Is there a business in creating/investing in only market follower companies? They won't ever be the biggest, but they might take 10% of a market, and the winner has done all the hard work of proving that the market exists and creating a viable product.
They create companies that are broken from inside, and just pumped with marketing money.
Most traditional VCs don't touch Rocket companies, they raise funding from oligarchs, old school industries trying to go "online".
[1] www.livemint.com/Companies/rYKC6HjnShogjE62jO5lpK/The-trouble-with-Foodpanda.html - Pretty typical of Rocket companies. Fake numbers, related party transactions, skimming money.
I worked in several and I disagree. Take the fashion companies (Lamoda, Zalora, Dafiti... I think they're called global fashion group or something now): branded stuff has a 50% gross margin and the private label stuff up to 90%. That kind of economics leaves room for a lot of error and learning - basically, if you can get your costs under control, manage your inventory correctly and so on, you have a new Zara or H&M. So long as you can see this trend towards improvement, it's worth investing in (and will probably IPO eventually).
I used to think Rocket was operationally not that great, but then I started consulting with normal medium sized businesses and by comparison, they are regional leaders (dunno about global, as I haven't had any American clients yet, but based on my interviews with large Californian companies I won't name who still have interns do all their reporting in Excel, I wouldn't be surprised if Rocket was ahead there too). Same applies to marketing - the ones I worked in were surprisingly efficient with up to 10x the conversion rate I witnessed in competitors and a CPO perhaps 1/5th as high.
Could they do better than they are doing? Absolutely, but generalizing from FoodPanda ("pretty typical") or the Samwer "Blitzkrieg email" is like saying Uber and Palantir will end like Pets.com because they're Californian tech startups with VC funding pre-profit. They've made a genuine effort at building sustainable and sellable businesses globally and I learnt to respect that.
Some fast followers actually do end up being the biggest. (In evidence is the trope of the innovator's gripe that someone stole 'his' market.) See: Microsoft (OS, office software), Apple (iPod, smartphones), Google, Facebook. None were first to market. Google entered its market after search was considered a solved problem.
To be fair to Google though, their search was orders of magnitude better than the predecessors best (Altavista, Inktomi and a whole raft of others). If it had not been for that then they would have been an also ran. I think the 'fast follower' label should be restricted to be used when the new competitor does something that is for the most part on par with whatever the original is doing, only marketing it better or to a different audience. Otherwise it is more of a 'fast innovator' or simply better execution.
For example, tech people tend to single out Google as a 'fast innovator', while attributing the success of Windows or the iPod to superior marketing or some other aspect of business hacking (as opposed to perhaps their success at building better product ecosystems).
One could argue that the iPod was a 'fast innovation'. Or conversely that Google followed quickly behind a host of others, simply building on what their predecessors had done before (and in some way at reduced risk, since 'Internet search' was known to be a viable market at Google's inception). The categories are fuzzy -- although hopefully not for those making the decisions!
Either way, the larger point I was making was that yes, being a fast follower is a legitimate business strategy. There are a lot of risks to being first, and the benefits of being first may not outweigh the risks.
I would say that for a long time Apple was an excellent example of that, maybe even still today if your metrics are market share (instead of profit/revenue). Most of Apple's products are follower products - as in, they enter a maturing space where much of the market research and hard technological work has already been done. Once they enter the market with a better product that is released after the early entrants, and it turns out to be a better product, they eat up all the revenue in the space.
I was watching the the iPhone launch video last night and what you're saying is very apropos. Apple was able to piggyback on the failures of existing smartphones to tell a powerful product story: https://www.youtube.com/watch?v=9hUIxyE2Ns8
This is why I'm so surprised that they released a watch. The smart watch market was tiny and extremely immature. To jump in when they did is very different from their previous winning formula. It will be interesting to see how it works out.
Rocket Internet will, with justification, claim they are a "incubator". I don't know how much stock they take (or more likely give) but the idea of copying consumer sites and reproducing in different locales seems ... Brilliant and off putting at the same time.
Yet "competitors are Gods way of telling you there is money in the market" so perhaps we should all follow this idea more. For example I am looking at setting up a blockchain development company. I doubt that is unique. I don't feel like a copycat however.
As he mentions in the first paragraph, he didn't coin that term as we used it widely at McKinsey's office in the 90s, where he was a junior consultant. BTW, the practice of "International Idea Arbitrage" is applied since the early 1800s in all fields and segments.
"The Chinese have dealt with that issue by protecting their market."
Can anyone explain why this ends up not being a bigger international trade issue? It seems to me like it would be a giant flashpoint, but it seems not to be.
My perception is there's dissatisfaction with Chinese trade in many parts of American politics. So that there's an eleven-figure (or so) protection system in place seems like it would trigger howls of outrage and condemnation, and doesn't.
(I'm not sure it should, but "should" doesn't seem like a big obstacle to political outrage, normally. :-))
Or can we just not come up with compelling counter-examples, because the brands that won in their category are more compelling than the brands that split a category?
The IM market in the 2000s, a market where you would expect the most network effects, remained fairly evenly split between ICQ, MSN and AIM for a long time.
This always struck me as one of the most interesting counter examples since it seemed so utterly defiant of the model.
I think part of it is that with IM clients you're mostly talking to a closer group of friends first then random strangers next so whatever your group chose you would use but there was no strong incentive to join with what everyone was using because you'd just be chatting with unidentified strangers if you moved out of your friend group into chat rooms.
Also the barrier of entry is really low and there's minimal effort in using two or more IM clients running, you could have both running and easily jump into whichever had the group you wanted to chat with. And unlike social media, like Myspace vs Facebook (when they were still competing), participating in both wouldn't mean uploading everything twice.
Death from a thousand cuts. The only way a distributed system could take on a monster is by VCs investing in 50 $100 million dollar companies using a distributed communication platform. Because the way it is now most of the investments go to winner take all companies. And in order for the market to use something different at scale it needs to be 10x. so a 50B company would need to become a 5B dollar open market with 5 or 10 winners.
Something's going on that's more than just network effects. Google was arguably not the first dominant search/advertising company, and Facebook was not the first social network, etc. But these companies can convince very good engineers that it's more profitable to join them than to compete against them, whereas their predecessors failed to do that. How they do this merits more investigation.
The first group they get straight out of the gate with the certainty of 150K+ salaries for as long as they're employed. Life-style adapts to new stream of income, hooked, threat of potential start-up neutralized.
The second group goes against the grain, refuses the initial bait and starts a competitor and then gets bought out at a significant multiple of their real life value - if you ignore the threat to the top dog. If you don't ignore that threat it makes good business sense.
"Lately, we’ve been wondering if there is an end to this pattern on the Internet and mobile. We think it is possible that an open data platform, in which users ultimately control their data and the networks they choose to participate in, could be the thing that undoes this pattern of winner takes most." Urbit?
Urbit is neat but ultimately not practical. It would have to be something drastically simpler for end users and packaged in an extremely clever way. Not everybody is born to administrate the systems that hold their data. A federated social network that gains sufficient traction to warrant further development would be a major achievement. (And if such a thing were to come to fruit it should definitely worry linkedin, facebook, twitter and the remnants of g+).
