What was the first fast food company?
What was the first credit card company?
Most people probably don’t know the correct answers are White Castle and Diners’ Club. While both companies still exist, they now have relatively small share in what has turned out to be very large markets. As I’ve previously argued, the benefits of first mover advantage are exaggerated:
While being first in category helps, it doesn’t guarantee success. Atari was the first video game, Visicalc the first desktop spreadsheet, and Mosaic the first Internet browser. None are leaders in their categories. This is not just a technology phenomenon. Gablinger was the first low-calorie beer but lost the market to Miller Lite.
In a book called Copycats, Professor Oded Shenkar takes an even more extreme position: first movers have an inherent disadvantage because they have to pave the way for something new. Being first means you have to deal with obstacles that others may not face. Shenkar claims it’s faster, less risky, and more profitable to imitate rather than innovate.
By way of example, Diners’ Club had to invest considerable time and money convincing consumers to use a plastic card instead of cash. They also had to convince merchants to accept these cards and pay a transaction fee. On the other hand, Visa and MasterCard didn’t have these obstacles.
Imitation as a source of innovation is not necessarily a new idea. As far back as 1966, noted economist Theodore Levitt wrote in HBR:
Imitation is not only more abundant than innovation, but actually a more prevalent road to business growth and profits.
Levitt used IBM (computers), Texas Instruments (transistors), Holiday Inn (motels), and RCA (television) as examples of companies that were successful based on imitation, rather than innovation.
As a Silicon Valley-based software professional, I’m not sure I can wholeheartedly embrace pure imitation as a source of innovation. I do agree the valley mindset isn’t usually to create something brand new (despite the persistent myth) but rather to improve on an existing offering (often called disruption). The improvement might be a small yet critical feature, delivering the offering in a more cost-effective way, or a change in the economics of the business model. The rest of the offering might be imitated but this improvement is the innovation that leads to success.
Shakespeare famously said there is nothing new under the sun. Certainly, imitation is more prevalent than innovation and can be a successful tactic. But imitation without differentiation isn’t sustainable. I’ll bet on innovation instead.