Please craft a question that is derived from the overall idea of the article

Smart Mover, Dumb Mover Think the first-mover advantage is a myth? You're wrong: Most pioneering dot-coms failed not because they were first but because they were dumb. By Gary Hamel September 3, 2001 Also available on line: http://money.cnn.com/magazines/fortune/fortune_archive/2001/09/03/309261/index.htm

(FORTUNE Magazine) – I'm not fond of business aphorisms. Bigger is better, content is king, own the customer, cannibalize yourself--these are just a few of the cliches that trivialize complex business issues. Another is the idea of first-mover advantage, with its promise of extraordinary rewards for any company that is first to market with a new service or product. At the height of dot-com mania, first-mover advantage was a near-sacred mantra for VCs and entrepreneurs alike. E-commerce zealots argued that early success would compound even more quickly on the Web than in the dawdling old economy. Being first to build a consumer brand in a new category (Amazon), invent a new business model (eBay), or achieve critical mass (what Webvan was hoping to do) were seen as surefire routes to Midas-like profits.

In reality, of course, first-mover advantages proved illusory. For most dot-com startups, being first was simply a way to lose more, faster. Many pundits began to argue that being a fast follower was a better strategy than trying to be the leader. Old-economy CEOs, eager to avoid the hard work of strategic innovation, seized upon this diagnosis to justify their instinctive fear of novelty. Suddenly, timidity was heralded as a virtue.

But the fast-follower advocates had it wrong as well. Most Internet companies failed not because they were first movers but because they were dumb movers. What companies should learn from the Internet debacle is not that being first is a dangerous form of hubris but that being dumb seldom succeeds. When it comes to trailblazing, there are at least three ways to be a dumb mover--none of which is unique to Internet startups.

Dumb: Getting your timing wrong

If a company invests faster than it learns, it will over-drive the opportunity and end up with an expensive and embarrassing failure. That's the fate that befell Apple's pioneering handheld computer, the Newton. Was there a potential market out there for palm computers? Sure. Could investment and marketing hype alone force the market to develop on Apple's time frame? No. Companies that over-drive an emerging opportunity often under-drive it later on. The initial performance gap, a product of unrealistic expectations and over-investment, produces a rapid retrenchment--and an opening for latecomers.

There is a market-penetration curve for every emerging opportunity. Typically, this curve has an inflection point: a moment when all the pieces of the business model finally fall into place, customer demand explodes, and the market takes off. For videocassette recorders, the curve began to slope gently upward with the launch of Matsushita's VHS format in the late '70s, yet it would take another seven years for VCRs to find their way into one million American homes. By

contrast, the market-penetration curve for Hotmail was a near vertical line, with more than ten million users signing up in the first 18 months. Matsushita ran a marathon. Hotmail ran a sprint. The Apple Newton might have evolved into something Palm-like, but only if Apple had paced itself by spending less, learning faster, and iterating more quickly. Apple blew the handheld opportunity not because it was the first mover but because it was a dumb mover.

Any management team that aspires to be a first mover must ask itself, What race are we running: sprint or marathon? If you try to run a 100-yard sprint like a marathon, you'll be left behind. If you try to run a marathon like a 100-yard sprint, you'll keel over from exhaustion. So it is critically important to ask some questions: Are there difficult technical hurdles? Does market takeoff depend on the development of complementary products or services? Will a new infrastructure be required? Will customers need to learn new skills or adopt new behaviors? Are there high switching costs for customers? Will competing standards confuse customers? Are there powerful competitors that will seek to delay or derail us? If the answer to any of those questions is yes, a company must be careful not to pour in too many resources too soon; the race is going to be a marathon.

On the other hand, answer yes to all of these questions, and you'll need to sprint out of the starting block: Are the customer benefits clear and substantial? Are there potential network effects that will accelerate takeoff? Are there powerful competitors that will be compelled to follow?

Staying on the optimal penetration curve--neither over-driving nor under-driving an opportunity- -is a neat trick, but it's not impossible. AOL, Sun Microsystems, and Quicken-maker Intuit have all done it at one time or another. Smart movers continually review their initial assumptions about the business model, avoid the premium pricing and narrow market definition that create space for latecomers, move quickly to collaborate with would-be competitors, and outsource to maintain flexibility.

Dumber: Overpaying for market share

The allure of capturing a first-mover advantage often produces a spending orgy among a gaggle of look-alike competitors, each intent on ramping up faster than its rivals. That is exactly what happened in many areas of e-commerce. Services were given away free, ad budgets were doubled and then tripled, and massive investments were made in IT infrastructure--all in the quest of getting bigger, faster. In such cases, it's easy to overpay for market share.

To reap a first-mover advantage, a company must buy market share at a discount. That is, it must be able to buy a big chunk of market share before its competitors figure out just how much that share will yield in future profits. That is possible only if a company has a business idea that is truly original, as did eBay and ICQ (the Israeli company that invented instant messaging and was later acquired by AOL).

