Order of Market Entry, Dynamic Capabilities and Performance in the Search Engine Industry

Order of Market Entry, Dynamic Capabilities and Performance in the Search Engine Industry  Introduction & Research Aim Market entry decisions remain critical to firm survival and growth. It is a topic that is meaningful for... [ view full abstract ]

Order of Market Entry, Dynamic Capabilities and Performance in the Search Engine Industry

Introduction & Research Aim

Market entry decisions remain critical to firm survival and growth. It is a topic that is meaningful for researchers and practitioners, in which the interests of both seem to be well aligned (Fosfuri et al., 2013). The rapid rate of change in technologies, markets and other environmental factors positions market entry as one of the most critical decisions for business survival and performance (Mittal and Swami, 2004). Entry choices are particularly thorny for management as they often reflect a shift in strategy, operations, or business model and are laden with uncertainty that stretches well beyond the boundaries of would-be entrants (Markman and Waldron 2014).

In reality, market entry is an on-going process as opposed to a rare or anomalous event. It is a complex decision and new market investment decisions persist long after the firm incorporation date, in terms of considering new products, new iterations, new markets etc. Entry is, therefore, more than a simplistic, discrete event and involves on-going efforts of management beyond market inception. A key shortcoming of market entry literature to date is the failure to produce an integrative framework that captures the complex relationships between the firm’s resources and capabilities, entry timing decisions and industry dynamics (Fosfuri et al., 2013). Further to this, although temporality is acknowledged in entry literature, market entry is not explicitly framed as a multi-stage, dynamic process. In fact, it is treated predominantly as a discrete event, and in the main empirically tested as such.

The aim of this study is to explicitly frame market entry as a multi-stage, dynamic process. It supports the mounting logic (Boulding and Christen, 2008; Markman and Waldron, 2014; Zachary et al., 2015) that market entry is best elucidated as a dynamic process, where timing issues arise at several intervals throughout the firm life cycle beyond market inception. Adopting a dynamic capability perspective, this research assesses whether capability development and exploitation explains performance differentials or the success or failure of market entrants over the market entry process.

Research Design

As the aim of this research is to frame and investigate a multi-stage, dynamic model of market entry, it employs a contextually embedded, longitudinal study of market entry within a single industry. The search engine industry was chosen as a single case study. It offers a ‘unique lab’ (Lieberman, 2010) to assess entry in a high velocity space with frequent environmental shifts. The study tracks the chronology of over twenty market entrants including first movers, AltaVista, Excite and Lycos, early entrants Ask Jeeves, MSN and market breaker, Google and later entrants including Cuil, Blekko and MSN’s Bing over seventeen years from 1993 to 2010. This research employed multiple methods including interviews (industry analysts, first and later movers) and documentary evidence using many key publications and sources. On-going documentary collection was central to understanding the inception of the industry, the chronological order of market entrants, key milestones and the broader web context. Purposive, non-random sampling was employed in terms of interviewee selection. Twenty-six, semi-structured interviews were conducted with key players (both non-survivors and present players) and also recognised industry analysts. Interviews were conducted face-to face where possible and also via telephone, Skype or email. Two phases of interviewing were completed and this allowed time to elapse to assess the entry of later players, the evolution of market entry and capability development and exploitation.

Findings

The findings of the research support a multi-stage, processual view of market entry where on-going efforts of management are required to exploit and defend their market position subsequent to competitive responses. It supports the view that there are changing capability requirements and dynamic conditions across different stages of the market entry process. The stages are distinguishable in terms of recognising an opportunity in a new and uncertain environment (sensing), exploiting this opportunity (seizing) and maintaining advantage (maintaining) in line with a changing environment (Wang and Xie, 2014).

