Timing for Market Entry for New Products

Launching a new product at the optimal time is imperative in today’s competitive market environment[1].  Yet for a company to be able to identify the optimal time to launch a new product is somewhat trivial as many variables come into play which might make the difference between being able to become a pioneer in the industry and harvesting the benefits of becoming the leader for a long time, become a follower and benefit from the lessons learned off the pioneer, or enter the market at the wrong time and miss the opportunity.  

Qualitative and quantitative decisions come into play when deciding the timing to enter the market.  Questions such as: when to enter, how to enter, who are the players, where to enter and what type of entry[2], need to be answered and carefully analyzed by weighing the advantages and disadvantages for a company to make the right entry choice for their new product.  

Companies need to be aware of their current situation and their product to decide if it is convenient to become a pioneer, early follower, or late follower, as taking on any of these roles has its benefits and risks.  

A variety of factors are relevant when it comes to the timing of the market entry.  

Five relevant factors to consider are:

• the size and dynamics of the market demand
• the impact, and the incumbent competition before and after the product launch 
• their current product quality 
• market knowledge, and intelligence 
• the stage of industry evolution  

A company must know if the timing is right or if there is a window of opportunity by understanding the current and future markets, this is where factors such as market demand and industry evolution come into play.  Launching the product at the right moment is crucial for success, but also, launching a product with the quality that the customer expects.  Otherwise, the competition might easily launch a product that truly meets the customers’ expectations and gain the lead in the industry.

We have been discussing the importance of the timing for market entry and the relevant factors to be taken into consideration when introducing a new product to the market.  These factors lead a company into deciding if it should enter the market as a pioneer or a follower.  But, what is the difference between entering the market as a pioneer or a follower, and what are the advantages and disadvantages a company must face when choosing?  Let’s better understand the difference between the pioneering and following strategies, and study some success cases for both strategies.

Pioneer

Pioneers, or first movers, tend to enjoy an advantage when launching a new product to the market.   Being first typically enables a company to establish strong brand recognition and customer loyalty before other entrants to the market arise.  Another advantage is the additional time a first-mover business has to perfect or improve its product or service[3].  Economies of scale represent another pioneer advantage as it allows for a longer learning curve that frequently enables the pioneer to establish more cost-efficient means of producing or delivering a product.  A first mover often can lock in relationships with suppliers, locations, and key personnel.

Amazon AWS – Pioneering case study

Back in the early 2000’s Amazon was experiencing rapid growth in its e-commerce retail store.  While the growth was beneficial, its computer systems infrastructure was facing the challenge of not being able to keep up with this growth and scale as Amazon needed.  During that same time, Amazon wanted to launch an e-commerce service called Merchant.com to help third-party merchants like Target and Marks & Spencer build online shopping sites on top of Amazon’s e-commerce engine[4].  

Amazon realized it was a lot more challenging than they thought it would be because of the way that their systems were initially developed back in 1994.  When the business started the platform was built without taking into consideration the future growth and expansion that now Amazon was experiencing.  Amazon resources were spending a lot of time and duplicate effort to develop modules and maintain the systems platform.  That is when Amazon decided to untangle the mess by decoupling its systems modules and developing well-documented APIs, without knowing they were building the first step toward what would later become AWS.

Decoupling its building modules, allowed Amazon to develop Merchant.com, and become more agile internally.  This was important because to be competitive Amazon needed to run as lean as possible.  Fast-forward three years later, Amazon engineers, Benjamin Black and Chris Pinkham presented a paper describing a vision for Amazon’s retail computing infrastructure[5].  They noticed how Amazon benefit from the decoupled and automated services and figured that these services could also be sold outside of Amazon to benefit other companies.  They could sell the infrastructure as a service, which was a great idea since the maintenance cost of a scalable infrastructure in a traditional multi-datacenter model could take as much as 70% of resources and underutilize by using only 20-10% of its computing capacity[6].  

