Rewards to Investors in Innovative Information Technology Applications: First Movers and Early Followers in ATMs

Abstract

Innovative information technology (IT) applications are risky investments. Unless successful applications provide innovators with exceptional returns, these investments would not be justified. Other than a few case studies, there is no evidence that the first movers of successful IT applications are rewarded for the risks they bear. We present the results of an extensive longitudinal study of the effects of early adoption of automated teller machines (ATMs) by banks, on market share and income. The study spans the period from 1971 to 1983 and includes 2,534 banks from across the United States. Results indicate that the earliest adopters (1971 through 1973) were able to increase market share, with market share gains being sustained for a long time. Banks that adopted ATMs between 1974 and 1979, however, did not gain market share. The results also indicate that early ATM adoption enabled banks to increase income and income gains were sustained for a long time. These findings support case study evidence that early adoption of new IT applications can lead to long-term competitive advantages for firms.