Is Groupon buying CityDeal actually a disaster for German innovators?

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The Groupon acquisition of CityDeal is being hailed by many across Europe as a good exit for the German-based clone (yes, there is no point in saying it is anything else but a Groupon clone). But luckily there are more than just clones in Germany. The burgeoning cluster in Mitte, central Berlin, is producing startups such as Soundcloud, hiogi, Babbel, Twinity, SongBeat and aka-aki. Nokia bought Dopplr and with it set up an innovation lab amongst the beating heart of Berlin’s startups. Hamburg has spawned many others include Qype, Europe’s Yelp, and more recently the interesting Apprupt. VCs in Hamburg and Munich vie over raw engineering talent out of German universities, and our TechCrunch Europe Munich and Berlin events last year were buzzing. As US-born Germany-based VC Paul Josefak recently guest posted for us, he’s coming across “multiple companies who recently closed either initial or follow-on rounds.”

Berlin is now vying with London as the second tier cluster in Europe with a decent critical mass.

But there are clouds on the horizon, and they come in the shape of an attack of the clones, if you will, or more accurately, Pollution of the Clones.

While the market for copycat businesses aping the latest startups form the Valley is well known, it’s been a component, but never the only aspect, of the German scene. With Groupon’s acquisition of CityDeal the Clone Scene could now threaten to overtake it’s younger brother, the Innovation Scene. Here’s why.

1. Engineering and operations are German strengths and they will naturally play to those over entrereneurship. That means going after proven business models rather than innovating.

2. Entrepreneurship remains a problem in Germany where the overriding business culture is about safety. Hence young graduates flock to try and get the jobs in BMW, Volkswagen and other corporate giants, but avoid risky startups. However, to be fair that’s a charge that could be levelled at almost any European country, not just Germany.

3. The Samwer brothers, famous for their European Founders Fund now have a totally proven model. They sold alando to eBay, StudiVz (Facebook clone) to Holtzbrinck and now CityDeal to Groupon. They are almost unstoppable. They are pumping millions from their clone factory, sorry, incubator, Rocket Internet, into clones like Plinga, the Zynga clone. Just look at them go.

4. And as Germany based entrepreneur Stefan Wolpers blogs today all this clone success will just increase the level of risk aversion in Germany, and draw funds aware from early stage innovation:

“Problem is, that a lot of German investors in the start-up industry may not realize the proficiency level of the Samwer operations in comparison to their own ambitions. At the height of the German Groupon clone frenzy there were eight or so clones, four to five of which are already out of business or doomed to date. From now on, an even larger share of the scarce early-stage funding will be allocated to cloning US business models: they’re less risky and provide a good exit opportunity if executed in the right way. Looks [like] we might become the high-end in the clone business. And that’s a tiny niche we should not excel in.”

The light on the horizon is Berlin, where cheap office space and plenty of young talent attracted to the freewheeling atmosphere of the city are creating the priomordial soup of a startup cluster based around innovation. The question is, will that talent fall into the Rocket Internet factory or not?

It’s to be hoped that the Kane and Abel like struggle between Clone and Innovation ends in victory for the more daring of the two.

Update: I contacted Oliver Samwer for this article but so far have had no response.

  • Mike

    The struggle cannot end victory for the clones — or they’ll have nothing left to copy. They are a parasite but one that must establish symbiosis with their hosts, or we’ll all perish.

  • Philipp Berner

    I think there is another point to make.
    When you have a clone, your exit strategy is often aimed to sell to the company you cloned. It feels a bit like German/European business development for an existing company without asking them :)

    In the other end it’s harder to exit a innovative tech start-up in Germany, as you don’t have these big tech companies like in the Valley. And the Valley companies will always buy other Valley companies (or at least a lot).

    In Germany you mainly have publishers and TV networks. But recently TV networks are struggling by them self. Just check who bought a lot of the latter companies with big exits.

    I think in many cases (the Samwers showed it a lot) it makes just sense to build a German/European “office” for an existing US company as your chance to get bought out by them is much higher. In terms of personal wealth optimization.

