{"id":46,"date":"2018-06-14T19:04:21","date_gmt":"2018-06-14T19:04:21","guid":{"rendered":"https:\/\/pressbooks.ccconline.org\/bus3060\/chapter\/ch02-3\/"},"modified":"2026-02-14T17:38:39","modified_gmt":"2026-02-14T17:38:39","slug":"ch02-3","status":"publish","type":"chapter","link":"https:\/\/pressbooks.ccconline.org\/bus3060\/chapter\/ch02-3\/","title":{"raw":"2.3 Barriers to Entry, Technology, and Timing","rendered":"2.3 Barriers to Entry, Technology, and Timing"},"content":{"raw":"
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Learning Objectives<\/span><\/p>\r\n\r\n<\/header>\r\n

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After studying this section you should be able to do the following:<\/p>\r\n\r\n

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  1. Understand the relationship between timing, technology, and the creation of resources for competitive advantage.<\/li>\r\n \t
  2. Argue effectively when faced with broad generalizations about the importance (or lack of importance) of technology and timing to competitive advantage.<\/li>\r\n \t
  3. Recognize the difference between low barriers to entry and the prospects for the sustainability of new entrant\u2019s efforts.<\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>\r\n \r\n\r\n<\/div>\r\n

    Some have correctly argued that the barriers to entry for many tech-centric businesses are low. This argument is particularly true for the Internet where rivals can put up a competing Web site seemingly overnight. But it\u2019s absolutely critical to understand that market entry is not<\/em> the same as building a sustainable business and just showing up doesn\u2019t guarantee survival.<\/p>\r\n

    Platitudes like \u201cfollow, don\u2019t lead\u201d can put firms dangerously at risk, and statements about low entry barriers ignore the difficulty many firms will have in matching the competitive advantages of successful tech pioneers (Carr 2003). Should Blockbuster have waited while Netflix pioneered? In a year where Netflix profits were up seven-fold, Blockbuster lost more than $1 billion (Economist 2003). Should Sotheby\u2019s have dismissed seemingly inferior eBay? Sotheby\u2019s lost over $6 million in 2009; eBay earned nearly $2.4 billion in profits. Barnes & Noble waited seventeen months to respond to Amazon.com. Amazon now has twelve times the profits of its offline rival and its market cap is over forty-eight times greater.1<\/sup> Today\u2019s Internet giants are winners because in most cases, they were the first to move with a profitable model and they were able to quickly establish resources for competitive advantage. With few exceptions, established offline firms have failed to catch up to today\u2019s Internet leaders.<\/p>\r\n

    Timing and technology alone will not yield sustainable competitive advantage. Yet both of these can be enablers<\/em> for competitive advantage. Put simply, it\u2019s not the time lead or the technology; it\u2019s what a firm does<\/em> with its time lead and technology. True strategic positioning means that a firm has created differences that cannot be easily matched by rivals. Moving first pays off when the time lead is used to create critical resources that are valuable, rare, tough to imitate, and lack substitutes. Anything less risks the arms race of operational effectiveness. Build resources like brand, scale, network effects, switching costs, or other key assets and your firm may have a shot. But guess wrong about the market or screw up execution and failure or direct competition awaits. It is true that most tech can be copied\u2014there\u2019s little magic in eBay\u2019s servers, Intel\u2019s processors, Oracle\u2019s databases, or Microsoft\u2019s operating systems that past rivals have not at one point improved upon. But the lead that each of these tech-enabled firms had was leveraged to create network effects, switching costs, data assets, and helped build solid and well-respected brands.<\/p>\r\n\r\n

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    But Google Arrived Late! Why Incumbents Must Constantly Consider Rivals<\/h4>\r\n

    Yahoo! was able to maintain its lead in e-mail because the firm quickly matched and nullified Gmail\u2019s most significant tech-based innovations before Google could inflict real damage. Perhaps Yahoo! had learned from prior errors. The firm\u2019s earlier failure to respond to Google\u2019s emergence as a credible threat in search advertising gave Sergey Brin and Larry Page the time they needed to build the planet\u2019s most profitable Internet firm.<\/p>\r\n

    Yahoo! (and many Wall Street analysts) saw search as a commodity\u2014a service the firm had subcontracted out to other firms including Alta Vista and Inktomi. Yahoo! saw no conflict in taking an early investment stake in Google or in using the firm for its search results. But Yahoo! failed to pay attention to Google\u2019s advance. As Google\u2019s innovations in technology and interface remained unmatched over time, this allowed the firm to build its brand, scale, and advertising network (distribution channel) that grew from network effects whereby content providers and advertisers attract one another. These are all competitive resources that rivals have never been able to match.<\/p>\r\n

    Google\u2019s ability to succeed after being late to the search party isn\u2019t a sign of the power of the late mover, it\u2019s a story about the failure of incumbents to monitor their competitive landscape, recognize new rivals, and react to challenging offerings. That doesn\u2019t mean that incumbents need to respond to every potential threat. Indeed, figuring out which threats are worthy of response is the real skill here. Video rental chain Hollywood Video wasted over $300 million in an Internet streaming business years before high-speed broadband was available to make the effort work.N. Wingfield, \u201cNetflix vs. the Naysayers,\u201d Wall Street Journal<\/em>, March 21, 2007.<\/span> But while Blockbuster avoided the balance sheet\u2013cratering gaffes of Hollywood Video, the firm also failed to respond to Netflix\u2014a new threat that had timed market entry perfectly (see Chapter 4 \u201cNetflix: The Making of an E-commerce Giant and the Uncertain Future of Atoms to Bits\u201d).<\/p>\r\n

    Firms that quickly get to market with the \u201cright\u201d model can dominate, but it\u2019s equally critical for leading firms to pay close attention to competition and innovate in ways that customers value. Take your eye off the ball and rivals may use time and technology to create strategic resources. Just look at Friendster\u2014a firm that was once known as the largest social network in the United States but has fallen so far behind rivals that it has become virtually irrelevant today.<\/p>\r\n\r\n<\/div>\r\n \r\n\r\n<\/div>\r\n

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    Key Takeaways<\/span><\/p>\r\n\r\n<\/header>\r\n

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