E-commerce Amazon Innovation

23 Mar 2015

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Does it pay to be the first mover in e-commerce? The case of Amazon.com

This case study outlines the advantages and disadvantages of the early adoption of e-commerce using Amazon.com as an example. According to a study, being first in the market does not guarantee large market share. According to Shankar et al leaders in the market for personal computers, video games were covered by late entrants. Hence, order of entry does not necessarily make sure a leadership in the market or continuing rewards.

According to the author, imitation over rides innovation in the e-commerce bazaar due to quick technological innovation, fast movement of information and weak patenting laws. Innovation is some times seen as a risk due to the high cost, less chances of survival and imitation. First movers may be able to switch costs as step towards gaining an edge in the e-commerce market. However, that is not long term.

It is most advantageous for companies to prevent transfer of knowledge gained through experience since this will create obstruction to new entrants and there will be few competitors. But this is not practical. On the other hand this may create barrier to company as it may continue to invest in obsolete technology.

There may be advantages of not being first mover in the e-commerce market. It is very risky for a firm to enter the market when there is uncertainty. Followers learn from mistakes that first movers make and attract customers to towards their product by projecting incumbent's product as inferior.

First movers may have failures because of the same routines or patterns of conducting business as was before moving to e-commerce. Companies may need to change depending on the type of business, geographical area and cost.

Amazon was one of the first companies to have an online book store and is very popular in the US. They do not have a physical store (Just a website), which would take order from customers. Amazon was the only online store that provided after sales service to customers when it allowed customers to search for books that were hard to find. It also offered comparative shopping where the site would give suggestions where else the book could be found. They also introduced member programs where a customer could earn commission by introducing customers to them after every purchase they make. Amazon believes that customers online look for brand names. They also maintained records of customers buying habits and purchase history. They have invested 40% of the revenue in brand building and customer loyalty. Since Amazon is first mover in the market it has set standards so that other can follow the same pattern.

The strategies used by Amazon are such that they have a lot of repeat customers and the shoppers become used to buying from them. Innovating and patenting are very important to companies development.

Many customers tend to buy from websites that are tried and tested rather than new websites. Hence, it is very important for new companies to follow strict rules and guidelines in order to show that they offer something unique and different from what others do.

Reference:

Kamel Mellahi, Michael Johnson

Does it pay to be a first mover in eCommerce? The case of Amazon.com

Coventry Business School, Coventry University, Coventry UK

Management Decision 38/7 (2000) 445-452

MCB University Press

ISSN 0025-1747



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