As a rule, major transitions in technology and revenue models are slower to develop than most predict.
In other words, the amount of change tends to be overestimated in the near term, and underestimated in the long term.
That has direct implications for would-be suppliers. Overestimating near term demand means some firms will enter too early, and fail before the opportunity can be realized.
Others simply will overinvest in promotion, before conceivable sales justify that level of investment.
Other potential constants will wait too long to enter the market, and fail to gain a foothold at all.
In fact, some common business strategies, such as the “fast follower” model, will fail, in part because brand-new markets, after an inflection point, are created so fast that there is no time to use that strategy.
In fact, that illustrates the tension between the “first to market” and “fast follower” strategies overall. The “first to market” principle suggests that firms entering a new market need to move quickly, so they are in position to dominate the new market.
Others argue that, generally speaking, a “fast follower” strategy works better, and that the benefits of being a first mover are over-rated.
That might not be true for every market, and almost certainly will not be the case for over the top video. The reason is that big new markets often develop so quickly, once an inflection point is reached, that contestants not already in the market do not have time to get in.
So maybe, somewhere between “first mover” and “fast follower” is a position that might be termed “early mover,” where a contestant perhaps is not first, but is early into a developing market, without waiting for the market to develop to the point where a “fast follower” strategy works.
The other issue is what qualifies as “fast.” Some firms, especially those facing disruption of their core legacy businesses, simply wait too long to respond, and might be called “lagging followers.”
Others who might say they are “fast followers” wait until they are fairly certain a sizable market exists before jumping in. That can make them “faster, but not fast enough” contestants, if the market goes from a small number of early adopters to mass market too quickly.
Such decisions are tough because inflection points, where adoption of any new product dramatically increases, are tough to spot, in advance.
In the consumer electronics industry, the inflection point often occurs when the innovation is adopted by about 10 percent of homes. As slow as adoption might have been before the inflection point, adoption often is quite rapid after the inflection point.
Seven years after the iPhone was launched, 70 percent of the US population is using smartphones.
Smartphones existed before the iPhone so the category is older than seven years but as far as adoption goes this is nearly the fastest ever.
The CD Player reached 55 percent adoption in seven years and the Boom Box about 62 percent. If measuring the period between nine percent penetration and 90 percent, Asymco estimates a nine-year period between smartphone inflection point and saturation.
So if market saturation is reached in nine years, one might reason that a firm has to be ready to scale up in the first years of a new market where global distribution and manufacturing are required.
The reason is simply that the market will be saturated in just nine years. Any firm that requires four years to build a global capability will already have missed half the potential market before it is ready to compete fully.
More to the point, it took only six years for smartphone penetration to grow from 10 percent to 70 percent in the U.S. market.
Even competitors already in the smartphone market were not assured of success. “Late” in this case was tantamount to “never.”
Something like that could happen in the over the top video streaming market. Consider the effort, time and money Netflix is spending to build a more-global capability, as much as it dominates the U.S. market.
Netflix, which operates in about 40 countries, has to spend money to add local programming in many of those countries, and local content really does not scale. And Netflix points out that 80 percent of the potential market lies outside the United States.
Whether you consider Netflix a first mover or a fast follower, it is in the market at a point where the broader inflection point--a shift of most major channels to over the top delivery--has not yet occurred.
The larger point is that the inflection point is approaching. Would-be leaders in the video streaming market essentially need to be in the market, or get into the market soon, to ensure they are in position once the inflection point is reached.
The National Basketball Association and ESPN are planning a new online video service that would stream regular season games, apparently on an over the top basis, without requiring purchase of a linear video subscription.
The contract rights for such a move have been approved by the NBA, which means we might eventually see a direct-to-consumer NBA package similar in revenue model to
Starz likewise is launching an over the top video streaming service for Asia, Africa, the Middle East and Latin America.
It seems only a matter of time before other channels and networks also decide it is time to launch their own OTT services as well.
You might wonder why the inflection point, and which firms are in the market when that happens, matters.
The “fast follower” strategy might not to work.
In brand-new markets, adoption grows so quickly after the inflection point that there simply is not time for a new contestant to gear up to meet the demand.
If a firm has not already positioned in the new market space, it often takes too long to respond to the new market’s sudden emergence.
And that means market leadership goes to one or more firms that already have invested in the new space, and are poised to scale up operations quickly once a mass market develops.
Once the inflection point is reached, contestants might have only six to nine years before most of the market is taken by one of the suppliers.