How will a startup survive in the era of tech giants

Startups and established companies all face a dilemma when building new technology products. If they hit upon something innovative that has high potential, they invite the scrutiny of large technology companies such as Amazon, Google, Facebook, and Microsoft. Big Tech has the money, technology, data, and talent to replicate and enhance any technological innovation that is not fully protected by patents — which encompasses most digital products.

Recent episodes have shown this copycat behavior to be quite common and life-threatening to startups. The copying comes in various flavors. Sometimes tech giants simply copy innovative features. When Snapchat was doing well with stories that disappeared after 24 hours, for example, Facebook retaliated by introducing the same feature to its products, including Instagram and WhatsApp. Subsequently, Snapchat’s usership stalled. It has had trouble regaining momentum, and its stock price went down dramatically.

In more egregious cases, whole “form factors” (in Silicon Valley jargon) have been copied. After years of growing its user base at nearly 5% per month (!) Slack’s adoption rate has slackened and started to show signs of decline. The pivotal event? The introduction of Microsoft’s knockoff product, Teams. Microsoft did what it does best: waited to see signs of success (four years, in this case) then copied the offering and later integrated it into its other products.

A third approach is to copy a niche product. Allbirds acquired a cult following by developing a line of wool shoes sourced in an environmentally responsible manner. In response, Amazon copied the top-selling product almost point-for-point and sold it online for nearly half the price.

Despite this predatory behavior — and the resulting reluctance of some venture capitalists to invest — a few startups have managed to survive beyond their early stages and become sizable players in the same space as the tech giants. On the surface, it looks as if they succeeded due to luck or lack of interest on Big Tech’s part. In reality, though, these challengers succeeded by using the companies’ strengths against them. This strategic move, although counterintuitive at first, can lead to copy-proof innovation.

Consider Wayfair. Today it’s the largest online seller of home goods and furniture. how the company had just merged more than 200 niche product websites into the Wayfair brand. When I spoke with its co-founder and CEO, Niraj Shah, it was clear that Amazon was the constant threat. Over the years, Wayfair had implemented many features that it had seen work for Amazon, and Amazon developers also copied features from Wayfair.

One thing that Amazon did not replicate — and that worked remarkably well for Wayfair — was taking its own pictures of and measurements for the furniture and home furnishings that it sold. This additional detail helped consumers visualize the home decor they were planning, and it helped Wayfair to differentiate itself and get traction. (Its five-year revenue growth has been an astounding 49% [CAGR], compared to Amazon’s 26%.) Yet, Amazon continued to show only the pictures provided by the manufacturer.

Why? I suspect it’s because Amazon has 3 billion items for sale, whereas Wayfair offers 14 million. The infrastructure and added cost that Amazon would require to take unique pictures of products is daunting, particularly given that more than half its sales comes from the marketplace listings that are managed independently by third-party sellers. And it’s not just about costs. To succeed with Wayfair’s approach, Amazon would need longer lead times for adding new products, reducing the speed of growth at the “everything store.” Plus, it would cause the website to load slower and be more visually cluttered. Amazon could have copied Wayfair, but it chose not to, as that was not in its own interest.

Zulily, which sells women’s and children’s clothing online, found another approach to competing with Amazon in a way that the giant retailer chose not to emulate. Amazon is relentlessly customer-centric: Shoppers tend to get lower prices, quicker delivery times, and great customer service. However, in retailing, catering to the shopper above all else comes at the expense of the supplier — and Amazon’s suppliers put up with a lot. Amazon routinely withholds or delays payment, often arbitrarily. Worse, it copies suppliers’ products and undercuts them, often putting the supplier out of business.

So it made perfect sense for Zulily to offer suppliers high-quality service, commit to volume purchases, and offer fair purchase prices. As a result of Zulily’s approach, many suppliers accepted exclusive supply deals with the startup instead of selling on Amazon’s much larger marketplace. This, in turn, allowed Zulily to offer novel and unique items not available elsewhere. The company grew revenues tremendously — from 2009 to 2014 at a CAGR of 161% — until it was acquired by Qurate, owners of QVC and HSN, in 2015 for $2.4 billion

Outside of e-commerce, in its early days Dropbox took advantage of Microsoft’s massive enterprise software sales prowess. For years, Dropbox was a tiny startup with only a few dozen employees and no salesforce to sell cloud storage to enterprise CIOs and CTOs. Instead, Dropbox offers its service for free to individual consumers. As people adopted the service and it grew, Dropbox got this network of people to start using its product at work. Over time, those users lobbied their bosses, CIOs and CTOs, to purchase and offer Dropbox for Business,

a smaller challenger leverages the opponent’s larger size and strength, is promising, but it’s certainly not guaranteed to work or to be sustainable over the long haul. If they don’t copy you, the giant you’re challenging might opt to build a standalone competitor and still copy point-for-point what you built. That said, it’s generally easier to compete with a stand-alone spinoff than the “mother ship.” When TikTok offered a video-sharing app that allowed users to share music snippets, it appealed to younger users who thought Facebook was for their parents and grandparents, and it quickly grained traction. In response, Facebook launched a nearly identical stand-alone app called Lasso, which thus far has not gained traction.

Alternatively, Big Tech might simply attempt to acquire the threat. But that’s not guaranteed to succeed, either. Acquisition is sometimes very costly and increasingly it’s just not an option. Facebook did try to buy Snapchat and was denied. Microsoft did try to buy Slack without success. In these cases, it was the startup founders and investors that rejected the offers. Amazon, reputationally the least acquisition-prone of the Big Tech bunch, has historically preferred to develop in-house rather than acquire from outside.

In order to leverage Big Tech’s strengths against them and avoid being besieged by copycat behavior, you will need to address these questions:

1. Does the opponent have a major strength that is predominantly responsible for its success?
2. Can you identify a product offering (niche, feature, or format) that a segment of customers value and the delivery of which is made harder by possessing the above-mentioned strength?
3. Would mimicking the novel offering somehow hurt the larger opponent’s main business?
4. If the product offering eventually has traction in the market, would the Big Tech opponent necessarily need to give up its strength to copy or compete?

If you can answer “yes” to these questions, then you too may have found a way to deter blatant copying and to succeed unencumbered. Of course, no single strategy can deliver an advantage forever. In order to thrive, constantly creating copy-proof innovation is essential.