Of course, handling a billion RMB in transactions doesn’t mean the company sees nearly that much in profits or even revenue. But it does indicate that as the daily deals market continues to consolidate, Meituan is gaining ground rather than losing it. That’s important, given that founder Wang Xing has set his sights on breaking the hundred billion mark in yearly transactions by the year 2015.

(via Sina Tech)

China’s top e-commerce player, Alibaba, also runs the nation’s leading daily deals site. Run under the familiar Taobao brand name and URL as Juhuasuan, the site is today expanding to include customers and daily deals in Hong Kong and Taiwan.

Centered around a new overseas site at hk.ju.taobao.com, the number of offers right now is very limited, but that will expand over time. The main Juhuasuan deals site has several thousand product listings at any given time, so it might be a while before relevant deals are made available to new users in Hong Kong and Taiwan. (UPDATED the stat about product listings to correct a mistake).

This new version of Juhuasuan will focus on deals for things like clothing, homeware, mother and baby products, consumer electronic accessories, and children’s toys. Travel and “lifestyle” deals will appear in a few weeks’ time, though it’s not clear if that will cover food/restaurants. But it will be an interesting challenge to Groupon in both Hong Kong and Taiwan.

The new site has ‘traditional’ Chinese characters, which is the script used in Hong Kong and Taiwan. Just last week we were talking to Daphne Lee, the director of Taobao international business, who told us how Alibaba is keen to expand its various e-commerce offerings to Hong Kong, Taiwan, Singapore, and across Southeast Asia, though there’s no word yet of the whole site being made available in English or other languages.

In today’s announcement, Daphne said:

[W]e firmly believe will enhance and complement the online shopping experience at Taobao Marketplace and Tmall.com for our more-than two million registered users in Hong Kong and Taiwan. In 2012, we continued to improve upon platform infrastructure and introduced new features such as the Alipay Card to make online shopping more convenient for Hong Kong and Taiwan consumers. Users can expect an even more diverse and comprehensive set of new and localized features and services to be rolled out in 2013.

This is the second consumer-oriented Alibaba site to venture overseas after the afore-mentioned expansion of the C2C Taobao shopping site. The Juhuasuan overseas service is promising delivery of its items in one or two days. For travel and lifestyle deals, QR codes or serial numbers will be employed so that shoppers can collect their deal from a retailer.

In our most recent daily deals industry stats, Taobao Juhuasuan has 47.8 percent market share by revenue – that’s way ahead of the indie Groupon clone Meituan with 13.1 percent share.

TechWeb yesterday reported quite an interesting rumor: Baidu is interested in buying the commerce search and group buy company Aibang. Aibang representatives declined to give TechWeb a comment on the matter, and Baidu representatives declined to comment as well when approached by Tech in Asia, so nothing has been confirmed, but on the other hand, nothing has been denied, either. Hmm.

The rumor began when DXY CTO Feng Dahui mentioned on his WeChat account that he had heard through the grapevine that Baidu was interested in buying Aibang. TechWeb’s sources have apparently suggested that the tech giant is mostly interested in Aibang’s mobile app, and that Aibang could be worth as much as $100 million.

There are admittedly a lot of questions worth raising about this deal, the biggest of which being whether or not it’s actually happening at all. But Baidu being interested in Aibang would certainly make sense as the company’s commerce-and-service-focused search features would be a great complement to Baidu’s own web search service, and acquiring and perhaps integrating its mobile app would give Baidu a stronger foothold in the mobile realm, which is increasingly becoming an important battleground for search companies. It would seem to be a bit similar to Baidu’s $306 million investment in Qunar, the travel search and services company.

Then again, though, Baidu could be looking to spend its money outside the country, as it has $1.5 billion set aside for overseas acquisitions and has some choice targets to choose from.

(via TechWeb)

If you asked 100 Chinese people where they buy online deals for discounted restaurant meals, then I suspect most would give wildly different answers; but if you were to ask the same number of Chinese women where they get daily deals on make-up, I think most of them would say Jumei.com. That’s because Jumei has shown the value in specialization in China’s cut-throat group market, focusing solely on well-known brands of make-up and skincare products.

Jumei’s CEO is Chen Ou. At 29 years of age, we recently listed him among 15 web entrepreneurs in China under 30. Chen recently told Chinese media that Jumei pulled in RMB 2.5 billion (US$400 million) in sales revenue in 2012 as a whole, and that the deals site has just started to turn a profit. That’s a rare feat in the deals business.

Indeed, Chen reckons that Jumei can make $100 million in net profits by the end of this year on the back of an anticipated $1 billion to $1.6 billion in sales revenue in 2013.

Jumei is also expanding its scope. Aside from the usual deals, the site will soon launch an open platform online mall where merchants can set up a virtual storefront to sell make-up and a wider selection of fashion items. To ensure it picks up quality sellers, it’ll only accept merchants who are already on Tmall, China’s top B2C e-commerce site.

The stats from the Jumei CEO seem to put that specialist deals site on a par with some of China’s top Groupon-esque sites in terms of sales, such as Lashou, 55Tuan, and Nuomi, who are also pulling in about $1 million per day from their sold deals.

(Sources: Marbridge and QQ Tech)

Baidu’s new daily deals site, which came online very quietly this week.

We tend to write about daily deals sites in China shutting down, not opening up. So this week’s quiet launch of a new deals portal run by Baidu (NASDAQ:BIDU), China’s top search engine, is a bit of a novelty. The new ‘Baidu Group Buy‘ site, to translate its name very literally, currently only serves up deals in Beijing and seems to be a beta release. We reached out to Baidu HQ in Beijing, but a representative couldn’t comment on this new roll-out.

It’s not Baidu’s first venture into Groupon territory. The search company already has a deals aggregator site (using the same brand name, which is confusing), and previously ran the You’a Tuangou site before that got spun off and left to You’a to run. And so the new Baidu Group Buy is the company’s main challenge to a wealth of local rivals for food, fashion, and leisure deals.

As we observed recently, a deals site in China now needs in excess of $32 million in revenue per month in order to be considered a top player. Alibaba’s Juhuasuan dominates the sector with 47.8 percent market share, with Meituan second (13.1 percent), and Dianping third (8.6 percent). Groupon’s China site, Gaopeng languishes in ninth place in this most recent market share data:

(UPDATE: Corrected the ‘$32 million’ figure mentioned above after a correction was issued from our original source).

(Hat-tip to Techweb (article in Chinese) for spotting this)

We’re following China’s daily deals market very closely, digging into quarterly market share data as soon as we can get our hands on it. Today it’s time for Q4 2012 statistics courtesy once again of Dataotuan. We can see that China’s top three deals sites remained the same – and to join their ranks at the top of the industry and be a serious player, you need to be bringing in over US$32 million (RMB 200 million) in revenue per month. (UPDATED March 3rd: Dataotuan issued a correction for that number, and so we have amended it accordingly in this article).

Indeed, China’s top three – Taobao Juhuasuan (first), Meituan (second), and Dianping – now account for 70 percent of all revenue in this group buying sector. That’s up from the triumvirate dominating 62 percent of sales in Q3.

Before seeing all the market share details, let’s see how this hierarchy is emerging among the deals sites. Previously, stronger sites like 55Tuan and Lashou are continuing to lose market share and so they’re now in a lower tier of players:

The market leader, Taobao Juhuasuan, saw a huge surge in revenues from Q3 to Q4 going up from 34 percent to 47.8 percent. Remember that Taobao Juhuasuan is a part of China’s massive Alibaba Group, which runs the Taobao and Tmall online stores, so it’s clearly a rival that can eat up any online sales channels:

For more details about average spending per customer and the kinds of deals they buy, check out the full slideshow:

See more statistics from Dataotuan on their blog.

