First-mover advantage, a strategy myth: Lesson from BuddyPhone and videoconferencing

There’s a well-established theory in strategy called first-mover advantage. It states that the first company to enter a new market is able to erect a barrier to entry that secures a position that is difficult for subsequent entrants to challenge. While this theory may seem obvious, it is often contradicted by the facts. A good example is video conferencing.

Want to talk to someone on the other side of the world? Zoom (or teams). Video conferencing has become commonplace. Few people still use the phone to call abroad. But Zoom and Teams were far from the first to offer this service. Before them, there was GoogleTalk, released in 2005. Initially an instant messaging system, it soon offered the ability to have voice conversations. Google Talk was discontinued in 2013 and replaced by Google Hangouts, which in turn was replaced by Google Meet and Google Chat in 2017. And before GoogleTalk, there was Skype, the undisputed master of the subject. Launched in 2003, Skype enjoyed enormous success, then disappeared when Covid came along. And before that, there was MSN Messenger, launched by Microsoft in 1999. Initially a simple chat system, the application quickly expanded to offer voice in 2001, followed by video in 2002. Then there’s Yahoo! Messenger, launched in 1998 as Yahoo! Pager (hi hi hi), which started out as text-only. And there have been many others.

One of the advantages of Skype was that you could call a phone number from your PC for a very small fee (SkypeOut). Given the cost of international calls at the time, this was obviously very attractive. You could use a PC to make a call without your correspondent having to use a PC. But the pioneer of PC-to-phone telephony wasn’t Skype. It was an application called Net2Phone, launched in… 1998. I remember using it for a nearly thirty-minute call between India and France on Christmas Eve, for a very modest sum. Net2Phone today? Gone.

As for PC-to-PC calls, totally free, a little German software called BuddyPhone also did this five years before Skype, back in 1998 (my startup at the time made an addressing system for it). Ultra-simple, very efficient even when calling from a single phone line, it saved me a lot of money on my international calls between 1998 and 2002, at a time when we were told that voice over the Internet wouldn’t work. BuddyPhone today? Gone. It doesn’t even have a Wikipedia entry. Tough to be an unsuccessful pioneer!

It’s not (always) the first who wins

The lesson here is that it’s not the first who wins, at least not always. There was no first-mover advantage. Zoom launched in 2013, ten years after Skype, which is now all but gone (one of the few people I know who still uses it only uses it to call phone numbers in the US). Google and Microsoft were there very early and had everything they needed to push their solution. Today, only Microsoft has managed to push Teams after the failure of its previous solutions (including the acquisition of Skype). Whatsapp, another of today’s dominant text, audio and video applications, was only launched in 2009, originally… to replace SMS (which was paid for at the time).

One of the reasons for this is that the emergence of a new sector is taking place in a double context: first, that of a ferment of different and alternative approaches: text chat, voice chat, video, but also PC-to-PC or PC-to-phone, or even the use of specialized terminals. It’s been forgotten, but the value of videoconferencing was not proven at the time. Voice seemed to be enough. Are we talking about videoconferencing, teleconferencing, phone calls, or Internet calls? Second, infrastructure development has a big impact. If few people have access to a reliable Internet connection and bandwidth is low, voice is very difficult and video doesn’t stand a chance. This is where a PC phone solution comes in, especially for international communications. But this interest waned as PC ownership and Internet access grew. The PC-PC approach finally takes over.

What’s also striking is the total absence of telecom operators in this battle. While they spent most of the period 1990-2010 developing a strategy of offering services to escape the commoditization of their “plumbing”, they completely missed out on visio. It’s not for lack of trying (as far back as the 60s), but they were held back by two obstacles: their entrenchment in a mental model that translates into an insistence on promoting non-PC solutions (it was the telephone that was supposed to become multimedia), and the initial poor quality of the voice and especially video experience on the Internet, which led them to wait and see, leaving room for new entrants. They fell victim to the classic innovator’s dilemma.

There may be first mover advantages, but they are rare. Fortunately, there are more criteria for success in a new market than just the order of arrival. Not only do you have to establish a position in a new territory, you also have to be able to defend it over the long term in an often highly uncertain and changing environment.

🇫🇷 A version in French of this article is available here.

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