    And it’s also easier, as the German internet market is about 1.5-2 years behind the US market in user adoption and so on.

    It’s just my opinion/feeling, I might be wrong.

  • Jose E.

    Mike, you are absolutely right!

    This will drive to hell the German Startup market. The system here is not designed for innovation at small scale like startups (taxes and other bureaucratic stuff in the middle). That’s why all young talents are more likely to seek a job in a big company, cause they don’t want to be consumed by the overwhelming task of funding a company in Germany.

    • Timo Mika Gläßer

      I heard that argument about bureaucracy when founding a company quite some times… what exactly is so bureaucractic about the process compared to say US or CA?

  • Robert

    It is true. But living in Berlin myself you can truly feel the rise of a Berlin-based silicon valley. Young talent all around, innovation is present. Clones are not a German/European dilema. Great ideas alway get cloned.

    • Jens

      I am confused.

      Basing your business on something else is the KEY to successful innovation. We always take other stuff that is out there, copy elements, improve some, throw away some, reassemble existing stuff. It is the core of progress.

      Some examples (from the top of my head):
      Google is based on Overture. Microsoft Windows is based on Apple Macintosh OS. The Apple Macintosh OS was based on research at PARC. Sony’s Playstation is based on Nintendo’s SNES. Salesforce is based on all the other CRM systems. Twitter is based on text messages and blogs. TechCrunch is based on magazines and other blogs. Facebook is based on MySpace which is based on Friendster. eBay is based on flea markets and auction houses. The iPhone’s interface: seen before as a table at Microsoft. Starbucks is based on coffee shops in Europe. Oracle is based on work at IBM. As is SAP. McDonalds is based on, well, lots of other burger joints. The burger itself is based in what is now called a ‘Frikadelle’ in Germany. And those were based on ship rations. And those were based on fresh rations.

      I think I could go on and on and on and on. I think everything that we do is based on something else. How else could I write this comment? :)

  • Mike

    Philipp – point well taken. It’s hard to blame the creators of the clones, when the business environment makes cloning the most lucrative option for their talents.

    Having been the target of a clone before, however, I can tell you that it feels like an extortion racket when you’re on the innovation side of that relationship — you put so much effort into figuring out what’s the right feature set to offer, that the implementation is really only a small fraction of what it takes to build a successful site. Then someone copies every aspect of your site — UI, feature set, the whole product offering — and they do the one thing you decided not to do in Phase 1: they translate it. They then start acquiring international users with YOUR good ideas, until they’ve eaten enough of your international market share to offer to sell you the customer base that should have been yours to begin with.

    The only way to protect your innovation would be to commit to doing localization with the initial launch of your site. That’s typically been a big undertaking, but translation tools are emerging that make it less difficult. Once we get to that point, the clones will have to innovate on features or price in order to attract market share, and that will be a good change for everyone involved, especially the users.

  • Alexander Jorias

    The Samwer’s (well informed way) way of cloning US startups is a discipline of its own. Undeniably very successful for all participants. I don’t see that VC’s in Germany are in general especially interested in clones. More than often it is a ‘the winner takes it all’ procedure.

    However, VC’s in germany in general tend to be much more risk averse then their US counterparts. The german market is small compared to the US market. You have perform much better over here if you want to be successful than in the US. Nearly every bright idea will scale much(!) better in the US than in Germany / fragmented Europe. An order of magnitude better is not uncommon. An that means a lot(!).

  • Max Niederhofer

    The pull to copy successful US models will become stronger than ever. For budding entrepreneurs, the key question becomes: is your primary motivation to make money or is it to creative something new?

    Both models need originality and strong execution. But when you look back on your life, my gut feel is that only when you’ve done something original, creative, innovative will you be satisfied even if you’ve failed.

