by Jonathan Lo
Fred Wilson stated that he would not invest in copycat models. This surprising comment came despite the many success stories of copycats such as Google copying Yahoo, MercadoLibre copying eBay etc. Not to take anything away from what Wilson has achieved thus far as a great investor, but I think this is an easy statement to make after you’ve succeeded in the Venture Capital business. Wilson mentioned that his no copycat investing is a matter of pride, but very few VCs can afford to make this a matter of pride. Union Square Ventures is arguably one of the top tier VC firms, therefore they have the luxury of being approached by a larger number of start-ups; as entrepreneurs are more inclined to work with them in light of their past success, giving Union Square Ventures a much wider selection of companies to choose from.
While Union Square Ventures has portfolio companies that expand internationally, a large majority of these investments start in the US market. Given that the US market is home to a large number of technology based pioneers, I would have to agree with Wilson that the copycat model is not necessarily as effective within the US, especially if the start-up has already gained significant traction. On the other hand, I feel that this is a very effective model to follow in areas that are behind the technology curve. In fact, there are some VCs that explicitly look for copycats to invest in. An example of one of these VCs is Monashees Capital in Brazil. Monashees recently invested in companies like baby.com.br (copying diapers.com) and Peixe Urbano (copying Groupon) because these were areas that had not been captured in Brazil. As these business models have succeeded in the US, there is no reason not to believe that these same concepts would not succeed in Brazil.
Another great example of a copycat investor is Rocket Internet. Rocket is known for bringing successful business models to new regions; providing the capital and operational support needed for the start-up to succeed. One of their portfolio companies, Glossybox, a copy of Birchbox, has already expanded into 8 countries; Glossybox is arguably even larger than the pioneer start-up. While Rocket only started in 2007 and has yet to prove their investment model, they have definitely made a strong case thus far.
Finally, based on a study by the American Marketing Association, in 1993, only about 11% of the pioneers were market leaders. Pioneers were able to maintain their market leader position for 5 to 10 years with long-term market leaders entering an average of 13 years after the pioneer. While technology and the internet have changed the dynamics of starting companies, do the findings of the 1993 study still apply? Is the copycat model the way to go?
Showing posts with label cloning strategy. Show all posts
Showing posts with label cloning strategy. Show all posts
Copycat in Software Industry
By Qingxi Wang
Copycat model can be good or bad. Some companies adopting ideas from others can succeed and benefit their users, while some can destroy the ecosystem of the software industry. There have been famous successful examples such as Google copying Yahoo and Baidu copying Google. Meanwhile, there are cases like Tencent copying ideas and business models from small companies. Here let’s discuss two issues: first, what can make a copycat model to be successful; second, what’s copycats’ potential impact on the software industry ecosystem.
First let’s take a look at the two most successful “copycat” software companies – they are Google and Microsoft. Google did not just copy Yahoo’s idea. It followed the simple idea to search the content on the web, but it has completely different infrastructures and ranking methods behind, and it was not very successful until the AdSense technology and business model was invented. In other words, Google has made many innovations which are much more valuable than the original ideas and succeeded because of these innovations. The case o Microsoft is similar. Twenty five years ago, Apple sued Microsoft for patent infringement. Microsoft could not have succeed without improving user experience and introducing innovations to ease the development of 3rd party software. The lesson we learn from Google and Microsoft is that many software companies generate value and therefore gain value themselves because of innovations and operations, rather than the original idea.
There is also another group of copycats like Baidu. They copy not only the idea, but also the business model and sometimes the techniques. Baidu’s success could be attributed to three factors: 1. Baidu focused on China market at first and did excellent localization work. 2. Baidu copied the correct model – there were several other companies had their own simple search engine at that time, but unfortunately, they copied Yahoo, which guaranteed them a failure. 3. Baidu knows its users better – not only the localization of language, but it also tried to make the ranking result to be helpful to the majority of China users. There is a similar localized search engine case in South Korea. Besides, Tencent is another good example from China’s software industry. They copied OICQ which you can hardly find a single user today, while Tencent has hundreds of millions users in China. In summary, even if a company does not own much technological innovation power, it can copycat and localize foreign products when there are language barriers and culture barriers.
Second, the abuse of copycat models could lead to monopoly and less innovation in software industry ecosystem. It is not bad when small companies copycat the ideas from bigger companies and try to extend the business in a specific area. However, when big companies start to copy small companies, it tends to end up in monopoly. Tencent, the instant messenger company mentioned above, owns lots of business in varies sectors, such as game, twitter-like website, download and download tools, search engine and so on. Back in 2003, Tencent only has its messenger and peripheral products, but it had a large group of user, estimated to be more than 100 million. At the same time, there was an entertainment company called LianZhong which had online card games in China. Tencent observed the success of LianZhong and created an online gaming system which has the same feel and looked exactly same as LianZhong’s product, register-free for Tencent users. The market share of LianZhong fell from 85% in 2000 to less than 1% in 2010, while Tencent is almost the only service provider in this domain. Tencent repeated this strategy several times – it copies others’ successful model and makes it easy to reach by their users – and just like pirate software, this behavior has undermined the innovation in the industry. Nowadays in China, there is a tendency to copy all the innovations in the US and see if they work in China. This undermines the innovation power.
To sum up, innovation is the most valuable assets in software industry. The copy of an idea is often not the problem. But if one is copying the whole business model and strategy, there is a risk of stopping innovation.
Copycat model can be good or bad. Some companies adopting ideas from others can succeed and benefit their users, while some can destroy the ecosystem of the software industry. There have been famous successful examples such as Google copying Yahoo and Baidu copying Google. Meanwhile, there are cases like Tencent copying ideas and business models from small companies. Here let’s discuss two issues: first, what can make a copycat model to be successful; second, what’s copycats’ potential impact on the software industry ecosystem.
First let’s take a look at the two most successful “copycat” software companies – they are Google and Microsoft. Google did not just copy Yahoo’s idea. It followed the simple idea to search the content on the web, but it has completely different infrastructures and ranking methods behind, and it was not very successful until the AdSense technology and business model was invented. In other words, Google has made many innovations which are much more valuable than the original ideas and succeeded because of these innovations. The case o Microsoft is similar. Twenty five years ago, Apple sued Microsoft for patent infringement. Microsoft could not have succeed without improving user experience and introducing innovations to ease the development of 3rd party software. The lesson we learn from Google and Microsoft is that many software companies generate value and therefore gain value themselves because of innovations and operations, rather than the original idea.
There is also another group of copycats like Baidu. They copy not only the idea, but also the business model and sometimes the techniques. Baidu’s success could be attributed to three factors: 1. Baidu focused on China market at first and did excellent localization work. 2. Baidu copied the correct model – there were several other companies had their own simple search engine at that time, but unfortunately, they copied Yahoo, which guaranteed them a failure. 3. Baidu knows its users better – not only the localization of language, but it also tried to make the ranking result to be helpful to the majority of China users. There is a similar localized search engine case in South Korea. Besides, Tencent is another good example from China’s software industry. They copied OICQ which you can hardly find a single user today, while Tencent has hundreds of millions users in China. In summary, even if a company does not own much technological innovation power, it can copycat and localize foreign products when there are language barriers and culture barriers.
Second, the abuse of copycat models could lead to monopoly and less innovation in software industry ecosystem. It is not bad when small companies copycat the ideas from bigger companies and try to extend the business in a specific area. However, when big companies start to copy small companies, it tends to end up in monopoly. Tencent, the instant messenger company mentioned above, owns lots of business in varies sectors, such as game, twitter-like website, download and download tools, search engine and so on. Back in 2003, Tencent only has its messenger and peripheral products, but it had a large group of user, estimated to be more than 100 million. At the same time, there was an entertainment company called LianZhong which had online card games in China. Tencent observed the success of LianZhong and created an online gaming system which has the same feel and looked exactly same as LianZhong’s product, register-free for Tencent users. The market share of LianZhong fell from 85% in 2000 to less than 1% in 2010, while Tencent is almost the only service provider in this domain. Tencent repeated this strategy several times – it copies others’ successful model and makes it easy to reach by their users – and just like pirate software, this behavior has undermined the innovation in the industry. Nowadays in China, there is a tendency to copy all the innovations in the US and see if they work in China. This undermines the innovation power.
To sum up, innovation is the most valuable assets in software industry. The copy of an idea is often not the problem. But if one is copying the whole business model and strategy, there is a risk of stopping innovation.
Innovation vs Execution
by JJ Jiang
In the entrepreneurial world, people often place a halo over the concept of innovation and at the same time undermine the importance of execution. This is understandable because great innovations pushes boundaries and changes lives and yet they are a rarity to come by. In this day and age, it seems like it’s becoming more and more difficult to come up with a true new idea. However, it should be remembered that if without perfect execution, innovations are merely good ideas, which are dime a dozen.
