The low-down Hide
Copycats get a bad name.
‘Archie’, created in 1990, was the first prototype of a search engine as we know them today. It was succeeded by Gopher, then AliWeb, then Yahoo in 1993, AltaVista in ‘94, and the beloved Ask Jeeves in 1995. No less than sixteen iterations after Archie was created, Google was born in California in 1998.
The only thing worse than a bad name? No name at all.
We hate the notion of people who profit off “stolen” ideas. And yet we’re surrounded by (and are willingly paying customers to) dozens of companies who do it on the daily.
Copycat behaviour is so rife because the vast majority of new companies are challengers. They pick an existing product in an existing market and try to do it better than the rest. Very, very few products are disruptors. Disruptors are totally new and often radical propositions that completely change the way we do things.
A solid line of advice from Chan Kim and Renée Mauborgne, as we explored in this article, is to find a Blue Ocean to launch your business in. Contrary to competitive, oversaturated markets that are red with the blood of competitors, Blue Oceans are unchartered territory where sailing is clear and potential profits abound.
Launching in a Blue Ocean is a great concept, and many Aussie brands have succeeded off the back of it. But it requires you to find one. This means being a disruptor – a total out-of-the-box thinker – something not every founder can or should be.
We tend to worship innovation and vilify replication. But maybe that’s just the nature of business. Maybe we shouldn’t be so quick to write off Red Oceans. Most businesses are launched in them. After all, if a red market is a growing market, there might just be space to cast your net.
Directly copying an idea seems like an easy concept. But the originators will have had a unique combination of executional ability, strong team, intricate customer understanding, and of course sufficient budget in order to carry it off.
The blithe confidence that often accompanies copycats (“they did it, so why can’t we?”), plus the implicit lack of differentiation, can make copying a risky strategy.
But if an intelligent replicator with a game plan and an eye for the originator’s mistakes has money behind it, it’s going to lap up all the business a struggling-to-scale original is missing out on.
Consumers don’t like replicators much more than they like out-and-out copiers, but earning their loyalty takes time. Everything that builds loyalty costs money – a relatable brand, excellent customer service, quality of goods. A company in its infancy won’t yet have that solid relationship with its customers to prop it up if stock runs out or delivery issues occur. This is when the copycats pounce.
Stealers gonna steal
We’ve talked before about the chances of someone stealing your startup idea. But the unlikely event of it happening might not be the worst thing in the world.
Why not sit back, watch someone else execute it, and let them take on all of the exploratory risk?
Then, when they prove demand and product-market-fit, you can sweep in and do it better, undercutting them as you go with all that money you saved on market research.
The truth is, very little IP theft happens at the (pre)seed stage. An idea is not a substantial enough thing to steal. But post-launch it becomes much more of a problem, mainly because, well, it’s not like it’s hard.
Feel like launching your very own local Uber? Just search Google for a purchasable clone. The same goes for dating apps and streaming services. If you can get around the economic moat dug out by the originators of an idea, convince customers to jump ship, and provide genuine value to them for switching – why not?
Hanging onto the ethics of not stealing or the ego of needing to be original won’t get you far in the landscape of late capitalism. Everyone’s doing it, and if they were to stop, we’d end up with monopolies (okay, even more monopolies).
One of the three brothers who founded the highly controversial “clone factory” Rocket Internet Oliver Samwer described back in 2021, “we are builders of companies, we are not innovators. Someone else is the architect, and we are the builders.”
Samwer was not only unapologetic – he was extremely confident about the future of Rocket. Despite his admitted weakness (or perhaps disinterest) in idea generation, he believed the company was simply “the best global group at execution”.
Rocket delisted from the Frankfurt stock exchange in 2020. But they spent the 2010s launching Zalando (an emulation of Zappos that brought in over 10 billion euros in revenue last year), Amazon clone Lazada (which was bought by Alibaba), and Wirecard (less of a success story), among many, many others.
And it’s planning a relaunch.
Copying the product, not the market
If you can take an existing product or technology and identify a whole new set of motivated buyers for it, it’s technically not stealing. It’s repositioning.
You’ll hear this type of repurposing referred to as the “of” contenders. Shudder is the Netflix of horror. Depop is the eBay of the fashion industry. Latin American startup Chazki is the Uber of logistics.
Chazki’s Chilean country manager Felipe Rivas-Struque says it would be a “natural mistake” to try and bring foreign methods into the Latino region – “We’re Latinos, and we work for Latinos”. For example, in parts of wealthier countries, driving for Uber is seen as a secondary income source. In other countries, it’s a full-time job. The business model completely changes.
By repackaging a product for a new demographic or at a new price point, you create a defensible economic moat, and can even end up outperforming the original. You might call these business types Mutants. It’s an unproven market, but a recognised product, and still a much safer approach than a pioneer. Mutants have a unique opportunity To blend proven technologies with agile management styles.
This was one of the strengths of Rocket Internet, who also found success in Latin America (as well as Asian and African markets) by spending their time understanding local culture rather than building products from scratch.
Shooting for second place
Markets are rarely winner-takes-all. Most sectors have Big Fours or Big Fives.
In the streaming space, it’s eight. Netflix still leads, but not by a huge margin. Netflix currently holds 25% of market share, Amazon Prime is close behind with 19%, and Disney and Disney-owned Hulu followed at 13% each.
Netflix’s market share has been in a clear downward trend for a few years, enabling streaming services to multiply in ways that largely benefit the consumer (nominally by keeping costs competitive).
Sadly, this doesn’t mean the market is ripe for picking, as Comcast/ABC Universal’s Peacock service has dramatically demonstrated, taking a USD $520 million loss at the end of last year. Making original, engaging TV shows and being able to predict trends in media consumption is not something you can easily copycat.
But if you can take an existing idea and execute it well, there are many rewards to be found in second, third, or fourth place.
Apple TV has achieved 5% market share by – in classic Apple fashion – throwing huge amounts of money at megastars and major producers. Paramount Plus built on its existing iconic brand to capture 3%. Bearing in mind the global video streaming market was valued at USD $419 billion in 2021, 3% is nothing to shake a stick at.
If there’s one thing investors hate, it’s missing out on the next big thing. It’s truly painful to watch contemporaries hoover up 10 or 20x returns on the Afterpays and Atlassians they passed up at seed stage.
The best medicine for the burn of missing out? The next next big thing. And we don’t mean the next great zany invention. We mean the next big iteration of proven concepts. The proven Lyfts, not the originator Ubers. The Echelons, not the Pelotons.
Startups aren’t the only ones who can jump on the coat tails of blockbuster predecessors. Investors chasing that sweet redemption will be primed to invest in a new iteration of a proven idea.
Combine that with proven demand and product-market-fit, you’ve got a recipe for a solid investment proposition. In China, the out-of-the-box stuff is left to angel investors with a higher risk tolerance and a passion for innovation. VC firms invest predominantly in copycats.
Being the first doesn’t mean being the best. An incumbent can fail for many reasons, failure to keep innovating as they grow larger and less agile being number one. This presents itself as an opportunity for startups. In fact, it’s arguably the reason we have startups.
Despite the reflexive dislike of copycat behaviour we seem to have as humans, we don’t need to feel sorry for incumbents (or even smaller originators) who fail to cater to demand. Ultimately, it’s the consumer who benefits when ideas are proliferated and shared, and prices are kept competitive.