Did First-Mover Advantage Survive the Dot-Com Crash?*

Widespread expectations of first-mover advantages contributed to the rush of market entry during the early growth phase of the Internet sector. After the shakeout, however, such beliefs came into question. This study assesses the magnitude and sources of firstmover advantages in 46 Internet markets, based on data for more than 200 publicly traded entrants. The findings show a large premium in stock market capitalization and revenue for early entrants in markets with network effects, and for pioneers with patented innovations. Absent these factors, first-mover advantages appear minimal. First-movers had higher propensity to patent, and their patents were far more likely to be cited. This suggests that early entrants played a disproportionate role in promoting new technology, even though many innovative pioneers failed to survive. In general, the findings imply that first-mover advantages arose within the Internet sector but were contingent upon market and firm characteristics.