المملكة العربية السعودية
الجامعة السعودية اإللكترونية
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Management of Technology (MGT 325)
Due Date: 08/10/2022 @ 23:59
Course Name: Management of Technology
Course Code: MGT325
Student’s ID Number:
Semester: 1st Term-Semester-1
For Instructor’s Use only
Instructor’s Name: Dr. XXXXXXXXXXXXXX
Students’ Grade: 00 /15
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
• All answered must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism).
• Submissions without this cover page will NOT be accepted.
Course Learning Outcomes-Covered
➢ Recognize the dynamics and the importance of managing technological innovation
strategically. (LO 1.1)
➢ Explain of the concepts, models for formulating strategies, defining the organizational
strategic directions and crafting a deployment strategy. (LO 2.2)
Textbook:Schilling M.A (2020),Strategic Management of Technology Innovation (6th Edition). McGraw Hill Education. Electronic Version: ISBN-13: 978-1260087956 ISBN-10:
1260087956, Printed Version: ISBN-13: 978-1260087956 ISBN-10: 1260087956
Weight: 15 Marks
Students are expected to refer to chapter 5 ‘Timing of Entry’ of their textbook along with
the case study ‘UbarAIR’ mentioned in page number 95. Then they are required to do an
extensive research on Uber and it’s plans for UberAIR along with their innovation tactics
and plans. UberAIR’s potential competitors should also be researched thoroughly.
Based on the knowledge and information gathered by referring to the textbook and the
students own thorough research; they are required to answer the below mentioned
questions as per the instructions.
Note :➢ Only reading the textbook will not be enough to score grades or answer the
➢ Do adhere to the word limit strictly, mere one or two sentence answers will not be
entertained, they need to be supported with further explanation and facts.
➢ It is mandatory to support each answer with at least two scholarly, peer-reviewed
Q1- Give your opinion on the assumption- ‘Uber’s success in ride sharing would act as an
advantage to meet its target returns and become market giant in Air Ride sharing. (2.5
Marks, Min words 200-250)
Q2- Based on your above answer (answer of question 1), judge whether it would be a
sustainable practice by Uber. Defend your answer. (2 Marks, Min words 200)
Q3- Throw light on the current status of Uber Air’s commercial deployment initially targeted
to be in 2023. (1.5 Marks, Min words 150-200)
Q4- First mover advantage (Timing of entry) benefit Uber enough to risk such an ambitious
project. Give your opinion and reason it. (1Marks, Min words 100)
Q5- Will Uber be able to exploit Buyers Switching Cost? Examine With reference to chapter
5 of your textbook. (2 Marks, Min words 200)
Q6- How will Uber’s timing of entry give it the advantage of ‘Preemption of Scarce
resources‘? (2 Marks, Min words 200)
Q7- Elucidate the four first mover DISADVANTAGES that Uber Air might encounter. (4
Marks Min words 350-400)
✓ All students are encouraged to use their own words.
✓ Use Saudi Electronic University academic writing standards and APA style
✓ Use proper referencing (APA style) to reference, other styles will not be accepted.
✓ Support your submission with course material concepts, principles, and theories from
the textbook and at least two scholarly, peer-reviewed journal articles unless the
assignment calls for more.
✓ It is strongly encouraged that you submit all assignments into the safe assignment
Originality Check prior to submitting it to your instructor for grading and review the
grading rubric to understand how you will be graded for this assignment.
Timing of Entry
In April 2017, Jeff Holden, the chief product officer at Uber Technologies Inc.
announced a radically new product called UberAir, an on-demand air transportation service:
On-demand aviation, has the potential to radically improve urban mobility,
giving people back time lost in their daily commutes. . . . Just as skyscrapers
allowed cities to use limited land more efficiently, urban air transportation
will use three-dimensional airspace to alleviate transportation congestion
on the ground. A network of small, electric aircraft that take off and land
vertically (called Vertical Take-off and Landing, or VTOL, and pronounced
vee-tol), will enable rapid, reliable transportation between suburbs and cities and, ultimately, within cities.a
Uber’s on-demand ride-sharing service had seriously disrupted traditional taxi
and livery, and induced many people to eschew car ownership altogether. However, that service was based on an innovative business model and a software
application—it did not require technological advances in either automobiles
or driving infrastructure. UberAIR was almost the opposite: it would leverage
Uber’s existing business model and software programs, but would require major
technological development in air transportation technology, infrastructure for air
traffic control, and a network of landing pads. It was an ambitious project, to put
Uber was founded in 2009 as a taxi-like ride-sharing service. Customers could
request a ride using a smartphone application, and the software would notify
Uber drivers in the area of the request. When one accepted, it would show the
customer the car’s approach on a map in real-time. The driver would take the
user to their destination, and payment would occur automatically using the customer’s credit card information that was stored online.
Perhaps the most unique part of the business model was that Uber drivers
did not technically work for Uber. Drivers were independent contractors; they
96 Part One Industry Dynamics of Technological Innovation
needed only a smartphone, a driver’s license, a car, insurance, and a clean driving record to qualify to become an Uber driver.b A dynamic pricing model raised
prices when demand was high and drivers were few, and the higher prices, in
turn, lured more Uber drivers to start accepting ride requests.
Over time the company added different classes of services (such as UberPool,
Uber X, Uber XL, Uber Select), and different services such as food delivery (Uber
Eats), freight service (Uber Freight), and pet transport (Uber Pets). By 2016, Uber was
also testing autonomous vehicles in San Francisco.
Though the firm had endured numerous early conflicts with taxi unions and
some highly public scandals involving one of the company’s founders, Travis
Kalanick, the service was a huge success. By 2015, it had completed its one
billionth ride, making it the second largest ride-sharing service worldwide,
after Didi Chuxing in China. By 2018, it was operating in more than 674 cities
in 82 countries worldwide. Its net revenue (after paying drivers) in 2017 was
$7.4 billion, and though the company was not publicly held, its market valuation
was estimated to be $72 billion.
