Overview The presence of products with increasing returns suggests that timing of entry can be very important. There are a number of advantages and disadvantages to being a first mover, early follower or late entrant. These categories are defined as follows: First movers are the first entrants to sell in a new product or service category (“pioneers”) Early followers are early to market but not first. Late entrants do not enter the market until the product begins to penetrate the mass market or later.
First-Mover Advantages and Disadvantages Being a first mover can confer the advantages of: Brand loyalty and technological leadership Preemption of scarce assets Exploiting buyer switching costs Reaping increasing returns advantages. However, first movers often bear disadvantages also: High research and development expenses Undeveloped supply and distribution channels Immature enabling technologies and complements Uncertainty of customer requirements
First-Mover Advantages and Disadvantages The market may often perceive first movers as having advantages because it has misperceived who the first mover really was.
Factors Influencing Optimal Timing of Entry 1. How certain are customer preferences? If customer needs are well understood, it is more feasible to enter the market earlier. 2. How much improvement does the innovation provide over previous solutions? An innovation that offers a dramatic improvement over previous generations will accrue more rapid customer acceptance. 3. Does the innovation require enabling technologies, and are these technologies sufficiently mature? If the innovation requires enabling technologies (such as long- lasting batteries for cell phones), the maturity of these technologies will influence optimal timing of entry.
Factors Influencing Optimal Timing of Entry (cont.) 4. Do complementary goods influence the value of the innovation, and are they sufficiently available? Not all innovations require complementary goods, but for those that do (e.g., games for video consoles), availability of complements will influence customer acceptance. 5. How high is the threat of competitive entry? If there are significant entry barriers, the may be less need to rush to market to build increasing returns ahead of others. 6. Are there increasing returns to adoption? If so, allowing competitors to get a head start can be very risky.
Factors Influencing Optimal Timing of Entry 7. Can the firm withstand early losses? The first mover bears the bulk of R&D expenses and may endure a significant period without revenues; the earlier a firm enters, the more capital resources it may need. 8. Does the firm have resources to accelerate market acceptance? Firms with significant capital resources can invest in aggressive marketing and supplier and distributor development, increasing the rate of early adoption. 9. Is the firm’s reputation likely to reduce the uncertainty of customers, suppliers, and distributors? Innovations from well-respected firms may be adopted more rapidly, enabling earlier successful entry.
Strategies to Improve Timing Options To have more choices in its timing of entry, a firm needs to be able to develop the innovation early or quickly. A firm with fast-cycle development processes can be both an early entrant, and can quickly refine its innovation in response to customer feedback. In essence, a firm with very fast-cycle development processes can reap both first- and second-mover advantages.
USE OF SIBLING S CURVES A possible solution to the shortcoming of the S curve is the use of ‘sibling’ S curves. The rationale behind use of sibling S curves is that the core technology of a product or industry often underpins other products or industries. S curves should be determined for these other products or industries to gain a better understanding of where a technology is in its life cycle.
11 - 25 TECHNOLGY DISCONTINUITY Time Subtechnology II Initial region of slow Progress for S 2 S 1 > S 2 Subtechnology I Performance Parameter Performance Limit of S 1 t1t1 t2t2 Performance Limit of S 2
11 - 26 Sibling S-Curves Time Limit of Switching Device Watches Performance Parameters Cash Registers CalculatorsComputers Vacuum Tubes Limit of Applied Device Transistors SSI,MSI Integrated Circuits LSI,VLSI Integrated Circuits
11 - 27 Comparison of CISC and RISC Lifecycles Time CISC Multiprocessor CISC Single Processor Performance Parameter Communications Bottlenecks RISC Single Processor RISC Multiprocessor Speed of Light Limit
11 - 28 A MAGNITUDE OF DEMAND B FUTURE Present INFLECTION POINT F Time GROWTH PATTERN AND POSSIBLE FUTURE STATES OF A TECHNOLOGY
Two major inflection points Exponential to linear Linear to asymptotic
11 - 30 Time/Stage EMBRYONIC Embryonic Performance parameter Growth GROWTHAGING MATURITY Base (Divest Selectively) Key (Build systematically) Pacing (Invest selectively) Emerging (Monitor) TIMIMG OF INVESTMENT STRATEGIES FOR NEW TECHNOLOGY
Market Regularities Stable Patterns of Product Transfer Transfer from Self to Other Enduring Customer Preferences Stable Patterns of Life Cycles
STABLE PATERNS OF PRODUCT TRANSFER Many of today’s products have gone through several, similar product life cycles business use home use car and or portable use
11 - 33 Overall Technology Cycle Composed of Subtechnology Lifecycles Time Home Use Portable or Car Use Business or Factory Use Performance Parameter Limit of Technology
11 - 34 Product Generations within Subtechnology Lifecycles Time Home Use Portable or Car Use Business or Factory Use Performance Parameter Limit of Technology P1 P3 P2 P4 P1 P2 P3
TRANSFER FROM SELF TO OTHER Solutions for internal problems are often useful to others
ENDURING CUSTOMER PREFERENCES Some customer preferences are fairly predictable space time mass (less is often better)
Innovation Strategy The type of innovation strategy adopted can also be used to effect uncertainty an offensive strategy introduces a lot of uncertainty for a firm but pushes progress up the S curve and provides a firm with first-mover advantages a defensive strategy’s wait-and-see approach reduces uncertainty but also doesn’t allow for taking advantage of being the first-mover