first mover

An individual or company who first makes inroads into a new market. Typically, an advantage is gained over competitors because the first mover earns profits early on.

A first mover is closely related to the first-mover advantage. This is the advantage of the company that first introduces a new product or moves into a new market. First movers have an advantage because they do not have to share profits until another competitor enters the market.

There is not always an advantage in being the first mover. Often, the first mover has large start-up costs that exceed revenues. Those that follow them have the advantage of learning from the first mover's mistakes and entering the market less expensively. One example of a first mover in this situation was eToys, the first mover in Internet retailing. The company went bankrupt in 2001 and was eventually bought out by Toys "R" Us.

Netscape enjoyed the first-mover advantage for a while. Netscape was the first to offer an Internet browser. However, in 1997, Microsoft entered the market with Internet Explorer and became the market leader. Netscape, did, however, earn large gains until Microsoft entered the market.

One guaranteed way a first mover can gain and hold onto an advantage is by having patent protection. Many drug companies who are the first to offer a new drug can keep their first mover advantage until generic drugs come onto the market, but only after the first mover's patent has expired.

Some other first movers earn brand loyalty that allow them to hold onto their first mover advantage for years. Coca-Cola, for example, was the first to enter the soft drink market and has a history of success by maintaining a large market share in the soft drink industry.

According to the Harvard Business Review, first mover advantage depends on two factors: the rate of technology and the rate of the market's development. The faster technology moves, such as with software, the more difficult it is for any one competitor to keep a large market share.

The same is true for market development. The telephone, for example, did not penetrate a large market for at least 50 years. People simply did not have a use for telephones. The market for cell phones, however, moved very rapidly, with a market penetration of 70 percent in just two decades. This leaves the market opportunities wide open for several competitors.