E The Last Mover Advantage

I was shocked to read in a reputable financial newspaper, in my home country Australia, an article written by a known stock promoter singularly contributing Paypal’s success to the first mover advantage. It strikes me as a simple explanation for the success of Paypal, which operates in a complex adaptive system where there are many independent variables that contributed to Paypal’s success in gaining market share.

The author uses a few straw men and throws in a red herring for good measure to “strengthen” their argument. The author argues that the reason they win is that they are already winning with innovative leaders who can bring ideas to life.

Sounds like a compelling idea if you only think about it for 15 seconds.

The first red herring is the sporting analogue which has nothing to do with competitive interactions between firms operating in complex systems.

The author throws in another straw man argument and red herring at the same time, by stating that you cannot identify the first mover advantage by simply looking at the reproduction value of balance sheet.

Sherlock, the reproduction value of a company’s balance sheets purpose is to help the investor understand the real economic value of the assets and liabilities underpinning the earnings power of the company, as first advised by Benjamin Graham and David Dodd back in 1934 edition of Security Analysis. The author continues to throw in cliché words like network effects into the mix to further look like they know what they are talking about.

I wrote the headline last mover advantage to demonstrate that anyone can come to the wrong conclusion based on a simple premise.

For instance, it could be argued (not successfully) that Microsoft in the 70's and 80's came to dominate the PC software industry because it was last to market. By 1982 it becomes clear that other software companies were developing GUI programs of their own for the IBM computer but Gates wanted to make Microsoft’s Interface Manager (the prelude to Windows) the industry standard for the IBM PC, and only Lotus and VisiCorp stood in his way.

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Disclosure: Adam C. Parris does not own shares in the above mentioned companies.

Disclaimer: This article represents the opinions of Mr. Parris. Mr. Parris is not a licensed investment advisor. ...

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Carol Klein 3 years ago Member's comment

Good read, thanks.

Adam Parris 3 years ago Author's comment

You're welcome Carol.