Providing these services in an on-demand fashion using a utility pricing model had the potential to radically reduce these costs.  Amazon utilized the Internet as its operating system, and all its services will run on top of this platform.  AWS delivered the first storage service, Amazon S3, in the spring of 2006 and compute, Amazon EC2, in the fall of that year.  Ten years later Amazon AWS is still the leader in the industry garnering more than 30% of the market.  That is more than its three closest rivals, Microsoft, IBM, and Google combined[7].

Follower

It is a general belief that the first to launch a new product or technology takes home the win, and in many cases, that is true, even after the entry of followers, first movers may continue to hold the biggest market share, but entering a market already established by pioneering firms may have significant advantages.  Followers will be able to learn from the pioneer’s strategies and mistakes and can choose to imitate what worked for pioneers and improve on the pioneer’s weaknesses to take over the market or at the bare minimum pair up and enjoy a share of the market, in many cases, by taking less risks.  Followers can take the lead in the market by offering superior customer service, improving product quality, developing cost-efficient processes to develop a similar product, launching a product that better fits a specific market or even improving the distribution strategy.  Whichever the case is, followers can greatly benefit by entering the market at the right time.  Some studies, such as the Golder and Tellis analysis published in 1993 found that the failure rate for the first mover was 47%, whereas the fast follower’s failure rate was reduced to 8%[8].

We just evaluated the case of cloud computing pioneer Amazon AWS, but its success has gotten the attention of many technology companies, including giants such as Microsoft, IBM, Oracle, and Google.  All of which had implemented a follower strategy to make themselves noticed in the cloud computing market.  Not only because it is a young market with lots of opportunity but also because dominating this market will impact the company’s image and brand in the future as a technology leader.

Microsoft Azure – Follower case study

Microsoft Corporation is an American multinational technology company founded by Paul Allen and Bill Gates on April 4, 1975.  It develops, manufactures, licenses, supports, and sells computer software, consumer electronics, personal computers, and services.  Its best known for its line of MS Windows operating systems, MS Office Suite, and Internet Explorer browser, as well as hardware products such as the Xbox video game consoles and Microsoft Surface tablets[9].  We all know that Microsoft is the leader in the operating systems world, as well as Internet browsing and productivity suites just to mention a few, so why did Microsoft decide to enter the cloud computing market?  

Microsoft had been playing with the cloud concept since the mid-2000s, but Microsoft and other enterprise software giants initially treated the cloud as a novelty.  Only later did they realize the thread as customers started moving to AWS and did not need products like Windows Server and SQL Server, which are popular in data centers[10].  MS Azure was announced in 2008 and officially launched on February 1^st, 2010 as Windows Azure[11].  That was four years after Amazon launched AWS.  Microsoft launched Azure aggressively to fill that gap that companies with a Microsoft infrastructure had when looking to move to the cloud and that only AWS was filling at the moment.  

Probably the biggest threat for Microsoft was that companies that decide to move from on-premise data centers into the cloud would be dropping the Microsoft data center products and moving to AWS.  This is a serious threat to Microsoft’s revenue and long-term customer relationship, and with MS Azure they can now offer a cloud solution that better integrates with their existing data center products and allows Microsoft to keep their customers either in an on-premise platform or at the cloud.  

MS Azure currently offers similar features, support, and services as AWS[12].  Yet it needs to gain as much market share as possible and fast, because once a customer moves its systems infrastructure to AWS it may be a lost customer forever.  Microsoft has been offering MS Azure at lower prices than AWS and continuously cuts prices to gain more attention.  Its most recent price cut was 51%[13].  Although the price comparison between Azure and AWS is confusing and in some instances, Azure may result more expensive than AWS[14].  Still, the actual cloud services themselves are much easier and more cost-effective than legacy on-premise services.  MS Azure is growing fast and has been able to keep many of its customers thanks to Microsoft’s brand reputation.  Azure’s revenue increased 90% in the period and has exceeded AWS growth for at least eight straight quarters, but Microsoft has yet to break out the unit’s sales.  According to Synergy Research Group, AWS controls 34% of the market while Azure has 12%[15].  However, Microsoft is picking up high-profile clients as it adds features, lowers prices, and expands data center capacity around the world.

