Building new technology products poses challenges for startups and established companies these days. They are calling for the scrutiny of tech giants like those of Google, Amazon, Microsoft, and Facebook when they create something innovative that has a high potential. Major tech companies has the resources, technology, data and expertise to duplicate and improve any technological advancement that is not completely covered by patents — which covers the majority of digital products. In this article, we are trying to give an answer to how can startups survive in today’s market.
Recent episodes have already shown that copycat attitude is very popular and life-threatening to startup companies. Copying comes in different varieties. Often tech companies simply copy innovative features. For instance, when Snapchat was doing well with stories that disappeared after 24 hours, Facebook struck back by introducing the same features to its products, such as Instagram and WhatsApp. Consequently, the Snapchat user base halted. It had difficulty trying to regain momentum, and its stock value fell drastically.
In much more extreme cases, all “form factors” (in the Silicon Valley slang) were copied. After years of building its user base at almost 5% per month, Slack’s adoption rate has slowed down and began to display signs of decline. The crucial event, huh? Implementation of Microsoft’s knock-off product, Teams. Microsoft did its best: did wait to see signs of progress (4 years, in this particular instance), then they copied the offer and later incorporated it into their other products.
The third method is the copying of a niche product. Allbirds obtained a cult following the development of a line of wool shoes produced in an environmentally friendly fashion. In response, Amazon copied the highest-selling product almost point-by-point and sold it online for almost half the price.
Amid this abusive behavior — and the consequent unwillingness of some venture capital firms to invest — several startups survived beyond their initial stages and to become key players in the very same space as tech giants. On the surface, it feels like they are successful due to luck or loss of interest on the part of Big Tech companies. In fact, however, these contenders were able to use the strengths of those companies against them. This strategic decision, though it looks counter-intuitive at first, may result in copy-proof innovation.
Think of Wayfair. Today, it is the biggest online retailer of home products and furniture. Back in 2014, the Harvard case I co-authored outlined how and why the company had combined more than 200 niche product web sites into Wayfair. When I spoke to its co-founder and CEO, Niraj Shah, it was evident that Amazon was a constant danger. Over the years, Wayfair has introduced many features that have worked for Amazon, and Amazon programmers have also copied features from Wayfair.
One thing that Amazon didn’t copied— and that started working exceptionally well for Wayfair — was taking its own images and measurements of the furniture and home decor that it sold. This extra detail aided customers visualize the home furnishings they were planning, and it helped Wayfair to distinguish itself and gain momentum. (Its five-year earnings growth was astonishing 49 percent [CAGR] opposed to 26 percent for Amazon.) However, Amazon showed only the images manufacturer.
Why? I think this is because Amazon has 3 billion products for sale, while Wayfair has 14 million. The infrastructure and extra cost that Amazon would need to take distinctive images of products is terrifying, especially given that more than half of its sales came from market listings managed individually by third-party vendors. And this is not just about the expense. To thrive with Wayfair’s strategy, Amazon will need longer lead times to add new products, lowering the speed of growth in the “everything store.” Plus, it would make the site load slower and more visually crowded. Amazon might have copied Wayfair, yet it decided not to do so, as it was not on its own interest.
Zulily, which is selling women’s as well as baby clothes online, has found a different way to compete with Amazon in a way that the gigantic store has decided not to emulate. Amazon is tirelessly consumer-centric: customers tend to get cheaper prices, faster delivery times, and excellent customer service. But, when it comes to online retail, trying to appeal to the shopper above everything comes at the cost of the supplier — and Amazon’s suppliers have a lot more to offer. Amazon regularly withholds or delays payments, frequently arbitrarily. Worse, it copies and undercuts the products of the vendors, often placing the supplier out of business.
It thus made sense for Zulily to offer great-quality service to vendors, to commit to mass purchases and to give fair purchase prices. As an outcome of Zulily’s strategy, many providers considered exclusive supply agreements with Zulily instead of trying to sell on Amazon’s much bigger marketplace. This, in turn, permitted Zulily to give novel and unique products that were not obtainable anywhere else. The company’s revenue grew enormously — from 2009 to 2014 to a Compound annual growth rate of 161 per cent — until Qurate, the owners of QVC and HSN, purchased them in 2015 for $2.4 billion, as this Harvard study demonstrates.
Other than e-commerce, Dropbox used Microsoft’s huge enterprise software sales capabilities in its early stages. Dropbox has been a small startup for years, with only a few dozen staff and no sales team selling cloud services to CIOs and CTOs. Rather than, Dropbox provides its services free of charge to individual customers. As people accepted the service and it grew, Dropbox ended up getting this network of people to start to use its product at work. Over time, these users have encouraged their managers, CIOs and CTOs, to buy and offer Dropbox for Business, the topic of a Harvard research study. In other words, they used personal consumption as Trojan horses.
This judo-like method, where the smaller contender utilizes the larger strength and size of the opponent, is tempting, but it is definitely not known to work or be sustainable in the long term. When they don’t copy you, the giant you’re challenging may choose to create a stand-alone rival and still copy point-by-point what you’ve created. That being said, it’s usually easier to compete with a stand-alone spin-off than a “mother ship.” When TikTok provided a video-sharing app that enabled users to post music snippets, it appealed to young users who believed Facebook was for their grandparents and parents, and it quickly gained traction. In order to respond, Facebook introduced an almost similar stand-alone application called Lasso, which has not yet gained traction.
Alternatively, Big Tech companies might just try to obtain the threat. But that isn’t guaranteed to be successful, either. Acquisition is often very expensive and increasingly not a choice. Facebook was trying to buy Snapchat and got rejected. Microsoft was trying to buy Slack without a progress. In such cases, it was the founding members of the startups and the investors who rejected the bids. Amazon, the best known acquisition-prone of the Big Tech Group, has historically preferred to develop in-house rather than buying from outside.
I’ve used this method with the startups, which I advise to various levels of success. In order to exploit the strong points of Big Tech against them while avoid being encircled by copycat behavior, you will have to address the following questions:
- Does the rival have a significant strength that is mainly responsible for its success?
- Can you recognize a product range (niche, feature, or format) that a part of customers value and whose delivery is made more difficult by having the above strength?
- Would the imitation of a novel offer kind of hurt the core business of the stronger opponent?
- If the product offering finally had market traction, would the Big Tech rival necessarily have to give up its power to copy or start competing?
Whenever you can reply “yes” to all these questions, then you, too, might have figured out a way to prevent unhindered copying and succeed. Of course, there can be no single approach to deliver a benefit forever. In order to grow, it is crucial to continuously create copy-proof innovation.
Acknowledgement: Leandro Guissoni, Mark Hill, Greg Piechota and Hem Suri have made highly valued recommendations for this article.