Joking about the cancerous decay of daily-deal marketplace companies has become something of a Silicon Valley past-time, so we hardly need to point out just how insipid the online-coupon business has become. But news today may provide a slightly different teaching moment for entrepreneurs: Clones are bad. Really, really bad.
Today, AllThingsD reported that CrowdSavings, a discount marketplace start-up founded in Tampa, Florida, in 2009, will be acquired by Half Off Depot, a coupon start-up founded just a year earlier. The two companies will be rebranded as "nCrowd," and will be headquartered in Atlanta.
What's remarkable (and sort of depressing, really) is that the merger of the two companies ends the culmination of 19 previous acquisitions, a disproportionately massive share of total recent M&A activity in the United States.
But even now that newly-formed nCrowd has become the ultimate matryoshka doll of Groupon rip-offs, the entity will only represent a "fraction of the size of Groupon or LivingSocial."
That's not particularly suprising, but this is: According to the CEO of CrowdSavings, which acquired 15 daily deal companies over the past three years, most acquisitions cost him only "$100,000 to $400,000 apiece." The acquistion of CrowdSavings itself only netted the founders some $6.4 million in cash and stock. Probably not a very good ROI for a 29-person company that raised $1.3 million in debt.
The lesson here for entrepreneurs seeing dollar signs in copycatting the dailly deal market--or, really, any other already-duplicated-to-death space is obvious: Clones suck. They don't just suck because they're "stifling for innovation" and bad for consumer (which, of course, they very often are), but they suck for simpler reasons that should be more obvious--but that we don't always consider in the current buzz-heavy start-up ecosystem.
Start-up clones rarely, if ever, become fast-growing businesses, create sustainable jobs, or help push GDP forward. They are also not to be confused with late entrants into the market, as Google was with Yahoo. They are simply copycats, the result of irrational start-up froth, and they serve little use in our economy.
And, well, that sucks.