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I started developing a new niche of products in my country about 3 years ago. That's when I opened my first store. Everything went fine, until a year ago, when someone I thought was a friend secretly stole my idea and made his own competing store. I was pretty upset when I caught him and decided to make it as difficult as possible for him, so I made another 4 stores, trying to get him as low as possible in the search results. The new sites have similar products (although not 100% identical), slightly different titles, images and prices. They look different and are built on different e-commerce platforms. They are all hosted on the same server, have roughly the same backlinks, use the same Google account for Analytics, have the same support phone numbers etc etc. I wasn't thinking that I'm doing something fishy, so I didn't try to hide anything. Trouble is that those sites, after doing fine for a few months, dropped like bricks in search results, almost to the point that they can't be found at all.

At the moment, the only site that ranks relatively well is the original one and a couple of secondary pages with no importance from one of the other sites.

How did this happen? Does Google have something against this practice? Did they take action by themselves when they realized that I was trying to monopolize this niche, or did my competitor report me for some kind of webspam?

And more importantly, what do I do now? Do I shutdown all but my original site and 301 redirect users to it from the others? Can I report my competitor for engaging in the same practice? (He fought back and now he has 3-4 sites, some of which still rank kind of OKish, also he has no idea about web development, SEO or marketing, he just crudely copies what I do and is slowly but surely starting to do better than me).

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Same backlinks? Did you link to your new stores from the same places you linked to your original store? Maybe you should focus on getting them new links. There's no problem in having multiple stores. A few major online retailers have multiple stores. So it's just a matter of having unique content and good quality links, that's it. –  Anagio Oct 12 '13 at 8:48
    
I own a few blogs and portals that I use to promote all my stores. –  pandronic Oct 13 '13 at 7:33
    
Blog, portal, website all the same. Stop using the same pages on your sites to link to your stores and start getting more links from other sites. Relevant pages at that –  Anagio Oct 13 '13 at 8:01
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One of my friend had experienced this. He created so many sites having somewhat identical products in all his sites. But his site was not penalized by Google. Because he correctly followed all the guidelines of Google. What you have to do is,

Don't give link to all your sites from the Footer of a single site (your own site). Most of the people do this mistake. Even though they are same niche, giving link to multiple sites from a single site using website template is a Link forming technique. Google won't like this Link Forming method and so go and remove all your website links from the Footer of your own sites.

Then try to create Backlink from quality and same niche sites which are not your site. If you do this you won't be penalized by Google and all your sites will be considered by Google.

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