Standard theory of network effect predicts that in an industry displaying network effect, a first mover will enjoy many advantages over late entrants due to positive feedback and increasing returns. Although there exist numerous actual business cases that defy such a prediction, this assertion was seldom challenged before. This paper proposes that if late entrants take into account three strategic factors - 1) existence of supporting industry, 2) existing incumbent’s strategic focus, and 3) speed of technological changes – in formulating their entry strategy, then their chances of breaking into the network market protected by incumbents will be higher. Finally, the subjective interpretation of the three strategic factors are discussed.
Network Effect; Late Entrant; Business Strategy