Chinese group buying site 24Quan, once in the country’s top five deals sites, has been in the rough for some time now, and it suspended operations back in October. So the following shouldn’t come as a huge surprise to anyone: the site has now apparently shut down for good. The company’s site now appears to be inaccessible, and there are doubts about whether the company will be able to pay all of its outstanding debts with merchants.

24Quan founder Du Yinan (who we talked to about the company’s troubles way back in November of 2011) has yet to comment on the closing, and a 24Quan investor told Sina Tech that the board would need wait for instructions before speaking to the media.

Given that, I suppose it’s technically possible the company could rise, phoenix-like from the ashes to take on the world of group buy in China, but I wouldn’t bet on it. After months of inactivity, those ashes are going to stay ashes, and Du Yinan — like so many entrepreneurs — will move on to his next great idea.

[via Sina Tech]

After the initial kerfuffle over Groupon clones in China a couple of years ago, the daily deals sector in the country ended up being dominated by a familiar name: Taobao. With 34 percent market share by revenue, Taobao Juhuasuan has shown that the homegrown e-commerce giant Alibaba was able to adapt to deals alongside its other online retailing sites. Over the weekend, Alibaba revealed that its own deals site hit 20.75 billion RMB (US$3.3 billion) in sales [1] in the whole of 2012. That figure is 2.03 times greater than it was in 2011.

Alibaba also disclosed that Taobao Juhuasuan (at ju.taobao.com), not to be confused with the C2C online mall that Alibaba runs at Taobao.com, has achieved a peak of 16 million visits. The deals portal saw an average of eight million unique visitors throughout the year.

The e-commerce firm has been diversifying its deals so as to differentiate Juhuasuan from its many competitors. One example was the recent promotion whereby household items like sofas and TVs could be specced and customized by buyers who had placed a deposit on the modded items. In this way, the daily deals industry is slowly merging with more conventional e-commerce models, as well as evolving out of the low-profit cut-price deals niche. Alibaba says it plans more promotions like that on its deals platform.

The Juhuasuan site has double the market share of its nearest rival, Meituan, in a highly fragmented market where thousands of smaller deals sites die off every year. The only major consolidation we’ve seen in the industry was when Alibaba’s major rival, Tencent, oversaw the merger of Groupon China with FTuan.

In other news from Alibaba that also involves huge numbers, the company said recently that its two online malls, Taobao and Tmall, generated $159.5 billion in sales in the first 11 months of 2012.

China’s daily deals market is about as crowded as a Beijing bus in a rainy rush hour, and so a lot of Groupon-like sites are struggling on tiny profit margins that ultimately result in consistent losses. That’s why thousands of them go out of business every year. But 55Tuan says it has bucked the gloomy trend and actually turned a profit.

55Tuan is China’s fifth-largest deals site in Q3 2012 data. Its CEO, Xu Maodong, claimed yesterday that his company is the first one in China to turn a profit, a feat that’ll occur for its operations in December.

But the achievement is not entirely down to the deals/group buying model as 55Tuan has been diversifying this year into more of a conventional B2C e-commerce platform. It’s emulating China’s online shopping leader, Tmall, in running brand storefronts. Currently 55Tuan has 100,000 companies onboard its new platform, with 1,000 enterprises opening stores on it every day.

China daily deals industry, market share at Q3 2012. Click to enlarge.

Xu Maodong emphasized that deals sites need to become online shopping malls if they’re to survive at all.

At the start of this year, 55Tuan co-founder James Tan was one of several guests onstage at our Startup Asia Singapore conference. When asked about IPO plans and the 2011 financial scandals that rocked several Chinese companies, he said:

There is a crisis of trust in Chinese companies that started back in May or June [2011]. We took a step back to look at the best time to list. We had to step back and ask, do we need capital or not.

He added that “we transact more than $1 million” on the site. 55Tuan has not said publicly that it might go public soon, but a slice of profit will sure help enliven the IPO prospectus.

China’s daily deals market has stabilized a lot in 2012, seeing consistent leaders emerge. The top five in terms of market share are Meituan, Dianping, Nuomi, Lashou, and 55Tuan.

[Source: MorningWhistle]

Tuanbao CEO Ren Chunlei

Innovation isn’t something you would normally expect fron Tuanbao, China’s most blatant Groupon clone. After all, Tuanbao CEO Ren Chunlei not only snapped up the groupon.cn domain name before Groupon could, he designed his site to look almost exactly the same. It allowed the company to expand with some initial success, but it certainly wasn’t what anyone could call creative.

But that was a long time ago, and China’s group buying sites have had a devastating year. The last time we heard from Ren Chunlei, Tuanbao was on the verge of bankruptcy and Ren himself was already planning a new startup. But six months later, Tuanbao is still around, and Ren remains at the helm. What’s more, according to Sina Tech, Ren has unveiled a bold new vision for the company: an open group buy platform where companies and even individual users can submit deals.

At present, Tuanbao is basically an advertising platform with only free deals listed, because the company still owes money and can’t get any credit. Under the new system, free listings will remain an option, but vendors will be able to choose whether they want to list a free deal or a more traditional paid one. At the same time, designated power users will have the freedom to speak with vendors on their own and arrange deals, which they can then earn commissions on. In addition to setting up deals, there will also be users who get paid to draft and design deals listings, and users who are paid to help promote deals. Tuanbao will no longer arrange deals directly with vendors; it will simply take a 10 percent cut of the commissions paid by vendors to these various types of power users.

I’m not aware of any other group buy site that operates quite like this; it is possible that Tuanbao could be the world’s first open-platform group buy site. But it’s also true that many of these ideas are somewhat familiar. Alibaba’s Juhuasuan is an open platform of sorts, allowing vendors (but not users) to list deals. And Taobao’s “Taobaoke” and Vancl’s “experts” are extant examples of the kind of user-created promotional system Tuanbao seems to be going for. Even so, though, it’s clear that Tuanbao will be breaking some new ground here.

The question that remains unanswered — the new version of the site hasn’t yet launched — is whether or not the users’ compensation will be significant enough to inspire anyone to get that involved. Ren Chunlei hopes the site will be something like an entrepreneurial platform that will allow users to establish their own daily deals and marketing businesses through Tuanbao’s platform.

Amazingly, despite the very ugly fallout with his last set of investors, Ren has apparently secured more funding that he says will be sufficient to operate the new site for one to two years, so we should get to see for ourselves whether users buy into Ren’s new idea, or whether it all just falls apart again. Either way, with Ren Chunlei at the helm, it’s not likely to be boring. If Tuanbao wasn’t on your map before, put it there now, because this could get interesting.

[via Sina Tech]

Although Nhom Mua, Vietnam’s leading group-buying site, is finally back online, the news of its investigation by authorities – and the website takedown – has sent shockwaves throughout the startup community and Nhom Mua’s many customers nationwide. With some customers are left stranded, unable to use their coupons nationwide, it harkens to larger Vietnamese economic controversies. Now, there seems to be two directions that the online group-buying market could go in Vietnam.

Will there be an increased skepticism of web companies, as evidenced by consistent low spending in online advertising, a market that group-buying sites are eager to penetrate? Or will Nhom Mua’s brief fall signal a chance for the mass of Groupon clones to jump in?

