Have Uber and Netflix Lost Their First-Mover Advantage?

Back in 2017, when Netflix tweeted, “Love is sharing a password,” it was eager to get eyes on its content. Now, facing stiff competition from streaming services that seem to multiply by the month, and suffering a hefty loss of subscribers, Netflix has started cracking down on password sharing. Similarly, although Uber was a pioneer of ride-sharing and taxi alternatives, today it’s merely one of numerous options.

Are these companies — the first in their fields — losing their place in crowded markets? To find out, we turned to our expert panelists for their responses to this statement: Digital platform companies like Uber and Netflix have lost their first-mover advantage.

Disagree

More than half of our panelists (52%) disagreed at some level that these companies have lost their first-mover advantage. “Uber and Netflix still are the first movers in their industries and retain the advantages associated with having moved first in them. The problems they face, which are considerable, are threats to the industry structures in which they operate,” writes the University of Toronto’s Anita McGahan. Similarly, Richard Florida of the University of Toronto notes, “Digital platforms continue to enjoy significant first-mover advantage. But that advantage may, in certain cases, be temporary.”

Strongly disagree

“Even as some platforms rise and others fall, the winners seem to enjoy first-mover-like advantage for some time.”

Richard Florida

University of Toronto

Other panelists questioned how much of an advantage these companies actually have as first movers. “Being a first mover doesn’t always convey a first-mover advantage,” asserts Meghan Busse of Northwestern University, as such advantages are greatest for platforms with strong network effects, like Uber. “The drivers want to be where the most riders are, and the riders want to be where the most drivers are. But a platform like Netflix, which distributes digital content, probably has a less-strong feedback effect.”

Even if such companies’ first-mover advantage has diminished somewhat, some panelists posit, new entrants will still face stiff competition. “[Uber and Netflix] have lost some of their advantage but still benefit from a wide network and switching costs,” writes John Van Reenen of the London School of Economics and Political Science. Stanford’s Erik Brynjolfsson contends that both companies “have an installed base that reflects their early-mover advantage. The resulting network effects, switching costs, and fixed-cost investments are costly (but not impossible) for new entrants to overcome.” And Tobias Kretschmer of LMU Munich notes, “The question will be how long these firms can protect their advantage through isolating mechanisms and whether they can reinvent their businesses — for instance, by using their installed base to launch new applications and business models.”

Disagree

“Competitors are catching up, but the strong network effects that leading digital platforms enjoy over rivals give them a solid advantage that is likely to last.”

Andrea Fosfuri

Bocconi University

Neither Agree nor Disagree

A third of our panelists (33%) neither agree nor disagree. Yael Hochberg of Rice University notes, “It depends. Uber and Netflix are very different types of platforms.” Richard Holden of the University of New South Wales concurs, writing, “Ride-sharing and streaming are very different markets. There are strong network externalities in ride-sharing, [but] in streaming, it is far from clear what the network externalities are.”

Other panelists point to how the platforms’ advantage has changed — or will shift — over time. For Netflix and Uber, “the first-mover advantage has been gradually eroded, but they still are well into the game if not ahead,” says Alfonso Gambardella of Bocconi University. Monika Schnitzer at Ludwig Maximilian University of Munich points out that “[Uber’s] asset is its software, which can be readily imitated by newcomers. This is very different from Amazon, for instance, which, by building up logistics capacities, has gained a real cost advantage over newcomers.”

Neither agree nor disagree

“It seems likely that some platform companies are losing their competitive advantage, like the ones mentioned in the statement. However, platform companies are emerging in many industries, and they are competing in new ways based on new resources that confer new sources of competitive advantage.”

Nicolai Foss

Copenhagen Business School

Agree

About 14% of our panelists agree that the first-mover advantage of Uber and Netflix is indeed waning. “When these companies first entered the market, they were able to establish themselves as leaders due to their innovative business models and disruptive technology. As more competitors have entered, these platforms have tried to adapt,” notes Maryann Feldman of Arizona State University.

Agree

“Uber now offers Uber Eats and has invested in autonomous vehicles, but the magic is gone. … More change is certainly coming.”

Maryann Feldman

Arizona State University

For new entrants, notes Annamaria Conti of IE Business School, “barriers to entry are not that high, and switching costs have not proved to be insurmountable.” Perhaps those switching costs users face will make the difference in determining competitive advantage going forward. As the University of Michigan’s Tom Lyon writes, “Most Uber drivers I use have a sign that flips from Uber to Lyft, depending on who is paying better.”