Some people believe only novel ideas are worth being worked on and shuns upon business models that are classified as copycats. These business models are considered second class citizens. Although, this shouldn’t be the case in my opinion.
Many successful businesses that changed lives are not truly original. Google copied yahoo, facebook copied myspace, and all the venture capital firms use similar investing models. There are many other examples. Yet, many of these “copycats” are wildly more successful than the idea originators. Many times this is because the “copycats” brought in different value propositions, but often it is the perfect execution behind the firms that helped them find better product market fit and secure sufficient funding to be there until when the time is right.
A great idea will be wasted in the hands of a bad team, but a good team can turn a bad idea into a great idea. This is the fundamental assumption behind the MVP concepts, test, learn, and pivot. The emphasis here is a good team, which implies great execution.
I understand why Fred Wilson is negative on copycat models. All VC should be, because it is in their interest to encourage innovation in the form of new ideas. If the world were to be filled with only copycats, the innovation cycle would come to a halt and undercut the importance of the VC industry.
Excessive copycatting would create an unhealthy environment for entrepreneurs. If everyone is coping and able to receive more funding than the original, then the idea generators would not have the incentive to innovate. This would not give a new business enough time to incubate and would limit the new business’s chance of survival without proper upside. Imagine if a great innovation, while executed perfectly, is growing slowly in its market. Copycats, with much stronger capital, rapidly imitate its business model and saturate the rest of the market. This wouldn’t leave enough room for the original innovation to succeed.
On some level, this is what Rocket Internet is doing. The Samwer brothers are great in execution with deep pockets. They have become an internet sensation because of their ability to imitate, execute, and exit. This is an empowering business, because it shifted the pendulum of innovation vs execution scale towards execution. It is also powerful because it arguably helped Groupon grow must faster than Groupon would have, on a global stage, without City Deals. However, it remains to be determined if this new form of VC investing would help the industry in the long run.
It is one thing when copycats are individual entrepreneurs who copy an individual business model, but it is another when a powerful firm does this on a systematic and routine basis. This is definitely profitable and lucrative in the short run, but just as over fishing and over foresting without considering replenishing the supply.
In the entrepreneurial world, people often place a halo over the concept of innovation and at the same time undermine the importance of execution. This is understandable because great innovations pushes boundaries and changes lives and yet they are a rarity to come by. In this day and age, it seems like it’s becoming more and more difficult to come up with a true new idea. However, it should be remembered that if without perfect execution, innovations are merely good ideas, which are dime a dozen.
Some people believe only novel ideas are worth being worked on and shuns upon business models that are classified as copycats. These business models are considered second class citizens. Although, this shouldn’t be the case in my opinion.
Many successful businesses that changed lives are not truly original. Google copied yahoo, facebook copied myspace, and all the venture capital firms use similar investing models. There are many other examples. Yet, many of these “copycats” are wildly more successful than the idea originators. Many times this is because the “copycats” brought in different value propositions, but often it is the perfect execution behind the firms that helped them find better product market fit and secure sufficient funding to be there until when the time is right.
A great idea will be wasted in the hands of a bad team, but a good team can turn a bad idea into a great idea. This is the fundamental assumption behind the MVP concepts, test, learn, and pivot. The emphasis here is a good team, which implies great execution.
I understand why Fred Wilson is negative on copycat models. All VC should be, because it is in their interest to encourage innovation in the form of new ideas. If the world were to be filled with only copycats, the innovation cycle would come to a halt and undercut the importance of the VC industry.
Excessive copycatting would create an unhealthy environment for entrepreneurs. If everyone is coping and able to receive more funding than the original, then the idea generators would not have the incentive to innovate. This would not give a new business enough time to incubate and would limit the new business’s chance of survival without proper upside. Imagine if a great innovation, while executed perfectly, is growing slowly in its market. Copycats, with much stronger capital, rapidly imitate its business model and saturate the rest of the market. This wouldn’t leave enough room for the original innovation to succeed.
On some level, this is what Rocket Internet is doing. The Samwer brothers are great in execution with deep pockets. They have become an internet sensation because of their ability to imitate, execute, and exit. This is an empowering business, because it shifted the pendulum of innovation vs execution scale towards execution. It is also powerful because it arguably helped Groupon grow must faster than Groupon would have, on a global stage, without City Deals. However, it remains to be determined if this new form of VC investing would help the industry in the long run.
It is one thing when copycats are individual entrepreneurs who copy an individual business model, but it is another when a powerful firm does this on a systematic and routine basis. This is definitely profitable and lucrative in the short run, but just as over fishing and over foresting without considering replenishing the supply.
Immigrant entrepreneurs… is the grass greener for us back home?
by Maya Farah
Many of us – grad students – have been bit by the startup bug. We are working on business plans, building MVPs to test our ideas, and looking for opportunities to build our own companies, or join fast-growing ones as we graduate.
Many of us – grad students – have been bit by the startup bug. We are working on business plans, building MVPs to test our ideas, and looking for opportunities to build our own companies, or join fast-growing ones as we graduate.
Speaking on behalf of the international students studying in the US, I can fairly say that one of the major questions that are our minds is: stay in the US, or go back home?
Yesterday, Oliver Samwer addressed this concern in his recruitment presentation at HBS. His answer in a nutshell: for all the reasons why people want to build businesses in the Valley, we should leave. People want to build businesses in the US because of easy access to capital, concentration of skilled/technical labor, etc. Oliver views this abundance as source of competition, and says our brainpower and education can be leveraged much more in an environment which is not as competitive.
Last year, Naguib Sawiris (one of the most influential men in Egypt) addressed the Middle Eastern crowd with a similar opening message: Come back home and be leaders; don't stay in the US, where there are thousands of you.
While this logic has a lot of appeal, I would like to address the pros and cons of entrepreneurship in the US vs. emerging markets seen from our side.
There are multiple reasons to stay in the US in an entrepreneurial hub:
First, because it is a great way to learn by osmosis, spot trends, meet like-minded people and get mentorship and skills.
Second, the culture here is one that understands and forgives failure, unlike many of the markets like the Middle East where you only get one shot at success.
Third, the startup machine is well oiled – from funding to market liquidity, to availability of potential advisor/board members.
Finally, even for those of us who want to go back, a mature market experience and an exposure to the SF way of doing things is very valuable in terms of brand building, credibility, etc.
On the other side, there are many reasons why one would want to go back:
First, because of the competitive advantage one would have back home: pre-existent local network, understanding of the culture, lower number of qualified MBAs.
Second, because even if many vilify it, the international “copycat” model has its appeal in non-mature markets: you can almost go straight to scaling up after a much shorter product/market fit exercise, which creates a lot of efficiency in the startup process, and speeds it up.
Third, because the US immigration laws make it really difficult for expats to build businesses here, due to visa quotas, etc. (Read this for one of many examples). This makes it both tougher to stay, and tougher to hire from your non-US network.
And the strongest argument of all, in my opinion, is an advice a friend once gave me: “Build a business where you want to live”. Many of us see startups as a 2-year commitment, followed by an exit and a new beginning. The reality seems to be different – many of the entrepreneurs we read about stayed with their companies for 5-10 year before making it big. This is something to keep in mind when choosing our next geographical step.
There does not seem to be an obvious answer to the question… the grass can be green on either side. I have oscillated a lot in my decision, but my most recent conviction is to work in a small/growth-stage company in the Valley now, and move on to building my own business later on in an emerging market where I would want to live. But these decisions evolve based on circumstances and opportunities, and I know that what I go for today might not be valid tomorrow.
Copycats in Entrepreneurship: An Oxymoron or A Good Strategy?
by Jeff Buening
Two recent events at HBS have drawn attention to the nature of copycats in entrepreneurship – 1) Fred Wilson’s visit to our Launching Tech Ventures class and 2) Oliver Samwer’s recruiting visit for his largely successful Rocket Internet company. Interestingly enough, each speaker maintained a very different view on the matter. Fred Wilson was quite negative on the model from an investment perspective – maintaining that, while it may be personal quirk, he has trouble investing in companies that aren’t the first in their domain for a new market disruption or category killer – because it’s more competitive and harder to win by nature of being a copycat. Oliver Samwer, on the other hand, makes a living (and quite an impressive one at that) copying successful internet companies and building them out in other parts of the world faster than the originator. While he’s the first to admit that he’s not a visionary like Mark Zuckerburg or Andrew Mason, he does maintain that he’s one of the best builders and ‘scalers’ in the world.
The polar opposite position/perspective from these two very successful venture investors begs the question of who is right and who is wrong? Or is there even a right and wrong at all? Somewhat related, it could raise the oft-debated topic of the secret sauce to successful entrepreneurship: does it lie in the idea or the team? My position is as follows: execution is the underlying requirement for success in entrepreneurship – regardless of being first or not. Preferring to focus on copycats or first movers is simply that – a preference; either can be successful, and there are many factors of consideration when choosing to be the first mover or a fast follower.
