“The early bird gets the worm, but the second mouse gets the cheese.” – Willie Nelson
It would be hard to compete with Google on search, Facebook on social networking and Amazon on ecommerce. Those are their core competencies and they(Apple, Google, Facebook, Amazon) have thousands of engineers to make sure they stay ahead of competition. But increasingly, it’s getting harder for startups to compete also in adjacent areas, which for the big four (AGFA) only seem to be expanding. In the past, this sort of competition would end in acquisition of the startup building a rival product, but as of late, the large companies choose to imitate smaller startups more aggressively.
And they have the resources to do it. With their deep pockets, the four companies combined have a market value of $2.5 trillion, which is equivalent to the GDP of France. The article gives numerous examples?—?Instagram copying Snapchat, Messenger copying Houseparty, Amazon copying Blue Apron.
For Houseparty, this is not the first time they face the consequences of relying on a large company platform. Their previous live streaming app, Meerkat, was based on Twitter and its growth was brought to a halt when Twitter removed third party access to to its social graph. Now with Facebook, Houseparty is experiencing again that when the large company sneezes, the startups get pneumonia.
So what can a startup do? I wouldn’t claim to know the answer, but at least you can understand their playbook. Here are some examples of Facebook’s competition tactics against Houseparty .
1. Identify threats
Find out when smaller competitors in the space start having traction by monitoring activity on the platform (number of mentions, shares, engagements with posts related to the app).
Facebook is being aided by an internal “early bird” warning system that identifies potential threats
There’s another Israeli startup angle to the story. Facebook leverages technology by Onavo, an Israeli startup Facebook acquired in 2013 to get a “detailed look at what users collectively do on their phones”.
Facebook uses an internal database to track rivals, including young startups performing unusually well, people familiar with the system say. The database stems from Facebook’s 2013 acquisition of a Tel Aviv-based startup, Onavo, which had built an app that secures users’ privacy by routing their traffic through private servers.
2. Study the competition
Understand user acquisition, unique value proposition, what do people like about the experience?
Facebook in February launched a study of Houseparty, wooing its teenage users in a post that began: “Hi everyone!! Do you use Houseparty?”
In February, Facebook invited Houseparty users between the ages of 13 and 17 to come to its offices in Menlo Park, Calif., to participate in a study and keep a diary for a week afterward that they would share with Facebook, offering as an inducement $275 Amazon gift cards.
3. Large company launches its own version(s) of the product or feature
Start with an internal prototype based on all the learnings from the competition.
This fall, Facebook plans to launch an app similar to Houseparty, internally called Bonfire, say people familiar with the project. Both apps let groups of people hang out over live video on a smartphone.
The Verge published a post about the Facebook ‘Houseparty clone’ in July. And according to sources, Bonfire is not the only standalone app for video chat by Facebook. The company is testing an additional app called Talk:
Bonfire is not the only standalone video app Facebook is pursuing, sources said. Employees were also recently shown an app called Talk. While details were scarce, one source said the app is designed to encourage younger people to communicate with their grandparents using video chat.
4. Gauge build vs. buy before the stakes go up
It’s hard to speculate the nature of conversations between the large company and the startup as each case is unique and the positioning around ‘living room’ was made public. It sounds like the talks went sour in December.
Last year, Facebook executives approached it for meetings the startup interpreted as exploring an acquisition. Then, two months after Houseparty publicly introduced itself as “the internet’s living room” in November, Facebook’s Messenger app said it would become a “virtual living room.”
5. Give people permission to compete, even if it means copying
For truly mission driven companies like Facebook, principles like ‘putting the user first’, can trump over a decision to recreate a feature from a rival, as long as it’s deemed as ‘good for the user’.
At an all-hands meeting last summer, Facebook Chief Executive Mark Zuckerberg told employees they shouldn’t let pride get in the way of serving users, another way of saying they shouldn’t be afraid to copy rivals, according to someone who was at the meeting. The message became an informal internal slogan: “Don’t be too proud to copy.”
Interestingly, even the startups understand it’s part of the game:
“I have no problem with the copying,” Mr. Rubin (c0-founder of Houseparty) says. “It’s just business. It’s just a distraction.”
6. Timing is key
When the Houseparty app started crashing in June and July, Facebook came knocking on the door.
When Houseparty was at its most vulnerable, Facebook came knocking. Fidji Simo, head of Facebook’s video efforts, contacted Mr. Rubin, according to people familiar with the contact. She wanted to talk about live video, the people say. It was the first sign Facebook was scrutinizing Houseparty.
7. Stay paranoid
In a previous post on the scale of messaging, I described what is at stake in winning the messaging battle. Messaging apps have already surpassed social networks in usage. Risking it is not an option.
Mr. Zuckerberg is sensitive to anything that might disrupt Facebook, even the teeniest startup, say current and former executives and employees.
With Messenger reaching 1.2 billion users a month, it would be very tough for any company to compete. Armed since December with $50M in the bank from Sequoia and a million active users, Houseparty hopes to develop an antidote to pneumonia.
Is your startup competing with a large company? I’d love to hear (and post) your war stories! I embarked on a 30 day blogging challenge to restore my passion for writing (more about it here ) This was day fifteen. My inspirations for this project are Matt Cutts’ 30 day challenges, James Altucher’s idea machine and Fred Wilson‘s prolific blogging. What 30 day challenges have you started? leave us a comment!