At last count, in November 2011, there were 97 Groupon clones in the market with 10 players at the head of the pack. Nhom Mua was at the front along with Muachung.vn. The success of Nhom Mua was not just paved by its relationship with Diadiem.com, the leading local location-based web service, but also because of its solution to a still-looming problem in Vietnam: e-payment systems. Nhom Mua adapted to a market that has still not implemented widespread credit card payments by instead using a cash-on-delivery (COD) system.

A recurring theme I’ve been seeing at conferences in Saigon is e-payment is one of Vietnam’s greatest obstacles to growth in the online space. Successful models thus far have ignored the problem by going straight to COD. With Nhom Mua’s recent fall from grace, and the baby Nhom Muas with a fresh market to jump into, it’s only a matter of time before new companies rise into prominence. An increased skepticism of the online space is low on the list of dangers though. With the internet penetration at 34 percent and an increasing portion of them moving into social media, the online market is getting bigger and bigger. Although companies and people may not be trusting of web content, they are learning more and more to be dependent on it.

The problem that these baby Vietnamese Groupons face is a surging interest in e-commerce and what some believe are key fallacies in the Groupon business model. E-commerce provides small and big businesses with access to the same customers, and also bring discounts to consumers. Businesses have also been learning the hard way that discounts on their products are negatively impacting public perception of their goods and services. Whether or not these new group buying players can come into the market, (or Nhom Mua will salvage its reputation) and deal with new business models that are more appealing to businesses, remains to be seen.

Back in Q2 of this year, the top three were a little different – Juhuasuan, Meituan, and 55Tuan – and accounted for 47.5 percent of all deals sold in the country. All those stats come from Dataotuan, which today released its deals report for Q3. Here’s the key pie chart:

The new report shows – apart from serious consolidation at the top – a lot of other details about what Chinese consumers go for. See the embedded slideshow for the full thing. Other highlights include the fact that average price of deal sold is up from 154 RMB in Q2, to 186 RMB (US$29.60) in Q3. That might be partly down to price inflation in China, but deals site must also be pleased that consumers are slowly coming round to buying pricier items on those Groupon-esque sites, such as travel packages. Speaking of Groupon (NASDAQ:GRPN), its official China service, Gaopeng, moved up a meagre 0.1 percent to hold onto 1.8 percent share.

The market leader, Alibaba-owned Juhuasuan, does the best job of getting users to spend more:

Here’s the new report in its entirety:

[Source: Dataotuan]

Mogujie (left) and Mogujia show off their daily deals.

Entering China’s ferocious daily deals sector – where thouands of sites go out of business every year – seems about as attractive as putting one’s head into a hot grill. But Mogujie, China’s top Pinterest-esque social commerce site, is doing exactly that, launching two new channels for deals on clothes and household items.

All the clothing products on Mogujie.com/tuan are – as with the social side of the site – aimed at women. The other deals channel is the similarly-named Mogujia for discounts on household items.

Actually, Mogujia is a spin-off of the startup’s original social pinboard site (started in May of this year), and the newly-launched daily deals are a part of that, at Mogujia.com/tuan. It has group buy special offers on things like bedsheets, furniture, and flasks. Mogujia says it will update its stock of household items once a week, every Wednesday, and that the goods will change according to the seasons.

In contrast the items pinned by users on Mogujie and Mogujia, which have referal links to external e-commerce sites such as China’s Taobao, the Mogujie and Mogujia deals are organized by the company itself in conjunction with various merchants. Though the two deals portals are so specialist, they’re still up against the nation’s top group buy sites, such as Meituan and Juhuasuan. In a loss-making industry where profit margins are well below 10 percent, it’ll be a struggle to make these new channels pay off. But the startup Pinterest clone has phenomenal traffic from its sizable user-base (it was 9.5 million in March of this year), and so its deals sites are given a huge boost from those numbers.

Beijing-based Mogujie announced that it had secured a major series C funding round at the end of last month, which effectively valued the site at $200 million.

[Source: 36Kr - article in Chinese]

The doyen of daily deals, Groupon (NASDAQ:GRPN), opened a new brick-and-mortar store in Hong Kong earlier today. It comes just over four months after Groupon opened its first-ever such “concept store” in Singapore.

The Hong Kong shop, at Soundwill Plaza in the Causeway Bay area, is the same kind of deal, allowing people to pick up pick up certain kinds of products, test out everything that’s on display, and get any kind of customer support. The CEO of Groupon HK, Danny Yeung (pictured right), explained in today’s announcement:

Groupon Hong Kong’s CEO, Danny Yeung. Click to enlarge.

We’ve found many customers prefer picking up their Groupon products as opposed to delivery in Hong Kong, and as a part of our commitment to our customers and the customer experience, the Groupon Concept Store is now launched.

The new Causeway Bay store, which fills out 4,000 square feet of floor space, is opposite Times Square and is open 10am to 9pm daily. It comes a full year after Groupon’s much-deflated IPO; after debuting over its $20-per-share expectation, it’s currently at a mere $2.97 in Friday morning trading.

The store’s opening was hailed with a green-sweatered flash mob dancing on the streets – today and throughout the week. I like to imagine an alcoholic walking past one of these and thinking, “It’s St Patrick’s Day already? Sweet!” Here’s the flash mob video:

The 24Quan site is now offline, replaced with a statement that says, in both Chinese and (for some reason) English:

24Quan's homepage, before it suspended operations today. Click to enlarge.

Due to misalignment of interest and ideology differences between previous shareholders and management team of 24Quan, as producer of 24Quan’s service, and taking into account of the interests of all those whom we loved and cared, our website will enter into a period of “temporary excursion”. As a result, regrettably we will not be able to offer your service in the upcoming few weeks. We hope to resume our service after we resolve our matters with our shareholders.

The site then offers a customer service telephone hotline. The wording of the statement doesn’t mention financial difficulties directly, but it’s likely that cashflow issues – or even crippling debt – are at the heart of the apparent tension between the unnamed “previous shareholders” and the deal site’s management.

Things once looked rosy for 24Quan. In market share stats for October 2011, it rose to become China’s fifth-biggest daily deals site, with six percent of the industry’s revenue for that month. But, in this fierce sector characterized by tiny profit margins and huge marketing spending, it’s likely that 24Quan was burning through cash – or piling up debts – in order to grab share in the market. But by the time of figures (from the same source) for 2012 Q2, 24Quan had crashed to 19th place with a meagre 0.6 percent market share.

In late November, 24Quan CEO Du Yinan responded to our afore-mentioned article about layoffs and debt, and told my colleague that he was, even back then, struggling to make “transformative changes” to the site. It’s not clear what those were, since it continued to plough on as a fairly conventional deals site long after the first reports of its business being in turmoil. He said the site was seeing “in excess of [US]$12,000,000 of cash turnover – every month” at that time.

Groupon-clone deals sites have been pulverized in huge numbers, like so many mosquitoes in the night, in the past couple of years. Indeed, in just the first six months of this year, 2,859 such sites have closed. Perhaps 24Quan can be added to that deadpool, if it doesn’t reappear online as promised within a few weeks.

Daily Deals site Groupon, with a shop in Singapore

It’s funny the reactions I’ve gotten when I’ve told people in the tech community that I’m in the ‘daily deals’ (a.k.a. group buying) industry. Generally I get a disinterested reply of “oh, I see” or sometimes even a very blunt “why?” Sure, Groupon’s stock price is flailing at around US$5 and the tech press is now seemingly “over” daily deals since it has stopped publishing stories bashing it.

