The Hindu Business Line : A certain comfort

Old and established technologies offer a certain comfort, in spite of better alternatives available, as the latter take much pain and effort to adapt to.

LAST time, this column started giving the `first mover advantage' a hard look. We saw that one generally accepted key benefit, i.e., shaping the consumer, is more illusory than it looks.

So what about other business benefits, such as familiarity with technology, operational efficiencies, and so on and so forth?

Switching costs

This is more common in the technology domain. Consumers incur cost in changing from one product to another. The most famous example of this is the Qwerty keyboard - well known for its ergonomic inefficiency, placing an overload of effort on the weakest fingers. Yet, despite the better products that came after that - the Dvorak keyboard, for example, Qwerty it is for you and me. The reason is simply that having learnt how to type on Qwerty, none of us can invest the time or the energy in mastering a fresh set of finger movements. Matsushita's VHS gained industry acceptance as the dominant standard, driving Sony's Betamax off the market. Another example of this is the increasing returns felt by Microsoft - the more installations they had, the more consumers were educated on how to use their packages, the less the urge to move to a competing product, even if it was crash-proof.

Closer home is the ensuing tariff war in cell-phones. You may be very attracted by a new entrant's drop in tariff - but factor in the hassle of informing all and sundry of your changed phone number, and switching suddenly seems less attractive.

Network externalities

Again, more common in hi-tech products, where the value of the product lies not just in its own attributes, but in the number of consumers using it. Take e-mail - until the Internet got popularised, mere access to e-mail was not of much value - who would you write to?

Compatibility is an issue which often impedes growth in the network. This is what happened in the VHS and Betamax video format wars. Another example is the fax machine - in the beginning, few people wanted to invest in one until they were sure there was a large enough installed base of fax machines.

Pioneers in the tech domain have to aggressively seek to increase the network of users. Adobe has become the de facto standard for document management in the Internet - that is because Adobe has aggressively gone about giving away its reader software free on machines - now the time for increasing returns and switching costs has set in. This is what is holding back the videocam industry - no point having one unless everyone you know also has one, right?

You might be surprised to know that the SMS industry in the US is not as fleshed out as in India. Quite simply because there were no common standards for SMS (much like the Betamax and VHS video-format wars) - so the lack of the network prevented growth of the industry. In a similar way, desktop video conferencing is not likely to take off till there are enough of them around to communicate with each other.

Operational advantages

Back to more traditional consumer markets! In today's reality of excess capacity and easy outsourcing, the benefits from these are not significant strategically. From soaps to garments, there is enough outsourcing capacity in India. The follower is able to quickly match any production or operational advantages. In fact, very often the follower may be the original supplier of the products to the pioneer. In kids' soaps, for example, VVF manufactures Johnson's baby soap. So, does J&J have any cost advantages? Or has it imbued VVF with extra source credibility (assuming the trade is savvy enough to demand it) while originally placing his products?

Here's another thought. As we saw, the innovators are often smaller companies. In bygone days, they could hope to be left alone long enough to build a respectable business. No longer. The first sign of a promising new product, and the heavyweights have entered the market! Nirma had over a decade to build its powder before Wheel was launched. Jyothy started in 1983 - the first serious response from Robin came in the Nineties. These time lags are inconceivable today - when Jyothy launched mosquito repellents, the response came within months.

In today's market, before the innovator has had time to get his business to any sort of respectable size, he's already facing competition from bigger companies with far better sourcing capability, media buying, and what have you.

How real are these advantages?

Remember the Real Value Vacuumizer? You had to invest in a clunky table-top machine with a number of assorted dubbas to ensure savouries that would stay crisp. Bombed badly.

Colgate was believed to have an invincible position in toothpastes. Then how come Anchor came out of nowhere - without even an FMCG background, to gain an eight per cent share?

HMT owned the watches industry for aeons, till Titan took it apart. Now Titan is facing enormous pressure from a range of new competitors.

Quick quiz

Who brought in the epilator, Braun or Philips?

Who launched mid-market shirts first, Peter England or Excalibur?

Who exploded the pen market - AddGel or Reynolds?

Do you know? More important, do you care?

If pioneering is a risky venture, with short-term benefits that can be easily evaporated, does it make more sense to be a follower?

We'll follow this train of thought next time.

(The author is a Chennai-based consultant. Karate-gy is a proprietary term for strategic exercises conducted by Paradigm Management Knowhow.)

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