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“Groupon fatigue” in China

Gaopeng.com, the joint venture from Tencent and Groupon, which offers group buying deals to Chinese consumers, has officially opened on March 16, 2011, as part of the company's push to break into China's group buying market. Although numerous group-buying websites are already running in China, Daily-deals website Groupon still launched in China, bringing its popular brand of Internet retail to the world's most populous nation. In 2009 Groupon was a virtual nobody, limited to just 30 American cities. By the end of 2010, it had become a global success, with more than 4,000 staffs, 51 million subscribers in 565 cities worldwide and $760 million in revenues.

Despite the fact that the group-buying deals market is thriving in China, some companies criticize that the deals only attract mainly bargain-hunters who do not spend more than the coupon’s face value and do not become repeated customers. Moreover, studies have repeatedly shown that price discounts undermine brand value. They may be good for giving businesses some exposure but the benefit of this is likely to fade away after implementing a few promotions like this.

Obviously, it cannot rely on the “network effects” that have given companies such as Facebook and eBay, an almost overwhelming lead. Nevertheless there is one major niche for Groupon, that is being the dominant brand in the market, which is certainly an advantage: a long mailing list attracts better business owners, which pull in more consumers.

With its powerful momentum, strong management and strengthful financial support, the firm certainly has a chance of becoming the dominant platform for local service businesses to stimulate the money flows, much as Amazon has come to dominate online shopping for all sorts of physical goods. Even If so, daily deals will probably be just one of Groupon’s offerings.

However, Groupon’s aggressive expansion into China is seriously intriguing its Chinese clones, the local group buying sites such as Lashou, Manzuo and Ftuan. The barriers to entering the daily-deals market are low and the network effects weak. Those companies are already working the market and are supposedly setting up an anti-Groupon union, banning Gaopeng.com employees from working with the Chinese sites ever again.

The biggest worry regarding Groupon is that it’s almost entirely run by foreigners. According to the Economists, “this is just another botched joint venture and another arrogant US Internet company swaggering into China, thinking its brand name and wads of cash will bridge cultural gaps.” Even one report detailing Groupon’s effort said that the operation was chaotic, and, probably most importantly, not run by the Chinese. Tencent, China’s largest Internet company, is also rumored to be thinking about launching a group buying service of its own.

Nevertheless, some do believe that Groupon can succeed where many others, like eBay, have failed. First of all, group buying is already a familiar concept in China, so it should be easier for Groupon to make its attack into a market where it doesn’t have to start from the beginning. Secondly, Tencent and Yunfeng Capital (founded by China’s leading e-commerce site Alibaba’s chairman Jack Ma) are excellent partners for Groupon.

After all, just like the Hong Kong-based Samsung Securities analyst Paul Wuh said, “Discounts will always be popular but the question is, will Groupon be more popular than the other websites.” Will Groupon once again dominate in this populous country, or it’s just like throwing a stone into the ocean, which only creates the minute ripple, we’ll see.