Within the search context, the findings reveal heterogeneity in the ability of different market entrants to alter activities in line with their environment in terms of sensing, seizing and maintaining. Markedly, the evolution of a sensing capability is critical not only at market inception, but also at exploiting and maintaining stages of market entry. This research also unearthed the evolution of this capability over the market entry process in sustaining market position. Market leader, Google, in particular has successfully engrained this initial ad hoc ability, within the processes and structures of its organisation, in ‘staying ahead’ of emerging market trajectories. Conversely, first movers exhibited an inability to sense and adapt to changing environments and were essentially ‘blind sighted’ (Mittal and Swami 2004). In brief it was the development and exploitation of critical dynamic capabilities over the entry process that differentiated successful market entrants from their unsuccessful counterparts or simply how many first movers failed and other markets entrants sustained in the search context.

Implications

This research supports framing market entry as a multi-stage process rather than a discrete event, whereby preceding stages affect subsequent stages and the evolution and path dependency of certain resources or capabilities (Zachary et al., 2015). In adopting a dynamic capability perspective and deploying a fine-grain analysis of capability development and exploitation, this research has unearthed key conceptual blocks across each stage of the market entry process. In doing so, it presents an explanation as to how some market entrants have sustained advantage and others have failed in a dynamic environment. The conclusions of this research are focused on a specific context and therefore are not equipped to extrapolate universal findings. However, this research contends that generalising for the market entry phenomenon is incredibly difficult to achieve given the highly contextualised nature of market entry. The value of this research, therefore, is in its contextual depth using a single, longitudinal case study in order to create an explanation of performance differentials amongst market entrants.

In terms of managerial implications, on-going efforts by management are required to exploit and defend their market position subsequent to market inception. This supports other studies, where the type of capabilities a firm is endowed with at entry can have a large effect on their post-entry success (Franco et al., 2009; Klepper and Simons, 2000). It also endorses the view that even the best entrants must quickly develop a post entry plan (Zachary et al., 2015). This is even more pertinent when one considers that entry-order effects and superior performance outcomes are impermanent and diminish over time due to competitor actions (Lieberman and Montgomery, 2013). Sensing capability in particular remains critical in the exploiting and maintaining phases of market entry, in ‘staying ahead’ of emerging market trajectories. The challenge for management, therefore, is to embed this capability within the organisation, where space is created for employees to engage in anticipatory activities. Management must oversee this transition and to do so they need to understand the components of such capabilities and how they are operationalised. Such components are more accessible and amenable to direct intervention by management than more abstract higher-order capabilities.

References

Boulding, W. and Christen, M. (2008). ‘Disentangling pioneering cost advantages and disadvantages’. Marketing Science, 27: 4, 699–716.

Fosfuri, A., Lanzolla, G., and Suarez, F. F. (2013). ‘Entry-timing strategies: The road ahead’. Long Range Planning, 46: 4, 300-311.

Franco, A. M., Sarkar, M. B., Agarwal, R. and Echambadi, R. (2009). ‘Swift and smart: The moderating effects of technological capabilities on the market pioneering-firm survival relationship’, Management Science, 55: 11, 1842-1860.

Klepper, S. and Simons, K. L. (2000). ‘Dominance by birthright: entry of prior radio producers and competitive ramifications in the US television receiver industry’. Strategic Management Journal, 21: 10-11, 997-1016.

Lieberman, M. B. and Montgomery, D. B. (2013). ‘Conundra and progress: research on entry order and performance’. Long Range Planning, 46: 4, 312-324.

Lieberman, M.B. (2010). ‘Did First Mover Advantage Survive the Dot Com Crash?’. UCLA Working Paper.

Markman, G. D., and Waldron, T. L. (2014). ‘Small entrants and large incumbents: A framework of micro entry’. The Academy of Management Perspectives, 28: 2, 179-197.

Mittal, S. and Swami, S. (2004). ‘What factors influence pioneering advantage of companies?’. Vikalpa, 29: 3, 15-34.

Wang, Q. and Xie, J. (2014). ‘Decomposing Pioneer Survival: Implications for the Order- of‐Entry Effect’. Journal of Product Innovation Management, 31: 1, 128-143.

Zachary, M. A., Gianiodis, P. T., Payne, G. T., and Markman, G. D. (2015). ‘Entry Timing: Enduring Lessons and Future Directions’. Journal of Management, 41: 5, 1388-1415.