I must start by stating that, in general, there is a real strategic benefit to being a first mover (as noted in strategy 101)… You may be able to lock in exclusive partnerships, build proprietary platforms, and raise sufficient capital that, in turn, deters other players from entering a market. However, this advantage is highly dependent on the nature of the industry and the accommodating barriers to entries inherent therein. Moreover, being the first certainly brings with it more klout and bragging rights as a visionary, and someone who could take a new concept from ideation, to incubation, to scaling, to growing & maintaining deserves to be called an extraordinary entrepreneur. But those feats also tend to present many more challenges than does someone simply replicating an already proven business model. Moreover, there are many examples where fast followers ended up dominating the market and becoming winner-take-all over the visionary.
Perhaps there some distinctions to be made here that color whether and when one strategy may be more effective than the other:
The above takes me back to my position above: there is no true-and-fast right or wrong when it comes being a first mover or fast follower… There’s no guarantee to being successful in either case. There are several factors that may make one more appealing than the other – as noted above, but the reality is that ultimate success depends almost entirely on execution. And many times, it simply comes down to personal preference.
Two recent events at HBS have drawn attention to the nature of copycats in entrepreneurship – 1) Fred Wilson’s visit to our Launching Tech Ventures class and 2) Oliver Samwer’s recruiting visit for his largely successful Rocket Internet company. Interestingly enough, each speaker maintained a very different view on the matter. Fred Wilson was quite negative on the model from an investment perspective – maintaining that, while it may be personal quirk, he has trouble investing in companies that aren’t the first in their domain for a new market disruption or category killer – because it’s more competitive and harder to win by nature of being a copycat. Oliver Samwer, on the other hand, makes a living (and quite an impressive one at that) copying successful internet companies and building them out in other parts of the world faster than the originator. While he’s the first to admit that he’s not a visionary like Mark Zuckerburg or Andrew Mason, he does maintain that he’s one of the best builders and ‘scalers’ in the world.
The polar opposite position/perspective from these two very successful venture investors begs the question of who is right and who is wrong? Or is there even a right and wrong at all? Somewhat related, it could raise the oft-debated topic of the secret sauce to successful entrepreneurship: does it lie in the idea or the team? My position is as follows: execution is the underlying requirement for success in entrepreneurship – regardless of being first or not. Preferring to focus on copycats or first movers is simply that – a preference; either can be successful, and there are many factors of consideration when choosing to be the first mover or a fast follower.
I must start by stating that, in general, there is a real strategic benefit to being a first mover (as noted in strategy 101)… You may be able to lock in exclusive partnerships, build proprietary platforms, and raise sufficient capital that, in turn, deters other players from entering a market. However, this advantage is highly dependent on the nature of the industry and the accommodating barriers to entries inherent therein. Moreover, being the first certainly brings with it more klout and bragging rights as a visionary, and someone who could take a new concept from ideation, to incubation, to scaling, to growing & maintaining deserves to be called an extraordinary entrepreneur. But those feats also tend to present many more challenges than does someone simply replicating an already proven business model. Moreover, there are many examples where fast followers ended up dominating the market and becoming winner-take-all over the visionary.
Perhaps there some distinctions to be made here that color whether and when one strategy may be more effective than the other:
- Geography: I’d argue that being a fast follower IN THE US to a company that already exists in the US is often very difficult… Not as difficult is being a fast follower to that company in other parts of the world – effectively being a fast follower to a company in a different geographic location (this is Oliver Samwer’s main strategic tenant)
- Exit values / investment strategies: Without doing any comprehensive data research, I’d argue that fast followers typically have smaller exits than first-mover disruptors and category killers; But, in aggregate, fast follower exits may be equal to or greater than these first movers (though I’m sure that this argument could be hotly debated)
- Industry segments: I’d argue that some industries offer fast followers a better chance of success than others. But even in industries with fairly low barriers to entry (as many segments of the internet arguably face), there’s no guarantee that fast followers will succeed… This can raise the oft-debated topic of ‘What would Google do?’ and ‘Could Google squash your idea tomorrow?”. BUT many times they aren’t successful.
The above takes me back to my position above: there is no true-and-fast right or wrong when it comes being a first mover or fast follower… There’s no guarantee to being successful in either case. There are several factors that may make one more appealing than the other – as noted above, but the reality is that ultimate success depends almost entirely on execution. And many times, it simply comes down to personal preference.
The “Me Too” Startups
by Katie Nadler
As an aspiring entrepreneur I’ve heard the same thing over and over again. Professors, students, investors and (some) entrepreneurs all emphasize that in general good ideas are cheap; it’s the ability to execute on them that creates valuable businesses. Of course in reality it is some combination of the two but it’s an interesting point to consider when looking at copycat businesses, which is the focus of this blog post.
The potential for copycats is likely in the back of all entrepreneurs’ minds. In my Launching Tech Ventures class this week we were lucky enough to have Fred Wilson of Union Square Ventures as our guest. He shared some very valuable insights into what makes a successful startup. During the conversation he was asked what he thought about copycats. Immediately his tone changed from upbeat and energetic to solemn and annoyed. He said very curtly, “I hate them.” On the one hand I agree completely with Fred. Entrepreneurship is about innovation, new ideas, and inspired founders; copying someone else goes against the spirit of entrepreneurship. However, on the other hand, the copycat approach might not be pure evil… it might even cause some (gasp) good. I mean isn’t it in Strategy 101 where you learn that competition (in the form of copycats or other similar entrants) is what forces companies to continually improve, expand and achieve greater success than if they did not have challengers at their heels?
As I’ve learned the hard way, few, if any, entrepreneurs think of a completely new idea. Someone somewhere has likely tried something similar before. The difference is that many entrepreneurs think of their idea in isolation and then research existing solutions. Is this the only ethical approach or can an entrepreneur not first find an interesting company and then decide how to use it to their advantage? Additionally, startups routinely look to more established players for ideas on new product features or strategic expansions with proven success. Is this copying unethical or against the spirit of entrepreneurship? In my opinion it is not.
Copycats come about for similar reasons as “original” companies do: there’s a problem or pain that needs to be fixed and the existing players are not meeting these needs. This is why copycats often occur in different geographies. For example, Wish-Want-Wear is a Rent the Runway clone in London. RTR had proven success in the States however shipping costs made international expansion prohibitively expensive. The British were left with a pain potentially worse than that of American women; they aspired to wear designer dresses and knew about a solution that was out ¬of their reach. In the digital media era, news is rarely contained within a small region. Therefore, women everywhere learn about RTR and want to benefit from its services. The problem is that they can’t.
As an aspiring entrepreneur I’ve heard the same thing over and over again. Professors, students, investors and (some) entrepreneurs all emphasize that in general good ideas are cheap; it’s the ability to execute on them that creates valuable businesses. Of course in reality it is some combination of the two but it’s an interesting point to consider when looking at copycat businesses, which is the focus of this blog post.
The potential for copycats is likely in the back of all entrepreneurs’ minds. In my Launching Tech Ventures class this week we were lucky enough to have Fred Wilson of Union Square Ventures as our guest. He shared some very valuable insights into what makes a successful startup. During the conversation he was asked what he thought about copycats. Immediately his tone changed from upbeat and energetic to solemn and annoyed. He said very curtly, “I hate them.” On the one hand I agree completely with Fred. Entrepreneurship is about innovation, new ideas, and inspired founders; copying someone else goes against the spirit of entrepreneurship. However, on the other hand, the copycat approach might not be pure evil… it might even cause some (gasp) good. I mean isn’t it in Strategy 101 where you learn that competition (in the form of copycats or other similar entrants) is what forces companies to continually improve, expand and achieve greater success than if they did not have challengers at their heels?
As I’ve learned the hard way, few, if any, entrepreneurs think of a completely new idea. Someone somewhere has likely tried something similar before. The difference is that many entrepreneurs think of their idea in isolation and then research existing solutions. Is this the only ethical approach or can an entrepreneur not first find an interesting company and then decide how to use it to their advantage? Additionally, startups routinely look to more established players for ideas on new product features or strategic expansions with proven success. Is this copying unethical or against the spirit of entrepreneurship? In my opinion it is not.
Copycats come about for similar reasons as “original” companies do: there’s a problem or pain that needs to be fixed and the existing players are not meeting these needs. This is why copycats often occur in different geographies. For example, Wish-Want-Wear is a Rent the Runway clone in London. RTR had proven success in the States however shipping costs made international expansion prohibitively expensive. The British were left with a pain potentially worse than that of American women; they aspired to wear designer dresses and knew about a solution that was out ¬of their reach. In the digital media era, news is rarely contained within a small region. Therefore, women everywhere learn about RTR and want to benefit from its services. The problem is that they can’t.