    Europe needs entrepreneurs more than anything and it doesn’t really matter right now whether those entrepreneurs are the cloner-arbitrageurs or the pie-in-the-sky innovators. In the long run, one would hope that Europe can start becoming more innovative. But for that to happen we need a strong contingent of experienced, moneyed entrepreneurs and angel investors. CityDeal-type exits bring us closer to that objective.

    Thus there’s really not much point in criticizing the trend. At least they went out and got it done.

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  • Nadja Specht

    As pointed out in the article and mentioned in some of the comments above – it’s a cultural problem.
    Why is the Samwer operation so successful in Germany? Because it is perfectly suited for the German mindset.
    In order to foster true, innovative entrepreneurship in Germany it requires changes – starting with teaching entrepreneurship in college, eliminating/reducing bureaucratic barriers and so much more. However changing the mindset of a society does take time.
    One shortcut I see is to motivate Germans that got educated/lived abroad to start their business in Germany. Typically this group has a fresh perspective, is open minded and not afraid to tackle challenges. So an influx of “Repatriates” might give Germany the entrepreneurial boost it needs.

    • Sebastian

      Very good point, Nadja. I’m an ‘expatriate’ who is living and working in the New York start-up scene. As an in-depth follower and entrepreneur, I know both sides of the big pond fairly well. It’s true that the US is almost 2 years ahead of Germany in these matters. And not only is there a timely adaptation process when it comes to cloning, but also a cultural one (for example German privacy concerns are a major aspect that just isn’t as much of an issue here).
      The US make it very easy to start a business, find funding (vivid, diversified VC/BA scene – not just publishing houses [which are highly instituational and bureaucratic]), fewer legal concerns (but other ‘problematic’ legislation like the ‘amazon law’) and a different mindset in cases of bad success (Germans blaming personal inadequacies vs. US belief in act of nature, circumstances forbid etc.). You would never hear a German say that they used their five credit cards to their limits before success kicked in (not saying this is proper business practice).

      Returning home, using my knowledge sounds tempting. At the same time, ‘repatriation’ seems unlikely for my expat friends and myself since they encounter a bigger personal freedom, better opportunities and higher – if you wish – ‘conversion rate’ of their knowledge combining different cultural backgrounds.

      The Samwer’s are the black swan in the German start-up pond.

      • Sebastian

        Innovation in the car industry happens mostly in Germany. Innovation in the web world mostly in the US. That’s just how the industries traditionally grew.

        Why now call out the Samwers “black swan” and other names? All they do is taking advantage of an economic distortion in the intl. web economy.

      • michaelok

        black swan – It’s not name calling, I believe he’s referring to the the book of the same title, by Nicholas Taleb..

      • Sebastian

        No calling names, I’m not referring to black sheep, actually it’s called Black Swan (capitalize – see wikipedia) – which is an appreciation of their endeavors.

        Under the social, cultural and juridical circumstances in Germany, the Samwers have managed to build a highly agile network that has repeatedly proven to utilize the economic distortion (mainly an advance in information) between Europe and the US to gain momentum.

  • Gerardo Giacoman

    Sure, from an intellectual perspective cloning/localization is somewhat less interesting than “true” innovation, but it’s still creating significant value (which Groupon/AM acknowledged pretty explicity in the blog post announcing the acquisition). If market leaders don’t want to pounce on this opportunity by licensing their own international operations in a decentralized manner, then there will always be people looking to take good ideas to a new context. Why should the internet “third-world” have to wait for overly cautious market leaders to expand?

    Cloning is driving innovation, certainly in the short-term, by helping good and proven ideas spread quickly. I’m also optimistic that in the long-run news like this will draw more people to entrepreneurship; some will continue on the cloning/localization road sure, but not all. It’s a lot easier to transition from cloning web service to new service creation than it is to transition from, say, a manufacturing job to creating the next web revolution.

    Another point to consider is how much more difficult it is to launch a new web service in a market that’s not as developed in terms of user adoption, market size, internet penetration etc. Can you really say that foursquare would have taken off in Latin America?

  • John

    Don’t understand why these companies are still being called clones.