It’s true that daily deal sites are the epitome of the copy catting gone wild which has plagued the Asian start up scene, however I think the tech community will look back at 2012 as a watershed year for e-commerce in Asia. So where have global e-commerce stalwarts like Amazon, eBay and others fallen short in Asia and how has daily deals filled this void?

1. Daily deals has changed consumer’s attitudes towards shopping by giving them a reason to go online.

Many consumers in regions like Hong Kong, Singapore, and even Thailand look at brick and mortar shopping and mall walking as “shoppertainment.” Hong Kong has always been a head scratcher for e-commerce having a high smartphone penetration (third highest globally per capita), a large consumer segment with available spending income and a high broadband penetration. However it greatly lags China in e-commerce growth with a paltry projection of 7 percent annual growth rate [1].

Daily deals sites have brought Asian consumers online simply because of the great discounts. Consumers go through the “inconvenience” of going online and have gotten over their distrust of buying a virtual good in the form of a deals voucher. What’s more they’re taking the risk of pre-paying for a product or service from mostly unknown merchants without even seeing it! Daily deals is only two years old and already the Hong Kong and Singapore daily deals markets are estimated to be worth between $60 to $70 million annually while Thailand, Malaysia, and the Philippines are in the $25 to $40 million range [2].

2. Daily deals sites instituted “no questions asked” risk free shopping.

Hong Kong's BeeCrazy

One of the obvious challenges of curating deals from merchants and brands is quality control. It’s the hazard of acting as a channel for sometimes unknown merchants to peddle their wares to your customers. As painful as it sometimes was, deal sites provided refunds to customers who complained about anything from a restaurant running out of a lunch set deal the day they patronized the establishment to the merchant themselves going bankrupt and skipping town.

This was the case for Groupon Hong Kong and BeeCrazy who were left holding the bag when Macao Dragon Ferry went under (over 150,000 vouchers sold). Deal sites quickly recognized the power of word of mouth and the importance of preventing churn of a customer to a competitor with a seemingly identical smorgasbord of deals.

3. A pathway for e-commerce to reach the masses.

Daily deals democratized e-commerce by making a multitude of payment options available so that the non-credit card demographics could shop online. For example, in the Philippines there are only roughly seven million credit cards and three or so million credit card holders. The numbers are even less for Thailand and Indonesia. In fact only 5 percent of online Indonesians engaged in e-commerce or online banking, with credit cards being one of the main roadblocks [3]. Over-the-counter payment, ATMs, and online bank transfers are much more the norm for Southeast Asia. Deal sites also offer Cash on Delivery for the most cautious of consumers.

4. A new direct marketing channel for SMBs: the introduction of hyperlocal commerce.

So far I’ve focused on the consumer side of the equation. Daily deals has given local merchants a relatively risk free, pay for performance marketing channel. I say “relatively” because in the early days some merchants were not coached properly on how to manage capacity for deals and were swamped by a flood of redemptions for loss leader deals. Since then, they (and the deal sites) have become much more savvy at pricing and structuring deals so that there is an opportunity for up-selling for a profitable customer acquisition as well as converting a new customer to a returning one.

So where does the industry go next? Lack of congruent payment infrastructures and economical delivery and fulfillment solutions will continue to be a challenge for e-commerce in the near term. Mobile is the obvious next step but it’s one that requires getting a few very important things right.

• Utilizing the context of mobile (location, phone type, time of day, etc.) to drive discovery of deals and effective re-marketing.
• Utilizing the phone as the vehicle for payment. Much has been prophesized about this (think PayPal, Square, carrier billing, NFC, mobile wallets) but the key is to get the app and mobile site experiences right first. This means a super convenient and secure process involving single sign on, mobile optimized payment page flows that are UX tested and then re-tested. Shopping cart abandonment recognition and re-marketing tactics will be key because 3G is not yet reliable in SEA and consumers’ attention spans on mobile vary depending on where they are.
• Utilizing the phone as the tool for redemption. The first step is getting consumers and merchants to adopt a simple system to scan and validate a voucher that’s brought into the store on a phone.

Yes, the press has prophesized about more and more consolidation to come for the daily deals biz. Ultimately daily deals will take a different form. Sites are already trying to morph into full-fledged e-commerce store fronts. The next inflection point will come as large entrants like credit cards as well as web Goliaths like Google and Facebook come to market with a deals/offers experiences integrated into their primary use cases.

In any case, daily deals is not a one trick pony. So look for even more to come!

Renren CEO Chen Yizhou

Renren (NYSE:RENN) is the king of China’s traditional social networking hill. But like China’s other social giant, it has found that relying on advertising alone to produce revenue isn’t all that effective. Renren CEO Chen Yizhou said recently that he’s looking for alternative revenue streams, and that he believes games and e-commerce are the keys to social networks retaining their viability.

Of course Renren already has games and e-commerce subsidiaries, including the group buy site Nuomi, which currently enjoys a modest 6.5 percent market share in that sector. It still isn’t making any money, but its losses are shrinking. It seems clear that Chen hopes to lean more on these subsidiaries and less on Renren’s traditional social networking model to strengthen the company through diversifying its revenue streams.

To that end, Chen also says Renren will have to rely on internal R&D, especially in the mobile sector. Currently, mobile income only amounts to about 10 percent of Renren’s overall income, despite the fact that mobile games in general are making all kinds of money. Developing better games and better mobile payment solutions will be important to Renren going forward, Chen suggests, and he wants to do more hiring in that area. Currently about 45 percent of Renren employees are working on the mobile side of things.

Although the company isn’t making a profit and faces a threat in Sina Weibo, Renren is far from dead, and in fact is still seeing strong user growth; with users up 31 percent compared to a year ago. Chen Yizhou also suggested that while weibo certainly hasn’t helped Renren, it has been more damaging to Renren competitor Kaixin001 because (according to Chen) their target demographics are almost exactly the same as Sina’s.

[via Sina Tech, image via TechWeb]

From October 2011 to the end of June 2012, Lashou has lost 55 percent of its market share by revenue. Briefly China’s number one daily deals site at the end of the third quarter of last year, it has now sunk to sixth place in the country according to our favorite source of local deals analytics, Dataotuan. We know the IPO is off, but how about funding? It’ll be difficult to persuade investors with that kind of track record over the past year. Being China’s sixth-largest daily deals site is a bit like being an aging hooker – everyone knows you’ve been through a lot, and many will wonder if you’ve got the brains to get your life back on track.

Here’s the grim Lashou landscape [1] over the past year, contrasted with the current market leader, Meituan:

Of course, some are having it worse in China’s rough and very fragmented group buy/deals market. Nearly 3,000 daily deals sites have shutdown in the past nine months. And other former luminaries have crashed much harder. Look at poor 24Quan. It has gone from a peak of 8 percent share in October 2011 to – brace yourselves – 0.6 percent in the most recent 2012 Q2 stats. You can practically imagine the company face-planting. Yes, the figures in this sector can be volatile, fluctuating wildly; but that is catastrophic. It wasn’t too much of a surprise, though, as the 24Quan CEO spoke to us at the end of last year about its “restructuring” – giving us a sense of unease that the whole venture was in trouble.

As for Lashou, how long can that go? Where’s the diversification, the pivot? Or the fightback. Right now, Lashou is clearly on the decline, and its market share is back almost exactly where it was last June.

The report also says that the group buy industry did 14.6 billion RMB ($2.3 billion) in business over the first half of this year; that’s up 126 percent over the first half last year. But most of that money is going to the top players; other sites are dying off. In fact, the industry as a whole hit a death rate of more than 48 percent, according to the report. Yup, that means that in the past six months, basically half of China’s group buy industry died. (Hey, we told you that winter was coming a year ago, people. Apparently Chinese group buy startup CEOs don’t pay enough attention to our blog.)

