Management strategists are usually on the lookout for innovations and new opportunities so that their organisation can achieve a first mover advantage. The first mover in a new market can usually help to define the parameters of the new market and can achieve high brand awareness to the point where the brand name is also the name of the new innovation. For example, Walkman or Fitbit are product names that have often been associated with a family of products as they were seen as the first famous brands in that family. However, Moore’s law would seem to suggest that first mover advantage can be quickly lost by advancing technology. Gordon Moore originally observed in 1965 that the number of transistors in a dense integrated circuit doubles approximately every two years. This ‘law’ has now come to describe the driving force of technological advancement, with the initial observation equated with the doubling of computer chip performance every two years or so. While these same improving conditions give rise to an innovation that you may be able to capture, the conditions also suggest that your success as a first mover is at risk from others who develop later. WhatsApp, for example, rose quickly, but its successors rose just as quickly due to constant innovation in the environment. Thus, because advances in technology are so rapid, first mover advantage can be lost rapidly as the new innovation replaces the old.

WhatsApp and other innovations also taught businesses to chase users rather than consumers. WhatsApp started out in 2009 and in 2014 Facebook acquired the company for approximately US$19 billion. At that time, WhatsApp had about 500 million active monthly users, but the company had almost no revenue from its operations. Thus, the company was sold for US$19 billion with 500 million users but almost no customers. This move to chase users rather than customers has been associated with ‘Metcalf’s law’. In 1980, when discussing the ethernet, Robert Metcalf suggested that the value of a telecommunications network is proportional to the square of the number of connected compatible devices using the system.

Today this law is understood in relation to the ‘users’ of a system, hence WhatsApp could be valued in relation to its users rather than paying customers.These examples serve to demonstrate that those who are first to market with an innovation are not always the market share winners. Innovation is a continual evolving process that requires a dynamic approach to strategy in order to successfully turn ideas into profit.

QUESTION

What implications does Moore’s law have for companies planning to invest in research and development? Why, or why not, is it worth including research and development in your strategic plan?

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