The Dot Clones

Fab (www.fab.com) is a highly successful flash-deal Web site for designer goods. A flash-deal site (also called deal-of-the-day is an electronic commerce business model in which a Web site offers a single product for sale for a period of 24 to 36 hours. Potential customers register as members and receive online offers by e-mail or via social networks. Launched in June 2011, Fab recorded sales of $20 million in its first six months. The company's CEO attributed Fab's success to the authenticity of its products, product discounts, its refusal to offer knock-offs (a copy or imitation of a popular product), and the fact that its offerings consisted of objects and design products that could not be found elsewhere. Six months after Fab launched its operations, other sites began to create knock-offs of their products. One prominent example is e-commerce design Web site called Bamarang (www.bamarang .de), which opened for business in Germany, the United Kingdom, France, Australia, and Brazil. Like Fab, Bamarang offers discounts of up to 70 percent on designer goods. Moreover, the layout, color scheme, and typefaces of the Bamarang Web site closely resemble Fab's. Bamarang even has a shot of an Eames chair as the background photo for its sign-in page, just as Fab does.

In an effort to fight Bamarang, on February 21, 2012, Fab acquired a German facsimile of Fab known as Casacanda. The Fab CEO defended this purchase by claiming that Casacanda is less of a copycat and more a group of people who came up with a similar idea to Fab's. Bamarang is the creation of German brothers Oliver, Marc, and Alexander Samwer. This brotherly trio has hit upon a wildly successful business model: identify promising U.S. Internet businesses and then clone them for the international market. Since starting their first "dot clone" (a German version of eBay) in 1999, they have duplicated Airbnb, eHarmony, Pinterest, and other high-profile businesses. In total, they have launched more than 100 companies.

Their Zappos clone, Zalando, now dominates six European markets. Financial Times Deutschland estimates the company's total worth at $1 billion. The Samwers' base of operations is a startup business incubator in Berlin called Rocket Internet (www.rocket-internet.de). Rocket launches companies, hires staff, and provides marketing and design support, search engine optimization, and day-to-day management until startups can take over for themselves.

The Samwers launched their clone of eBay, called Alando, in early 1999. Four months after Alando's launch, eBay bought the company for $53 million-and the Samwers became Germany's first Internet millionaires. In November 2008, Group on went live in Chicago, and it quickly became one of the fastest-growing Internet businesses ever. In January 2010, the Samwers launched a Group on knockoff called CityDeal. Within 5 months it was the top deal-of-the-day Web site in a dozen European nations. Group on could have fought City Deal in the marketplace. It also could have filed an intellectual property lawsuit, although the chances of winning such a suit would have been very slim. Companies cannot be patented, and trademarks apply only within the countries where they are registered. Perhaps taking the path of least resistance, in May 2010, Group on bought its German clone for 14 percent of Group on's shares. Wrapp (www.wrapp.com) is a European startup that partners with retailers to enable users to give gifts to their friends through Facebook. Unsurprisingly, the Samwers launched Drop Gifts, a clone of Wrapp, in February 2012.

Unlike Group on and eBay, however, Wrapp responded aggressively. The company intends to add new territories much faster than originally planned in an attempt to achieve first-mover advantages in important markets. (A fi rstmover advantage is the edge that a company gains by entering a particular market before any competitors. For instance, the edge might be capturing the majority of a market.) In order to fund its rapid growth, Wrapp is turning back to its investors for additional funding. The Wrapp management team feels that the best defense against copycats is to do a better job. The company is convinced that, compared to the copycats, it has stronger existing relationships with retailer partners and more big partnerships on the way. Meanwhile, Rocket Internet continues to develop clone businesses. For example, Payleven (https://payleven.com), a spinoff of Square, is a mobile payment service that uses a device attached to a smartphone or tablet computer to make and process card transactions. This service is available in Germany, the Netherlands, Italy, the United Kingdom, Poland, and Brazil.

Like its competitors, Payleven takes a 2.75 percent commission on all transactions, with a minimum amount per transaction of 1 euro. Rocket Internet is also increasing its operations in emerging markets. For example, it has launched Jumia (www.jumia.com), an Amazon clone, in Nigeria, Egypt, and Morocco. Like Amazon, Jumia sells a range of products, including mobile phones, baby and children's products, books, and home electronics.

The Samwers are revered among some young German entrepreneurs for putting Berlin's startup scene on the map. At the same time, however, other entrepreneurs despise them for giving Germany a reputation as the copycat capital of Europe. There are several indications of the Samwers' image problem. In summer 2011, a Berlin startup called 6Wunderkinder called for an anticopycat revolution in that city. In January 2012, about 20 Rocket employees, some of them close allies of the Samwers, announced that they were leaving to launch a rival startup factory, called Project A Ventures, that would focus on backing original ideas. In February 2012, Russian entrepreneur Yuri Milner, an investor in Facebook, Zynga, and Twitter, pulled out of a plan to invest in Rocket. The German media speculated that his decision was based on the Samwers' reputation.

Despite their questionable image, the Samwers deny that they are copycats. Rather, they claim that they simply take an idea that is already on the Internet and "make it better." Perhaps surprisingly, one individual who came to the Samwer brother's defense was Groupon CEO (at the time) Andrew Mason who stated: "An idea for a company is the easy part, and execution is the hard part." He claimed that the Samwers were the best operators he had ever seen. Sources: Compiled from I. Lunden, "Summit Partners Puts $26 M into Samwer Brothers' African Amazon Clone Jumia," TechCrunch.com, February 25, 2013; I. Lunden, "Payleven, The Samwer Brothers' Answer to Square, Takes ‘High Single-Digit Million Dollar' Round Led by a Mystery Investor," TechCrunch. com, January 20, 2013; B. Johnson, "Exclusive: Wrapp CEO Goes Toe-to-Toe with Samwer Bros.," GigaOM.com, March 7, 2012; C. Winter, "The German Website Copy Machine," Bloomberg BusinessWeek, March 5-11, 2012; M. Cowan, "Inside the Clone Factory: The Story of Germany Samwer Brothers," Wired, March 2, 2012; B. Johnson, "Now Samwer Bros Clone Fab and Target European Rollout," GigaOM.com, January 25, 2012; "Attack of the Clones," The Economist, August 6, 2011; www.rocket-internet.de, accessed March 5, 2013.

Questions

1. Discuss the ethics of the Samwers' business model. Then, discuss the legality of the Samwers' business model. Compare the two discussions.

2. What are some alternative strategies that companies might use to combat dot clones?

3. Discuss the ethical implications of the statement from Group on's CEO that the Samwers are superb operators, not simply copycats.