Opportunities and Challenges for UberAIR
In 2018, there were more than seventy companies developing electric VTOLs
(eVTOLS), including Karem Aircraft, Embraer, Aurora Flight Sciences, and Bell
Helicopter. However, there were a number of obstacles that had to be overcome
to make UberAIR a reality. First, an eVTOL used an enormous amount of energy
and would be heavily reliant on advances on battery development and charging
infrastructure. Second, there would be numerous legal and safety issues to be
worked out pertaining to air traffic control, pilot training and licensing, compatibility with city infrastructures, noise, dealing with adverse weather, and more.
Last, but not least, was cost. The technology to vertically take off and land
already existed in the form of helicopters, but most people have never ridden in
one because it is an extremely expensive mode of transportation, estimated to
be at least $8.93 per passenger per mile. How would UberAIR be different? First,
electric propulsion was expected to be much more fuel efficient and require less
maintenance. Second, the much smaller eVTOLs could land at flexible “skyports”
rather than the large helipads or airports that helicopters used. Uber estimated
that its initial operating costs would be $5.73 per passenger per mile, and with
efficient pooling it believed it could get the operating costs down to $1.84 per
passenger per mile. As people began to use eVTOLs in large numbers, scale
economies would also drive down the cost of producing the eVTOLs themselves. The final major cost-cutting measure would be to eliminate pilots with
fully autonomous eVTOLs, saving training costs, salaries, and making room for
an additional passenger. Uber estimated that with fully autonomous operation at
scale, the long-run operating costs of UberAIR could be as low as 44 cents per
passenger mile—less than the operating cost of many cars.c
Elon Musk, who is known for larger-than-life ambitions such as moving the
world’s auto fleet to renewable energies and colonizing Mars, was skeptical, noting “it’s difficult to imagine the flying car becoming a scalable solution.”d Musk
also thought that aerial transportation would be too disruptive to people on the
Chapter 5 Timing of Entry 97
ground, tweeting sarcastically, “If you love drones above your house, you’ll really
love vast numbers of ‘cars’ flying over your head that are 1000 times bigger and
noisier and blow away anything that isn’t nailed down when they land.”e Musk
was betting that a better solution could be achieved underground, with electric
pods that zipped through tunnels. Even Uber’s CEO, Dara Khosrowshahi was initially doubtful about the project. However, after several rounds of discussion on
the economics of it, he began to be persuaded. “For me the ‘aha’ moment came
when I started understanding that Uber isn’t just about cars,” Khosrowshahi said.
“Ultimately where we want to go is about urban mobility and urban transport, and
being a solution for the cities in which we operate.”f
As of June, 2018, the company had plans for testing the service in Dallas and
Los Angeles by 2020, and was seeking an international launch city.g It planned
to have commercial deployment of the service by 2023.
Battle for the Skies
Uber was not the only company with dreams of revolutionizing personal air
travel. Makers of eVTOLs such as eVolo (based in Germany) and EHang (based
in China) were also in the process of launching air taxi services, and T
(based in the United States) was building a vehicle that it believed would be
a mass market flying car for personal use. If eVTOLs became widely available and economical, other ride-sharing companies such as Lyft might also
be well positioned to target the market. Would Uber’s scale in ride sharing
enable it to achieve dominance in air ride sharing, and would such a position
1. Will there be increasing returns to adoption for an early mover in air taxi
service? If so, what will they be?
2. What are the disadvantages of entering the air taxi market early?
3. What are the important complementary goods and enabling technologies
for the air taxi market? Are they available in sufficient quality and economy?
4. Is Uber well positioned to be a dominant player in this market? What
resources will it need to be successful?
5. Overall, would you say Uber’s entry into the air taxi market is too early, too
late, or about right?
Holden, J., and N. Goel, “Fast-Forwarding to a Future of On-Demand Urban Air Transportation”
(San Francisco: Uber Elevate, October 27, 2016).
Pancer, E., K. Gulliver, and M. MacLeod, “Uber Elevate: The Case for Flying Cars,” Ivey Publishing (2018),
Goodwin, A., “Will You Be Able to Afford UberAir’s Flying Car Service?” CNET (May 8, 2018).
Muoio, D., “Elon Musk Says Flying Cars Aren’t a Good Fix for Traffic—Here’s Why,” Business Insider
(February 16, 2017).
Source: Elon Musk, February 22, 2018.
Dickey, M. R., “Uber’s Aerial Taxi Play,” TechCrunch, (May 9, 2018).
98 Part One Industry Dynamics of Technological Innovation
The first entrants
to sell in a new
product or service category.
Entrants that are
early to market,
but not first.
do not enter the
market until the
time the product
begins to penetrate the mass
market or later.
The previous chapter pointed out that some industries are characterized by increasing
returns to adoption, meaning that the more a technology is adopted, the more valuable
it becomes. In such industries, timing can be crucial—a technology that is adopted
earlier than others may reap self-reinforcing advantages such as greater funds to invest
in improving the technology, greater availability of complementary goods, and less
customer uncertainty. On the other hand, the same factors that cause increasing returns
to adoption may make very early technologies unattractive: If there are few users of
the technology or availability of complementary goods is poor, the technology may
fail to attract customers. A number of other first-mover advantages, and disadvantages,
can shape how timing of entry is related to likelihood of success.
Entrants are often divided into three categories: first movers (or pioneers), which
are the first to sell in a new product or service category; early followers (also called
early leaders), which are early to the market but not first; and late entrants, which
enter the market when or after the product begins to penetrate the mass market. The
research on whether it is better to be a first mover, early follower, or late entrant
yields conflicting conclusions. Some studies that contrast early entrants (lumping
first movers and early followers together) with late entrants find that early entrants
have higher returns and survival rates, consistent with the notion of first-mover (or at
least early-mover) advantage.1 However, other research has suggested the first firm to
market is often the first to fail, causing early followers to outperform first movers.2
Still other research contends the higher returns of being a first mover typically offset
the survival risk.3 A number of factors influence how timing of entry affects firm
survival and profits. In this chapter, we will first examine first-mover advantages and
disadvantages. We will then look more closely at what factors determine the optimal
timing of entry, and its implications for a firm’s entry strategy.
