Does copying really end in the best result for the consumer?

On episode 102 of their excellent podcast, Exponent, Ben Thompson, and James Allworth argued that they are generally supportive of companies copying each other. This was done in the context of discussing Instagram’s blatant copying of Snapchat.

“The way that these organizations copy each other creates a competitive market for tech. And it’s a part of the reason why this is such a fantastic blossoming ecosystem. Because people see great ideas and they are not holy cows. Like if someone gets something right, take it and then go and build on it and do it better.” — James Allworth

I would like to agree with James here, but I can think of countless examples, one personal, in which blatant copying does not result in the best result for the consumers. “Blatant” being the keyword.

Take for example the hoverboard industry. Inventist launched their hoverboard product, Hovertrax, in Early 2014, on Kickstarter. Then another company, IO Hawk, presented a very similar product at CES 2015. (Hovertrax is suing IO Hawk for patent infringement.) The product took off like crazy, with the help of celebrity endorsements and arrests. However today the market of hoverboards is very different. Hundreds of Chinese clone competitors have entered and flooded the market. You would think that this is good as consumers have got lower prices. But wherever I go in New York I see these signs: No hoverboards allowed.

The New York City subway system has banned hoverboards.

The increase in hoverboard clone companies had led to lower quality and many hoverboard fires. But wouldn’t the best and safest company stand out then? No. Given it was such a new company, Hovertrax hadn’t built up enough brand name differentiation. The general consumer didn’t know which company was the Apple of hoverboards. Neither did the regulators. Hence, they banned all hoverboards, hurting the growth of this new industry.

Luckily for Apple, the mobile phone industry was not a nascent industry, when Samsung’s Note 7 phones started exploding. If you go to an airport today (2017), you may still see signs about the Samsung Note 7 not being allowed on planes, as they may catch fire. Imagine the pain to Apple, if regulators had said, no phones on planes? That’s essentially what happened to Hovertrax.

These examples, in which copycats hurt consumers, seem to follow a pattern that is quite common in the tech industry these days. The initial companies are first movers. They are really young and VC funded. They have launched a product that is innovative and gain some traction. Then they are immediately copied.

The first startup I worked at, followed this exact pattern. Sonar was a startup that produced a mobile application that would tell you how you are connected to people near you. Launching at Techcrunch Disrupt in 2011 we were a first mover in the Social-Local-Mobile sector, aka S-LO-mo. We got a ton of attention and users at the start. But within a year there were at least 5 companies doing the exact same thing. Today, none of them exist, including Sonar. There are many factors I believe that led to all these companies failing or getting acqui-hired. I’m not arguing that we should have won or even deserved to win. But I believe our runway was cut significantly short because of our competitors. It then boiled down to a funding battle. Who had more money stuck around longer.

I would argue that the first movers are probably the most likely to have the greatest capacity to innovate, versus their clones. That’s why the story of Meerkat is depressing. They launched in early 2015. They were a true overnight success. But soon thereafter Twitter came out with their competitor. If you look it up it does seem that these products were being developed at the same time-ish. But the sheer power and money this public company put behind crushing a small startup were something to behold. In the end result, the consumers got the same exact product from Twitter instead. The Meerkat guys have gone and started a cool new app called HouseParty. If this is an indicator of their prowess to build cool stuff. It is a shame we will never know what Meerkat could have been.

Copying hurts the end consumers sometimes. The best or most innovative company doesn’t always win. And sometimes, unfortunately, money decides the winners.

Ps. If you are an engineer or management at a big technology corporation about to clone an upstart company’s product, do something different. I hear Space X is hiring.