    If you develop a search engine, does that mean you are a Google clone?

  • Louis Caverly

    Cloning is simply precurser to acquisition… copy something with proven model, build market, get acquired… simple!

  • Ulrich

    I don’t think so. Germans are great in innovative engineering … soon this will spill over to the online business. The prospective German engineers will become German internet engineers.

  • Jan

    In this case, cloning/imitating is simply a transfer of innovations to a foreign market, not necessarily the rise of a rival. The “original” is mostly way upfront and profiting from a “clone” that is – at its own risk – introducing a copy on a foreign market. Against this backdrop, the clone`s exit can be understood as a relatively small compensation for the undertaken risk.

    Besides, consumers are definitely better-off with this procedure. Innovations – not exclusively from the U.S. but from every innovation hot spot in the world – are moved to my home market way more early and adjusted in cultural differences than the original would.

  • Phillip

    1) The business ethics.
    If germans complain about chinese stealing german product design, it’s now time for them to shut up.
    Look at citydeal, for god’s sake. They didn’t only copy the idea. They copied the design, ui, the whole look and feel, they didn’t even bother to change colors. Even worse – they also copied the groupon redesign 1:1 .
    And yes, product design is extremely important to the success of a venture.

    2) The business perspective
    If the US cuts all internet cables to Europe, we (europeans) couldn’t practically use it anymore. Europe lacks of a solid web economy, because there is almost no europe-based global player around.
    Because guys like the Samwers have established the fast exit culture which is in the long term very very bad to the domestic internet economy.

    If groupon is estimated to be a billion dollar business, why couldn’t the european version achieve the same?

    It all might be a lucrative business for the Samwers, but it’s also a bullshit business for which they don’t deserve any special credit.

    Mike, thank god you came up with this article.

  • Alex

    News of this acquisition really irritated me. Literally a case of the guys who had the most funding at the beginning of the race end up winning. We all know that the Sawwer bro’s literally copied Groupon (down to the colour which I found amazingly blatant at the time) and just because they fattened up their goose the quickest they get the big win.

    I am based in the UK and was part of this race albeit as a very small tadpole. An unfunded entrepreneur who looked at Groupon and tried to do something different based on how I thought the general idea could be improved. I found a tech business partner and we built a really cool site which does what I believe are brilliant things to adapt this social commerce model to make it better for both merchants and for users.

    But of course we had no funding. Met with a VC company who ended up backing a company called ‘Keynoir’ who was started by previous successful entrepreneurs. We never had a chance since we have no track record. We were the guys who built something totally original, different and exciting and we get nowhere. We are still fighting it out, spending our savings, trying to be creative and do something different.

    So to see this acquisition today which was always inevitable killed me.. Nothing more than these brothers who access funding, offices, sales teams and marketing very quickly, fatten up the goose (inflated numbers for voucher salesit was rumoured) and then exit to Groupon who make it all seem fair.

    So disheartening for honest young entrepreneurs who just cant get off the ground.. By the way my website is


  • bobpop

    I agree with Jens. Every good business was copied and reassembled from a former well done business.

    And my question is: What is the problem? Nothing. Some people saw a business model which worked well in the US and they said ‘lets do it again in Germany!’ – it is the same to open a bar near another bar in the same street. ;-)

    best wishes from berlin

  • jack frost

    This commentary simply doesn’t ring true when you look at the track record of VC funded startups on the west coast. From 2006 to fairly recently one simply could not get funding if your business wasn’t some social networking clone/ripoff. The annals of startupdom are literally strewn with the bodies of ill conceived social plays that were fund to the detriment of disruptive and innovative plays. 2009 saw energy become hot, but it doesn’t change the fact that VC always chases what’s hot or proven.

    Success with me-too businesses doesn’t mean the death of innovation. If anything it means more local angel money looking for something truely disruptive after the principals have made a successful exit. VC money has always been about chasing proven exits. Always has been, always will be. You need funded local angels to get disruptive. And this sort of deal will move that money into the right hands.