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| Rent the Runway (original) |
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| Wish-Want-Wear (London copycat) |
Gilt Group provides another interesting example of the intricacies of the copycat model. I’m a loyal Gilt fan but for all intents and purposes, Vente-Privee was the pioneer in flash sales. In an article covering Vente-Privee’s entrance into the U.S., BetaBeat blogger begins by stating that “before there was Rue La La or One Kings Lane or even Gilt Groupe, there was Vente-Privee.” Now I don’t think anyone would question the entrepreneurial spirits of Alexis or Alexandra and I would be interested to hear Fred Wilson’s perspective on this… is one of the most respected startups coming out of Harvard Business School in fact a copycat?
Are “copycat” businesses good for innovation and entrepreneurship? What about for MBAs?
by Will Clayton
When Fred Wilson from Union Square Ventures spoke to our LTV class, he mentioned a profound emotional dislike of copycat investing and entrepreneurship where instead of inventing an idea in the first place, the focus is on out-executing the innovator. Often these “fast followers” end up winning the market, e.g. Google vs. Yahoo, Lycos, etc., so there is a clear economic incentive to learn from the core innovator’s missteps and focus on incremental innovation through superior execution. Though Fred acknowledges these rewards, he remains disinterested in this style of investment. I suspect his lack of interest is driven by his preferred role as the “entrepreneur’s consigliere“ – a role that could be less necessary in at least some copycat models when execution (not strategy) is the driving force behind success.
At this point there is probably some value in making a distinction between copycat/fast-followers in a start-up’s home market and clones in alternate geographic markets. Fast-followers, such as Google initially, arise in situations where leadership of the home market is still contested and a new entrant can innovate on strategy or technology to develop a sustainable competitive advantage. In contrast, “cloning” indicates that one company has clearly demonstrated a successful business model in its home geography, but has yet to expand broadly, so a new entrant replicates that successful strategy in one or more other countries before the original innovator expands on its own. Rocket Internet, a Berlin-based incubator, seems to be building a successful business based around this cloning strategy. For example, its Groupon clone CityDeal sold to Groupon for an estimated €750m in cash and shares according to TechCrunch.
Oliver Samwer, one of Rocket’s co-Founders, spoke to students at HBS on Thursday and was very clear about his organization’s strategy. Articulating a distinction between innovators who create fresh companies and executors who build replications of the innovative companies, Oliver embraced his role as a “big construction worker” who builds the second type of company in 43 countries across the world. Oliver’s approach seems to be to build a core support team of functional experts that his CEOs can draw upon and then leverage this back-office support group across similar companies in a variety of geographies. Leveraging deep pockets, back-office functional expertise, and feet on the ground in a broad collection of countries, Rocket is seems able to replicate successful business models overseas far more rapidly than any innovative first-mover company is likely to be able to manage thereby claiming large swaths of international markets to the long-term detriment of these innovators.
One might be tempted to ask if fast-followers and international clones are a good thing for the entrepreneurial ecosystem. Are these copycats not stealing the innovators’ ideas and then stealing their markets? Could this reduce the incentives for innovation?
While I have some sympathy for these arguments, I think competition through fast-followers is necessary for continued innovation and improving the quality of products/services delivered to customers. If you have an innovative twist on an existing product or service, then you have every right to challenge the established players and see if you can win through your own incremental innovations. This need for the innovative leader to continually keep their eye on the rear-view mirror is a positive force in driving innovation forward.
Compared to fast-followers who are still innovating in some respects, I have a more mixed perspective on international clones. While these clones may possibly innovate slightly during their execution, I suspect any sustained market leadership on their part is driven more by the original innovator being asleep at the wheel. The company that developed the winning business model may see its long-term value reduced because pre-existing clones limit its international expansion opportunities. But despite my personal attachment to innovation, clones still serve a useful purpose to the entrepreneurial ecosystem more broadly. Beyond helping to rapidly spread innovations across the global, clones may also force leaders to accelerate their plans for global growth. Perhaps US entrepreneurs have been too content to wait before expanding internationally and the increasing threat of these clones will drive companies abroad more quickly to ensure they capture the broadest possible market for their products? Successful start-up companies in the US will increasingly be presented with a clear choice: prioritize international expansion as quickly as practical after reaching product-market fit, or be prepared to buy up your international clones at prices similar to what Groupon paid for CityDeal.
While it may be uncomfortable and challenging to the original innovators (“creators”), fast-followers and clones both exert competitive pressures that keep creators from getting complacent in their customer serving innovators or in their expansion strategy. As Ben Foster from OPOWER’s Product group mentioned a week ago in class, copycats can only steal what they can see – they can’t copy your roadmap of future innovations, so as long as you can maintain your leadership position through continual innovation, then you can continue to succeed in the market place.
On the post-MBA career front, I think choosing to work for Rocket or another international clone has some interesting tradeoffs worth considering. On the one hand, you have an opportunity to be an “entrepreneur” with less risk because you’re leveraging a business model you have reason to suspect will work. But despite having worked in Operations before HBS and having a bias towards execution, I think it takes something out of the experience if you’re executing a script largely written by Company ABC in Silicon Valley over the last two years. Maybe for the same reason that Fred Wilson is less interested in being an investor in fast-follower companies that may have less need of his consigliere services, I am less interested in helping start Groupon clone #24 in Paraguay than in helping bring something completely new into the world. As with Fred, this is a perspective shaped by emotion instead of financial considerations, but I do think there is a valuable distinction between the two potential experiences for an MBA student interested in entrepreneurship. Working in an international clone, you will learn about scaling and operational/execution challenges, but you may miss the critical educational experience of searching for product-market fit. In short, you will be trained to be a “professional CEO” who can be dropped into a young company when its ready to scale, but you may not learn how to be an innovator, an entrepreneur, or a founder on your own.
When Fred Wilson from Union Square Ventures spoke to our LTV class, he mentioned a profound emotional dislike of copycat investing and entrepreneurship where instead of inventing an idea in the first place, the focus is on out-executing the innovator. Often these “fast followers” end up winning the market, e.g. Google vs. Yahoo, Lycos, etc., so there is a clear economic incentive to learn from the core innovator’s missteps and focus on incremental innovation through superior execution. Though Fred acknowledges these rewards, he remains disinterested in this style of investment. I suspect his lack of interest is driven by his preferred role as the “entrepreneur’s consigliere“ – a role that could be less necessary in at least some copycat models when execution (not strategy) is the driving force behind success.
At this point there is probably some value in making a distinction between copycat/fast-followers in a start-up’s home market and clones in alternate geographic markets. Fast-followers, such as Google initially, arise in situations where leadership of the home market is still contested and a new entrant can innovate on strategy or technology to develop a sustainable competitive advantage. In contrast, “cloning” indicates that one company has clearly demonstrated a successful business model in its home geography, but has yet to expand broadly, so a new entrant replicates that successful strategy in one or more other countries before the original innovator expands on its own. Rocket Internet, a Berlin-based incubator, seems to be building a successful business based around this cloning strategy. For example, its Groupon clone CityDeal sold to Groupon for an estimated €750m in cash and shares according to TechCrunch.
Oliver Samwer, one of Rocket’s co-Founders, spoke to students at HBS on Thursday and was very clear about his organization’s strategy. Articulating a distinction between innovators who create fresh companies and executors who build replications of the innovative companies, Oliver embraced his role as a “big construction worker” who builds the second type of company in 43 countries across the world. Oliver’s approach seems to be to build a core support team of functional experts that his CEOs can draw upon and then leverage this back-office support group across similar companies in a variety of geographies. Leveraging deep pockets, back-office functional expertise, and feet on the ground in a broad collection of countries, Rocket is seems able to replicate successful business models overseas far more rapidly than any innovative first-mover company is likely to be able to manage thereby claiming large swaths of international markets to the long-term detriment of these innovators.
One might be tempted to ask if fast-followers and international clones are a good thing for the entrepreneurial ecosystem. Are these copycats not stealing the innovators’ ideas and then stealing their markets? Could this reduce the incentives for innovation?
While I have some sympathy for these arguments, I think competition through fast-followers is necessary for continued innovation and improving the quality of products/services delivered to customers. If you have an innovative twist on an existing product or service, then you have every right to challenge the established players and see if you can win through your own incremental innovations. This need for the innovative leader to continually keep their eye on the rear-view mirror is a positive force in driving innovation forward.
Compared to fast-followers who are still innovating in some respects, I have a more mixed perspective on international clones. While these clones may possibly innovate slightly during their execution, I suspect any sustained market leadership on their part is driven more by the original innovator being asleep at the wheel. The company that developed the winning business model may see its long-term value reduced because pre-existing clones limit its international expansion opportunities. But despite my personal attachment to innovation, clones still serve a useful purpose to the entrepreneurial ecosystem more broadly. Beyond helping to rapidly spread innovations across the global, clones may also force leaders to accelerate their plans for global growth. Perhaps US entrepreneurs have been too content to wait before expanding internationally and the increasing threat of these clones will drive companies abroad more quickly to ensure they capture the broadest possible market for their products? Successful start-up companies in the US will increasingly be presented with a clear choice: prioritize international expansion as quickly as practical after reaching product-market fit, or be prepared to buy up your international clones at prices similar to what Groupon paid for CityDeal.
