Rocket Internet – Clone Factory or Execution Champion?

by Paul Chong

Last Thursday, Oliver Samwer, co-founder of Rocket Internet, visited HBS campus with the purpose of luring talented MBAs away from traditional careers in consulting and banking, and instead, join one of his many internet startups around the world. In the lecture theatre, it was standing-room only, with over a hundred students packing in to hear Oliver speak. After a thirty minute rant, Oliver openly took questions from the audience. Despite the constant barrage that Rocket has recently received in the media, it was difficult not to feel at least some respect for the achievements Rocket has made over the last five years.

To understand the furor and attention that Rocket has attracted, it is important to first understand its business model. From its website, Rocket is a self-proclaimed VC fund; but that doesn’t quite capture the full gambit of its activities. Perhaps more accurately, Rocket could be described as an execution machine, dealing in business model arbitrage across geographies. Others might describe it more succinctly as a factory that produces startup clones in new markets. At its core, Rocket appears to take the latest internet craze, typically from the US, replant the idea in a new geographic market, and provide the funding and support that enables the idea to scale rapidly.

Based on Rocket’s business model, it’s not surprising that many innovation purists have come forth with scathing criticisms. In one recent interview on TechBerlin, Jason Calacanis (its host) derided Rocket as “copycat thieves”, and accused anyone working for Rocket as “selling your soul to the devil”. A bit melodramatic, perhaps, but still a representative illustration of how Rocket has irked many in the global startup community.

Setting aside for a moment what one thinks of replicating startup ideas, it is difficult not to be impressed by the growth and value created by Rocket. From Oliver’s presentation, it appears that Rocket has amassed over one billion dollars in funding, operates in 42 countries, and employs over 20,000 people. This is not to mention the many successful exits (at a strike rate of 80%, apparently) that have create hundreds of millions of dollars for the Samwer brothers and their investors. All of this in only a few short years.

Now, to address the issue of replicating startup ideas: is it that ethically dubious to take other people’s ideas and replicate them in new markets? After all, a key take-away from many entrepreneurial classes at HBS is that ideas are cheap, and good execution is how value is created. Also, how different was it for Google to supplant Yahoo!’s leadership in search engines, well after Yahoo! had defined the basic business model? The tech industry is scattered with similar examples (think, Baidu, Mercado Libre, Living Social, to name but a few).

In my opinion, there are few things to be more respected than risking one’s livelihood in the pursuit of an original idea. However, praise must also be shared with those who execute effectively, and lawfully create value for themselves and their stakeholders. As Oliver put it, “not everyone can come up with the next Facebook . . . but every individual can focus on executing well and create value through doing what he/she is naturally good at”.

Comments and criticisms to this blog post are welcome.


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