Fast-Follower Advantages and Network Externalities in I.T.-Driven Markets

Abstract

Recent research into the theory of first-mover advantage has revealed
that a significant number of first-movers in I.T.-driven markets eventually lose
market leadership. The belief in first-mover advantage spawned a pervasive
body of work in business strategy and was further perpetuated by popular
media. The assumption of first-mover advantage has been extended by
research suffering from survivor bias, whereby pioneers were recognized
only among surviving firms. Instead, recent research suggests that fast-
followership may offer an important strategic advantage. For example, in
their study of 27 I.T.-driven product categories, Hidding and Williams (2003)
found that a fast follower gained market leadership, on average, 60 percent
of the time. Although many hypotheses for fast-follower advantage have
been suggested, few have been empirically tested. There is a particular
dearth of research into fast-followership based on positive network
externalities, which is of particular relevance in I.T.-driven markets. To stimulate
the pursuit of such research, this paper presents a conceptual framework
and a set of propositions that recognize key factors pertaining to network
externalities that contribute to fast-follower advantage in I.T.-driven markets.