The report also says that surviving group buy sites seem to be shifting away from foods and services to offering deals on luxury items, where profits are higher.

What’s a little amazing is that people are still founding new group buy sites in China. For example, the report says that two new group buy companies were created in the last ten days of June, and in the second quarter of the year more than 50 previously-defunct group buy sites were resurrected (although that number is less than half what it was in Q1, so this may not be good news).

Let’s just be frank about this, people: stop starting new group buy companies in China. At more than 48 percent failure, your chances of success in the group buy industry are only slightly better than your chances of survival would have been if you had bought a ticket for the Lusitania on the trip during which it sunk or had been living in Hiroshima in 1945. So stop doing it! Your chances of success have got to be better with some other kind of of company!

[via Sina Tech, Image Source]

The Chinese Yelp-like site Dianping has once again hit the jackpot, pulling in, it has announced, “over $60 million” in series D funding. It’s less than the company’s third round of $100 million in April of last year, but it’s still a huge boost as the city directory site also has a growing daily deals business – and that’s a very fragmented market that relies on heavy ad spending.

The new Dianping funding news was tweeted out by the company on its own Weibo page (see it here). Dianping says it will use the new round to focus on its mobile business, as well as general biz development.

In its previous round, those who took part were Trust Bridge Partners, Sequoia Capital, Qiming Ventures, and Lightspeed Venture Partners. It’s not known exactly who led this newest round, but we’ve reached out to Dianping HQ to see if they can comment on that. [UPDATE: nope].

Just yesterday we looked at the latest stats for China’s daily deals industry and saw that Dianping has grown to become the nation’s fourth-largest group buy site in terms of market share. It took 8.3 percent of revenue in the sector in 2012 Q2. Dianping has been already pushing its mobile commerce, and recently revealed what its Android and iPhone users were buying.

Last year we chatted with Dianping’s VC, Michael Jiang, at an event in Beijing. You might like to see that video here.

The stats once again come courtesy of Shanghai-based Dataotuan, whose new report has some other alarming figures. For example, the number one deals site in China is Taobao Juahuasuan (run by e-commerce giant Alibaba); it sells 57 percent of all product-based deals (as opposed to, say, dining deals) in the country, more than all of its rivals combined:

Taobao Juahuasuan hasn’t always been included in such reports in the past as it’s also an aggregator of deals, which complicates the picture somewhat. Nonetheless, if included it clearly becomes the largest such site in China with 21.5 percent market share. Meituan remains the most successful of the startup sites that came out of nowhere after deciding to emulate Groupon’s model. And what of the newly-merged Groupon (NASDAQ:GRPN) China site, Gaopeng.com? It still lingers down in tenth place with a gradually shrinking market share:

But if we look at Meituan’s average sold deal price, it’s the lowest among the leaders, with its customers paying a mere 113 RMB (US$17.87) per deal, way below the average payment per transaction in the country. The two strongest in this respect are Dianping and Juhuasuan, on which its users spend over 200 RMB ($31.65) per deal:

Head over to the link below to see the 23-page slideshow of analytics in full.

[Source: Dataotuan blog]

Group buy sites over the past year

What goes up must come down, and China’s group buy sector has been busy learning that the hard way for the past nine months. According to the latest data from group buy site tracker Tuan 800, China’s group buy sites are down 2,082 since last September, the high point in group buy fever, when the total number of sites was more than 5,000. That’s a more than 40 percent drop.

At the same time — and certainly not unrelated — consumer interest in the group buy model has also dropped. Income from transactions for the sites that still exist has dropped more than 50 percent compared to the first half of last year. The number of transactions has also dropped more than sixty percent. So group buy sites today, on average, are making less money from fewer transactions than they were last year. No wonder more than 2,000 sites are gone.

How many group buy sites will be left a year from now? The trend does not look good. Like many other sectors of China’s internet, the market seems to be consolidating, and the end result is going to leave an awful lot of people out in the cold.

(Readers will be pleased to know, though, that TuanBao is somehow still operating despite or perhaps because of its shift to an all-free model earlier this year and its CEO’s rather bizarre antics.)

[via TechWeb]

Chinese daily deals and local reviews site Dianping has compiled stats about its mobile app users for the first time, showing a lot of interesting contrasts between its iPhone and Android user-base. In summary, Dianping’s iPhone users tend to spend a lot more and seek out luxury, while its Android app users are cheapskates [1]. Not the exact wording of the company, but that’s what it amounts too.

Although there might be some overlap in demographics between the two platforms, the two camps of users clearly spend differently on Dianping, and tend to search for very different leisure activities too. Firstly, looking at the respective rates of expenditure on Dianping’s deals, you’ll see that a sizable 23 percent of iPhone users spend over 200 RMB (US$31.70) per order/deal, in contrast to just 12.55 percent via the Android app. Overall, Android users are most likely to spend just under 50 RMB ($7.93) per deal, while iPhone fans will tend to spend over 80 RMB ($12.68):

In terms of consumer preferences shown in searches made within the Dianping apps, Android users once again go budget, searching for cheap eats and entertainment like KFC, street BBQ, and internet cafes. Those on iPhones, in contrast, searched for pricier places like nail salons, petrol stations (indicating sizable car ownership), and specialist restaurant chains like Pankoo for authentic Korean cuisine. If you read Chinese, that graphic is here.

But iPhone users in China are not always so generous, especially when it comes to apps. Earlier this week we looked into a report that showed Chinese iOS app developers were earning a worldwide low of just $0.03 per download.

Despite the tendency of Android users to spend less on services, it’s now a crucial mobile platform for all Chinese web businesses to support. Figures for the end of 2011 show spectacular Android growth in China so that it commands 68.4 percent of mobile OS market share – way above iOS’ tiny 5.7 percent.

[Source: Dianping blog - article in Chinese]

New statistics for China’s group buy market show dramatic drops in monthly transaction volume and value. The latter plummeted 23 percent from the May figure to hit 2.08 billion RMB (US$329.4 million) in deals sales in June. As for the transaction volume, that sunk to a year-long low of 38.38 million orders in June, which was down 26 percent from May.

Although the monthly drops could be seasonal – with folks perhaps moving away from daily deals as the school summer vacation kicks in in mid-June – it is very significant that the sales volume reached a year-long low, dropping below the 40 million mark for the first time in 12 months.

Consumers in Shanghai caused the biggest localized fall in deals in the whole country, as group buy transactions in the city halved from 140 million RMB in May to just 72.85 million RMB ($11.54 million) in June. That was the first time in 12 months that the figure had dropped below 100 million RMB.

The statistics come from Letyo.com, a local deals aggregator. It also noted a substantial fall in deals sold in the capital, Beijing, where transaction value fell 35 percent in June from the previous month.

As for the key players, Letyo noted that two of China’s biggest web portals maintained their lead in daily deals. Alibaba’s Taobao Juhuasuan (pictured above) remains a giant deals aggregator and the industry’s most-used service with a monthly transaction value of 970 million RMB in June. Yes, that’s effectively 46.6 percent of all sales in the whole sector in China. Tencent’s (HKG:0700) QQTuan was a strong yet distant second with 160 million RMB in sales. The independent deals sites are led by Meituan.

If last winter was thought to be harsh for group buy sites, then this year’s coldest season could well be even rougher. With insane numbers of small sites still fighting over the scraps, we’ll likely see even more close down this year than last – when over 2,000 deals sites shutdown.