Being a first mover may confer the advantages of brand loyalty and technological
leadership, preemption of scarce assets, and exploitation of buyer switching costs.4
Furthermore, in industries characterized by increasing returns, early entrants may
accrue learning and network externality advantages that are self-reinforcing over time.5
Brand Loyalty and Technological Leadership
The company that introduces a new technology may earn a long-lasting reputation as
a leader in that technology domain. Such a reputation can help sustain the company’s
image, brand loyalty, and market share even after competitors have introduced comparable products. The organization’s position as technology leader also enables it to shape
customer expectations about the technology’s form, features, pricing, and other characteristics. By the time later entrants come to market, customer requirements may be well
established. If aspects that customers have come to expect in a technology are difficult
for competitors to imitate (e.g., if they are protected by patent or copyright, or arise from
the first mover’s unique capabilities), being the technology leader can yield sustained
Chapter 5 Timing of Entry 99
or lower costs)
a firm can make
from being a
as the ability to
set high prices,
or the ability
to lower costs
monopoly rents. Even if the technology characteristics are imitable, the first mover
has an opportunity to build brand loyalty before the entry of other competitors.
Preemption of Scarce Assets
Firms that enter the market early can preemptively capture scarce resources such as
key locations, government permits, patents, access to distribution channels, and relationships with suppliers.
For example, companies that wish to provide any wireless communication service
must license the rights to broadcast over particular radio frequencies from the government. In the United States, the Federal Communications Commission (FCC) is primarily responsible for allotting rights to use bands of radio frequencies (known as the
spectrum) for any wireless broadcasting. The FCC first allocates different portions of
the spectrum for different purposes (digital television broadcasting, third-generation
wireless telecommunication, etc.) and different geographic areas. It then auctions off
rights to use these segments to the highest bidders. This means that early movers in
wireless services can preemptively capture the rights to use portions of the wireless
spectrum for their own purposes, while effectively blocking other providers. By 2003,
the proliferation of wireless services had caused the spectrum to become a scarce commodity, and the FCC was under pressure to allow the holders of wireless spectrum
rights to sublet unused portions of their spectrum to other organizations.
Exploiting Buyer Switching Costs
Once buyers have adopted a good, they often face costs to switch to another good.
For example, the initial cost of the good is itself a switching cost, as is the cost of
complements purchased for the good. Additionally, if a product is complex, buyers
must spend time becoming familiar with its operation; this time investment becomes
a switching cost that deters the buyer from switching to a different product. If buyers
face switching costs, the firm that captures customers early may be able to keep those
customers even if technologies with a superior value proposition are introduced later.
This is often the reason given for the dominance of the QWERTY typewriter keyboard.
In 1867, Christopher Sholes began experimenting with building a typewriter. At that
time, letters were struck on paper by mechanical keys. If two keys were struck in rapid
succession, they often would jam. Key jamming was a particularly significant problem
in the 1800s because typewriters then were designed so that keys struck the back side
of the paper, making it impossible for users to see what they were typing. The typist
thus might not realize he or she had been typing with jammed keys until after removing the page. Scholes designed his keyboard so that commonly used letter combinations were scattered as widely as possible over the keyboard. The QWERTY keyboard
also puts a disproportionate burden on the left hand (3000 English words can be typed
with the left hand alone, while only 300 can be typed with the right hand alone). This
positioning of keys would slow the typing of letter combinations, and thus reduce the
likelihood of jamming the keys.6
Over time, many competing typewriter keyboards were introduced that boasted faster
typing speeds or less-tiring typing. For example, the Hammand and Blickensderfer
“Ideal” keyboard put the most commonly used letters in the bottom row for easy
access, and used only three rows total. Another example, the Dvorak keyboard, placed
100 Part One Industry Dynamics of Technological Innovation
all five vowels and the three most commonly used consonants in the home row, and
common letter combinations required alternating hands frequently, reducing fatigue.
However, QWERTY’s early dominance meant typists were trained only on QWERTY
keyboards. By the time Dvorak keyboards were introduced in 1932, tens of millions of
typists were committed to QWERTY keyboards—the switching costs of learning how
to type all over again were more than people were willing to bear.7 Even after daisywheel keys (and later, electronic typewriters) removed all possibility of jamming keys,
the QWERTY keyboard remained firmly entrenched. August Dvorak is said to have
died a bitter man, claiming, “I’m tired of trying to do something worthwhile for the
human race. They simply don’t want to change!”8
Reaping Increasing Returns Advantages
In an industry with pressures encouraging adoption of a dominant design, the timing
of a firm’s investment in new technology development may be particularly critical
to its likelihood of success. For example, in an industry characterized by increasing
returns to adoption, there can be powerful advantages to being an early provider; a
technology that is adopted early may rise in market power through self-reinforcing
positive feedback mechanisms, culminating in its entrenchment as a dominant design.
Intel is an apt example of this.
Intel’s Ted Hoff invented the first microprocessor in 1971, and in 1975, Bill Gates
and Paul Allen showed that it could run a version of BASIC that Gates had written.
Gates’s BASIC became widely circulated among computer enthusiasts, and as BASIC
was adopted and applications developed for it, the applications were simultaneously
optimized for Intel’s architecture. IBM’s adoption of Intel’s 8088 microprocessor in
its PC introduction secured Intel’s dominant position, and each of Intel’s subsequent
generations of products has set the market standard.9
Despite the great attention that first-mover advantages receive, there are also arguments for not entering a market too early. In a historical study of 50 product categories,
Gerard Tellis and Peter Golder found that market pioneers have a high failure rate—
roughly 47 percent—and that the mean market share of market pioneers is 10 percent.10
By contrast, early leaders (firms that enter after market pioneers but assume market
leadership during the early growth phase of the product life cycle) averaged almost
three times the market share of market pioneers.11 Tellis and Golder point out that the
market may often perceive first movers to have advantages because it has misperceived
who the first mover really was. For example, while today few people would dispute
Procter & Gamble’s claim that it “created the disposable diaper market,”12 in actuality,
Procter & Gamble entered the disposable market almost 30 years after Chux, a brand
owned by a subsidiary of Johnson & Johnson. In the mid-1960s, Consumer Reports
ranked both products as best buys. However, over time Pampers became very successful and Chux disappeared, and eventually people began to reinterpret history.