Conclusion

Pioneering and follower strategies have worked well for both Amazon and Microsoft in the cloud computing market, as well as in the past when they played reversed roles.  Amazon was the follower of Books.com[16] in the books online retail market, and Microsoft a pioneer with the Windows operating system; strategies that made them both leaders in the respective industries.  Demonstrating that when it comes to market entry it is all about the right timing and having the necessary resources and a well-thought plan in place to exploit the market based on the product and company position at the moment, and the opportunities available.

Resources

[1] Eunsang Yoon, Ph.D., “Presentation for the Annual USASBE Conference”, January 2018

[2] Zachary, Miles; Gianiodis, Peter T.; Payne, G. Tyge; Markman, Gideon D. Entry Timing: Enduring Lessons and Future Directions. Journal of Management, 2014

[3] https://www.investopedia.com/terms/f/firstmover.asp, “First Mover”, accessed Jan. 14, 2018

[4] https://techcrunch.com/2016/07/02/andy-jassys-brief-history-of-the-genesis-of-aws/, “How AWS came to be”, accessed Jan. 14, 2018

[5] https://www.networkworld.com/article/2891297/cloud-computing/the-myth-about-how-amazon-s-web-service-started-just-won-t-die.html, “The myth about how Amazon’s Web Service started just won’t die”, accessed Jan. 14, 2018

[6] https://www.quora.com/How-and-why-did-Amazon-get-into-the-cloud-computing-business-Rumor-has-it-that-they-wanted-to-lease-out-their-excess-capacity-outside-of-the-holiday-season-November%E2%80%93January-Is-that-true, “How and why did Amazon get into the cloud computing business? Rumor has it that they wanted to “lease” out their excess capacity outside of the holiday season (November–January). Is that true?“, accessed Jan. 14, 2018

[7] https://techcrunch.com/2016/07/02/andy-jassys-brief-history-of-the-genesis-of-aws/, “How AWS came to be”, accessed Jan. 14, 2018

[8] http://www.businessinsider.com/youre-better-off-being-a-fast-follower-than-an-originator-2010-10, “You’re better off being a fast follower than an originator”, accessed Jan. 14, 2018

[9] https://en.wikipedia.org/wiki/Microsoft, “Microsoft – Wikipedia”, accessed Jan. 14, 2018

[10] http://www.businessinsider.com/why-amazon-is-so-hard-to-topple-in-the-cloud-and-where-everybody-else-falls-2017-7, “The cloud wars explained: Amazon is dominating, but Microsoft and Google are striking back”, accessed Jan. 14, 2018

[11] https://en.wikipedia.org/wiki/Microsoft_Azure, “Microsoft Azure – Wikipedia”, accessed Jan. 14, 2018

[12] https://www.cloudorado.com/vs/aws_vs_azure, “AWS vs Microsoft Azure”, accessed Jan. 14, 2018

[13] https://www.techrepublic.com/article/microsoft-cuts-azure-prices-as-competition-with-aws-google-heats-up/, “Microsoft cuts Azure prices as competition with AWS, Google heats up”, accessed Jan. 14, 2018

[14] https://www.parkmycloud.com/blog/azure-cloud-pricing/, “Cutting through the AWS and Azure Cloud pricing confusion”, accessed Jan. 14, 2018

[15] https://www.cnbc.com/2017/10/28/microsoft-azure-is-growing-faster-than-aws-backed-by-big-brands.html, “Microsoft Azure is growing faster than AWS and big brands are behind the expansion”, accessed Jan. 14, 2018

[16] https://en.wikipedia.org/wiki/First-mover_advantage, “First-mover advantage”, accessed Jan. 14, 2018