[Source: Donews - article in Chinese]

Groupon COO Adrian Tan and CEO Karl Chong at Groupon's ribbon cutting ceremony

As we reported two weeks back, Groupon Singapore officially opens its world’s first Groupon retail store in Singapore’s Suntec City Mall today. Groupon COO, Adrian Tan, explains that the first shop – dubbed a “concept store” – will actually serve a practical purpose, and hopes it’ll help to deliver better service and greater interaction with its shoppers.

In an official press statement, Groupon (NASDAQ:GRPN) makes clear this is also meant to be a test-bed. Should this idea be successful, it will be adopted in other markets that Groupon is currently in.

Apart from allowing customers to pick up the products they have purchased from the site, the shop aims to create a Groupon ecosystem within the store – where iPads are provided to allow shoppers to browse, purchase, print, and redeem their daily deal coupons instantly.

Groupon customers dressed in green to support launch of the first concept store

Adrian elaborates:

Although many Singaporeans like to go online to purchase deals, many still prefer the face-to-face interaction and the fact that an online shop like Groupon has a physical presence. We want to offer the best of both worlds – both through our website and mobile apps for those who demand online convenience; supported by the Shop where customers can go and see our Groupon goods as well as talk to a Groupon ambassador face-to-face.

Karl Chong, CEO of Groupon Singapore, adds:

Our customers are the heart of everything we do at Groupon, and we strive to deliver better service and an enjoyable environment for them. Whether it be collecting or purchasing items or even getting in touch with one of our Groupon Ambassadors to learn more about Groupon, the Groupon Shop will help make deals on Groupon Goods more accessible to everyone.

For interested folks out there, the Groupon Shop is open from 11:00 am to 8:00 pm daily, and is located at Suntec City Tower 3, #03-27 G-L (at Cinema Level).

In addition to all that, Meituan’s VP, Wang Huiwen, has said that the site expects to become profitable by the end of the year. That’s quite a claim in such a fragmented market where gross profit margins are so low. Meituan’s margins are, the company claims, between 8 and 10 percent.

Here are Meituan’s monthly (unaudited) sales figures for the whole of this year so far:

[Source: Techweb - article in Chinese]

As this site’s resident group buy Grinch, I feel it’s my duty to come rain on this parade. Only I’m not going to use rain, I’m going to use something even more depressing: math. You see, if we look at the market share numbers in China’s group buy space for March (the most recent we’ve seen), we find an independent FTuan in eighth place with 6.3 percent of the market, and an independent Gaopeng in 13th place with 2.5 percent. Both companies had been seeing minor growth in the short term but were down over the long-term, with FTuan having shed three percent of its market share over the last six months, and Groupon losing 1 percent of its share.

So, let’s make a best case scenario and say that neither of them lose anything in the merger and the long term trend of market share loss has stopped. We’re left with a company that controls 8.8 percent of the group buy market. That puts it in fifth place, still behind Meituan, 55tuan, Dianping, and Lashou. Lashou would be in close reach, so if we even assume a little growth since March, maybe Gaopeng-FTuan is now in fourth place.

And it’s a distant fourth place, too. While Lashou has been slipping over the past half year, Meituan, 55tuan, and Dianping have all been growing, and all of them still have a significant lead in market share.

Now, sure, fourth place isn’t too bad. It’s a better position than either of the companies were in before the merger, certainly. But is an IPO really realistic? No. Lashou recently had to cancel its IPO plans for lack of investor interest, and I rather doubt those US investors are going to be any more excited about a company that’s in almost exactly the same place as Lashou is.

Does this mean it’s curtains for FTuan-Gaopeng? Certainly not. But it does mean it’s probably time to cancel those parades. And it’s especially time to stop talking about US IPO plans, because that is just not going to happen.

Exactly as we’d heard was about to happen in recent rumors, it has just been announced officially that Groupon’s (NASDAQ:GRPN) joint-venture in China with Tencent, called Gaopeng, will merge with its larger daily deals rival FTuan.

The whole deal was overseen by China’s web giant, Tencent (HKG:0700), which not only owns half of Gaopeng but also has an undisclosed stake in FTuan. The financial deals of the merger have not been revealed. Groupon will be a minority shareholder in the new company, as it was in Gaopeng – but we’re not sure how “minor” it now becomes.

The merger will create a new company that’ll be headed by FTuan’s CEO, Lin Ning, but means that the two Gaopeng and FTuan brands and websites will continue as they are.

In this evening’s announcement, the new entity’s CEO, Mr. Lin, said:

China’s daily deals market is moving from investment-driven to operation-focused, and I believe the merger will position us well to further scale our operations and deliver innovative products to our customers. The multi-brand strategy after the merger will enable the new company to serve the segment needs of merchants and consumers in lifestyle e-commerce and mobile internet.

It is indeed the first major deal we’ve seen in China’s fragmented and costly daily deals market, where the current market leader is the startup Meituan. FTuan was in fourth eighth place last time we looked, while Gaopeng was still losing market share way out of the top ten.

Tencent’s new CEO of its recently spun-off e-commerce division said:

The new joint entity will combine the strengths of FTuan and Gaopeng to better serve consumers in the daily deals market in China. We believe group-buying is a natural leverage off our large user base.

Meanwhile, Groupon’s Jason Harinstein, commented:

For Groupon, this transaction is the next logical step in our strategy to strengthen our investment in China. Tencent has been a great partner, and we are excited to continue our partnership with them. We are also looking forward to working with the FTuan team to provide Chinese consumers and merchants with more compelling offerings.

As some had expected would happen, Groupon Singapore will be launching Groupon’s (NASDAQ:GRPN) first-ever retail store on July 4, according to an official announcement from the company (in the form of a media invite to the opening). It’ll be strategically located in the Suntec City Mall (pictured above).

Our blogger saw a man with this bag on the MRT this afternoon, proving that the Groupon Store in Singapore is already open after a soft-launch last month.

With the launch of the new Groupon Shore, it aims to connect better with Groupon fans by bringing the deals to the physical store itself. And having it located in Suntec, which is in the heart of Singapore, makes it even easier for Singaporeans to visit the store.

But, as our friend Jon Russell from TNW points out on Twitter, ZDNet noted the opening of a Groupon store in that mall a few weeks ago. In retrospect, that seems to have been a soft-launch, and this July 4th event will be the proper launch.

Aside from that confusion, what comes to mind, however, is why? Why is this a good move for an e-commerce company that generally has low overheads? No doubt having a physical store allows you to have the personal touch and puts a face to the Groupon name. But I wonder what more this first Groupon store entails. In fact, within the e-commerce space in Singapore, popular blogshops such as tracyeinny and MDS have also set up physical shops to perhaps connect better with their customers. But their prices are seemingly more expensive too.

I guess we’ll be able to find out more when we attend the launch this July, to speak with Karl Chong and Adrian Tan, CEO and COO of Groupon Singapore, who will be present to open the store.

[UPDATE on June 22nd] Groupon Singapore has asked us to point out the following:

To celebrate Groupon’s brand new Groupon Shop launch, Groupon is giving away S$50 vouchers to the first 50 visitors dressed in green. Details below:

Date: Wednesday, 4th July 2012

Time: 11.00am to 9.00pm

Venue: Groupon Shop, Suntec City Tower 3, 03-27 G-L (at Cinema Level)

See you there!