Other studies have found that first movers earn greater revenues than other entrants,
but that they also face higher costs, causing them to earn significantly lower profits in
the long run.13 First movers typically bear the bulk of the research and development
Chapter 5 Timing of Entry 101
The tendency for
incumbents to be
slow to respond
to changes in the
industry environment due to their
large size, established routines,
or prior strategic
expenses for their product or service technologies, and they must also often pay to
develop suppliers and distribution channels, plus consumer awareness. A later entrant
often can capitalize on the research and development investment of the first mover,
fine-tune the product to customer needs as the market becomes more certain, avoid
any mistakes made by the earlier entrant, and exploit incumbent inertia.14 Later
entrants can also adopt newer and more efficient production processes while early
movers are either stuck with earlier technologies or must pay to rebuild their production systems.15
Research and Development Expenses
Developing a new technology often entails significant research and development
expenses, and the first to develop and introduce a technology typically bears the brunt
of this expense. By the time a firm has successfully developed a new technology,
it may have borne not only the expense of that technology but also the expense of
exploring technological paths that did not yield a commercially viable product. This
firm also typically bears the cost of developing necessary production processes and
complementary goods that are not available on the market. Since the new product
development failure rate can be as high as 95 percent, being the first to develop and
introduce an unproven new technology is expensive and risky.
By contrast, later entrants often do not have to invest in exploratory research. Once
a product has been introduced to the market, competitors can often ascertain how the
product was created. The later entrant can also observe the market’s response to particular features of the technology and decide how to focus its development efforts.
Thus, the later entrant can both save development expense and produce a product that
achieves a closer fit with market preferences.
Undeveloped Supply and Distribution Channels
When a firm introduces a new-to-the-world technology, often no appropriate suppliers
or distributors exist. The firm may face the daunting task of developing and producing
its own supplies and distribution service, or assisting in the development of supplier
and developer markets. For example, when DEKA Research began developing its selfbalancing IBOT wheelchair, it needed a type of ball bearing for which there were no
suppliers. DEKA was forced to develop a machine to mold the bearings. According to
Dean Kamen, the company’s founder, “Nobody here planned to invent new ball bearings, but in order to make this engine practical we have to develop a bearing technology that doesn’t exist.”16
Immature Enabling Technologies and Complements
Component technologies that are
necessary for the
desirability of a
When firms develop technologies, they often rely on other producers of enabling
technologies. For instance, for Uber to launch its UberAIR transportation service
required the development of economical aircraft capable of taking off and landing
vertically, advances in battery technology that would increase the range of the aircraft
while keeping costs low, a charging infrastructure to charge the aircraft, a network of
“skyports” for landing and takeoff, and pilots for the aircraft (until they could be made
fully autonomous). Uber was thus heavily reliant on numerous third parties to make
its project feasible.
Theory in Action Obstacles to the Hydrogen Economy
Fuel cells create electricity from a reaction between
hydrogen and oxygen, and are much more efficient
than internal combustion gasoline engines. Whereas a
typical internal combustion engine converts less than
20 percent of the energy potential of gasoline into power
for the automobile, fuel cells capture 40 percent to
60 percent of the energy potential of their fuel source,
which can be any hydrogen-rich liquid or gas.a Hydrogen is one of the most abundant elements on the Earth
and can be obtained in a number of ways, including
electrolysis of water or steam conversion of methanol.
Furthermore, the only waste products of hydrogen fuel
cells are water vapor and carbon dioxide. Hydrogen thus
offers an inexhaustible and environmentally friendly fuel
source.b Utilizing hydrogen to power vehicles (among
other things) offers the promise of reducing reliance on
dwindling fossil fuel reserves while dramatically decreasing the environmental impact of automobiles. Many of the
key players in fuel cell development envision a “hydrogen economy” whereby automobiles with hydrogen fuel
cells are used to supply power to homes and offices,
eventually replacing the existing electrical power grids.
Fuel cells were developed more than 150 years
ago, but were initially too bulky and expensive to be
used in automobiles. In the 1970s, however, the energy
crisis sparked a resurgence in fuel cell development,
and a number of prototypes emerged through the late
1970s and 1980s. By the 1990s, several auto manufacturers, including Toyota and Daimler had developed
automobiles powered by fuel cells and were planning
commercial production. A number of serious obstacles,
however, stood in the way of fuel cell adoption by the
mass market. The most serious of these was the lack of
a complementary refueling infrastructure. Before fuel
cell vehicles could be promoted to the mass market,
refueling options had to be developed that would be
convenient and easy for consumers to use. This was
no small feat—the existing fuel stations that were ubiquitous in almost every corner of the globe could not
handle a gaseous fuel such as hydrogen. While liquid
gasoline can be stored in almost any type of container,
hydrogen gas is liquid only under very high pressure
and has very small molecules. It would rapidly leak
out of existing gasoline storage containers. Both fueling stations and automobiles would need to be able to
keep compressed hydrogen in a pressurized tank. Furthermore, many of the existing gasoline stations were
owned or otherwise connected to oil companies. Since
it was not yet clear what role oil companies would
play in the hydrogen economy, many suspected that
oil companies would use their resources and lobbying
power to resist the adoption of hydrogen fuel cells. To
unleash the power of the “hydrogen economy” vision
would not only require heavy investment in new infrastructure, but also require resolving or overcoming the
conflicting interests of numerous stakeholders, including government, utilities, auto manufacturers, oil producers, and consumers.
J. Rifkin, “The Hydrogen Economy,” E Magazine, January–
February 2003, pp. 26–37.
As discussed in Chapter Four, many products also require complementary goods
to be useful or valuable. Computers need software, cameras need film, automobiles
need service, gasoline, and roads. When new technologies are introduced to a market,
important complements may not yet be fully developed, thus hindering adoption of
the innovation. The development of vehicles powered by hydrogen fuel cells (see the
above Theory in Action) provides an excellent example of how a lack of complementary technologies and infrastructure can pose serious obstacles for early movers.
