I think a first mover advantage is over-rated. Google wasn't the first search engine. Amazon wasn't the first to sell books online. Flickr wasn't the first photo storage site. Walmart wasn't the first cheap retailer.
First movers often make lots of mistakes because they are exploring new territory. Entrepreneurs can take advantage of those mistakes by copying the first mover, learning from their mistakes, and improving the business model.
This strategy works for most industries, but not all. In industries with rapid change (semiconductors, for instance) first movers with a new product often have a huge advantage. Most of the time though, it's fine to be second, third, or even later if you have a better business model but a similar end product.
So what do you need to know about the second-and-copy strategy?
1. It's all about execution. If you try to make a business out of competing with first-movers, you had better be able to out execute them.
2. Watch the I.P. Intellectual property can come back to bite you. Make sure you do things differently enough so that you don't infringe on the patents of the first-mover. This is usually easy to do, and is one reason why some VCs and entrepreneurs are beginning to put less emphasis on IP. Patents rarely protect companies from competition (they didn't help Palm, for instance). But they can be barriers to entry (think Qualcomm's CDMA). And sometimes things change so quickly they don't matter. If you read Intel's annual report, you will see several statements that basically say by the time a patent is awarded to them, the product that uses the patent is often obsolete.
3. Technology is about distribution channels. People think new technology is successful because it is so cool. People also think new technology is all about the marketing (where marketing = advertising). Those people are wrong. New technology is all about distribution channels. How do you get your product to people? The first mover struggles to find their target customer. You've watched their pain, and can build a good method of distribution from the beginning.
4. Experience and cost-cutting are great differentiators. First movers often focus on technology innovation. Second movers should focus on controlling costs and on the end user experience. Some people say there are no products or services, just customer experiences. A better experience means you win because your competition if focusing on new features that are cool to techies but not mainstream users.
But here is the 800 pound gorilla that I haven't addressed. If it is so easy for you to copy a first mover, it's easy for everyone else too. Look at the Carnival of the Capitalists as an example. Blog carnivals don't provide any money, but they do provide links(the currency of the blogosphere). When Jay and I launched the CotC, it was the first niche blog carnival to break away from the Carnival of the Vanities and still use the carnival name. For a while, host blogs benefited via direct links from Instapundit. Hosting the CotC usually sent anywhere from 1000-3000 extra visitors, depending on how many bloggers linked it.
But quickly there began to be a proliferation of carnivals. The idea of "best business blog posts all in one place each week" became diluted, and the CotC had to compete with Carnivals of Entrepreneurship, Business, and others. Jay summed it up nicely in an email exchange about the growth of carnivals and the Blog Carnival site.
On some level, most of all, I see them as having climbed on the backs of established carnivals and made things worse for them. They generate almost no traffic. Their submission form is the worst of the three available for CotC (but see, if you're new, they're THE submission form and you don't know the difference)…
… but what *do* you call the people who have turned a routinely 1000 – 3000 hit carnival post into more of a 100 – 500 hit carnival post? While making things more complicated for the hosts and administrator.
I agree. In part it was our fault for not innovating, but then again we don't have tons of time to devote to the thing. All the blog carnivals have done is take away the traffic and spread it out to levels that make it less attractive, much the way competitors come in and take the margins out of the first-mover's business.
In summary, the second and copy model can work, but carries its own different set of risks. If you pursue it, you should focus on strategic reaction rather than strategic foresight, and your execution must be excellent.