While it may be uncomfortable and challenging to the original innovators (“creators”), fast-followers and clones both exert competitive pressures that keep creators from getting complacent in their customer serving innovators or in their expansion strategy. As Ben Foster from OPOWER’s Product group mentioned a week ago in class, copycats can only steal what they can see – they can’t copy your roadmap of future innovations, so as long as you can maintain your leadership position through continual innovation, then you can continue to succeed in the market place.
On the post-MBA career front, I think choosing to work for Rocket or another international clone has some interesting tradeoffs worth considering. On the one hand, you have an opportunity to be an “entrepreneur” with less risk because you’re leveraging a business model you have reason to suspect will work. But despite having worked in Operations before HBS and having a bias towards execution, I think it takes something out of the experience if you’re executing a script largely written by Company ABC in Silicon Valley over the last two years. Maybe for the same reason that Fred Wilson is less interested in being an investor in fast-follower companies that may have less need of his consigliere services, I am less interested in helping start Groupon clone #24 in Paraguay than in helping bring something completely new into the world. As with Fred, this is a perspective shaped by emotion instead of financial considerations, but I do think there is a valuable distinction between the two potential experiences for an MBA student interested in entrepreneurship. Working in an international clone, you will learn about scaling and operational/execution challenges, but you may miss the critical educational experience of searching for product-market fit. In short, you will be trained to be a “professional CEO” who can be dropped into a young company when its ready to scale, but you may not learn how to be an innovator, an entrepreneur, or a founder on your own.
Copycats Just Feel Dirty!
Anonymous
When asked about copycat business models in our recent Launching Tech Ventures class, Fred Wilson responded with the perspective that he’s not interested. While he acknowledged that it was mostly due to “ego”, I think that there are serious risks to consider with copycat businesses.
The original player in a particular industry has the chance to build up its brand, scale, and relationships which can serve as a first-mover advantage. For example, Rent the Runway was able to establish relationships with designers which were essential to its business model. Whether it is because of a formal exclusive relationship or because it doesn’t make sense to put in additional effort to work with another company doing something very similar to Rent the Runway, designers are less likely to work with a similar 2nd or 3rd company thus making it hard for any copycat business to follow successfully.
In addition, by definition, a copycat will have at least one competitor and will have to share the market with them. By imitating another company, the copycat is almost directly instigating a competitive response from the original player. Instead of taking a little bit of time set themselves up for success with the proper people, processes, and other internal matters, the copycat is rushing to bring on additional stresses from the onset. It’s similar to a new kid at school picking a fight with the coolest kid in town. It just doesn’t seem very smart.
Being a copycat is not all bad. By paying attention to the incumbent, you might be able to learn from its mistakes and know that product market fit is possible. However, if you’re just imitating exactly what the original player did, then there’s really no reason for customers or partners to work with you. They would just go to the incumbent given that their brand is likely to be stronger. It also means that you might not have a great industry because the barriers to entry have obviously not deterred you from entering!
If there’s something that you’re doing better or different from the incumbent, then being a copycat might make sense. Along these lines, I think a copycat model might work if you’re taking a particular product to a new industry or geography where the incumbent doesn’t currently play. With the incumbent’s business model as a base, you could potentially achieve product market fit in the new industry or geography more quickly than if you were starting from scratch. You’d also benefit from being the first mover in that arena.
The bottom line is that you’re still copying someone else’s idea. Even if it makes good business sense in a particular situation, it can still feel dirty. I think that’s why Fred Wilson suggested that he could never invest in a copycat business – not because it doesn’t make logical sense but more because it just feels wrong.
When asked about copycat business models in our recent Launching Tech Ventures class, Fred Wilson responded with the perspective that he’s not interested. While he acknowledged that it was mostly due to “ego”, I think that there are serious risks to consider with copycat businesses.
The original player in a particular industry has the chance to build up its brand, scale, and relationships which can serve as a first-mover advantage. For example, Rent the Runway was able to establish relationships with designers which were essential to its business model. Whether it is because of a formal exclusive relationship or because it doesn’t make sense to put in additional effort to work with another company doing something very similar to Rent the Runway, designers are less likely to work with a similar 2nd or 3rd company thus making it hard for any copycat business to follow successfully.
In addition, by definition, a copycat will have at least one competitor and will have to share the market with them. By imitating another company, the copycat is almost directly instigating a competitive response from the original player. Instead of taking a little bit of time set themselves up for success with the proper people, processes, and other internal matters, the copycat is rushing to bring on additional stresses from the onset. It’s similar to a new kid at school picking a fight with the coolest kid in town. It just doesn’t seem very smart.
Being a copycat is not all bad. By paying attention to the incumbent, you might be able to learn from its mistakes and know that product market fit is possible. However, if you’re just imitating exactly what the original player did, then there’s really no reason for customers or partners to work with you. They would just go to the incumbent given that their brand is likely to be stronger. It also means that you might not have a great industry because the barriers to entry have obviously not deterred you from entering!
If there’s something that you’re doing better or different from the incumbent, then being a copycat might make sense. Along these lines, I think a copycat model might work if you’re taking a particular product to a new industry or geography where the incumbent doesn’t currently play. With the incumbent’s business model as a base, you could potentially achieve product market fit in the new industry or geography more quickly than if you were starting from scratch. You’d also benefit from being the first mover in that arena.
The bottom line is that you’re still copying someone else’s idea. Even if it makes good business sense in a particular situation, it can still feel dirty. I think that’s why Fred Wilson suggested that he could never invest in a copycat business – not because it doesn’t make logical sense but more because it just feels wrong.
Can you invest in a copycat and still look at yourself in the mirror?
by Om L. Lala
In our most recent LTV class, Fred Wilson noted that he could never bring himself to invest in a “copycat” venture that simply borrows an idea or business model that has already succeeded. Baidu, Mercado Libre and other tech companies in emerging markets were referenced as examples. He argued that such copying was morally questionable and that from a personal perspective, investing in such a company would make it “difficult to look at [him]self in the mirror.” (To clarify, Fred was not referring to stealing specific intellectual property, which is simply illegal, but using an overarching idea or business model already developed by another entrepreneur).
At first, Fred’s argument resonates with most people. To the extent that an entrepreneur is able to serve society by creating value and meeting an unmet need, he or she is entitled to profit from the value created. And viscerally, it feels right to say that an entrepreneur who borrows an idea is far less entitled to profit than the entrepreneur who first conceived it. The original entrepreneur does the hard work of testing hypotheses and takes numerous risks to succeed. But upon deeper analysis, this initial feeling we all have (including myself), incorrectly overemphasizes the importance of the idea itself in creating value, and undervalues the importance of execution quality and speed, level of consumer choice, and the additional innovation generated from increased competition. Also, it is often incorrectly assumed that copycats cannot offer anything new and creative or meet needs not currently being met by the original firm.
If an original venture were already meeting all of its customer demands completely, then a copycat would not be able to enter a market or compete. In fact, it is only because the copycat can meet a demand not currently being met by the original venture that it is able to succeed. For example, one may argue that Baidu was simply a copycat of Google in China. But, Google was not meeting all the demands of the Chinese market and was perhaps too slow to make faster penetration a top priority. So, Baidu offered a means to meeting demand, not only by scaling faster but by offering an interface that is tailored to Chinese consumer preferences e.g. a more crowded web layout, which is popular in China.
A company that is the first to conceive and execute an idea is many times not the company that ultimately offers the best version of the product they create. For example, Friendster and MySpace existed before Facebook, and one could argue that Facebook in many ways was just copying a pre-existing idea. But Facebook executed the idea in a different way and offered a different interface that ultimately appealed to consumers more. Similarly, Apple invented the PC and envisioned a world with a PC in every home, but it was Microsoft that became the winner in the PC market, yes partly because of unfair monopoly practices that were reprehensible, but also because they were able to offer productivity and business software tools that Apple did not.
Furthermore, so much of innovation and originality is driven by competition, and if no one invested in copycats, first movers would not have as much incentive to move quickly or improve their products to better satisfy consumer preferences. Thus, I feel that the reluctance many VC’s may have to invest in copycats is based more on a desire to be original, create something new, and perhaps most of all not see themselves or be perceived by others as profiting from investing in a business idea that has already been proven by others who worked harder and were willing to take greater risks earlier. But while an individual may feel uncomfortable with investing in copycats or may fear the reputational risk of doing so, there is no unequivocal moral reasoning that it is wrong. The very existence of a viable opportunity to enter a market as a copycat means that the original firm is clearly not yet meeting all demand and that there is room for you to add value. And if you are able to better execute an idea that is not your own, or make improvements to an idea that is not your own, it in fact only increases competition and the chances that maximum value, innovation and consumer choice will be created as swiftly as possible.
