In 1999, a German auction site named Alando was sold to eBay for $43 million after just 3 months of operation. The site was a downright copy of eBay to replicate the success of the platform in Germany. The Germans who pulled this off were three brothers — Marc, Oliver, and Alexander Samwer. They have since gone on to found several US online business "clones" in other countries. But their business model has sparked a never-ending argument in the tech industry.

Contents:

• How to make $43M in 3 months
• The "cloning" strategy
• The debate
• The big defense
• What's so special about innovation?
• To clone or to innovate?

How to Make $43M in 3 Months

The idea started in the year 1998 when the three brothers were in Silicon Valley in the USA. They found the concept of eBay amazing and thought about reproducing it in Germany. They discussed it over Christmas and went back to Germany in January to implement it.

The brothers later revealed that they sent several emails to eBay suggesting that the company set up an online auction site in Germany and hire them to run it. The unresponsiveness of eBay drove the brothers to go ahead on their own.

Alando was formed in February 1999 and the site came online on March 1. The brothers had moved to Berlin from Cologne and had hired three other college friends. The only person with any corporate experience among them was their CFO who worked 2 months with McKinsey & Company.

On May 17, Goldman Sachs called to express the interest of eBay in the young startup. In the next few days, the deal was ironed out. And on May 30, the company was sold to eBay for $43 million.

The young entrepreneurs remained at eBay for a year before leaving to create their next startup. But their early success has paved a way for them in the industry and inspired other German startups.

While some people thought "cloning" eBay in Germany was a cheap way to make money, it is worthy of note that there were about 18 other auction sites in Germany at the same time. The Samwer brothers were just fast and efficient executors.

The "Cloning" Strategy

In 2007, the brothers founded a Berlin-based tech incubator known as Rocket Internet. The business strategy lauded by the company sprang up from their first success with Alando. And this is it: Find an online business doing well in the US and execute it in other non-English speaking countries.

Does it work? You bet it does. One could say that the brothers solved a problem with their methods. The markets they penetrate are generally markets with high barriers to entry such as Germany, China, and Russia. And they do an excellent job of executing the idea. For example, if eBay had sent a team to Germany and tried to set up the company by themselves, there is no assurance they would get the result the Samwer brothers got.

The brothers were involved in the creation of several clone businesses. Some failed and others succeeded. In most cases, the businesses created were sold back to the original creators (just like in the case of eBay). Some of the businesses they were involved in include Jamba! (which they started after leaving eBay and sold for $273 million in 2004), MyVideo (German clone of YouTube), Frazr (Twitter clone), and StudiVZ (Facebook clone).

Rocket Internet went on to produce tons of companies that followed this ideology. And before long the tech incubator was dubbed "clone factory". It became a saying in Silicon Valley that your company is not successful until you have a German clone.

They continue this practice without any shame insisting that execution, not idea, makes a business. Tech companies from Airbnb to Pinterest have been cloned in recent years. And this strategy has made the brothers billionaires.

The Debate

Around 2011, a new wave of startup entrepreneurs started brewing in Germany. They wanted the spirit of innovation to return to the country. The country was becoming known for making clones of already working ideas elsewhere. And some were angry about that. The argument began.

Around this time, innovative startups from Germany began to get noticed in the global space. Startups such as SoundCloud showed the tech entrepreneurial community that they don't have to clone to be successful. Many, however, went as far as taking the cloning strategy to be an unethical strategy.

The argument against cloning had a tricky side to it. Those who go against the ideology of cloning could not look away from a clone business strategy seeking investment. If the executors were competent and the idea had been proven in another market, the chance of success is almost 100%. DailyDeal (which was a clone of Groupon) started by two ex-employees of the Samwer brothers, got investment from a serial entrepreneur who had been against cloning. The company was successful and eventually got acquired by Google in 2011 for $114M (although the founders bought it back 17 months later).

The argument continues today even as the mere mention of the Samwer brothers often brings up the debate of innovation versus cloning.

The Big Defense

At the tail end of this article by Wired about the Samwer brothers, Oliver (the middle brother), went on record to boast about the strength of Rocket Internet. He said, "we are the best global group at execution…"

This is not a game of who has the best ideas. Rather it is a game of which executing team is better. For example, Google was not the first search engine. But they had the better team and scaled faster. You could say the successful ones figured out a way to make it work, but it is all the same to the Samwer brothers.

Figuring out the business in a completely different market place has business value. After all, they are been vilified only because they are so successful at it. No one would care if they fail or are very poor at execution.

What's So Special About Innovation?

The global tech industry is fond of entrepreneurs with a vision to change the world. And many of them have indeed changed the world. The ideals the industry has embraced make it difficult for a strategy like cloning to be widely accepted.

Tech business is almost synonymous with the word "innovation". The concept of cloning businesses is common in other industries such as real estate, online education, and healthcare. It is even applauded in some of those industries. However, players in the tech industry only seem to be impressed by what is the next big thing.

The downside of cloning is that it discourages innovative thought by upcoming entrepreneurs. But even people championing the innovative startup movement in Germany had to confess that the strategy of the Samwer brothers stirred them to stand up for innovation.

Think of Japanese carmakers, for example. They all started by copying American cars until they started coming up with their innovative ideas. And the same thing has happened in Germany. Even though the Samwers still run their model, the country now has a good number of innovative startups.

To Clone Or To Innovate?

Should today's tech entrepreneur look to the cloning strategy or focus on innovation? It doesn't matter. If you have an innovative idea without the team to properly execute it, the business will fail. If the idea is cloned, without a good executing team, the idea will still fail.

The best execution always wins

But there is a lesson from the first deal of the Samwers with eBay. They wrote the company several times and got no replies. But when eBay saw what they did, it got their attention. This means:

If you write them continually and they don't reply you; if you clone their business, they would find you

I rest my case.