  • Mike Butcher

    Update: I contacted Oliver Samwer for this article but so far have had no response.

  • Florian Resatsch

    Hi Mike,

    IF you do something really innovative (e.g. we had a Near Field Communication-based Check-in system almost 3 years ago with servtag – way ahead of handset markets) you face problems to convince investors in Germany – mainly because there is no proof of concept somewhere else.

    Because of that, cloning is the more likely way to succeed if you want to push your business to quick funding. And then it is: the more money you put in, the faster you are, the better things work out.

    Still timing and other factors are important: think of Frazr who tried to clone Twitter. Didn’t work.

    So I am with bobpop, all the ad agencies are basically clones of the others and most business use good ideas. Still there is incremental innovation in all of these approaches. With friendticker (the so-called German foursquare clone) – we radically changed the business model into a very sophisticated CRM – but people focus more on the clone discussion :) Let’s see how it works.


  • Fred Destin

    I think one of the Samwer Brothers even wrote his thesis based on the work he did over summer at eBay, then starting alando. There is no criticising this model: it’s highly capital efficient, it allows for fast reuse of resources, and it’s got a ready made exit market (either you scare the local corporates into buying you e.g. StudiVZ or you get the US juggernaut to use you as launchpad). Recycle people, tech, expertise. And the Samwers work very hard at it. And yes, pump money into it faster than competition and shut the market down fast (

    In the process you train and educate a lot of entrepreneurial talent which you hope will go on to do great things which cannot be bad.

    Note that the Samwers did not stop at cloning but also marketed hard a “European launch platform” sweating the same assets they use for clone production.

    HOWEVER it’s also not the whole story and fundamentally what you build are transient companies with transient management teams that are designed to provide a quick buck. This is not how we will build the next Alcatel or Nokia.

  • Lesenswert: eBay, Facebook, Zynga, Wooga, Monster World, Groupon, CityDeal, Berlin ::

    […] Is Groupon buying CityDeal actually a disaster for German innovators? The Groupon acquisition of CityDeal is being hailed by many across Europe as a good exit for the German-based clone (yes, there is no point in saying it is anything else but a Groupon clone). But luckily there are more than just clones in Germany. The burgeoning cluster in Mitte, central Berlin, is producing startups such as Soundcloud, hiogi, Babbel, Twinity, SongBeat and aka-aki. TechCrunch […]

  • Rafael Laguna

    I agree with a lot that is said here, but let me point to a few exceptions. Linux is a European thing – and where would the whole Internet be without it. It also spurred quite a few cool companies, e.g. SUSE (acquired by NOVL for $210m in Nov ’03). You can say that RHAT was the copycat? Canonical, Astaro and yes Open-Xchange (I am the CEO), founded ’99 with Zimbra as the copycat).

    And yes, European VC’s are very different, much more like micro-Private Equity companies where balance sheets are more important than innovation. Many have completely disappeared from the market. The LP market has dried up.

    It’s more like a hen-egg problem. Germany produced 18% of all world patents in 2004, only the US with 25% was bigger (and remember, German patents are “real” patents and not like some of the US bs patents). At the same time German companies only had 2% of the funding ($223m to $10bn US, 2005 numbers, normalized per capita still below 10%).

    So you can invent cool stuff, like Linux or MP3 or computers (Zuse), the money will be made elsewhere: RHAT, AAPL, MSFT, IBM…

  • Merely Thinking» Blogarchiv » links for 2010-05-18

    […] Is Groupon buying CityDeal actually a disaster for German innovators? (tags: technology startup business innovation) […]

  • jürgen H. Stäudtner

    I do not think it is a disaster.

    One reason why we think that German startups have difficulties is also, that starting up with an idea has the highest risk of failure out of all successful innovation models. So, for higher success rates we have to increase the number of German startups doing this.

    To copy a tested idea is not the worst start, but actually an innovation strategy with much higher success rates. The copycat business will lead to more and more experienced entrepreneurs in Germany in the long run.

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