King of the Hill: Can Established Tech Companies Be Bested?

Academic: Kevin Werbach

Source: Knowledge@Wharton

April 25, 2012

Article examines how major technology companies can easily replicate a less-established competitor’s innovative offerings or features, and asks if it is possible for an upstart to compete effectively. Kevin Werbach, Associate Professor of Legal Studies and Business Ethics at the Wharton School of Business, shares his expertise.

Businesses copying each other's features to stay competitive is nothing new, notes Wharton legal studies and business ethics professor Kevin Werbach. The difference in the tech sector -- and particularly on the Internet -- is that it's easier. Firms in that space are typically selling virtual goods, and incumbents can often replicate new features with the expertise and equipment they already have in house.
"The network effect is strong, and there are ways that sites [can try to retain] users, but it doesn't always work," notes Werbach, who cites MySpace as a first mover in social networking that unraveled.
Start-ups have other advantages, too. For instance, start-ups don't have user bases and revenue streams to protect. Start-ups can also focus on a niche that hasn't been seen or acknowledged by a large company. "The advantage to a start-up is being nimble," Werbach notes. "Hundreds of start-ups will fail or be acquired, but some will have tremendous success."
"Patents are a legal monopoly and a potent weapon, especially if a start-up doesn't have the resources to fight," Werbach says. "Overall, patent wars are a bad thing for innovation, but they are logical. I'm not thrilled with patent wars, but I understand why companies use them."

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