Here Are Two Reasons Not to Pay the Samwer Brothers' Ransom

By Sarah Lacy , written on March 19, 2012

From The News Desk

I've talked to more than a few entrepreneurs lately who describe what the Samwer Brothers do -- directly ripping off a competing service, even down to the name and then demanding to be purchased -- as tantamount to demanding a ransom payment.

The analogy isn't perfect. What they do isn't illegal, and all is fair in capitalism and global markets.

But it pisses me off that Groupon paid them and made them rich enough to keep on doing it. There are two big reasons other entrepreneurs facing down these legendary rip-off artists shouldn't do the same.

1. It gives them capital and justification to keep doing it and encourages others to do the same. It's like a toddler throwing a temper tantrum. If you don't like it, don't reward it.

2. Buying them out doesn't actually work. As anyone who has built a company (read: Not the Winklevoss twins) knows, it's not the idea that builds a company, it's execution. Andrew Mason says the Samwer Brothers are the "best operators (he has) seen in his life." That statement reminds me of last year's AllThingsD conference when Mason blithely said things were going well for Groupon in China. He must have been describing another Groupon, because Groupon's challenges in China have been well documented.

If Samwer is doing such a great job, then why do Groupon's International operations need so many management upheavals? Groupon announced today that it is changing management in Latin America and Brazil, in a great scoop by TechCrunch's Rip Empson. This, in addition to epic problems with Groupon's China efforts and an overall shakeup for the whole international division. My guess is that there are more international heads rolling that haven't leaked. Particularly since the pricy gambit is one of Wall Street's biggest gripes.

For some reason, all of this still reports up to Marc Samwer. My prediction? Until that changes more mid-level managers will take the fall for the division's fundamentally arrogant and profligate approach to international expansion.

[UPDATE: A tipster tells us Groupon's CEO in the Middle East recently left as well. We haven't been able to verify this with Groupon yet.]