The simple secret to beating clones and copycats

Updated. In an industry where opinions are sharply divided on all manner of things — whether it’s PC vs Mac, (s aapl) Ruby vs Python, open vs closed — there’s one topic almost everyone agrees on: clones.
The idea of creating copycat businesses is almost universally derided, whether it’s a small company ripping off a larger one — for example ,when design sales site this week called out German clone Bamarang — or a big business lifting ideas from smaller rivals, such as when Zynga (s znga) found itself hauled over the coals for creating its own version of the indy game Tiny Tower.
It’s obvious why clones are so disliked. After all, for an industry that prides itself on novelty and invention, copycats seem to display two cardinal sins: a lack of ambition and imagination.
Yet despite this apparent consensus, copying the ideas of others remains a very successful business — particularly in Europe. In the old world, barely a week goes by without a new company arriving that appears to copy a foreign rival. In fact, Berlin-based Rocket Internet has made so many millions by cloning the likes of eBay, (s ebay) Groupon (s grpn) and Zappos, (s amzn) that its founders, the three Samwer brothers, have become synonymous with copycatting.
But however people feel about cloned companies, they continue to exist. So what can businesses do to beat them?

Think global, not local

German entrepreneur Lars Hinrichs has experienced life on both sides of the aisle. As the founder of professional social network Xing, he faced accusations of copying LinkedIn, (s lnkd) but today, his startup accelerator HackFWD focuses on investing in innovative European technology businesses.
He thinks copycats are inevitable.
“Yes, all successful products will be copied,” he says. “Since it is so easy to copy the front end, it’s logical to copy. And unfortunately it is a working business model.”
The answer, he thinks, is to dream big. Clones often spring up in international markets where the progenitor company is unwilling or unable to deliver. This means there’s one simple answer to the copycat dilemma.
“Immediately think and act global,” says Hinrichs. That can be tough, however, and requires funding that may be hard to come by. “Since the Sarbanes-Oxley Act, many U.S. companies don’t get enough public cash to manage to scale globally in the beginning. They only overcome this burden with massive A and B rounds.”
A more common option is to partner with or acquire clones. Obviously, this is something that goes against many entrepreneurs’ gut instinct: After all, if cloning is seen as a form of blackmail, then acquisition means a company has effectively paid ransom. But on a practical level, paying to take a clone out of the game can be worthwhile if the strategic cost of competing directly is too high.
Oded Shenkar, a professor at the Fisher College of Business at Ohio State University, says this is important because acting too late or too indecisively can sometimes let the copycat gain the upper hand.
“Look at Ali Baba. It started in China as an imitation of Yahoo,” (s yhoo) he says. “Now it’s in a position to buy the company it was imitating.”

‘Innovation is a sacred cow’

Shenkar’s views on cloned businesses don’t stop there. The author of Copycats: How Smart Companies Use Imitation to Gain a Strategic Edge says copying isn’t just inevitable; it’s everywhere already, even if we pretend otherwise.
“The stigma about copying is strong in the Western world,” he says. “We talk about innovation all the time; people are bombarded with it. There’s a disbelief when you say ‘let’s take a contrarian perspective for a moment’… Executives get personally insulted if you suggest they have imitated somebody else.”
According to Shenkar, we are culturally programmed to forget that ideas are rarely unique, and radical new business models few and far between.
“It’s especially challenging in the technology industry, because all of it builds on innovation — innovation is even more of a sacred cow than in other businesses… People are happy to believe that supermarkets will imitate each other, but god forbid if the same happens in our prized high tech industry.”
History is written by the victors, making it easy to forget there were social networks before Facebook, search engines before Google (s goog) and discount sales websites long before Groupon was ever a twinkle in Andrew Mason’s eye. Would Google’s Android work the way it does if it hadn’t been for the iPhone? And would Apple have made the Mac if it wasn’t for Xerox PARC? (s xrx)
As Steven Johnson argued eloquently in his book Where Good Ideas Come From, groundbreaking innovation is rarely groundbreaking, and it’s rarely innovative. Instead, it’s the product of a time and place and context.

The stack of ideas

Perhaps the most essential way to beat clones, then, is to realize that ideas are far less valuable than execution. This shouldn’t be an alien concept to technology businesses; after all, engineers are used to standing on each others’ shoulders and using the same software stack but competing on implementation. So why not stretch that way of thinking through to the stack of ideas?
This is where Germany’s Samwer brothers are not ignorant, but cunning: Their speciality is the rapid execution of businesses that require some sort of physical infrastructure. They could build a clone of eBay in Germany because eBay wasn’t bothered, and they used that expertise to execute copies of Zappos, Groupon, Airbnb and others. To Shenkar, this makes them very smart indeed — because they copy what they need and compete where they can: that is where they are innovative.
Perhaps, he says, if we spent less time complaining about copycats and more time outperforming them, we might all be better off.
“Most fundamental innovations in our history — from the wheel to the compass to writing systems — have only been invented once, maybe twice,” he says. “It’s not only arrogant but dumb to think that only one company or one country can innovate.”
Update: A representative of got in touch to voice concern about Professor Shenkar’s characterization of the company as a business that “started in China as an imitation of Yahoo”. While the company’s core marketplace business may not have been a clone of Yahoo’s — and it later joined forces with Yahoo in a joint venture — its early designs and approach to the web were highly reminiscent of the American company. According to Prof Shenkar: “They may not like the copycat label (almost nobody does) but in my mind they are a clever copycat who, like may other copycats, did better than the original, also by diversifying quickly into promising areas identified by other pioneers — Amazon and Ebay. This is what clever copycats do — they often borrow from multiple models.”