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In praise of copycats wsj
 

In praise of copycats wsj

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    In praise of copycats wsj In praise of copycats wsj Document Transcript

    • In Praise of Copycats Far from killing creativity, imitation spurs innovation in industries from fashion to finance to footbal  ESSAY  August 10, 2012, 7:20 p.m. ET By KAL RAUSTIALA and CHRIS SPRIGMAN Critics called it "Bogle's folly." In 1976, John Bogle introduced the first index fund through his new company, the Vanguard Group. The idea was based on research for his senior thesis in economics at Princeton, in which he showed that, on average, professional money managers failed to beat the rate of return of the overall market. (The thesis, written in 1950, earned him an A+.) Wall Street veterans initially scoffed at the fund, which tracked the Standard & Poor's 500 Index. Who would be content with hitting the market average? But the critics were quickly proven wrong. Vanguard grew explosively, and it is now the largest mutual fund company in the nation. Mr. Bogle's ideas have been widely copied by rival firms. Until recently, competitors were free to copy financial innovations—and as a result, index funds are now a huge business for Wall Street. The conventional wisdom today is that copying is bad for creativity. If we allow people to copy new inventions, the thinking goes, no one will create them in the first place. Copycats do none of the work of developing new ideas but capture much of the benefit. That is the reason behind patents and copyrights: Copying destroys the incentive to innovate. Except when it doesn't. There are many creative industries, like finance, that lack protection against copying (or did for a long time). A closer look at these fields shows that plenty of innovation takes place even when others are free to copy. There are many examples of successful industries that survive despite extensive copying. In fact, some even thrive because they are so open to copying. Consider the fashion industry, which is virtually synonymous with the word "knockoff." Faviana, a New York fashion firm, makes its business model clear on its website. Faviana cheerfully replicates the work of major designers, providing what it calls "bling on a budget." As CEO Omid Moradi says on the site, "Ten minutes after any big awards telecast, the Faviana design team is already working on our newest 'celebrity look-alike gowns.' " Faviana isn't alone. Anyone who has spent time in a Forever 21 store, or who reads fashion magazines, knows that the industry is full of knockoffs. And all this copying is completely legal,
    • because copyright law doesn't cover apparel design. Yet far from killing creativity and destroying the market, the industry is prospering. How is that possible? Because copying accelerates the fashion cycle, banishing old designs to the dustbin of history (perhaps to be dusted off and reintroduced later) and sending the fashion- conscious off in search of the new, new thing. Trends are the cornerstone of contemporary fashion, and legal copying allows them to develop and spread. Fashion—and finance—show that sometimes sharing an idea is more valuable than monopolizing it. Copying can even serve as advertising. When an innovation is imitated, more people see it and experience it, which helps to create "buzz"—the notion that a particular thing has status and is especially worth having. Copies can also become trial versions of the original. A 2009 Harvard Business School study found that many women who buy knockoff handbags soon move up to the real thing. Copies act as a kind of gateway drug to the harder (or, at least, more expensive) stuff. The world of cuisine is similar. As any frequent restaurant-goer knows, great dishes migrate from place to place. (Ever had a molten chocolate cake?) And that is because no one can own a recipe or monopolize a terrific dish. Recipes and food are, like fashion designs, simply outside the scope of copyright. But that doesn't stop the most ambitious chefs from developing new dishes. The food world is more creative today than ever before. In cuisine, as in fashion, copying is a critical part of the creative process. Chefs sometimes get annoyed when others copy their dishes without attribution. But many of the world's most talented chefs, such as the French Laundry's Thomas Keller, are firm believers in an open approach to innovation. Mr. Keller's salmon tartare cornets have been widely imitated. But that hasn't changed his views on the merits of shared ideas. The freedom to copy, to tweak, and to improve on a good idea is what makes it go from good to great. Along the way it provides inspiration to others and serves to advertise, for those in the know, the prowess of the originator. Even football illustrates the power of copying. With myriad possibilities for formations and plays, football strategy is always changing—but none of it is protected against copycats. This hardly discourages great coaches from innovating. Exhibit No. 1 is the West Coast Offense, which relies on quick, short passes to control the ball and gain incremental yardage. The idea was the brainchild of Bill Walsh, who in the 1960s coached the Cincinnati Bengals, then a recently formed and hapless NFL expansion team. Cincinnati, he said, "was probably the worst- stocked franchise in the history of the NFL. So in putting the team together, I personally was trying to find a way we could compete." His way was to develop a new style of offense. Later, when he was coach of the 49ers, Mr. Walsh's ideas helped to lead the team to three Super Bowl wins. Traditionalists at first dismissed his offense as a gimmick. But no one could dispute its success. Eventually, it was imitated by the Green Bay Packers, the Philadelphia Eagles and many other teams. Why do football coaches invest long hours in developing innovative strategies, even when they know that their rivals will imitate them as soon as they prove successful?
    • The rewards of winning can be immense, especially at the highest levels of the game. Even a temporary advantage, lasting a week or perhaps a whole season, is worth pursuing. More important, in sports there are practical barriers to immediately copying a successful new tactic. The first time a play, formation or strategy is used, it can create a big element of surprise. After that, opponents can reverse engineer the idea relatively quickly. More difficult is the process of rebuilding a team to take full advantage of the innovation. This takes time. Economists refer to this window as the first-mover advantage. In the case of Major League Baseball, as Michael Lewis showed in "Moneyball," the Oakland A's won for a time with their number-crunching strategy, but the team faced a host of imitators after a few seasons. This dynamic of innovation by competitive underdogs is by no means limited to sports—from software to warfare, competition sparks creativity, even when copying is sure to follow. We live in a world in which copying is getting easier. It certainly can cause harm, and some rules to protect creations are necessary. But copying has an upside too. Great innovations often build on existing ones—and that requires the freedom to copy. —Adapted from "The Knockoff Economy: How Imitation Sparks Innovation," available now as an ebook and in hardcover on Sept. 12 by Oxford University Press. A version of this article appeared August 11, 2012, on page C3 in the U.S. edition of The Wall Street Journal, with the headline: In Praise of Copycats.