The long-running saga over the fate of Gaopeng, Groupon’s (NASDAQ:GRPN) joint-venture in China (with Tencent) is not over yet, with the most recent rumors today suggesting that a business merger between the troubled Gaopeng and FTuan is imminent. Reports in Yi Cai say that FTuan – which is a top eight deals site in China, way ahead of Gaopeng in terms of revenue – will merge with its rival to form a new group which FTuan’s CEO, Lin Ning, will oversee.

The Deus ex machina here is the local web giant Tencent (HKG:0700), which owns half of the Gaopeng business as a joint-venture partner, and has an undisclosed stake in FTuan as well. It’s believed that Tencent will ultimately control half of the group that will form out of this rumored merger. That gives Tencent even more clout in the group buy space (in addition to its dominance in social media and gaming in the country), since it also has its own QQ Tuan and Soso Tuan deals aggregators.

This move would see both the Gaopeng and FTuan brands continue to exist. Market data from 800Tuan states that the two sites have different demographics of users, with Gaopeng’s being more upscale and more likely to spend a greater amount of money on deals. And so the two can co-exist in a complementary fashion. Our most recent report on the Chinese group buy landscape saw FTuan retain a fairly strong 6.3 percent market share by revenue in a highly fragmented and competitive sector where costs are high – especially in terms of marketing – and profit margins are low.

[Source: Yi Cai - article in Chinese]

Ooops!

One of China’s top daily deals site, Lashou, prides itself on selling attractive deals to its users. But its biggest ever deal – a bid to list on NASDAQ – couldn’t find many enthusiastic takers, and now the company has withdrawn its IPO filing at the US SEC.

Lashou has instead made a new filing that is a request to withdraw its earlier submission – find it here – and which effectively cancels all plans to head towards an IPO in which it aimed to raise $80 million. The short document asks for consent to cancel the first “application on grounds that the withdrawal of the Registration Statements is consistent with the public interest and protection of investors.”

Indeed, with a black mark next to the names of many Chinese young tech stocks since the Longtop scandal of last summer, and with ongoing concerns about revenue models and transparent accounting – see the Citron attacks on Qihoo (NYSE:QIHU) – Lashou always faced a battle to get an underwriter to sell it to investors.

Lashou has settled itself in as one of China’s top daily deals sites, taking 8.9 percent market share in a very fragmented industry in China. But that stat is down from late last year, when Lashou commanded 12.7 percent market share and looked set to become the nation’s largest group buy site by revenue. But these days it’s in fourth place.

A local newspaper in China recently accused Meituan, the country’s largest daily deals site, of fraudulently inflating its transaction volume figure by a factor of three. That has prompted Meituan’s management to refute the accusation, and reveal that the website handled 360 million RMB (US$56.54) in orders last month, May, alone.

The newspaper had said that Meituan was directing employees and friends and families of its merchants to place orders which they’d later cancel after the deal had expired and thereby get issued a refund. This, the report alleged, was trumping up monthly sales transactions from a true 100 million up to 300 million RMB.

Meituan’s VP, Wang Huiwen, told Chinese media that all’s well at the group buy market leader, despite the fact that it has ceased city-by-city expansion for the time being until it becomes profitable. The figures he revealed give an interesting glimpse into life in the cut-throat, low-margins business. He added that in May, the company refunded 38.47 million RMB ($6.04 million) to customers who had failed to use their purchased deals, representing nearly 10 percent of its sales. With all that factored in, Meituan’s gross profit margin is between 8 and 10 percent.

It’s plausible that some smaller companies in this group buy space struggle to survive on even slimmer profit margins. That explains why hundreds of such sites are shutting down each month.

[Source: Marbridge Consulting]

It’s no secret that group buy is more or less in shambles in China for everyone but a few of the top players. But it seems even some of those top players aren’t immune to the industry’s problems, as analysts have pointed out what seems to be a sort of exodus of high-level management from Chinese group buy companies.

For example, 55tuan lost its vice-chairman Chen Yongjun despite its status as second place in the contentious market; Mr. Chen left the company to join Lafaso, a more traditional e-commerce site. Manzuo, another top group buy site, also lost its vice-chairman; Si Xinying apparently left the company for a position in the media industry. Ganji (another vice-chairman), Gaopeng (a CEO), and other group buy sites have all also recently lost upper management staff. Insiders at 24quan, another top group buy outfit, say that numerous upper management types are making plans to leave that company as well, mostly because of disagreements with the CEO.

Whatever the reasons, the loss of experienced upper management probably isn’t good for China’s fledgling — and floundering — group buy industry. It’s also significant that most of these people are moving to other industries; in some cases, even industries like traditional e-commerce that compete directly with group buy for customers.

[Beijing Business Times via Sina Tech]

The figures for March show that Meituan has further solidified its top position, moving up to hold 17 percent of the market from the 15 percent it held the month before (see interactive chart below, Meituan in blue). 55tuan, Dianping [1], and Lashou remain just behind as the other big players. You can see the entire market breakdown in the chart below.

Dataotuan notes for the first quarter of 2012, the total revenue in the daily deal market was about 4.5 billion RMB, with the top 20 websites accounting for 95.4 percent of that total. The four leading players now account for a sizable share of this revenue, and I encourage you to check out Dataotuan’s full report for even more information on how this drama is playing out.

Tuanbao CEO Ren Chunlei

We have had fun watching the rollercoaster ride of Chinese group buy clone Tuanbao — also known as Groupon.cn — but it appears that rollercoaster may finally be chugging into the platform and expelling its dazed passengers back onto the fairgrounds. That’s right, rumor has it Tuanbao is bankrupt. And although CEO Ren Chunlei still owes significant debts, he’s apparently planning a second startup.

This is just a rumor, but it’s not exactly hard to believe. Ren recently re-launched TuanBao as a group buy site with exclusively free offers, so the site hasn’t had any money coming in. Last we knew, Mr. Ren was searching for investment to offset this, but he was also talking crap about his old investors and saying things like “investment is poison” so it isn’t a stretch to imagine he might have failed to attract investors. And as for his reported plans to start a new startup as soon as Tuanbao goes bankrupt, well, that’s exactly what he’s said he will do if Tuanbao goes bankrupt.

Of course, Tuanbao still has significant debts to vendors and creditors. This apparently doesn’t faze Ren Chunlei, who hopes to wipe the slate clean with a bankruptcy declaration and then start the whole thing all over again.

The upside of all this is that if you want to work for a crazy person, apparently Mr. Ren is hiring. According to people close to him, the “new Tuanbao” is already looking for editors, designers, customer service staff, and more. I wouldn’t recommend it, but I sort of hope Ren does get his new startup off the ground. The rise and fall of Tuanbao has been entertaining, and even if it’s dragged his name through the mud, Ren Chunlei wants to get right back on the rollercoaster.

[Beijing Business Times via Sina Tech]

Groupon’s (NASDAQ:GRPN) daily deals site for China, Gaopeng, which is run as a joint-venture with Tencent (HKG:0700), looks like it is a pawn in the upcoming restructuring of Tencent’s group buy operations. New rumors say an internal email from Gaopeng has told staffers that Tencent’s deals site, QQTuan, will stop being an aggregator and instead feature only offerings from Gaopeng and its outsourcing partner FTuan. Further to that, a Gaopeng executive is believed to have said that the Groupon subsidiary will be acquired by FTuan, with an assist from Tencent selling its stake in the joint-venture.

Clearly, there’s a possible contradiction in those whisperings floating around the Chinese e-commerce industry – if Gaopeng is made extinct by Tencent divesting itself of its share and then it’s acquired by FTuan, then the first rumor doesn’t make sense. But Gaopeng might continue to operate under FTuan ownership.

