The romantic story of how “doing business like a human” can overcome “the dark forces of copycats”

Over the summer I had the opportunity to work for both a booming start up – Airbnb – fighting its German copycat – Wimdu – and the dark side of the force in Rocket Internet’s version of Zappos in Brazil: Dafiti.

 I was therefore able to observe first hand how well the Samwer brother’s cloning method (basically pouring marketing dollars into the business) was effective when 18 months after it’s launch, JP Morgan invested 45M$ in Dafiti’s e-commerce business1.

 Simultaneously, barely a year after raising a huge initial round of funding (90M$)2, rumours of Wimdu closing its London and Paris offices reached my ears (the information has not yet been confirmed by RI). I couldn’t help meditate about the reasons why a similar method worked in the case of Dafiti and not Wimdu.

On paper, Wimdu had everything  to become a long-lasting competitor to Airbnb:

·      Platform is exactly the same

·      Marketing message is identical to Airbnb’s (“Travel like a human” vs. “Travel like a local”)

·      Value proposition to both guests and hosts are extremely similar (free listings and 3% commission for the host, 6-12% commission for the guests on Airbnb vs. 15% on Wimdu)

·      Wimdu had local offices in most major markets before Airbnb (Paris, London)

·      Both Wimdu and Airbnb’s pockets were as deep (90M$ vs. 120M$ funding)

Therefore what can explain this first-round knock-out?

1. The nature of the market called for a clear winner

It seems as though Rocket Internet bet big on this one. Indeed, the peer-to-peer industry for rooms / apartments has all the criteria to be a “winner-takes-all” market:

·      High positive network effects: the value of being a part of the “community” increases with the number of users for both hosts (increased demand / revenue) and travellers (competition driven prices on a given location, wider range of destinations). In addition, due to the trust factor involved in peer-to-peer transactions, the incumbent (Airbnb in this case) benefits from the higher number of past transactions (reviews of hosts and guests) thus strengthening these network effects.

·      High complexity to manage a listing on several marketplaces: although travellers are only one click away from another marketplace, hosts have extremely high multi-homing costs from managing a listing on two platforms (i.e. complexity to sync calendars and track bookings, etc…).

It is therefore not surprising to see one of the two emerge as the clear winner but what triggered such a quick victory?

2. Love mattered more than size

The two companies chose very different strategies when allocating their resources. Wimdu spent millions on “recruiting” listings3 via their sales force and travellers via online marketing to make up for being the underdog. In the meanwhile, Airbnb focused on its customer service and its community of users.

Unfortunately for Wimdu, in this industry, the viral coefficient is probably higher than anywhere else:

·      Every new host is a potential future traveller and every happy traveller is a potential new host

·      Additionally, the highly social nature of travelling (who likes to travel alone? who can refrain from “telling all about their vacation” the day they get home?) increases the importance of generating positive word-of-mouth

By focusing on customer service (24/7 customer service, 17 languages served, 90% of calls answered in 90 seconds,), Airbnb grew its community organically (in France, Airbnb had 4,000 listings before even having an office and a French website!). On the other hand, Wimdu let multiple incidents occur without reacting4=;

Additionally, Airbnb understood early on that with such a huge part of their business relying on “trust”, reaching out to their community of hosts was a key component of their success. By organizing offline events where hosts could “put a face on Airbnb” and enabling them to interact between each other, they created an offline community that powered their growth (in France, the number of listings doubled in the 4 months following the first offline meetups).  

Ironically, Airbnb could almost have been called a Zappos culture copycat for embracing Tony Hsieh’s perspective on customer service.

For all those romantics out there, it is a great story to think that in this day and age, “doing business like a human” can still overcome the aggressive strength of marketing dollars.  The question is: will Rocket Internet learn the lessons from this as they launch a Pinterest copycat (called “Pinspire”) in Asia5 ?


 

  1.   http://venturevillage.eu/dafiti-jp-morgan#
  2. http://www.tnooz.com/2011/06/15/news/wimdu-captures-mammoth-90m-funding-round-for-apartment-rental-push/
  3.  http://www.forbes.com/sites/sethporges/2012/04/27/is-this-airbnb-knock-off-google-stalking-potential-hosts/
  4. http://www.trustpilot.co.uk/review/wimdu.co.uk
  5. http://venturevillage.eu/copy-paste-and-pin-the-samwer-brothers-launch-pinspire

 

 


4 Comments

  1. Valerie Scheer

    Great article and a lot of truth to it. One addition to your list: even though the marketing-$ might be similar, Airbnb does a better job when it comes to part of its marketing mix:

    PRICING: A lot of Airbnb/Wimdu users are conscious about how much money they spend (oherwise they could just stay at a hotel). Thus they look at the service costs they have to pay. Interestingly, the 'clone', doesn't attac by offering lower fees to guests: Airbnb's fees are from 6-12%, depending on the total amount, while Wimdu's fees are flat at 15%. For hosts (which I would think are a bit less price sensitive, as they are the ones making money and place trust higher than $), Wimdu doesn't charge fees, but as the plattform is a network, it's important to attract both hosts AND guests. I'm not sure that the price difference of up to 9%-points will boost Wimdu's user base.

    <comment is too long, so see next comment for further arguments>

  2. Valerie Scheer

    PLACE: As of today, Wimdu doesn't offer a mobile app.However, I would think that mobile access is a very potent factor in encouraging near-time communication – a key success-factor for building trust and booking an apartment (btw, Wimdu also doesn't offer any information on host responsiveness)

    Let's see what happens – for sure this will continue to be an interesting battle.

  3. Great post! After reading this and after today’s class on the Birchbox copy craze, I think there is another reason that almost enforces a rather risk-averse approach to entrepreneurship in Europe. I think there might be structural reasons for this. First of all, the exit opportunities are rather limited: There are very few strategic buyers in Europe and there is virtually no tech IPO market. It thus seems much easier to sell/exit to the established US counterpart. Second, there is a lack of venture capital – not because there is not enough LP money, but rather because the top US VCs do not seem to have Europe fully on their radar yet and some of the European funds lack sophistication and are much smaller. A model like that of Rocket thus seems very attractive as it effectively takes large parts of the business model risk out of the equation, resulting in the ability to raise one of the largest ‘funds’ in Europe. Many more novel ideas simply do not get funded and the stated model seems so attractive that it leads to a self-reinforcing dynamic. Add risk aversion, a different perception of failure (US: fail = learn, EU: fail = fail), but strong executional skills, and you get exactly the ecosystem that is prevalent right now.

  4. Amazing post. Additionally, Airbnb understood early on that with such a huge part of their business relying on “trust”, reaching out to their community of hosts was a key component of their success. By organizing offline events where hosts could “put a face on Airbnb” and enabling them to interact between each other, they created an offline community that powered their growth (in France, the number of listings doubled in the 4 months following the first offline meetups).

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