A new gaming console is raising eyebrows for its similarity to another, CNET reported recently. PC manufacturer Alienware announced the UFO, which resembles the Nintendo Switch. Is it better to make a new product or improve on one?
Amid this year’s announcements at the Consumer Electronic Show (CES) 2020, Alienware unveiled a video game console that will release later this year. The handheld UFO boasts an eight-inch screen in the middle with joysticks and buttons on either side, resembling handles. However, each “handle” is removable. The overall look of the console very closely resembles the Nintendo Switch, which released in March 2017. The UFO begs an age-old business question about inventing a totally new product versus improving on an existing model.
When Coming in First Matters
In the world of invention, products either enter a market first as a “first mover” or they make some adaptations and improvements on a pre-existing market as a “fast follower.” Think of the first bicycle ever manufactured and then the performance bicycles used today for mountain biking or competitive racing. Both approaches to innovation have pros and cons.
“If scale matters, if learning matters, if network effects matter, and if getting access to key assets is key, all those might be the basis for first-mover advantage,” Dr. Michael A. Roberto, Trustee Professor of Management at Bryant University, said.
According to Dr. Roberto, scale matters because of falling costs of production per unit as a company manufactures a product. In other words, producing an invention in bulk at lower costs is often a luxury of the first company to establish the market.
This ties in with the benefits of experience, or a learning curve. “In the case of a learning curve, what you have is, again, cost per unit falling,” Dr. Roberto said. “But this time, [it’s] not because you produce more units today, but because you’ve been producing this good over some extended period of time. And over time, you’ve become more experienced at producing this good; you’ve learned how to do it more efficiently, and so your costs per unit fall over time.”
Dr. Roberto defined network effects as “when the value per user rises as the total number of users rises.” For example, the more people there are using a social media platform, the more a consumer will want to spend time on that social media platform since more of their friends are likely to use it as well. On the business end of this, companies can buy targeted ads to reach more users who are more likely to buy their products.
In terms of the gaming industry, Microsoft and Sony sell the XBox and PlayStation consoles, respectively, which use a tried-and-true format of a two-handed controller inputting button presses into a TV-based console. Nintendo has consistently carved new territory with stylus-based touchscreens, interactive motion controls, glasses-free 3-D gaming displays, and other first-mover hardware concepts.
The Appeal of Being a Johnny-Come-Lately
So why does anyone ever bother to be a fast follower? Maybe the biggest reason is the high investment costs of a wildly new innovation, which are also called pioneering costs.
“Sometimes, [when] moving into an entirely new category with a product customers don’t know anything about, there’s a lot of uncertainty there,” Dr. Roberto said. “There’s a lot of education of the consumer that needs to take place; there’s a lot of change that will happen early in the technology’s existence.”
Of course, only the pioneers have that difficulty. “Those fast followers—the people who come in second and third—they can watch the mistakes you’ve made, they can learn from those, and they can catapult beyond you,” Dr. Roberto said. “They can take advantage of the fact that you’ve blazed the trail and then move quickly to supersede you.”
First movers also often find themselves so invested and enmeshed in their original product that they can’t adapt to feedback or change their product and business as quickly as their competition, who may still be developing their product.
For Alienware, they’ve seen the success of the Nintendo Switch hardware—namely the innovation of having a console, two controllers and a screen built into one portable and adaptable device. Now all they have to do is make lightning strike twice, with the benefit of a considerably-sized lightning rod.
Dr. Michael A. Roberto contributed to this article. Dr. Roberto is the Trustee Professor of Management at Bryant University in Smithfield, Rhode Island. He earned an M.B.A. with High Distinction and a D.B.A. from Harvard Business School.