Building a bridge to the future: Prospective legitimation in nascent markets

Derek Harmon, Eunice Rhee and Yun Ha Cho

Strategic Management Journal, 2023, vol. 44, issue 11, 2597-2633

Abstract: Research Summary How do new things in nascent markets become legitimate? Existing research points to a process where legitimacy is built by making associations with already legitimate ideas from other domains. In this study, however, we investigate the Internet boom of the 1990s, a nascent setting where something new—engagement metrics used to evaluate firms—gained legitimacy amongst investors, but not by being associated with already legitimate metrics. Using a question‐driven mixed‐methods approach, we reveal that these new metrics instead gained legitimacy through a novel process we term prospective legitimation, where a new basis of legitimacy was constructed by firms linking their otherwise unproven new metrics to future profitability. We discuss how these findings inform research on legitimacy, the development of nascent markets, and future‐oriented communications. Managerial Summary Firms in nascent markets often face the challenge of convincing investors to buy into something new. This is difficult because new ideas not only have few precedents, but they also have not been around long enough to have proven their value. Our research shows how firms can legitimate their new ideas prospectively by using future‐oriented communications that link their otherwise unproven new ideas to a desirable future outcome. Through an investigation of the Internet boom of the 1990s, we demonstrate that Internet firms gradually convinced investors to accept their new engagement metrics (e.g., traffic, visitors, users) before there was any concrete evidence that such metrics actually led to profitability. This study thus enhances our understanding of how new ideas gain traction in nascent markets.

Date: 2023
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