When Jeff Bezos launched Amazon back in 1994, the site had only one kind of product. It sold books, and it sold books for two reasons. First, there were a lot of them which meant that it could appeal to a broad range of customers. And second, the competition was smaller. At the time, just six major record companies dominated the music industry. The publishing industry was much more diversified so there was less chance of a major retailer or producer getting in the way.
But it was always clear that Bezos had his eye on bigger things. Books enabled him to refine online retailing, to understand the value of discounting, collecting data, making recommendations, paying seller commissions, and setting up infrastructure and supply and delivery chains that could be used to store and supply anything.
By the time other online retailers came along, Amazon had already picked up many of the benefits that came with moving first.
It had brand name recognition; customers knew who Amazon was. In the early days of the Internet, people knew that if they wanted to buy a book or order a CD, they could go to Amazon and find whatever they wanted. The company wouldn’t steal their credit card details and the goods would always arrive.
The company also had economies of scale. So powerful were those economies that Amazon would later rent out its infrastructure to other businesses, generating an additional revenue stream without harming its own retail business.
And it imposed a switching cost. For Amazon, that cost was mostly measured in risk. A customer who wanted to buy from a new online retailer would have to hope that its payment details were secure. For other first movers, the switching cost is higher. To wean people away from MySpace, Facebook had to first build buzz and offer something much better.
Moving first lets companies build customer loyalty, grow their brands, and put together the infrastructure they need to be able to undercut their competitors.
Winning those advantages though, requires entrepreneurs to possess a particular set of skills. First, they need to have curiosity. Moving first means spotting opportunities that arise when an environment changes. Jeff Bezos was able to create an online store because he was curious about the new Internet and wondered what it could do. While others waited for dial-up speeds to make the Web useful, he was already imagining how useful it would be and contemplating how people would use it.
He also had a passion for innovation, which is essential. It’s one thing to believe that people may one day make more use of the blockchain or of artificial intelligence, but if you’re going to be among the first people to build in that space, you have to love it. You will, after all, be one of the people who defines it.
And above all, you need courage and a willingness to take a risk. It’s easy to look back at the first days of Amazon and wonder how anyone could have doubted that online shopping, a retail environment now worth around $3 trillion, could have done anything but succeed. But it wasn’t obvious then. It wasn’t clear that people would be more willing to order from a computer than they would be to order from a catalogue. It wasn’t certain that if they were willing to buy online that they’d want to buy from Amazon. First movers have to be willing to experiment, fail, and try again. Amazon Spark, a 2017 venture that tried to merge online retailing with Instagram-like features, failed. Amazon restaurants, a delivery service like UberEats, didn’t deliver. Dash buttons that let people order refills of washing liquid or muesli bars, are no longer available. First movers are like early explorers. Sometimes their ships find El Dorado, and sometimes they sink on their way across the ocean. You have to be brave enough to take the journey.
Of course, if that sort of risk looks too dangerous to you, then don’t despair. Moving first may bring advantages but it also breaks the ground for others to follow, teaches other business what works and what doesn’t, and creates a space for competitors. MySpace moved first, and so did AltaVista. It was Facebook and Google who benefitted from the interest and markets that they created. Second movers have advantages too.