Uncertainty of Customer Requirements
A first mover to the market may face considerable uncertainty about what product
features customers will ultimately desire and how much they will be willing to pay
for them. For a very new product technology, market research may be of little help.
Chapter 5 Timing of Entry 103
ustomers may have little idea of the value of the technology or the role it would play
in their lives. As a consequence, first movers may find that their early product offerings must be revised as the market begins to reveal customer preferences.
For instance, when Kodak introduced the 8-mm video camera in the late 1980s, it
expected that customers would flock to the design’s smaller size and superior recording ability. Instead, consumers rejected the product. The 8-mm video cameras were
more expensive, and consumers had not yet recognized a need for this product and
were unsure of what value it could provide. Kodak decided to withdraw from the
market. However, by the early 1990s, consumers had become more comfortable with
the concept of 8-mm video camera technology, and several competitors (most notably
Sony) successfully entered this market.
First movers have an opportunity to shape customer preferences by establishing
the precedent for product design in the newly emerging market and by investing in
customer education. Customer education efforts are expensive, however. If the product
is slow to begin to reap revenues for the sponsoring firm, it may collapse under the
weight of its R&D and marketing expenses. Figure 5.1 provides a number of product
categories with their first movers, prominent followers, and which of these were ultimately more successful.
Source: R. M. Grant,
Analysis (Malden, MA:
1998); D. Teece, The
Strategies for Industrial Innovation and
MA: Ballinger, 1987);
and M. A. Schilling,
and Failure in WinnerTake-All Markets:
Testing a Model of
Out,” Academy of Management Journal 45
(2002), pp. 387–98.
8-mm video camera
Social networking sites
Video game console
Word processing software
Microsoft (Internet Explorer)
Microsoft (MS Word)
104 Part One Industry Dynamics of Technological Innovation
FACTORS INFLUENCING OPTIMAL TIMING OF ENTRY
In very early market stages, a technology may be underdeveloped and its fit with customer needs unknown. In late market stages, a technology may be well understood, but
competitors may have already captured controlling shares of the market. How does a
firm decide whether to attempt to pioneer a technology category or to wait while others do so? The answer will depend on several factors, including customer certainty, the
margin of improvement offered by the new technology, the state of enabling technologies and complementary goods, the threat of competitive entry, the degree to which
the industry exhibits increasing returns, and the firm’s resources.
1. How certain are customer preferences?
When new-to-the-world technologies are first developed, customers may have difficulty understanding the technology and its role in their life. Both producers and customers may face considerable ambiguity about the importance of various features of
the technology. As producers and customers gain experience with the technology, features that initially seemed compelling may turn out to be unnecessary, and features
that had seemed unimportant may turn out to be crucial. For example, many of the
companies that raced to establish an online presence in the e-commerce frenzy of
the late 1990s believed that their Web sites needed exciting graphics and sounds to
be competitive. Graphics and sound, however, turned out to be the downfall of many
early Web sites. Many customers did not have high-speed Internet access or computers
with enough processing power to quickly download the Web sites, making multimedia
Web sites an annoyance rather than an attraction.
The reverse scenario is demonstrated in Sony’s introduction of the PlayStation 2.
When Sony introduced its multifeatured PlayStation 2, many industry analysts believed
that Sony had overestimated consumer interest in having a game console that would
play music CDs or DVD movies. It turned out, however, that Sony may have underestimated the desirability of these features. Video game consoles are typically sold at
cost (or at a loss) in order to rapidly build an installed base. Profits are then made on
game royalties. However, when consumers realized that the PlayStation 2 was a very
affordable combination of game console and high-quality DVD player, many consumers bought the system for its DVD capabilities first and game capabilities second.
Many of these consumers bought very few games, causing Sony’s strategy of subsidizing the console with the intention of making money on the games to backfire. Observing this, Microsoft disabled DVD playback on its Xbox unless consumers purchased
an add-on DVD playback kit.
Not all pioneers face customer uncertainty—some innovations are developed in
response to well-understood customer needs. Customer requirements may have been
long known even if the method of meeting them was not. For example, the developers
of Tagamet (a medication for patients with chronic heartburn or ulcers) faced very little customer uncertainty. Customers wanted an affordable, easy-to-use solution to their
stomach discomfort. Once a method of achieving this objective had been developed,
tested, and approved, its developers raced the product to market in hopes of patenting
it and securing market share ahead of competing products. Other things being equal,
less customer uncertainty favors earlier timing of entry.17
Chapter 5 Timing of Entry 105
2. How much improvement does the innovation provide over previous solutions?
The degree to which the technology represents an improvement over previous technologies increases a firm’s likelihood of successful early entry. That is, when a technology
makes a dramatic improvement over previous generations or different technologies
that serve similar functions, it will more rapidly gain customer acceptance. There will
be less ambiguity about the value of the technology and more early adoptions (as
well as more support by complementary goods providers); as a consequence, customer
expectations should become known sooner, and adoptions should be more rapid.18
3. Does the innovation require enabling technologies, and are these technologies
As mentioned earlier, many innovations rely on crucial enabling technologies to
ensure their performance. A high-definition television set is of little value if networks
are incapable of broadcasting in high definition; cellular phones or portable stereos
would have little value if small and long-lasting batteries were unavailable. A developer must identify which enabling technologies will affect the performance of the
new innovation and assess the degree to which those technologies are mature enough
(or will be mature enough) to deliver the desired performance. More mature enabling
technologies allow earlier entry; less mature enabling technologies may favor waiting
for enabling technologies to be further developed.
4. Do complementary goods influence the value of the innovation, and are they
If the value of an innovation hinges critically on the availability and quality of complementary goods, then the state of complementary goods determines the likelihood of
successful entry. Not all innovations require complementary goods, and many more
innovations can utilize existing complementary goods. For example, though numerous
innovations in 35-mm cameras have been introduced in the last few decades, almost
all have remained compatible with standard rolls of 35-mm film; thus availability of
that complementary good was ensured. If, on the other hand, the innovation requires
the development of new complementary goods, then a pioneer must find a way to
ensure their availability. Some firms have the resources and capabilities to develop
both a good and its complements, while others do not. If the firm’s innovation requires
complementary goods that are not available on the market, and the firm is unable to
develop those complements, successful early entry is unlikely.
