Chapter 6 - First Movers

The first entrants into a new market created by a disruptive technology will establish an unassailable position and reap the lion’s share of benefits in terms of customers, markets, and profits. At least, that’s the theory. And, certainly, numerous first movers have achieved a sustainable long-term advantage. Take Citibank, for instance. Its early embrace of the upgraded automatic teller machine (ATM) earned it a measurable market share among precisely the most profitable customer set while its competitors were still churning out studies showing that ATMs could never be cost-effective. Citi held its position even after its competitors introduced the machines, confirming what NationsBank’s CEO Hugh McColl told us years later: "IT innovation can help you gain market share, and customer inertia helps you keep it."

Today’s Internet paragons like Amazon, eBay, and Yahoo may again prove McColl right, but not without a few caveats. It’s true they started with first-mover advantage, but it was the succeeding layer upon layer of sound decisions and active leadership that buttressed their competitive positions and helped them fend off rivals. Latecomers could muscle aside the first movers, but only with difficulty and even better decision making and leadership. So, first- mover advantage is merely a starting point, and it’s still too early to tell whether Amazon and eBay can hold their lead indefinitely. Certainly, AltaVista, the early Internet-search leader, tumbled like a dried leaf before latecomer Google.

Even that’s only half the story. First movers often enter the market before it’s been definitely reshaped by the disruptive technology. Too often they try to mold new technology around old business models, with disastrous results. All three of the 1980s' PC market leaders—Apple, Commodore, and Tandy—made that mistake by trying to shoehorn microprocessors into older and inappropriate models. Apple eventually succeeded, but only marginally. The other two disappeared, making first-mover disadvantage a leitmotif of the PC revolution.

Technology Upends Business Models

The history of semiconductors and microprocessors is remarkably compact, considering its force and sweep. Vacuum tubes were replaced by the transistor developed at Bell Labs in 1947, and a decade later transistor equivalents were being etched onto silicon chips as “integrated circuits.” Accelerating progress prompted Gordon Moore, then the director of research at Fairchild Semiconductor, to postulate his industry-defining “law” in 1965. With some later revision to Moore’s initial pronouncement, the law projects that the number of circuits that can be placed on a chip will double every eighteen months.

Amazingly, for these cynical times of revisionist everything, that projection has held up. In the forty-three years since Moore’s first pronouncement, the number of circuits on a chip has exploded from thirty-two to more than two billion in 2008.

In 1968, Moore joined Robert Noyce and Andrew Grove to found Intel, which began development of the DRAM (dynamic random access memory) technology used for short-term storage of computer data and programs during processing. Two years later, while working to build a seven-chip logic engine for Busicom, a Japanese manufacturer of desktop calculators, Intel engineer Ted Hoff hit on the idea of displacing the seven chips with a single-chip microprocessor. Besides considerably reducing manufacturing costs and hardware-development time, Hoff’s invention, when combined with inherently malleable software, would expand the microprocessor market to multiple uses beyond calculators.