In the digital economy, the race is often won by imitators who turn out to be more agile and creative than even the most successful first movers. Take the case of Snapchat. Created in 2011, it quickly reeled in millions of teenagers and young adults with a standout app on which shared photos disappear after 24 hours. Facebook reportedly tried, but failed, to buy Snapchat. So it did the next best thing: copy.
Facebook-owned Instagram simply replicated the main features of Snapchat Stories, rolling out Instagram Stories in 2016. Within a year, Instagram had crossed Snapchat’s daily active user (DAU) numbers – and then some – while the latter faltered. Although Snapchat has since regained some of its early influence, its experience shows that barriers to entry in the digital realm are low, even for established platforms that have already captured a significant user base.
The usual approach taken by first movers to protect their lead involves heavy investment in deploying their innovative know-how through in-house knowledge transfer and collaboration, the idea being that the company with the idea can stay ahead if it leverages its knowledge more quickly across employees and encourages teamwork. The problem, as we’ve argued in a recent paper, is that companies that invest in leveraging their knowledge internally can actually end up benefiting the competition as much as themselves, particularly when the knowledge is easy to copy and can be shared among many rivals. We call this the knowledge-spillover sharing effect.
Given this, is there any hope for an innovator to succeed in the face of copycats?
The right formula, as we demonstrate in our paper, is one of complex continuous innovation, where individuals in the firm use recombination to repeatedly reconfigure elements of their existing knowledge, fusing this together to deliver new product solutions. While such a strategy can overcome the innovator’s imitation dilemma by thwarting rivals’ knowledge-spillover sharing effects, we also show that it can only do so if innovators tackle complex opportunities that are composed of many interdependent features. Let’s look at a couple of case studies demonstrating the approach in action.
How TikTok outsmarted Facebook
The meteoric rise of TikTok, the short-form video sharing service owned by Beijing-based ByteDance, is instructive. Created in 2017, TikTok has reached 1 billion users faster than any other platform, and is consistently one of the top downloaded apps. According toMark Zuckerberg, it is “the first consumer internet product built by one of the Chinese tech giants that is doing quite well around the world.”
TikTok’s growth and (near-term) sustainable competitive advantage comes from its ability to combine and recombine products and services from different categories. On the consumer side, TikTok’s algorithms quickly learn individual preferences by capturing users’ likes, comments, and time spent on each video. On the producer side, AI simplifies video editing and suggests music, hashtags, filters, and other enhancements that are trending or have been proven popular. Essentially, TikTok has recombined elements of these different technologies and applications to create a new category of bite-sized amateur entertainment, distinct from the chronicling of real life offered by Facebook.
Facebook’s efforts to replicate its triumph over Snapchat through imitation have thus far come to nothing. The social-media giant’s nixing of Lasso, the TikTok clone, in July speaks to the difficulty of emulating the Chinese app.
Outracing imitators the Spotify way
Another good example of using complex continuous innovation to stave off copycats is Spotify. Its seemingly simple music-streaming service is in fact a complex combination of a dynamically changing user-interface, behavioral prediction algorithms, and an ever-expanding catalog of music. Spotify learns a customer’s preferences and uses population-level predictions to suggest content that will ensure stickiness.
So successful is Spotify at innovating in a complex opportunity space that it has kept mighty Apple at bay. Despite extensive promotion of its service, Apple Music has not been able to capture a significant share of the music streaming market. Spotify meanwhile has continued to innovate via recombination, adding new features and categories that marry technology with content. The most recent example is its foray into podcasting, hitherto Apple’s domain, with a $100-million exclusive deal with popular podcaster Joe Rogan.
Ganging up on the innovator: Uber’s troubles
We’ve also found an interesting competitive dynamic working against the first mover. Copycats are willing to learn from one another – probably more so than the original innovator. This makes it easier for them to catch up and overtake the first mover.
Look at what happened to Uber. Although the ride-sharing platform the company pioneered in 2010 was unique, it was relatively simple to replicate. Before long, rivals like Lyft in the US and Didi, Gojek, and Grab in Asia offered similar services and siphoned Uber’s market share. These companies learned by copying not only Uber but also one another, effectively ganging up on the more established innovator, whose early market dominance may have made it complacent.
Grab, Gojek, and Didi quickly adapted Uber’s map function to their own product, which they then adjusted based on one another’s modifications. There is some evidence Grab adapted Uber’s rider promotions and driver incentives, only to see Gojek use the same ideas. Copying continued to heat up as all three Asian players then pursued a hyper-diversified “super app” strategy. Grab appeared to copy Gojek’s proliferation of services in Indonesia, such as insurance, with their own offerings. And some believe Gojek entered Singapore with data it scraped from Grab’s maps. The result was a highly competitive marketplace that led to Uber’s exit from the region.