorze, (3) niekopiowalne zasoby i umiejętności firmy, (4) koszty zawierania umów i koordynacji, oraz (5) ograniczenia i korzyści sieci dynamicznych.

Sieci strategiczne można zdefiniować jako zestaw relacji pomiędzy dostawcami, klientami, konkurentami oraz innymi jednostkami organizacyjnymi. Do sieci strategicznych zaliczamy alianse strategiczne, joint ventures, długofalowe relacje pomiędzy kupującymi/sprzedającymi oraz inne, podobne powiązania.

Położenia firmy w sieci strategicznej jest bardzo istotne, ponieważ wpływa na intesywność konkurowania w danej branży. Konkurencja będzie większa wśród firm o podobnej sile i pozycji w sieci. Na jej intensywność będą również wpływać powiązania pomiędzy innymi firmami. Gdy firmy mają ze sobą powiązania ich konkurencyjność względem siebie będzie mniejsza.