Strategies for late entrants in a network market

Abstract

Standard theory of network effect predicts that in an industry displaying network effect, a first mover will enjoy many advantages over late entrants due to positive feedback and increasing returns. Although there exist numerous actual business cases that defy such a prediction, this assertion was seldom challenged before. This paper proposes that if late entrants take into account three strategic factors - 1) existence of supporting industry, 2) existing incumbent’s strategic focus, and 3) speed of technological changes – in formulating their entry strategy, then their chances of breaking into the network market protected by incumbents will be higher. Finally, the subjective interpretation of the three strategic factors are discussed.