Thoughts product cloning by Japanese tech companies
Hotel Tonight, Secret, Next Door, Postmates, Square. What do these companies all have in common? Along with others, they have all been cloned by Japanese companies sometime in the past year and a half.
Internet/software companies here are obsessed with cloning, and it’s important to know why. First, cloning seems like a low-risk strategy: the model has been proven elsewhere and all that’s required is tweaking it for the home market. Risk-aversion runs deep in Japanese business and society so this is understandable. Second, the cloning model- with select incremental improvements- has been extremely successful in other areas of the Japanese economy (e.g., cars, electronics etc.). A key difference with internet/software though, is that institutional protections- government and otherwise- historically enjoyed by other industries can’t be replicated: import taxes, industry associations, suppliers/distributors refusing to work with outsiders and such do not apply when you are building a snapchat clone. However, this subtle difference is not taken into account and cloning persists.
Most importantly, much of Japan still runs on push marketing vs. pull marketing: in other markets, it is taken for granted that if you build something people don’t want, you will not be able to sell it. In Japan, marketing channels have not fragmented to the degree they have elsewhere, are tightly controlled, and are expensive. TV is still very effective in reaching consumers ( Facebook has TV ads in Japan, but not in the US), and if consumers see it on TV, they want it. How about celebrities touting your product in magazines, TV, etc? In the US this would require a PR campaign to reach these influencers, or just a bet on dumb luck that they will use your product and talk about it. In Japan, this type of marketing is tightly controlled by the agencies managing the celebrities themselves (See herefor details): it can be bought. It goes without saying that these types of marketing are very expensive. So, unlike other markets with a more level playing field, large corporations can monopolize the most effective marketing channels and can make people want their product by telling them it is good, rather than having them decide for themselves. So if a large company clones a concept, with the right amount of spending they can create a market for it.
However, I believe all of this is ending and tech companies here will not be able to under-innovate forever. First, the barriers to entry are much lower for internet/software products vs other industries. While capital goods, FMCG and other companies need to deal with complex distribution networks and pre-existing relationships, consumer tech companies can enter Japan and directly reach customers, given the right amount of spending.
Secondly, complacency due to push marketing and lack of competition has left Japan with a pool of mediocre tech products and companies that are out-of touch with their users. The cloning strategy takes the user out of the equation: cloning is feature-driven and a user base is more or less assumed to exist as long as the original is copied correctly. However, there are subtle product decisions, marketing messages, and other nuances that are completely lost in the cloning process and without these, making a clone that can truly compete with either the original or with existing substitutes is a challenge.
When a clearly superior product from the outside arrives, Japanese users defect, just like anywhere else; the “Japanese consumers are different so they won’t like this” narratives are starting to seem dated: When Facebook arrived, the tech establishment declared it would not work since there was no anonymity: now the incumbent social platform, Mixi, is all but gone. Google was told that the Japanese had all they needed with Yahoo search, but now Google is de-facto. Japanese users were supposedly happy with their advanced feature phones: now iOS has higher share here compared to any other market. I’m sure there are more lower-profile examples, but the point is this: technology companies here need to realize that incremental cloning-based innovation is actually risky since it is rarely done well. Absent this realization, Japan presents a compelling opportunity for many up-and coming tech companies from elsewhere.