5. How high is the threat of competitive entry?
If there are significant entry barriers or few potential competitors with the resources
and capabilities to enter the market, the firm may be able to wait while customer
requirements and the technology evolve. Over time, one would expect customer expectations to become more certain, enabling technologies to improve, and support goods
and services to be developed, thus increasing the likelihood that sponsored technologies will possess a set of attributes that meet consumer demands. However, if the
technology proves to be valuable, other firms are also likely to be attracted to the market. Thus, if entry barriers are low, the market could quickly become quite competitive, and entering a market that has already become highly competitive can be much
more challenging than entering an emerging market.19 Margins may already have been
106 Part One Industry Dynamics of Technological Innovation
Research Brief Whether and When to Enter?
In a study of 30 years of data on entry into the medical diagnostic imaging industry, Will Mitchell examined the factors that drive whether and when a firm
that is an incumbent in one subfield of an industry
chooses to enter a newly emerging subfield of the
industry.a For instance, what determines whether
and when a manufacturer of conventional X-ray
machines decides to go into magnetic resonance
imaging (MRI) equipment? While new goods offer
opportunities for growth, they can cannibalize existing products, and they also require an investment in
new skills. Incumbents often are slow to enter new
technical subfields.b They may be intentionally waiting for industry turbulence to subside, or they may
be unintentionally slowed by factors that create inertia, such as the difficulty in altering well-established
routines and strategic commitments to the firm’s
existing supplier and customer base.
Mitchell pointed out that entry barriers and imitability of a new product (e.g., whether it can be
effectively protected by patents) interact to create different incentives for timing. First, if only one firm can
produce an inimitable good, it can enter if and when
it wants. However, if several firms could produce a
good that will subsequently be inimitable, they may
race to do so to capture the market. In such a circumstance, being early confers a significant advantage.
Finally, if the good is expected to be highly imitable
(e.g., if it would be difficult to effectively protect with
patents because competitors could easily invent
around the patent), then firms will prefer to wait while
others bear the expense of developing and introducing the good. There are disincentives to being early
Mitchell found that firms that had more specialized assets that would be useful in the new subfield
(e.g., a well-established distribution system that
could be used for the new imaging equipment) were
more likely to enter the new subfield. A firm was also
more likely to enter if the products it currently produced were threatened by the new products (i.e., if
the new technology was likely to displace the firm’s
current technology as the dominant choice in the
market). Furthermore, the incumbent was likely to
enter earlier if its core products were threatened and
there were several potential rivals.
W. Mitchell, “Whether and When? Probability of Incumbent’s Entry into Emerging Technical Subfields,” Administrative Science Quarterly 38 (1989), pp. 208–30.
F. M. Scherer, Industrial Market Structure and Economic
Performance, 2nd ed. (Chicago: Rand McNally, 1980).
M. Katz and C. Shapiro, “Technology Adoption in the Presence of Network Externalities,” Journal of Political Economy 94 (1986), pp. 822–41.
driven down to levels that require competitors to be highly efficient, and access to
distribution channels may be limited. If the threat of competitive entry is high, the firm
may need to enter earlier to establish brand image, capture market share, and secure
relationships with suppliers and distributors. This is discussed further in the Research
Brief “Whether and When to Enter?”
6. Is the industry likely to experience increasing returns to adoption?
In industries that have increasing returns to adoption due to strong learning curve
effects or network externalities, allowing competitors to get a head start in building an
installed base can be very risky. If a competitor’s offering builds a significant installed
base, the cycle of self-reinforcing advantages could make it difficult for the firm to
ever catch up. Furthermore, if there are forces encouraging adoption of a single dominant design, a competitor’s technology may be selected. If protection mechanisms
such as patents prevent the firm from offering a compatible technology, the firm may
be locked out.20
Chapter 5 Timing of Entry 107
7. Can the firm withstand early losses?
As was discussed earlier, a first mover often bears the bulk of the expense and risk of
developing and introducing a new innovation. First movers thus often need significant
amounts of capital that either is available internally (in the case of large firms) or can
be accessed externally (e.g., through the debt or equity markets). Furthermore, the first
mover must be able to withstand a significant period with little sales revenue from the
product. Even in the case of successful new technologies, often a considerable period
elapses between the point at which a first mover introduces a new innovation and the
point at which the innovation begins to be adopted by the mass market. The s-curve
shape of technology diffusion (discussed in Chapters Three and Thirteen) illustrates
this aptly. New innovations tend to be adopted very slowly at first, while innovators
and early adopters try the technology and communicate their experience to others.
This slow initial takeoff of new innovations has caused the demise of many start-up
firms. For example, in the personal digital assistant (PDA) industry—the precursor
to smartphones—start-ups such as GO Corporation and Momenta had received accolades for their technology designs, but were unable to withstand the long period of
market confusion about PDAs and ultimately ran out of capital. Companies such as
IBM and Compaq survived because they were large and diversified, and thus not reliant on PDA revenues. Palm was a relatively late mover in the PDA industry so it did
not have to withstand as long of a takeoff period, but even Palm was forced to seek
external capital and was acquired by U.S. Robotics, which was later bought by 3COM.
On the other hand, firms with significant resources also may be able to more easily
catch up to earlier entrants.21 By spending aggressively on development and advertising, and leveraging relationships with distributors, a late entrant may be able to
rapidly build brand image and take market share away from earlier movers. For example, though Nestlé was very late to enter the freeze-dried coffee market with Taster’s
Choice, the company was able to use its substantial resources to both develop a superior product and rapidly build market awareness. It was thus able to quickly overtake
the lead from General Foods’ Maxim.22
8. Does the firm have resources to accelerate market acceptance?
A firm with significant capital resources not only has the capability to withstand a
slow market takeoff, but also can invest such resources in accelerating market takeoff. The firm can invest aggressively in market education, supplier and distributor
development, and development of complementary goods and services. Each of these
strategies can accelerate the early adoption of the innovation, giving the firm much
greater discretion over entering early.23 These strategies are discussed in more detail
in Chapter Thirteen. Thus, a firm’s capital resources can give it some influence on the
shape of the adoption curve.
