TLC…. Who steals the deal- innovator or second entrant

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Urmanpreet Singh, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur

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The technology life-cycle (TLC) describes the commercial gain of a product through the expense of research and development phase, and the financial return during its “vital life”. Some technologies, such as steel, paper or cement manufacturing, have a long lifespan (with minor variations in technology incorporated with time) whilst in other cases, such as electronic or pharmaceutical products, the lifespan may be quite short.

 

In the process of innovation, sufficient resources are spent in R and D. In fact, there is high uncertainty of the investments not getting fruits. The whole investment may sink. All this bears a huge cost for the innovating firm. It may deplete all its resources in market innovation period in activities like evangelism and education. As a result when time comes for market growth, it does not have enough resources to push its product. At this time, enters the second entrant.

The second entrant has done little to no research and knows very little about innovation. All it knows is how to replicate the whole model to gain from the new market opportunity. It is strongly backed by investors and so has plenty of resources to penetrate into the market at a high speed and sometimes even surpass the innovator. Examples are Hotmail replaced by Gmail, Gateway replaced by IBM.

But, does it mean that there is no benefit for the innovator and if this would have been so, why would people innovate? Certainly there is something more which we are missing from the whole theme here and that is market skimming. An innovative product commands a premium from the 2.5% innovative breed of population. They are willing to pay a high price for anything that is innovative, new to the world and the rest 97.5% population don’t know about. This way, the innovating companies like Apple are able to be profitable ad keep innovating.

Be it innovator or second entrant. Each has a role to play. The innovator brings new technology and the second entrant makes it available to the market. Both are active at different times in the Technology Life Cycle.

 

 

Sources:

Kotler

Mindtools.com

Wikipedia.com

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