With the proliferation of highly innovative, highly successful but replicable online business models and the march of globalization, copycat businesses are on the rise. Yet there is much debate on whether this is a good thing for innovation or an effective strategy for entrepreneurs. As part of this year’s Entrepreneurial Smart Camp, I presented a lecture based on my research at Hong Kong University’s Faculty of Business and Economics last year on imitation vs. innovation in business model design. It comprised business model analysis, a case study discussion on notorious Hong-Kong copycat, Madhead Games and a guest lecture from one of the co-founders of Rocket Internet Asia. Here are some of the key points…
Imitation is to be human?
As early as Shakespeare, the word ‘primate’ was used to mean both ape and to imitate. Even further back in history, Aristotle remarked that ‘man differs from other animals because of his greater aptitude for imitation’. Imitation is how languages are learned, how culture diffuses and (how sociologists would describe as) the functioning of modern society through forms of institutional isomorphism. But what does it mean for business? Is imitation an effective and sustainable strategy for entrepreneurs? Is it good or bad for society? And in terms of its novelty and relevance, is it another way of describing the innovation diffusion process and fast-follower strategies or can imitation be analysed in a new light using the perspective of business models?
Oprah Winfrey: “How do you keep reinventing?”
Ralph Lauren: “You copy. Forty-five years of copying that’s why I’m here.”
— Oprah Winfrey interviewing Ralph Lauren, October 24, 2011
No other sector produces more imitation than creative industries such as fashion, music, media and entertainment, where consumer tastes or “fads” rise and fall with little understanding of what causes them. In an interview with Oprah Winfrey in 2011, Ralph Lauren explained that his success was due to his ability to crack this code, effectively copying and spiking emergent trends in the fashion industry season after season, year after year. This is similar to the approach adopted by the high street fashion business, Zara – the success of which boils down to its ability to pick the most commercially inspired designs features on the catwalks of the latest fashion shows and to iterate and re-iterate them at speed.
Another example of a business that has succeeded through imitation is Tencent, founded in 1998, is a Chinese company with revenues of nearly US$10 billion in 2013. The company provides mass media, entertainment and mobile phone services in mainland China, including social networking, web portals, e-commerce and online games. In its early years, Tencent launched web instant messenger QQ (initially dubbed OICQ), a patent “copycat” of ICQ, arguably the first popular online chatting software in China
Imitation: What is a copycat business model?
“A business model that delivers the same value proposition, with the same resource-base and transactive structure, to reproduce the same competitive advantage”.
Let’s start with what a copycat is NOT…
Innovation: What is business model innovation?
“Novelty in the organization design, resource structure and/or financial model of the business”
Innovation vs. Imitation
An effective strategy? Sustainable?
Copycats represent a low-risk, low-cost option for both entrepreneurs and investors. Attracted by proven technology and market validation, some venture capital firms have mastered the art of replicating western business models in new geographical markets. An example of systematic imitation is Rocket Internet, a venture capital fund and incubator focused on replicating successful business models in different parts of the world. As one article described it,
“For Linio, think Amazon for Mexicans; for Zalora, think Zappos for Malaysians; for Easy Taxi, think Uber for Nigerians.”
Rocket Internet rejects criticism that it is purely a copycat machine, declaring that all successful business ideas are in some ways borrowed from others, and the ability to take proven ideas into emerging markets is a skill in itself.
What are some of the potential opportunities and pitfalls of pursuing a copycat business strategy? What key success factors of a copycat business model enable them to overcome the following risk factors?
- Moral, ethical or legal concerns
- Market readiness
- Technology constraints
- Social or cultural translation
- Copycats becoming the victim of other copycats
Mad Head is a Hong Kong based mobile gaming business, whose smash hit game Tower of Saviors has been a huge commercial success. It followed a proven model to ensure low development costs and low investor risk.
Engardio, P. and Keenan, F. (25 August 2002) “The Copycat Economy”, Bloomberg Businessweek, http://www.businessweek.com/stories/2002-08-25/7-the-copycat-economy (accessed 26 August 2014)
Raustiala K. and Sprigman, C. (2012) The Knockoff Economy: How Imitation Sparks Innovation, Oxford University Press: New York.
Shenkar, O. (2012) “Just Imitate It! A Copycat Path to Strategic Agility”, Ivey Business Journal, http://iveybusinessjournal.com/topics/innovation/just-imitate-it-a-copycat-path-to-strategic-agility#.VJkEtF4Crt (accessed 26 August 2014).
24 Scott, M. (27 February 2014) “Copycat Business Model Generates Genuine Global Success for Start-Up Incubator”, The New York Times, http://www.nytimes.com/2014/02/28/technology/copycat-business-model-generates-genuine-global-success-for-start-up-incubator.html?_r=0 (accessed 26 August 2014).