Attack of the clones

Home Technologist 02 Attack of the clones

Annoying to some but completely normal to others, copying has become an established business model in the world of start-ups and smartphone apps.

Bird clones

Rocket Internet

THE CLONE STAR

Among the half-dozen replicas headquartered in Berlin, Rocket Internet stands out both as a pioneer and as the most legendary. The company was founded in 2007 by three brothers, Alexander, Marc and Oliver Samwer.

The story of the German trio started in 1999 when they paid a visit to Silicon Valley. That same year they launched Alando.de, an online auction site inspired by eBay, which they sold to eBay four months later for $50 million.

The three brothers then invested part of their profits into StudiVZ, a Facebook clone, and succeeded in selling it soon afterwards for nearly $100 million.

Their latest coup is the most impressive of all: in January 2010, they founded CityDeal, an e-commerce platform for group purchasing that copied Groupon.

Groupon bought the clone five months later for $100 million. Why? Because the copy had managed to outperform the original, and its acquisition gave Groupon cost-effective access to parts of the market that would otherwise have been inaccessible.

Despite its shady reputation, Rocket Internet is still racking up successes. Although it continues to focus part of its activity on replicating existing concepts, the company is also financing start-ups based on more original ideas.

In all, it has more than 75 projects in the works in 50 countries around the world, generating estimated overall annual revenue of nearly $3 billion.

Although it is often said that imitation is the sincerest form of flattery, executives from Airbnb, a peer-to-peer platform for renting out homes, do not agree. When they discovered that Wimdu, a competitor, had copied their website design and business plan virtually verbatim, they sent a furious email to their 100,000 registered hosts, denouncing “impostor websites” and asking users to keep them informed of the activities of these “scam artists”.

Airbnb is not the only company that considers itself beleaguered by imitators. American firms like Amazon, Facebook, Pinterest and Groupon have been the victims of an army of cloners operating under such names as Team Europe, Found Fair, Project A, Springstar and Rocket Internet.

The copiers, all based in Berlin, have made Germany into the Taiwan of Internet start-ups. Their modus operandi: reproduce a popular and profitable website or application almost identically, poach business from the established community, and then try to sell the company back to the original one for a handy profit.

“There is often a fine line between an original idea and a copy,” says Jordi Montserrat, head of Venturelab, an organisation that supports start-ups based in Switzerland. “It can even be a completely legitimate development strategy, since it reduces some of the risks inherent to starting a new company.”

Uber everywhere

The phenomenon has also reached the world of smartphone apps. Uber, the popular app that connects drivers and passengers, has been copied in a number of other fields. There’s an “Uber for home repair” (Handybook), a service that connects doctors and patients 24/7 (Medicast), an “Uber for legal services” (Lawpal), not to mention a dogwalking app (Swifto).

Some critics argue that the harm done by clones extends beyond the companies being copied. Zaryn Dentzel, founder and CEO of Tuenti, Spain’s most popular social network (which, ironically, was modelled on Facebook), says that clones are a huge waste of energy.

“We’ve pushed so hard on this notion of entrepreneurship, thinking it will solve Europe’s problems. Instead, it has just pushed everyone to go do a startup,” Dentzel wrote in The Wall Street Journal. “There’s a really big threat to quality entrepreneurs as it creates too much noise in the market. It creates a difficult environment to get the right resources and it creates a bubble environment where it makes it harder for good companies and good teams to weather through.”

Other experts are less worried about the clones. “The innovation is not just in the product,” says Søren Salomo, head of the department of Management Engineering at the Technical University of Denmark. “It can also be found in the marketing or even the way the company is run. Our studies have shown that a technologically innovative product doesn’t necessarily sell better during the early years of its commercialisation. The positive effect often comes later on.”

Must European start-ups settle for simply replicating the successes of their American competitors?

“No,” says Ciaran O’Leary of the German venture capital firm Earlybird. “On the one hand, it’s getting harder to find financing for these kinds of ‘me-too’ start-ups. On the other, young European entrepreneurs are more and more ambitious. There are too many good opportunities out there right now to waste time copying. Never in the history of business have there been so many possibilities for launching a product that could revolutionise the world and for getting it out into the market through the Internet.”

In the 1995 documentary Triumph of the Nerds, Steve Jobs quoted Pablo Picasso: “Good artists copy, great artists steal.” Apple, adored by the masses, never hid its propensity to resell existing ideas. Perhaps the companies that are so upset about their competitors’ tactics should remember that.

– By Erik Freudenreich

Technologist 02.017

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