In our most recent LTV class, Fred Wilson noted that he could never bring himself to invest in a “copycat” venture that simply borrows an idea or business model that has already succeeded. Baidu, Mercado Libre and other tech companies in emerging markets were referenced as examples. He argued that such copying was morally questionable and that from a personal perspective, investing in such a company would make it “difficult to look at [him]self in the mirror.” (To clarify, Fred was not referring to stealing specific intellectual property, which is simply illegal, but using an overarching idea or business model already developed by another entrepreneur).
At first, Fred’s argument resonates with most people. To the extent that an entrepreneur is able to serve society by creating value and meeting an unmet need, he or she is entitled to profit from the value created. And viscerally, it feels right to say that an entrepreneur who borrows an idea is far less entitled to profit than the entrepreneur who first conceived it. The original entrepreneur does the hard work of testing hypotheses and takes numerous risks to succeed. But upon deeper analysis, this initial feeling we all have (including myself), incorrectly overemphasizes the importance of the idea itself in creating value, and undervalues the importance of execution quality and speed, level of consumer choice, and the additional innovation generated from increased competition. Also, it is often incorrectly assumed that copycats cannot offer anything new and creative or meet needs not currently being met by the original firm.
If an original venture were already meeting all of its customer demands completely, then a copycat would not be able to enter a market or compete. In fact, it is only because the copycat can meet a demand not currently being met by the original venture that it is able to succeed. For example, one may argue that Baidu was simply a copycat of Google in China. But, Google was not meeting all the demands of the Chinese market and was perhaps too slow to make faster penetration a top priority. So, Baidu offered a means to meeting demand, not only by scaling faster but by offering an interface that is tailored to Chinese consumer preferences e.g. a more crowded web layout, which is popular in China.
A company that is the first to conceive and execute an idea is many times not the company that ultimately offers the best version of the product they create. For example, Friendster and MySpace existed before Facebook, and one could argue that Facebook in many ways was just copying a pre-existing idea. But Facebook executed the idea in a different way and offered a different interface that ultimately appealed to consumers more. Similarly, Apple invented the PC and envisioned a world with a PC in every home, but it was Microsoft that became the winner in the PC market, yes partly because of unfair monopoly practices that were reprehensible, but also because they were able to offer productivity and business software tools that Apple did not.
Furthermore, so much of innovation and originality is driven by competition, and if no one invested in copycats, first movers would not have as much incentive to move quickly or improve their products to better satisfy consumer preferences. Thus, I feel that the reluctance many VC’s may have to invest in copycats is based more on a desire to be original, create something new, and perhaps most of all not see themselves or be perceived by others as profiting from investing in a business idea that has already been proven by others who worked harder and were willing to take greater risks earlier. But while an individual may feel uncomfortable with investing in copycats or may fear the reputational risk of doing so, there is no unequivocal moral reasoning that it is wrong. The very existence of a viable opportunity to enter a market as a copycat means that the original firm is clearly not yet meeting all demand and that there is room for you to add value. And if you are able to better execute an idea that is not your own, or make improvements to an idea that is not your own, it in fact only increases competition and the chances that maximum value, innovation and consumer choice will be created as swiftly as possible.
The case for entrepreneurial plagiarism or why are the Samwers good for entrepreneurship
by Vasile Tofan
Aldrich 12 was packed to its limits for Oliver Samwer’s talk yesterday at HBS. It seems that neither the en masse departure of his key people, nor the blitzkrieg management style are diminishing the allure of Rocket Internet. No question, it is still considered bon ton to smirk at the reference to their clone machine, but no one can deny that the machine has been tremendously successful. I commented on Andrej’s post on the topic that ultimately the copycats are a necessary evil. In this post I would like to further elaborate on that thought.
‘Copycats’ vs. ‘Originals’ – where is the distinction line?
Copycats lead to better products
This is about creative destruction at its best. Amazon would not have been the delightfully easy to use platform it is now in the absence of an army of copycats it had to outdo. It is for a reason that we moved from Netscape to Explorer to Mozilla to now Chrome. A successful copycat has consistently improved on the original, making all of us using it the ultimate beneficiaries. TestTube, for instance, was a precursor of Birchbox. However, nobody knows the original and we are proudly celebrating Hayley and Katia as visionary entrepreneurs. It is Birchbox that ultimately had a product which consumers loved more. Now, why should we smirk at Samwers’ Glossybox? The situation just repeats itself. Moreover, the copycat is ahead of the original on certain aspects. Glossybox, for instance, was first to launch a male offering, while Birchbox is still in coming soon phase.
Copycats help the incumbents to scale up
Groupon would probably not have been the $12bn company it is now absent the CityDeal acquisition. Similarly, eBay would have arguably not been so successful in Germany absent the Alando transaction. Where the original US startups win on originality, the Samwers of the world compensate on execution and understanding of international market intricacies. The fact that the clones end up being bought by the incumbents is the ultimate proof of the value they create.
Copycats can be genuinely innovative
One of the reasons e-commerce is slow to take off in emerging markets is the broken infrastructure – reliable payments and logistics systems in particular. Babyboom.ru, a Diapers.com ‘copycat’ launched by a fellow HBSer in Russia, has been accepting cash payments on delivery instead of credit cards to address the payment barrier. Samwer’s e-commerce projects in Vietnam are building an army of scooter curriers to overcome the delivery constrain. iZettle, the European counterpart of Square, is coming with a distinctly innovative (and seemingly superior) approach to hardware security. Fab.com and One Kings Lane added quirky twists to the traditional flash sales sites. By adapting the core elements of the business model the copycats can be truly innovative, which is always an admirable thing and pushes the entrepreneurship ahead.
Market talks
Ultimately, it is the market mechanism that puts the definite stamp of approval and legitimizes the clones: VCs pour in money, MBAs join them and consumers buy their services.
Mainstream VCs are clearly embracing the imitators. Look at the backers of LivingSocial, BuyWithMe or iZettle and you’ll probably conclude that Fred Wilson is rather lonely in his mirror test. Samwer’s 10min interview slots at HBS filled up beyond capacity as MBAs are keen to join Rocket’s gold rush. More consumers are buying sneakers on Zalando than on Zappos. Closer to home, at least five of the 2011/12 winners of HBS MVP funding, are ‘copycats’ of some sort.
The reason Samwers are so irritating is because they don’t even try to mask or somehow soften their plagiarism. In fact, they seem proud to copy the look and feel as closely as possible! To build on the academic citations parallel, what they do, might not be plagiarism at all, as they proudly cite the source (‘Zalando is our Zappos, Pinspire is our Pinterest’) :-) . Would they be less irritating if they had carefully altered the designs or come up with more original names? Probably yes. Would that have changed anything of substance about the argument? No.
We might all smirk. But the Samwers are clearly having the last laugh. At least until more agile copycats end up disrupting the ‘original clones’ with even better copies. In the meanwhile, consumers are simply loving it.
Aldrich 12 was packed to its limits for Oliver Samwer’s talk yesterday at HBS. It seems that neither the en masse departure of his key people, nor the blitzkrieg management style are diminishing the allure of Rocket Internet. No question, it is still considered bon ton to smirk at the reference to their clone machine, but no one can deny that the machine has been tremendously successful. I commented on Andrej’s post on the topic that ultimately the copycats are a necessary evil. In this post I would like to further elaborate on that thought.
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| Slide from Oliver Samwer’s presentation at HBS, referring to Dafiti as an ‘adaptation of the US peer model Zappos’ and detailing the phenomenal growth of the company |
‘Copycats’ vs. ‘Originals’ – where is the distinction line?
First of all, ‘copycat’ is a tricky label. The line between what is and is not a copycat is blurry at best. While there is a clear distinction between an original and fake Louis Vuiton bag, the case of startups is more complicated. Was Facebook a copycat of Friendster (the latter already launched before Zuckerberg even enrolled at Harvard)? Google a copycat of Yahoo Search? Yahoo Search of Altavista and Infoseek? Was Zappos a copycat of the Amazon’s shoes section? I for one cannot tell. Fred Wilson implicitly suggested the looking in the mirror test in judging the copycats (‘I couldn’t look myself in the mirror if I were to invest in anything but the original’), but this is tricky too. Otherwise, shouldn’t Union Square Ventures drop Zynga, which is known for systematic ‘creative adaptation’ of competitor games?
Copycats lead to better products
This is about creative destruction at its best. Amazon would not have been the delightfully easy to use platform it is now in the absence of an army of copycats it had to outdo. It is for a reason that we moved from Netscape to Explorer to Mozilla to now Chrome. A successful copycat has consistently improved on the original, making all of us using it the ultimate beneficiaries. TestTube, for instance, was a precursor of Birchbox. However, nobody knows the original and we are proudly celebrating Hayley and Katia as visionary entrepreneurs. It is Birchbox that ultimately had a product which consumers loved more. Now, why should we smirk at Samwers’ Glossybox? The situation just repeats itself. Moreover, the copycat is ahead of the original on certain aspects. Glossybox, for instance, was first to launch a male offering, while Birchbox is still in coming soon phase.
