Facebook has filed a lawsuit against popular German social network StudiVZ, alleging that its rival is nothing more than a "knock-off".

According to the Financial Times, "in its complaint, Facebook accused StudiVZ of copying entire portions of the site’s design."

To be sure, StudiVZ, which boasts 10m registered users, does look almost identical to Facebook (with a red color scheme) and some have pointed out that folders on the StudiVZ website are named "fakebook."

In January 2007, StudiVZ was sold to Verlagsgruppe Georg von Holtzbrinck, one of Germany's largest publishing companies.

Clearly, the fact that StudiVZ is owned by a large company that ostensibly has assets in the US doesn't make the lawsuit entirely surprising.

Yet the timing is curious. StudiVZ was launched in late 2005 and it's reported that the StudiVZ founders had met with members of the Facebook team in 2006. There are even rumors that Facebook had bid to purchase the German startup but lost out to Verlagsgruppe Georg von Holtzbrinck.

All this aside, the similarities between StudiVZ and Facebook aren't new, so why did Facebook wait so long to sue StudiVZ?

And why hasn't Facebook sued other "clones" such as China's Xiaonei, which has raised a substantial amount of funding?

I suspect it has to do with competition.

Facebook's rapid growth has been propelled by international usage. It recently even surpassed MySpace in international traffic.

The company has made a concerted effort to leverage crowdsourcing to translate Facebook into other languages and several months ago, it officially launched its German version.

As I've noted, international traffic is notoriously difficult to monetize, but Germany is one of the best international markets, making it a must-have territory for a company trying to translate its popularity into profits.

Yet there's a problem; according to one of the Financial Times' sources, Facebook has "struggled to gain traction among German users."

What's the solution? Sue the German clone - StudiVZ - that "owns" the German market.

Frankly, I'm not all that interested in the outcome of Facebook's lawsuit against StudiVZ. But I do think the lawsuit highlights a few valuable facts.

First, as I've stated before, "Companies who ignore the international markets do so at their own peril."

When StudiVZ was acquired, I posted the following comment on TechCrunch:

"Facebook is in a bad predicament right now. To justify the valuation it’s seeking, it needs to expand, but other markets (like high school and professionals) are already dominated by other social networks that already have critical mass and network effects, and the international markets were taken by copycats before Facebook made a move."

"They had the money, reputation and connections to partner up to expand internationally but they, for whatever reason, didn’t. They might very well have had the $2 billion they were apparently seeking if they had gone global early. "

"I have heard a lot of rumors about Facebook’s arrogance when it comes to dealmaking, and if this is accurate, they might have felt too secure or too proud to partner to launch in other countries. I suppose the story about Zuckerburg not making himself available to do major business deals on the weekend is a perfect example of arrogance. Bottom line is that if you snooze, you lose."

Clearly, Facebook is now learning the hard way that when you don't pay attention to international markets early, you're likely to cede them to local upstarts.

Second, this incident highlights that social networks are nothing more than commodities. The fact that two students from Berlin were able to launch a German Facebook clone in 2005, grow it and sell it for a hefty sum in 2007 demonstrates that there's nothing inherently innovative about social networks.

And the fact that their social network is apparently such a barrier to Facebook's success in Germany that Facebook felt the need to sue demonstrates that, for a company valued by some of its investors at $15bn, Facebook has few true competitive advantages.

At the end of the day, the "success" of Facebook clones like StudiVZ serves as a reminder that Facebook is, at best, a "narrow moat" company. Its lawsuit against StudiVZ reveals that it finally recognizes that.

Drama 2.0

Published 21 July, 2008 by Drama 2.0

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Comments (1)



"At the end of the day, the "success" of Facebook clones like StudiVZ serves as a reminder that Facebook is, at best, a "narrow moat" company. Its lawsuit against StudiVZ reveals that it finally recognizes that."

Facebook probably stands no better a chance of being significant in 10 years time as any of the thousands of other social networking sites because new = better on the internet, and there will always be something newer and thus better(er).

It came from nowhere and will most probably go back to nowhere (albeit making founders and VCs buckets of money along the way, and losing small post-IPO investors or trade purchaser(s) a similar sized fortune).

I mean really what does it do for most users that the odd group email can't achieve. What percentage (of the total current user base) is the hard core that will still be playing Pirates or whatever in a few years time when they have kids and a bigger mortgage....Because the next generation will probably be doing something altogether different.

Jonathan Ross (or was it Jeremy Clarkson) branded it "MyFace" and I think that is a perfect way to illustrate the lack of substance behind the brand(s) in this sector - a bit like the million and one ComparethismarketGoSuperYadayadas that are wasting other peoples money trying to build brands in a similarly throw-away sector.

By all means get big and make some cash, but branding is for brands not functional websites... (okay, apart from Google).

about 10 years ago

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