The Copycat Economy

They say imitation is the sincerest form of Flattery. Turns out it is also quite profitable. It is no secret that companies have copied off of one another for years. Many of the products we know and love are simply copies of other products.

It seems that although the first mover advantage is alive and well it may not be all it is cracked up to be. People praise innovation as the future and tout all the money that can be made by creating the next 'innovative' technology. The examples to the contrary are rampant. Pandora may have been innovative but is hardly profitable.

Innovative designs may create a demand for a product but also gives the competition a chance to copy the idea and improve the function. How many people took MP3 players seriously until the Ipod came out? Even more interesting, I would bet if you asked 100 people off the street many wouldn't even know what an MP3 player is. They would call it an 'ipod' or a 'knockoff' ipod. We also have a culture in which copying is perceived as "taboo"

Some businesspeople are willing to talk about the limitations of innovation. Kevin Rollins, a former chief executive of Dell, a computer-maker, asked, “If innovation is such a competitive weapon, why doesn’t it translate into profitability?” But most remain obsessed with their own inventions. Copying is taboo. Praise and promotion do not go to employees who borrow from other firms.

The irony is that all the firms which make money by copying another product rely on someone to first create the innovation necessary for their product. It is an odd paradox. A great example is drug companies. Obviously, most drugs carry a patent protection for about 20 years from creation but normally that only matters for about 10 years when the drug is selling. After that, generics can copy the drug and submit an ANDA application to begin making the drug 2 years down the road. Is the pursuit of delivering cheaper drugs (for profit) to a wide array of people less than innovating the product in the first place? Should that be considered 'taboo' or less praise worthy?

History shows that imitators often end up winners. Who now remembers Chux, the first disposable nappies, whose thunder was stolen by Pampers? Ray Kroc, who built McDonald’s, copied White Castle, inventor of the fast-food burger joint. Even Playboy magazine was just an imitator, noted Ted Levitt, one of the earliest management gurus to acknowledge the role of imitation. Copying is not only far commoner than innovation in business, wrote Levitt in the 1960s, but a surer route to growth and profits. According to “Copycats”, studies show that imitators do at least as well and often better from any new product than innovators do. Followers have lower research-and-development costs, and less risk of failure because the product has already been market-tested. A study by Peter Golder and Gerard Tellis, “Pioneer Advantage: Marketing Logic or Marketing Legend”, found that innovators captured only 7% of the market for their product over time.

How do you guys feel about companies that copy products compared to those few innovative companies? Should those who innovate be rewarded above and beyond those who can copy more effectively?