New trade practice: Selling local versions of giant global digital platforms

This takes business to a new playing field; cloning digital business models from overseas, launch them on the local market and selling them off with a premium.

Latest major deal: Google acquired German Groupon clone DailyDeal on September 19, 2011. Currently, Google’s own Daily Deals service is only available to North American customers in a number of states across the U.S. but Google also recently bought daily deals aggregator The Dealmap (Source: article by Alistair Barr, Reuters). DailyDeal began less than 2 years ago and covers the German, Austrian and Swiss market but has announced plans to expand to a wider European market. As DailyDeal already has an established presence, this acquisition will expand Google’s operations in Europe. (Source: post by Matt Brian, TheNextWeb).

This deal sounds familiar: German Groupon clone CityDeal was acquired by the world’s original and leading collective coupon buying platform Groupon. There is no indication of the exact sum, but according to sources close to the deal the transaction sum had been a “3-digit-million figure” (Source: post by Lukas Zinnagl, TechCrunch).

Now how does an original successful digital platform go about entering lucrative international markets? Surely being digital, it is global by default; there are no borders in the digital world. Therefore, it does not need to customize much for local markets and the platform can be transported abroad with minor tweaks. No need to pursue an acquisition strategy and pay so much money, or what?

The Groupon Citydeal case

In the case of Groupon, its CEO Andrew Mason indicated in the same TechCrunch article that it would not be so easy to bring Groupon to Europe. Apparently adapting Groupon to suit the differences between Miami and Philadelphia was enough of a challenge. Therefore succeeding in Europe was only possible with entrepreneurs who had an intimate understanding of local cultures. Also strong players were already in the market having first mover advantage. So there was a horde of European Groupon clones they had meetings with.

Unfortunately, we found them to be very much like the American knockoffs – without the strategic vision or operational chops to do much more than watch us and play Simon Says.

In other words, copying business models proved easy and was a redundant asset to Groupon. Strategy and operations are a totally different capability and Groupon was after this added value. So when they met Oliver Samwer, one of the founders of Citydeal, they expected more of the same but found the opposite.

Oliver and his two brothers are known for elevating the practice of cloning American business models in Europe into an art form, having successfully founded the German versions of eBay (eBay eventually bought them), Facebook, eHarmony, Zappos, and many more.

So what were some of the results these operators created, which set them apart from competition? Number 1 in every one of their countries, quickly scaling to 600 employees working from 80+ European cities, saving their customers over $5 million in April alone (their fourth month of operation). Another factor was similar cultures in both the Citydeal team and Groupon:

Hardworking and scrappy, blindingly fast executors, refreshingly blunt, no appetite for petty politics, and passionate about pioneering a new model of commerce while wowing every last consumer and merchant they touched.

And that was that, deal closed, rest is history. CityDeal services rebranded to Groupon and thereby Groupon entered the new markets smoothly and swiftly.

The serial cloners

Crucial and intriguing point in this case is that this is just one example of the new trade practice; the Samwer brothers had done it before. eBay and Facebook are other great examples. What do they, and other outperforming players in this practice, do so well? What is their pattern or process? There is admiration in what they do but they are not much-loved according to an extensive portrait in the German Manager Magazin. The article provides some clues on what may provide them with a competitive advantage. Instead of being visionaries like Mark Zuckerberg, they copy extremely well and seem to be able to pick up and foresee which internet companies are going to be successful. Also they have an investment vehicle with which they can rapidly fund and act on any promising initiative. They play it tough, ask a lot from their employees with their ambitious targets and one of the tactics is to buy competitors’ key people to weaken their position. (Source: article by Christian Rickens and Thomas Werres, Manager Magazin)

What can start-ups, new ventures and established firms learn from this to help them survive, grow, and have sustained profitability? More insights in these new (e-) entrepreneurs, cloners or original digital actors, are useful.

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