solution

Case

Rocket Internet—Cloning Business Models

As many successful online businesses have painfully experienced, innovative business models in the digital world can be easily copied. Being early players in a new market and focusing on rapidly gaining market share, many companies enjoy a first-mover advantage but, due to their success, are cloned by numerous other “impersonators” around the globe: The daily deal website Groupon has a variety of clones all over the world; Uber has been cloned in China but has also attracted me-too companies in various other countries; Online clothing retailers such as Zappos or Asos have been cloned numerous times. Cloning successful business models can be less risky than coming up with and launching an innovative business idea, and often, developers of clones manage to sell the clones to the original companies later on; for example, in 2010, Groupon decided to buy up its “clones” to reclaim its identity and, most important, fast-track its expansion into foreign markets in Europe and Asia.
Rocket Internet, one of Europe’s biggest Internet companies, has gained notoriety for cloning business models. Founded by the brothers Marc, Alexander, and Oliver Samwer, Rocket Internet’s mission is “to become the world’s largest Internet platform outside the United States and China.” To achieve this mission, Rocket Internet’s focus is on building companies rather than innovating; in other words, Rocket Internet looks for innovative and successful Internet-based business models and replicates those in other (often emerging or pre-emerging) markets, striving to grow the clone as quickly as possible with the aim of later selling the clone. To achieve rapid growth of a clone and gain a first-mover advantage in the clone’s region, Rocket Internet attempts to increase the clone’s reach, offers a wider variety of products or services, or tries to price competitors out of the market; typically, this approach requires investing significant funds not only into building the clone but also in marketing (using not only Internet marketing, such as Google AdWords campaigns, but often also traditional television ads). Using this strategy has proven to be very successful; for example, CityDeal (a Groupon clone) was sold to Groupon for US$170 million less than half a year after the clone was launched. Rocket Internet has successfully cloned a number of innovative online business models, ranging from Airbnb (Wimdu) to Uber (EasyTaxi) to grubHub (foodpanda) to Zappos (Zalando, one of Europe’s largest fashion retailers). Although Rocket Internet is often accused of “stealing” business ideas, business models cannot be patented, and so there is little danger of facing legal consequences for infringing on other’s intellectual property.
While cloning successful Internet-based business models seems easy, this is not necessarily the case. Often, the originals are focused on growing their business in their respective home markets. Other markets, however, typically require different approaches to operations, marketing, and so on. Being extremely effective at adapting business models and tailoring them to local market conditions has been key to the success of Rocket Internet. This is even more astonishing given that Rocket Internet now operates in more than 100 countries, and Rocket Internet has built tremendous knowledge about which factors (such as cultural, geographic, legal, and so on) are important for what types of business models. Interestingly, while many of the business models copied by Rocket Internet were developed in the United States, none of Rocket Internet’s clones operates in this market, which Rocket Internet considers oversaturated. Likewise, Rocket Internet has only limited reach in China, facing similar restrictions and protectionist policies as many other Western Internet businesses.
In spite of its impressive growth, Rocket Internet is also facing challenges. Using proprietary technologies and processes, Rocket Internet tries to launch a business within less than 100 days, after which it decides whether to continue pursuing the business model. In this process, Rocket Internet learned that cloning business ideas that heavily rely on communities and the network effect (such as Airbnb) is infeasible within a short time frame, given the need for building a community and customer trust. Further, although many of Rocket Internet’s businesses have achieved phenomenal growth, many have yet to make a profit, and Rocket Internet has been accused of being intransparent about the valuation of companies in its portfolio. However, as long as innovators continue to come up with new business ideas, there’s a good chance of these ideas being cloned, be it by Rocket Internet or by other companies.

1. Rocket Internet has been accused of killing innovation. Is the practice of copying business models and selling them back to the original ethical? Why or why not?

2. What types of business models are easiest to clone? What types are hardest to clone? Why? Give a specific example of each.

3. Think about an innovative business model you could “clone” and launch in a particular market. Which factors (such as cultural, geographic, legal, and so on) would be most important to adapt for this market? Which factors would be least important? Why?

 
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