9. Is the firm’s reputation likely to reduce the uncertainty of customers, suppliers,
In addition to capital resources, a firm’s reputation and credibility can also influence
its optimal timing of entry.24 A firm’s reputation can send a strong signal about its likelihood of success with a new technology. Customers, suppliers, and distributors will
use the firm’s track record to assess its technological expertise and market prowess.
Customers may use the firm’s reputation as a signal of the innovation’s quality, and
108 Part One Industry Dynamics of Technological Innovation
thus face less ambiguity about adopting the innovation. A firm with a well-respected
reputation for successful technological leadership is also more likely to attract suppliers and distributors.25 This was aptly demonstrated in Microsoft’s entry into the
video game console industry: Despite having little experience in producing hardware,
suppliers and distributors eagerly agreed to work with Microsoft because of its track
record in personal computing. Other things being equal, an entrant with a strong reputation can attract adoptions earlier than entrants without strong reputations.
STRATEGIES TO IMPROVE TIMING OPTIONS
stages of the
As should now be clear, managing the timing of entry into the market is a complex matter. If the technology has a clear advantage to consumers, entering the market early may
give the entrant a path-dependent advantage that is nearly impossible for competitors
to overcome. If, on the other hand, a firm enters a market very early and the advantages
of the technology are not very clear to consumers, there is a strong possibility that the
technology will receive a tepid welcome. Confounding this risk is the fact that watchful
competitors may be able to use the firm’s failure to their advantage, refining the technology the firm has introduced to the market and making any corrections necessary to
improve the technology’s market acceptance. The later entrant may be able to enter at a
lower cost because it can capitalize on the research and development of the early firm,
and use knowledge of the market gained from observing the early entrant’s experience.
In the above, it is assumed that timing of entry is a matter of choice for the firm.
However, implicit in this assumption is a corollary assumption that the firm is capable
of producing the technology at any point in the time horizon under consideration. For
this to be true, the firm must possess the core capabilities required to produce the technology to consumer expectations, or be able to develop them quickly. Furthermore, if
the firm intends to refine an earlier entrant’s technology and beat the earlier entrant
to market with a new version of this technology, it must have fast-cycle development
processes. If a firm has very fast development processes, the firm not only has a better
chance at being an early entrant, but it can also use experience gained through customers’ reactions to its technology to quickly introduce a refined version of its technology that achieves a closer fit with customer requirements. In essence, a firm with
very fast development deployment processes should be able to take advantage of both
first- and second-mover advantages. The research on new product development cycle
time indicates that development time can be greatly shortened by using strategic alliances, cross-functional new product development teams, and parallel development
processes. Chapter Eleven will deal specifically with how firms can ensure that their
innovations are deployed rapidly to the market.
1. A first mover may be able to build brand loyalty and a reputation for technological
leadership, preemptively capture scarce resources, and exploit buyer switching costs.
2. First movers may also benefit from increasing returns to adoption due to learning
curve effects and network externalities.
Chapter 5 Timing of Entry 109
3. Some studies, however, argue that first movers may have higher failure rates. First
movers have to bear the brunt of R&D expenses and may face considerable consumer ambiguity. Second movers can capitalize on the R&D and marketing efforts
of the first mover, producing a technology that costs less to develop and that corrects for any of the first mover’s mistakes.
4. First movers may also face poorly developed supplier markets, distribution channels, and availability of complementary goods, all of which can increase the
challenge of successfully launching their new product or service. Enabling technologies may also be immature, hindering the new technology’s performance.
5. The biggest disadvantage many first movers face is uncertainty over customer
requirements. Customers themselves may be uncertain about what features or
form they desire in a new innovation. A firm may have to withstand significant
losses before customer preferences become more certain.
6. The optimal timing of entry is thus a function of several factors, including the
margin of advantage offered by the new innovation, the state of enabling technologies and complements, the state of customer expectations, the threat of competitive entry, whether the industry faces increasing returns, and a firm’s resources.
7. Firms that have fast-cycle development processes have more options when it
comes to timing. Not only does a fast-cycle developer have an advantage in introducing innovations earlier, but it also can be its own fast follower by quickly introducing refined versions of its own technology.
1. What are some advantages of entering a market early? Are there any advantages to
entering a market late?
2. Name a successful (a) first mover, (b) early follower, and (c) late entrant. Identify
unsuccessful examples of each.
3. What factors might make some industries harder to pioneer than others? Are there
industries in which there is no penalty for late entry?
David, P. A., “Clio and the economics of QWERTY,” American Economic Review 75
(1985), pp. 332–38.
Lieberman, M. B., and D. B. Montgomery, “First-mover (dis)advantages: Retrospective and link with the resource-based view,” Strategic Management Journal 19
Katila, R., and E. L. Chen, “Effects of Search Timing on Innovation: The Value of Not
Being in Sync with Rivals,” Administrative Science Quarterly 53 (2008):593–625.
Tellis, G. J., and P. N. Golder, “First to Market, First to Fail? Real Causes of Enduring
Market Leadership,” Sloan Management Review 37, no. 2 (1996), pp. 65–75.
Argyres, N., L. Bigelow, and J. A. Nickerson, “Dominant Designs, Innovation Shocks
and the Follower’s Dilemma,” Strategic Management Journal 36 (2015), pp. 216–234.
110 Part One Industry Dynamics of Technological Innovation
DiMasi, J. A., and L. B. Faden, “Competitiveness in follow-on drug R&D: A race or
imitation?” Nature Reviews Drug Discovery 10 (2011), pp. 23–27.
Kim, B., E. Kim, D. J. Miller, and J. T. Mahoney, “The Impact of the Timing of
Patents on Innovation Performance,” Research Policy 45 (2016):914–28.