Copycats help the incumbents to scale up
Groupon would probably not have been the $12bn company it is now absent the CityDeal acquisition. Similarly, eBay would have arguably not been so successful in Germany absent the Alando transaction. Where the original US startups win on originality, the Samwers of the world compensate on execution and understanding of international market intricacies. The fact that the clones end up being bought by the incumbents is the ultimate proof of the value they create.
Copycats can be genuinely innovative
One of the reasons e-commerce is slow to take off in emerging markets is the broken infrastructure – reliable payments and logistics systems in particular. Babyboom.ru, a Diapers.com ‘copycat’ launched by a fellow HBSer in Russia, has been accepting cash payments on delivery instead of credit cards to address the payment barrier. Samwer’s e-commerce projects in Vietnam are building an army of scooter curriers to overcome the delivery constrain. iZettle, the European counterpart of Square, is coming with a distinctly innovative (and seemingly superior) approach to hardware security. Fab.com and One Kings Lane added quirky twists to the traditional flash sales sites. By adapting the core elements of the business model the copycats can be truly innovative, which is always an admirable thing and pushes the entrepreneurship ahead.
Market talks
Ultimately, it is the market mechanism that puts the definite stamp of approval and legitimizes the clones: VCs pour in money, MBAs join them and consumers buy their services.
Mainstream VCs are clearly embracing the imitators. Look at the backers of LivingSocial, BuyWithMe or iZettle and you’ll probably conclude that Fred Wilson is rather lonely in his mirror test. Samwer’s 10min interview slots at HBS filled up beyond capacity as MBAs are keen to join Rocket’s gold rush. More consumers are buying sneakers on Zalando than on Zappos. Closer to home, at least five of the 2011/12 winners of HBS MVP funding, are ‘copycats’ of some sort.
The reason Samwers are so irritating is because they don’t even try to mask or somehow soften their plagiarism. In fact, they seem proud to copy the look and feel as closely as possible! To build on the academic citations parallel, what they do, might not be plagiarism at all, as they proudly cite the source (‘Zalando is our Zappos, Pinspire is our Pinterest’) :-) . Would they be less irritating if they had carefully altered the designs or come up with more original names? Probably yes. Would that have changed anything of substance about the argument? No.
We might all smirk. But the Samwers are clearly having the last laugh. At least until more agile copycats end up disrupting the ‘original clones’ with even better copies. In the meanwhile, consumers are simply loving it.
Why Does Everyone Seem to Hate “Copycat” Startups?
by George Levitte
Earlier this week we were fortunate to have Fred Wilson, from Union Square Ventures, visiting our LTV class. Towards the end he remarked offhandedly that as a VC he refuses to invest in copycat startups. He said that it’s not because copycats are always bad financial investments, but rather because copying just isn’t right. It seems like stealing. So he doesn’t have much respect for copycats and doesn’t want to be involved with startups like that.
Unrelated to LTV, a couple days later HBS also hosted a recruiting presentation from Oliver Samwer, one of the cofounders of Berlin-based Rocket Internet. Rocket is best known for incubating and quickly scaling many startups in countries outside the U.S. that have business models which closely resemble those of successful U.S. startups like Amazon, eBay, Zappos, Groupon, and others. Although wildly successful, Rocket is often cast in a negative light for using the business innovations created by others.
One common rationale for the copycat hate is that copying reduces the upside potential for inventors, so it leads to the creation of fewer cool new inventions. Society would love to have both a plethora of new inventions and a highly competitive marketplace, but to encourage innovation we have decided to sacrifice one for the other. Providing a 20-year monopoly to patent-holders greatly boosts the incentive to invent new things, even if it reduces competition for making a particular widget. Copycats erode this incentive.
Although certain types of innovations are protected from copying by law (e.g. technical patents) and some are protected by secrecy (e.g. the recipe for making Coca-Cola), business model innovations are not. Nor should they be, because society has a vested interest in promoting competition. It forces companies to move faster than their peers, to price lower than their peers, and to execute more efficiently than their peers. Consumers, and society at large, benefit tremendously from this. If businesses were unable to use and adapt others’ ideas then many of today’s companies would never have existed. Google search in many ways copied the business model of Yahoo search, which in turn had copied earlier search innovators. Microsoft’s office suite applications copied ideas from a variety of earlier (and arguably more inventive) companies, its browser copied Netscape, and many elements of its Windows user interface were copied from Apple.
In fact, most innovation actually seems to come from people building off of each others’ ideas. One person creates something, and somebody else sees a way to make it better. So they do. The important thing to highlight is that they make it better. Copying somebody else’s microchip exactly does not create anything new, so it doesn’t benefit society and as a result we prevent such behavior with patents. But getting the idea to make a microchip from someone else’s success and then making a different microchip that works better than the existing one does create value for society, so we allow it. And the new inventor patents the new chip.
Similarly, taking somebody else’s business model idea and making it better can create a lot of value. I agree that exact copying is not a great thing, but it turns out that many businesses that people dismissively label as “copycats” are actually improving on existing ideas. For example, some of Rocket’s businesses create ecommerce websites that look similar to other businesses, but they innovate on how the product gets delivered. Developing countries don’t have USPS and many don’t have a reliable, timely local equivalent for delivering items. So Rocket hires people to drive around on mopeds or bicycles to deliver small items, and they innovate on delivery to adapt an existing business model to the country in which they’re operating. In that sense, they’re not too different from Microsoft trying to build a spreadsheet product or from Google trying to build products in search, email, maps, browsers, and mobile operating systems.
Earlier this week we were fortunate to have Fred Wilson, from Union Square Ventures, visiting our LTV class. Towards the end he remarked offhandedly that as a VC he refuses to invest in copycat startups. He said that it’s not because copycats are always bad financial investments, but rather because copying just isn’t right. It seems like stealing. So he doesn’t have much respect for copycats and doesn’t want to be involved with startups like that.
Unrelated to LTV, a couple days later HBS also hosted a recruiting presentation from Oliver Samwer, one of the cofounders of Berlin-based Rocket Internet. Rocket is best known for incubating and quickly scaling many startups in countries outside the U.S. that have business models which closely resemble those of successful U.S. startups like Amazon, eBay, Zappos, Groupon, and others. Although wildly successful, Rocket is often cast in a negative light for using the business innovations created by others.
One common rationale for the copycat hate is that copying reduces the upside potential for inventors, so it leads to the creation of fewer cool new inventions. Society would love to have both a plethora of new inventions and a highly competitive marketplace, but to encourage innovation we have decided to sacrifice one for the other. Providing a 20-year monopoly to patent-holders greatly boosts the incentive to invent new things, even if it reduces competition for making a particular widget. Copycats erode this incentive.
Although certain types of innovations are protected from copying by law (e.g. technical patents) and some are protected by secrecy (e.g. the recipe for making Coca-Cola), business model innovations are not. Nor should they be, because society has a vested interest in promoting competition. It forces companies to move faster than their peers, to price lower than their peers, and to execute more efficiently than their peers. Consumers, and society at large, benefit tremendously from this. If businesses were unable to use and adapt others’ ideas then many of today’s companies would never have existed. Google search in many ways copied the business model of Yahoo search, which in turn had copied earlier search innovators. Microsoft’s office suite applications copied ideas from a variety of earlier (and arguably more inventive) companies, its browser copied Netscape, and many elements of its Windows user interface were copied from Apple.
In fact, most innovation actually seems to come from people building off of each others’ ideas. One person creates something, and somebody else sees a way to make it better. So they do. The important thing to highlight is that they make it better. Copying somebody else’s microchip exactly does not create anything new, so it doesn’t benefit society and as a result we prevent such behavior with patents. But getting the idea to make a microchip from someone else’s success and then making a different microchip that works better than the existing one does create value for society, so we allow it. And the new inventor patents the new chip.
Similarly, taking somebody else’s business model idea and making it better can create a lot of value. I agree that exact copying is not a great thing, but it turns out that many businesses that people dismissively label as “copycats” are actually improving on existing ideas. For example, some of Rocket’s businesses create ecommerce websites that look similar to other businesses, but they innovate on how the product gets delivered. Developing countries don’t have USPS and many don’t have a reliable, timely local equivalent for delivering items. So Rocket hires people to drive around on mopeds or bicycles to deliver small items, and they innovate on delivery to adapt an existing business model to the country in which they’re operating. In that sense, they’re not too different from Microsoft trying to build a spreadsheet product or from Google trying to build products in search, email, maps, browsers, and mobile operating systems.
Reckless Cloners or Innovation Adopters?
