Startups Using Unethical Practices Against Competitors: A Glimpse into Dark Business Tactics

Entrepreneurs are under immense pressure to succeed and stand out amidst the sea of emerging businesses. While the majority opt for hard work, innovation, and ethical business practices, there's a shadowy side to this world. Some startups engage in unethical practices to get ahead of their competitors.

Frederik van Lierde - Oct 31, 2023

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Summary

Ethical Boundaries Are Crucial: Crossing into unethical practices for competitive advantage harms not just the companies involved but the entire industry.
Innovation Over Imitation: Long-term success comes from genuine innovation and building trust, not through unethical competitive strategies.
Legal and Reputation Risks: Engaging in unethical practices exposes companies to legal battles and damages their reputation, impacting future growth and industry relations.

Defining Unethical Practices

Unethical practices in business can range from false advertising, spreading malicious rumors about competitors, sabotaging competitors' operations, stealing trade secrets, and many other deceitful tactics.

These methods not only damage the good name of the business community but can also lead to big problems for the companies involved and the whole industry.

Uber vs Waymo

One of the most high-profile examples of alleged unethical practices involving startups (or rather, tech giants that once were startups) is the case between Uber and Waymo.

Waymo is a subsidiary of Alphabet Inc. (Google's parent company), specializes in self-driving technology. In 2017, Waymo sued Uber, accusing the latter of stealing its trade secrets.

The whole controversy was about Anthony Levandowski, who used to work for Waymo before jumping ship to Uber. Waymo accused him of taking more than 14,000 secret files about their self-driving tech right before he left.

After Anthony Levandowski left Waymo, he founded his own company focused on self-driving trucks called Otto, which Uber bought quickly for $680 million.

Waymo argued that Uber's sudden leap forward in self-driving technology wasn't just luck but because of these stolen files. This legal battle could have really hurt Uber's push into self-driving cars. But, in 2018, before things got even more heated in court, both sides settled.

Uber ended up giving Waymo 0.34% of its stock, which was worth about $245 million back then. On top of that, Uber promised not to use any of Waymo's secret info in their self-driving projects.

The Implications
The Uber-Waymo drama highlights how far some companies might go, or the tricky situations they can end up in, to outdo their rivals. These kinds of actions don't just risk the company's good name; they also bring legal trouble, financial hits, and lost chances.

Stories like this can be a warning for other new companies. It's normal for businesses to want to be one step ahead of the competition, but playing dirty is not a wise long-term strategy. The most successful startups get to the top not by taking shortcuts but through innovation, hard work, and earning people's trust.

Snapchat vs. Peek

In 2015, there was a bit of a stir between Snapchat and a less-known startup named Peek. Peek had created an app that let people see live, unfiltered glimpses of what was going on in different places around the globe.

This was pretty similar to Snapchat's Story function, but Peek's focus was specifically on sharing content based on location.

The Controversy:
The people behind Peek said that Snapchat played dirty to keep them down as a possible rival. Peek's team thought Snapchat was interested in either working together or buying them out, so they went to a meeting and spilled the beans about how their app worked, their plans for growth, and more.

But instead of teaming up or Snapchat buying Peek, Snapchat rolled out a feature that was a lot like Peek's, called "Snap Map," just a few weeks after that meeting.

Peek's founders felt that Snapchat pretended to be interested in buying them just to get the lowdown on their technology, only to then launch a similar feature of their own.

It's hard to say if Peek would have made it big on its own, but Snapchat's actions definitely didn't do Peek any favours.

Facebook vs. Houseparty

Houseparty was a live group video chat app that gained significant traction among teenagers and young adults. As with most successful social apps, it caught the attention of tech giant Facebook.

The Controversy:
Ben Rubin, the CEO of Houseparty, has said in interviews that after they turned down a buyout offer from Facebook, Facebook tried to make a copy of their app.

Rubin mentioned that Facebook called the Houseparty team in for a chat, much like what happened between Snapchat and Peek. Following that meeting, Facebook came out with a group video chat feature called Bonfire, which was very much like what Houseparty was doing.

Big companies like Facebook can quickly come up with features that are similar to those developed by smaller, up-and-coming companies, raising questions about the fairness of these actions.

In the tech world, it's not rare for companies to take inspiration from each other's features, but there's a fine line between getting inspired and just copying. For small startups, it's tough to keep up when bigger companies start to use their unique ideas.

Zenefits vs. ADP

Zenefits, a cloud-based software-as-a-service company designed for human resources, experienced rapid growth in its early years.

ADP, on the other hand, was an established player in the HR management and payroll services industry.

The Controversy:
In 2015, the conflict between the two companies emerged publicly. ADP blocked Zenefits from accessing its systems, stating concerns over data security and potential violations of ADP's terms of service. Zenefits retaliated by alleging that ADP's move was an anti-competitive tactic to disadvantage the startup.

What followed was a series of public jabs, with each company accusing the other of misinformation. Zenefits claimed that ADP had started a fear campaign to poach its clients by spreading rumors about Zenefits’ business practices.

ADP, on its part, initiated a defamation lawsuit against Zenefits and its CEO, alleging that they made false statements that damaged ADP's reputation.

The feud eventually died down, but it highlighted the potential tensions between established industry giants and fast-growing startups that challenge the status quo.

Tinder vs. Bumble

Both Tinder and Bumble are among the top contenders in the list of dating apps.

While Tinder revolutionized the mobile dating game with its "swipe" feature, Bumble came up with a unique selling point: allowing women to make the first move.

The Controversy:
In 2018, Match Group, which owns Tinder, took Bumble to court, accusing them of copying Tinder's look and how it works, especially the swipe-to-match feature. Match also claimed that some of Bumble's top people, who used to work at Tinder, walked away with Tinder's secrets.

Bumble hit back, saying the lawsuit was just a way to scare them. They argued that Match Group had tried to buy Bumble and, when that didn't work out, they turned to suing as a way to hurt Bumble's business. Bumble even filed their own lawsuit against Match Group, accusing them of playing dirty games to try and lower Bumble's value for a takeover.

These legal battles really show the cutthroat nature of the app world, where lawsuits can be used as a strategy to deal with rivals.

Conclusion:

The business scene, startups included, really gets a boost from competition. It's this rivalry that sparks new ideas and brings better stuff to the people using these products and services. But there's a thin line between fair play and crossing into dodgy territory.

Going down the wrong path might seem like a quick win, but it'll end up causing trouble for the business, the whole sector, and everyone involved, sooner or later.