First or Best?
In October of 1969, Sony unveiled the prototype of the first videocassette recorder (VCR), which was originally called the U-matic.
To put things in perspective, in previous years people had been capturing video on film reels, which were large, cumbersome and clunky.
The U-matic, on the other hand, was something new and incredibly original. Loading, playback and eventually recording was incredibly easy for anyone, not just a techie or videophile. This would truly represent an evolutionary and disruptive leap in technology that occurs once in a lifetime.
Correctly believing that was the wave of the future and wanting to unify standards, Sony approached JVC, Matsushita (Panasonic) and a bunch of other top electronics manufacturers about a cross-licensing agreement.
Sony knew of course that this would give their competitors a blueprint into how they built the VCR, but this also provided them an immediate opportunity to receive a revenue stream through royalties while also ensuring peace while this new technology matured and they continued to innovate.
That they were successful is putting it mildly. This technology, while initially quite expensive at $1,300 a device, became an immediate hit and was even adopted for use by TV production and business communications.
By 1974 with the VCR becoming ubiquitous, Sony decided to developer a cheaper, better and easier to use alternative, called Betamax, which they once again tried to push to their partners through now more expensive cross-licensing agreements.
Unfortunately, their competitors were less than thrilled with the new technology and licensing agreements, and were also wary of becoming too beholden to Sony, thus they declined.
Sony went ahead anyways and put their efforts into developing the Betamax VCR without their partners on-board. They also took a “take it or leave it” attitude, and figured everyone would eventually capitulate.
JVC, on the other hand, developed their own consumer-friendly video format in 1975, which they called the Video Home System (VHS). They quietly began meeting with others such as Matsushita, Hitachi, Mitsubishi and a host of others to create partnerships and to standardize things.
With stronger allies, longer recording times and at $100 less initially, the VHS quickly became as popular as the Betamax and eventually overtook it.
The rest of the story we all know. Betamax usage eventually declined while the VHS grabbed more and more market share.
The final deathblow to Sony’s Betamax was the release of its 1977 model, which unfortunately Sony neglected to make backwards compatible due to their haste in rushing it to market.
In 1979 Betamax held approximately 40 percent of the market. By 1984, their market share had declined to 20% percent, and by 1988 Sony had pretty much killed off the product and adopted the VHS format. Hard to believe at the time.
A great first mover product is often times not enough to hold off competition forever, especially as companies continue to innovate in response. Pace of innovation and pace of product adoption can drive the success or failure of anything. Lotus, meet Microsoft. Microsoft, meet Apple. Apple, meet Google.
The world is littered with first mover products that were readily replaced. From Ford’s Model T, to the Visicalc desktop spreadsheet calculator (think early Excel), to Prodigy Communications (a first mover in online internet), to Chux, which was the original disposable diaper manufacturer but who later gave way to Procter & Gamble ‘s Pampers.
It’s great to be first, but it’s better to be best.