By Andrej Rusakov
The criticism of technology start-up “cloners”, who take innovative but proven business ideas from the U.S. and copy them in Europe, Latin America, and China is raging. Silicon Valley entrepreneurs claim that “me too” companies discourage innovation as they limit initial innovator’s upside and thus prevent true entrepreneurs from launching new ventures. Venture Capitalists, however, do not seem to mind, and continue to pour increasingly large funds into copy-cats (e.g. Samwer brothers recently raising $700 million), viewing them as lower risk compared to “new-idea” start-ups as the product/market fit has already been validated in “me too” companies. Who is right here? Do “me too” businesses add value to the society? Can their founders be called entrepreneurs or are they simply executors?
Innovation Adopters?
From a societal point of view, copy-cats do add value. They foster competition and bring innovative products to new markets fast. Why should a billion people in India wait years for paypal.com to eventually enter the market if they can get the same service from someone else today? Moreover, many (but not all) “me too” companies improve the original business concept and adopt it to the localities of the market – something many incumbents lack the abilities, knowledge or resources to do.
Some choose to clone products and concepts in their entireties, however, and not bother with any localization or concept improvement. Such companies may hardly be called innovation adopters. However, they do promote competition. Examples are ample:
Entrepreneurs or Executors?
Because copy-cats often do not need to spend much time or money discovering the product/market fit, and the go-to-market approach is already tested by the incumbent, “me too” businesses tend to be “start-ups on steroids” growing fast and offering very lucrative risk adjusted returns to their founders. Indeed, the rumor has it that 90% of the Samwer brothers cloning machine’s start-ups become profitable after 1 year from launch!
But can we call these guys entrepreneurs? Is an MBA launching a “me too” venture anything more than an executor of somebody else’s ideas? I would argue that despite him using other people’s idea, he is still building something from scratch, and thus he is an entrepreneur. Getting the right people together, incentivizing them, securing funding, adopting the product to the local market – what is it if not entrepreneurship? We still call a restaurant owner in London who “borrowed” an interesting concept from New York an entrepreneur. Why tech industry should be any different? Ideas are worth a nickel a bucket; execution is what makes all the difference. In this sense, even Samwer brothers are entrepreneurs – many of the companies they have replicated are more successful than the original once.
Conclusion.
It is a very personal choice between taking on more risk, but having a moral satisfaction of having invented something entirely new, and taking a potentially less risky path of replicating an existing business in a new geography. If you lean towards “true innovation”, strong network effects and high barriers to entry may deter bold replicators to copy your “brain child”. However, there is no guaranty – facebook has been successfully copied in (and adopted to) local markets such as Russia, where it is still having hard time fighting with copy-cats. Something worth keeping in mind when choosing a business to start.
The criticism of technology start-up “cloners”, who take innovative but proven business ideas from the U.S. and copy them in Europe, Latin America, and China is raging. Silicon Valley entrepreneurs claim that “me too” companies discourage innovation as they limit initial innovator’s upside and thus prevent true entrepreneurs from launching new ventures. Venture Capitalists, however, do not seem to mind, and continue to pour increasingly large funds into copy-cats (e.g. Samwer brothers recently raising $700 million), viewing them as lower risk compared to “new-idea” start-ups as the product/market fit has already been validated in “me too” companies. Who is right here? Do “me too” businesses add value to the society? Can their founders be called entrepreneurs or are they simply executors?
Innovation Adopters?
From a societal point of view, copy-cats do add value. They foster competition and bring innovative products to new markets fast. Why should a billion people in India wait years for paypal.com to eventually enter the market if they can get the same service from someone else today? Moreover, many (but not all) “me too” companies improve the original business concept and adopt it to the localities of the market – something many incumbents lack the abilities, knowledge or resources to do.
Some choose to clone products and concepts in their entireties, however, and not bother with any localization or concept improvement. Such companies may hardly be called innovation adopters. However, they do promote competition. Examples are ample:
| Pinterest.com (original) | Pinspire.com (copy) |
 |  |
| Fab.com (original) | Bamarang.co.uk (copy) |
 |  |
Entrepreneurs or Executors?
Because copy-cats often do not need to spend much time or money discovering the product/market fit, and the go-to-market approach is already tested by the incumbent, “me too” businesses tend to be “start-ups on steroids” growing fast and offering very lucrative risk adjusted returns to their founders. Indeed, the rumor has it that 90% of the Samwer brothers cloning machine’s start-ups become profitable after 1 year from launch!
But can we call these guys entrepreneurs? Is an MBA launching a “me too” venture anything more than an executor of somebody else’s ideas? I would argue that despite him using other people’s idea, he is still building something from scratch, and thus he is an entrepreneur. Getting the right people together, incentivizing them, securing funding, adopting the product to the local market – what is it if not entrepreneurship? We still call a restaurant owner in London who “borrowed” an interesting concept from New York an entrepreneur. Why tech industry should be any different? Ideas are worth a nickel a bucket; execution is what makes all the difference. In this sense, even Samwer brothers are entrepreneurs – many of the companies they have replicated are more successful than the original once.
Conclusion.
It is a very personal choice between taking on more risk, but having a moral satisfaction of having invented something entirely new, and taking a potentially less risky path of replicating an existing business in a new geography. If you lean towards “true innovation”, strong network effects and high barriers to entry may deter bold replicators to copy your “brain child”. However, there is no guaranty – facebook has been successfully copied in (and adopted to) local markets such as Russia, where it is still having hard time fighting with copy-cats. Something worth keeping in mind when choosing a business to start.
Don’t Scale Until You Have Validated Your Business Model?
by Jonathan Lo
A common theme in the Launching Technology Ventures class is how to utilize a “lean” model until one has validated the business model. Companies such as Dropbox and RentJuice are examples that did precisely that to achieve success, while a company like Cake Financial is openly criticized for not following those guidelines. While I do generally believe in the lean start-up principle, some of the most successful start-ups such as Google, Youtube, Facebook, and Twitter, blatantly ignored this principle to become the companies that they are today. These companies focused on achieving strong network effects before they had any clear plans for monetization. Is this the right approach?
I am involved in a start-up called SaferTaxi, a company that is developing a smartphone application to allow for the booking, paying and rating of taxis in Latin America. While SaferTaxi plans on being one of the first movers in Latin America, this is by no means a new concept in other more developed regions of the world. Companies such as Uber in the US, gettaxi and mytaxi in Europe, have all received lots of Venture Capital funding to achieve scale within their respective regions. While there has yet to be a dominant player in the taxi booking space, initial data provided to investors have indicated that there is a lot of potential for monetization. Are these company’s successes enough to validate our own business model?
A good number of Latin American start-ups were able to achieve success by taking concepts from “developed” markets and implementing the same concepts faster than the incumbents. A great example of this is Mercadolibre, an Argentine company that implemented and scaled the eBay model throughout Latin America. While there were other local competitors that launched around the same time, Mercadolibre was able to scale quickly and gain traction before any of the other players (including eBay). Is this the model we should be following in Latin America?
SaferTaxi is currently faced with many of these questions. While following the lean start-up model is an intuitive path to validate an entirely new business model, are the successes of the likes of Uber and gettaxi enough to validate the SaferTaxi business model? Other start-ups with the same vision as SaferTaxi have already started to emerge in Argentina, Brazil and Chile. Should SaferTaxi be focusing on refining the business model using lean principles and worry about competition after a superior product has been created? Or should SaferTaxi be focusing more on a land grab before it is too late to enter certain markets within Latin America?
I am involved in a start-up called SaferTaxi, a company that is developing a smartphone application to allow for the booking, paying and rating of taxis in Latin America. While SaferTaxi plans on being one of the first movers in Latin America, this is by no means a new concept in other more developed regions of the world. Companies such as Uber in the US, gettaxi and mytaxi in Europe, have all received lots of Venture Capital funding to achieve scale within their respective regions. While there has yet to be a dominant player in the taxi booking space, initial data provided to investors have indicated that there is a lot of potential for monetization. Are these company’s successes enough to validate our own business model?
A good number of Latin American start-ups were able to achieve success by taking concepts from “developed” markets and implementing the same concepts faster than the incumbents. A great example of this is Mercadolibre, an Argentine company that implemented and scaled the eBay model throughout Latin America. While there were other local competitors that launched around the same time, Mercadolibre was able to scale quickly and gain traction before any of the other players (including eBay). Is this the model we should be following in Latin America?
SaferTaxi is currently faced with many of these questions. While following the lean start-up model is an intuitive path to validate an entirely new business model, are the successes of the likes of Uber and gettaxi enough to validate the SaferTaxi business model? Other start-ups with the same vision as SaferTaxi have already started to emerge in Argentina, Brazil and Chile. Should SaferTaxi be focusing on refining the business model using lean principles and worry about competition after a superior product has been created? Or should SaferTaxi be focusing more on a land grab before it is too late to enter certain markets within Latin America?