The fact is, the Internet didn't produce too much in the way of authentic business-model innovation, but rather too little. And even when an original idea did surface, it didn't stay original for long, thanks to the incessant, incestuous networking among Silicon Valley's venture capital

companies. The moral is simple: If you want to profit from a first-mover advantage, you'd better make sure you start with a unique strategic insight that, at least initially, is unattractive to would- be competitors or protected by a wall of patents. Dumb movers swarm; smart movers don't.

Dumbest: Being first with a business model that's DOA

Pets.com. Iridium. Webvan. Northpoint. Many business models are brain-dead from the get-go. They breathe as long as they are hooked up to the ventilator of investor funds but expire the moment investors swallow their grief and pull the plug. There are two fundamental flaws that can render a business model DOA: a complete misreading of the customer (does she really want to order dog food online?) and utterly unsound economics (there will never be enough petroleum geologists and Arctic explorers to make satellite telephony pay). There's no advantage in being first if the destination ain't worth the trip.

Not that this should be seen as an argument for always staying behind. A stupid idea that fails is hardly an indictment of the notion of first-mover advantage. Think twice before you let someone else's idiocy lull you into believing that being first is always a peril-strewn path. Ask Fred Smith at FedEx if he was glad to be first in overnight package delivery, or Andy Grove at Intel (microprocessors), or Herb Kelleher at Southwest Airlines (discount air travel), or Pete Kight at CheckFree (online billing and payment), or Jeff Skilling at Enron (energy trading).

I don't believe any company should set out to be a follower, fast or otherwise. Sure, in hindsight, first movers often look dumb, but it would be imprudent to bet that they will always screw up. Indeed, when you look beyond the lunacy of the Internet bubble and consider companies with high-quality management, deep pockets, and real competencies, you find that being first pays off a surprisingly often.

So before you bet against the first mover, you'd be wise to ask yourself, Am I sure the first mover is going to be a slow learner? Will market penetration stay in single digits for some time to come, giving me time to grab customers later on? Will the rate of technology change remain high, creating opportunities for a leapfrog strategy? Will the first mover fail in signing up the most valuable partners? If you can answer yes to all these questions, then you may have the chance to be a successful second mover.

In the end, the distinction between first mover and fast follower hides more than it reveals. The goal, after all, is not to be first to market in some absolute sense, but to be first to put together the precise combination of features, value, and sound business economics that unlocks a profitable new market. Sometimes the company that does this is the first mover, and sometimes it is not. But it's always the smart mover.

Smart Mover, Dumb Mover Think the first-mover advantage is a myth? You're wrong: Most pioneering dot-coms failed not because they were first but because they were dumb. By Gary Hamel September 3, 2001 Also available on line: http://money.cnn.com/magazines/fortune/fortune_archive/2001/09/03/309261/index.htm

(FORTUNE Magazine) – I'm not fond of business aphorisms. Bigger is better, content is king, own the customer, cannibalize yourself--these are just a few of the cliches that trivialize complex business issues. Another is the idea of first-mover advantage, with its promise of extraordinary rewards for any company that is first to market with a new service or product. At the height of dot-com mania, first-mover advantage was a near-sacred mantra for VCs and entrepreneurs alike. E-commerce zealots argued that early success would compound even more quickly on the Web than in the dawdling old economy. Being first to build a consumer brand in a new category (Amazon), invent a new business model (eBay), or achieve critical mass (what Webvan was hoping to do) were seen as surefire routes to Midas-like profits.

In reality, of course, first-mover advantages proved illusory. For most dot-com startups, being first was simply a way to lose more, faster. Many pundits began to argue that being a fast follower was a better strategy than trying to be the leader. Old-economy CEOs, eager to avoid the hard work of strategic innovation, seized upon this diagnosis to justify their instinctive fear of novelty. Suddenly, timidity was heralded as a virtue.

But the fast-follower advocates had it wrong as well. Most Internet companies failed not because they were first movers but because they were dumb movers. What companies should learn from the Internet debacle is not that being first is a dangerous form of hubris but that being dumb seldom succeeds. When it comes to trailblazing, there are at least three ways to be a dumb mover--none of which is unique to Internet startups.

Dumb: Getting your timing wrong

If a company invests faster than it learns, it will over-drive the opportunity and end up with an expensive and embarrassing failure. That's the fate that befell Apple's pioneering handheld computer, the Newton. Was there a potential market out there for palm computers? Sure. Could investment and marketing hype alone force the market to develop on Apple's time frame? No. Companies that over-drive an emerging opportunity often under-drive it later on. The initial performance gap, a product of unrealistic expectations and over-investment, produces a rapid retrenchment--and an opening for latecomers.