Klingebiel, R., and J. Joseph, “Entry Timing and Innovation Strategy in Feature
Phones,” Strategic Management Journal 37 (2015):1002–20.
Suarez, F. F., S. Grodal, S., and A. Gotsopoulos, “Perfect timing? Dominant category,
dominant design, and the window of opportunity for firm entry,” Strategic Management Journal 36 (2015), pp. 437–448.
1. R. Agarwal, “Technological Activity and Survival of Firms,” Economics Letters 52 (July
1996), pp. 101–8; R. Agarwal, “Survival of Firms over the Product Life Cycle,” Southern Economic Journal 63, no. 3 (1997), pp. 571–84; and R. Agarwal and G. Michael, “The Evolution
of Markets and Entry, Exit, and Survival of Firms,” Review of Economics and Statistics 78
(November 1996), pp. 489–98.
2. P. Golder and G. Tellis, “Pioneer Advantage: Marketing Logic or Marketing Legend?” Journal
of Marketing Research 30 (May 1993), pp. 158–70.
3. W. Robinson and M. Sungwook, “Is the First to Market the First to Fail? Empirical Evidence for
Industrial Goods Businesses,” Journal of Marketing Research 39 (2002), pp. 120–28.
4. M. Lieberman and D. Montgomery, “First Mover Advantages: A Survey,” Strategic Management Journal 9 (1988), pp. 41–58.
5. Ibid.; and M. Spence, “The Learning Curve and Competition,” Bell Journal of Economics 12
(1981), pp. 49–70.
6. Diamond, “The Curse of QWERTY,” Discover 18, no. 4 (1997), pp. 34–42.
7. P. A. David, “Clio and the Economics of QWERTY,” American Economic Review 75 (1985),
8. Diamond, “The Curse of QWERTY.”
9. C. Ferguson and C. Morris, Computer Wars (New York: Random House, 1993).
10. P. N. Golder and G. Tellis, “Pioneer Advantage: Marketing Logic or Marketing Legend,” Journal of Marketing Research 20 (1993), pp. 158–70.
11. G. Tellis and P. Golder, “First to Market, First to Fail? Real Causes of Enduring Market Leadership,” Sloan Management Review, Winter 1996, pp. 65–75.
12. Procter & Gamble Annual Report, 1977.
13. W. Boulding and M. Christen, “First-Mover Disadvantage,” Harvard Business Review, October
14. M. Lieberman and D. Montgomery, “First Mover Advantages: A Survey,” Strategic Management Journal 9 (1988), pp. 41–58.
15. Boulding and Christen, “First-Mover Disadvantage.”
16. E. I. Schwartz, “The Inventor’s Play-Ground,” Technology Review 105, no. 8 (2002), p. 69.
17. B. Kim, E. Kim, D. J. Miller, and J. T. Mahoney, “The Impact of the Timing of Patents on Innovation Performance,” Research Policy, 45 (2016), pp. 914–928.
18. A counterargument to this is made in S. Min, M. U. Kalwani, and W. T. Ronson, “Market Pioneer and Early Follower Survival Risks: A Contingency Analysis of Really New versus Incrementally New Product Markets,” Journal of Marketing 70, no. 1 (2006), pp. 15–33.
Chapter 5 Timing of Entry 111
19. G. L. Lilien and E. Yoon, “The Timing of Competitive Market Entry: An Exploratory Study
of New Industrial Products,” Management Science 36 (1990), pp. 568–85; R. Makadok,
“Can First-Mover and Early-Mover Advantages Be Sustained in an Industry with Low Barriers
to Entry/Imitation?” Strategic Management Journal 19 (1998), pp. 683–96; and R. W. Shaw
and S. A. Shaw, “Late Entry, Market Shares and Competitive Survival: The Case of Synthetic
Fibers,” Managerial and Decision Economics 5 (1984), pp. 72–79.
20. W. B. Arthur, “Competing Technologies, Increasing Returns, and Lock-In by Historical Events,”
The Economic Journal, March 1989, pp. 116–31; and M. Schilling, “Technological Lock Out:
An Integrative Model of the Economic and Strategic Factors Driving Technology Success and
Failure,” Academy of Management Review 23 (1998), pp. 267–84.
21. J. Shamsie, C. Phelps, and J. Kuperman, “Better Late than Never: A Study of Late Entrants in
Household Electrical Equipment,” Strategic Management Journal 25 (2003), pp. 69–84.
22. D. A. Aaker and G. S. Day, “The Perils of High-Growth Markets,” Strategic Management
Journal 7 (1986), pp. 409–21; Shamsie, Phelps, and Kuperman, “Better Late than Never;”
V. Shankar, G. S. Carpenter, and L. Krishnamurthi, “Late Mover Advantage: How Innovative
Late Entrants Outsell Pioneers,” Journal of Marketing Research 35, no. 1 (1998), pp. 54–70;
and G. L. Urban, T. Carter, S. Gaskin, and Z. Mucha, “Market Share Rewards to Pioneering
Brands: An Empirical Analysis and Strategic Implications,” Management Science 32 (1986),
23. M. A. Schilling, “Technological Leapfrogging: Lessons from the U.S. Video Game Console
Industry,” California Management Review 45, no. 3 (2003), pp. 6–32.
24. D. A. Shepherd and M. Shanley, New Venture Strategy: Timing, Environmental Uncertainty and
Performance (London: Sage, 1998).
25. Schilling, “Technological Leapfrogging.”
In this section, we will cover the key aspects of formulating a technological innovation strategy, including:
∙ Assessing the firm’s position and defining its strategic direction.
∙ Choosing innovation projects in which to invest, including both quantitative
and qualitative valuation techniques.
∙ Deciding whether and how the firm will collaborate on development activities,
choosing a collaboration mode, and choosing and monitoring partners.
∙ Crafting a strategy for protecting—or diffusing—a technological innovation
through such methods as patents, trademarks, copyrights, and trade secrets.
Formulating Technological Innovation Strategy
Part 1: Industry Dynamics of
Types and Patterns
Timing of Entry
Part 2: Formulating Technological
Defining the Organization’s
Part 3: Implementing Technological
Managing the New
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