There is a market-penetration curve for every emerging opportunity. Typically, this curve has an inflection point: a moment when all the pieces of the business model finally fall into place, customer demand explodes, and the market takes off. For videocassette recorders, the curve began to slope gently upward with the launch of Matsushita's VHS format in the late '70s, yet it would take another seven years for VCRs to find their way into one million American homes. By

contrast, the market-penetration curve for Hotmail was a near vertical line, with more than ten million users signing up in the first 18 months. Matsushita ran a marathon. Hotmail ran a sprint. The Apple Newton might have evolved into something Palm-like, but only if Apple had paced itself by spending less, learning faster, and iterating more quickly. Apple blew the handheld opportunity not because it was the first mover but because it was a dumb mover.

Any management team that aspires to be a first mover must ask itself, What race are we running: sprint or marathon? If you try to run a 100-yard sprint like a marathon, you'll be left behind. If you try to run a marathon like a 100-yard sprint, you'll keel over from exhaustion. So it is critically important to ask some questions: Are there difficult technical hurdles? Does market takeoff depend on the development of complementary products or services? Will a new infrastructure be required? Will customers need to learn new skills or adopt new behaviors? Are there high switching costs for customers? Will competing standards confuse customers? Are there powerful competitors that will seek to delay or derail us? If the answer to any of those questions is yes, a company must be careful not to pour in too many resources too soon; the race is going to be a marathon.

On the other hand, answer yes to all of these questions, and you'll need to sprint out of the starting block: Are the customer benefits clear and substantial? Are there potential network effects that will accelerate takeoff? Are there powerful competitors that will be compelled to follow?

Staying on the optimal penetration curve--neither over-driving nor under-driving an opportunity- -is a neat trick, but it's not impossible. AOL, Sun Microsystems, and Quicken-maker Intuit have all done it at one time or another. Smart movers continually review their initial assumptions about the business model, avoid the premium pricing and narrow market definition that create space for latecomers, move quickly to collaborate with would-be competitors, and outsource to maintain flexibility.

Dumber: Overpaying for market share

The allure of capturing a first-mover advantage often produces a spending orgy among a gaggle of look-alike competitors, each intent on ramping up faster than its rivals. That is exactly what happened in many areas of e-commerce. Services were given away free, ad budgets were doubled and then tripled, and massive investments were made in IT infrastructure--all in the quest of getting bigger, faster. In such cases, it's easy to overpay for market share.

To reap a first-mover advantage, a company must buy market share at a discount. That is, it must be able to buy a big chunk of market share before its competitors figure out just how much that share will yield in future profits. That is possible only if a company has a business idea that is truly original, as did eBay and ICQ (the Israeli company that invented instant messaging and was later acquired by AOL).

The fact is, the Internet didn't produce too much in the way of authentic business-model innovation, but rather too little. And even when an original idea did surface, it didn't stay original for long, thanks to the incessant, incestuous networking among Silicon Valley's venture capital

companies. The moral is simple: If you want to profit from a first-mover advantage, you'd better make sure you start with a unique strategic insight that, at least initially, is unattractive to would- be competitors or protected by a wall of patents. Dumb movers swarm; smart movers don't.

Dumbest: Being first with a business model that's DOA

Pets.com. Iridium. Webvan. Northpoint. Many business models are brain-dead from the get-go. They breathe as long as they are hooked up to the ventilator of investor funds but expire the moment investors swallow their grief and pull the plug. There are two fundamental flaws that can render a business model DOA: a complete misreading of the customer (does she really want to order dog food online?) and utterly unsound economics (there will never be enough petroleum geologists and Arctic explorers to make satellite telephony pay). There's no advantage in being first if the destination ain't worth the trip.

Not that this should be seen as an argument for always staying behind. A stupid idea that fails is hardly an indictment of the notion of first-mover advantage. Think twice before you let someone else's idiocy lull you into believing that being first is always a peril-strewn path. Ask Fred Smith at FedEx if he was glad to be first in overnight package delivery, or Andy Grove at Intel (microprocessors), or Herb Kelleher at Southwest Airlines (discount air travel), or Pete Kight at CheckFree (online billing and payment), or Jeff Skilling at Enron (energy trading).

I don't believe any company should set out to be a follower, fast or otherwise. Sure, in hindsight, first movers often look dumb, but it would be imprudent to bet that they will always screw up. Indeed, when you look beyond the lunacy of the Internet bubble and consider companies with high-quality management, deep pockets, and real competencies, you find that being first pays off a surprisingly often.

So before you bet against the first mover, you'd be wise to ask yourself, Am I sure the first mover is going to be a slow learner? Will market penetration stay in single digits for some time to come, giving me time to grab customers later on? Will the rate of technology change remain high, creating opportunities for a leapfrog strategy? Will the first mover fail in signing up the most valuable partners? If you can answer yes to all these questions, then you may have the chance to be a successful second mover.

In the end, the distinction between first mover and fast follower hides more than it reveals. The goal, after all, is not to be first to market in some absolute sense, but to be first to put together the precise combination of features, value, and sound business economics that unlocks a profitable new market. Sometimes the company that does this is the first mover, and sometimes it is not. But it's always the smart mover.