Note that Gaopeng is a very minor player in China’s deals industry. When we looked at market share stats for January, we saw that Groupon’s venture had slipped to 14th position, losing half of its already small market share since last August (from 4.2 to 2.1 percent). Tencent’s outsourcing partner, FTuan, which runs all the deals on the QQTuan site, was in 7th place.

Marbridge Daily summarized the situation by writing:

An industry source told Sohu IT that Tencent will trade its stake in Gaopeng to FTuan in exchange for a share in FTuan of equivalent value, based on Gaopeng’s current valuation. Tencent and Gaopeng have also reached an agreement under which Gaopeng will become an investor, and will be replaced by FTuan in the control and operation of the company.

These stories have been rumbling on for weeks, but if it’s true that Gaopeng staff have been informed orally by executives that an acquisition is imminent, then we might finally see an official conclusion to this – and see if Groupon/Gaopeng as a brand will even survive in China.

On a related note, Gaopeng’s CEO, Yang Chengjian, submitted his resignation to the board last week, citing personal reasons. The leadership role is passed to Gao Xia.

[Sources: Marbridge Daily 1 and 2]

There’s a new trend in the e-commerce and group buying – aka: daily deals – space in China for former rivals to work together, outsourcing a part of their business to another site that has great expertise in that area. It’s complementary, efficient – and quite unexpected; a tacit admission that the industry is both vicious and exorbitantly expensive, with intense pressure to cover every product area in a manner that most sites cannot realistically maintain.

An insider in the business, who’d like to remain anonymous, has told us that consolidation will only accelerate this year in China, with new partnerships and outsourcing deals even among major B2C e-commerce or group buy companies. Baidu (NASDAQ:BIDU) knows the risks all too well, with the failure of its joint-venture with Rakuten just last week. We’ve already seen four pretty large tie-ups in this area, with one other rumored to be about to take place. These are:

Dangdang + Gome

E-commerce site Dangdang (NYSE:DANG) recently decided to work with Gome (HKG:0493), the big-box electronics retailer which is trying to shift more of its business online, to set up a store-within-a-store on Dangdang.com that would sell much of its range of gadgets and home appliances. As part of the deal, Gome will promote its Dangdang storefront as well as take care of after-sales servicing. (Press release).

Dangdang + Jiuxian

Earlier this week, Dangdang opted to outsource its alcoholic beverages portal to the expert drinks retailer Jiuxian.com. Similarly with the Gome tie-up, it means that Jiuxian will take care of all the liquor that Dangdang’s customers order in terms of shipping and after-sales. (Read more on ChinaTechNews).

55Tuan + Ganji

Meanwhile, in the local group buy industry, the classifieds site Ganji recently ceded control of its deals portal (where it’s a very minor player) to 55Tuan, which has now risen to be China’s second-largest deals site. Though a relatively small bit of outsourcing, it’s indicative of how this path is chosen rather than Ganji abandoning that non-core part of its business. (Read more on BusinessInsider).

360buy + 55Tuan

This would be a major one, though for now it’s a rumor. Essentially, as we outlined last week, 360Buy – which is the country’s second-largest B2C e-tailer – might try to outsource its group buy portal to 55Tuan so as to save on costs on that aspect of its non-core products.

Tencent’s QQTuan + FTuan

Web giant Tencent (HKG:0700) has entrusted its QQTuan deals aggregator to be run by FTuan, one of China’s top ten group buy startups.

It’s not just happening in e-commerce in China. Video-streaming sites in the country – another highly competitive yet fragmented sector – are going through a major shake-up as well. First there was the bombshell of a merger between Youku and Tudou, the two top players; then just this morning, three smaller video sites formed a strategic alliance for buying movie and TV show rights, and they might work together on social elements of their sites as well.

And so the online retailing industry in China could see a major acquisition or two – but consolidation via outsourcing and partnerships seems to be the path that many more will follow. That’s because they lack the funds to acquire a rival, but need to work together in order to survive.

There’s a rumor in China’s online retailing industry that 360Buy, the country’s second-biggest B2C e-commerce site, is seeking to outsource its daily deals business, perhaps to 55Tuan or Lashou.

The rumor suggests that 360Buy is not looking to get out of daily deals per se (which is but a small part of its overall offerings), but might instead be wanting to outsource the localised elements of the labour-intensive business. Apparently the company has approached a number of group buy sites who might make good outsourcing partners, though only 55Tuan and Lashou have been mentioned by name.

The last time we looked at market share among deals sites, we saw that 55Tuan had 11.8 percent of the market (for February 2012) in terms of total revenue, putting it in second position behind only Meituan with 15 percent. Lashou, meanwhile, has been on a bumpier course of late, and is now the fourth-largest deals site in China.

55Tuan’s co-founder is Singaporean James Tan, who spoke at our Startup Asia event earlier this year, where he revealed that “every day we transact more than $1 million.” We’ve reached out to Mr. Tan and will update if he’s able to comment.

360Buy’s deals portal (pictured above) is currently running in only 21 major cities across China, making it much shorter in reach than all the leading deals sites.

[Source: Sina Tech news - article in Chinese]

According to reports from Dataotuan.com, a group buy aggregator and analyst, as of February the market leader is Meituan holding 15 percent of the market. It’s followed by the trio of 55tuan (11.8 percent), Dianping (10.7 percent), and Lashou (10 percent). The rest of the crowded field is packed together around or under six percent. Dataotuan points out:

The top 4 now makes up more than 47.5% of the total deal revenue. To put that in perspective, the top 10 represents 78% of the deal revenue. The change is here more in market consolidation.

Indeed we have seen many of these companies go through troubles of late, with Renren’s Nuomi losing $9.6 million in the last quarter, and the strange drama around Tuanbao of late has been sort of a tragic comedy with a twist of Charlie Brown.

You can check out the chart below (image version here) where we have plotted Dataotuan’s figures [1] for the past six months (with the exception of those with all but negligible share) to get a bit of a broader picture of things. Their February report, in its entirety, can be read here.

The M.I.C. opinion

Group buy sites haven’t been doing super-well in China over the past six months. In fact, what with all the bankruptcy and fraud, it almost seems like it would be easier just to let them die a natural death. But yesterday the Ministry of Industry and Commerce released an opinion suggesting that the group buy industry be regulated.

Specifically, the opinion suggests the implementation of an auditing system for both service and product quality, using contracts to define the rights and responsibilities of operators and consumers, enforcing privacy systems to protect users’ information, prohibiting dishonest business practices, recording and saving transaction details, and standardizing group buy sales activities (whatever that means).

The opinion also called on regulators to be more thorough in supervising the industry and enforcing existing regulations. However, it is just an opinion, not a new regulation, and coming as it did yesterday on the eve of World Consumer Rights Day, some may interpret it as grandstanding rather than an actual indication of intent to get anything done.

In any event, if the Ministry of Industry and Commerce wants to regulate group buy, they’re going to have to do it soon or I’m afraid there will be nothing left to regulate. BOOM! Thanks folks, I’ll be here all night.

[China News Agency via Sina Tech]

In the spirit of the upcoming Consumer Rights Day (March 15), group buy tracking site Tuan 800 has published a report about customer complaints in the group buy sector during 2011. Tuan 800 is also a platform for customers to submit complaints to group buy operators, and it reports that over 2011 it received 11,812 complaints but that only 6,703 were ever resolved, meaning that more than 43 percent of group buy customer complaints from 2011 are still unresolved.

Perhaps not surprisingly, the top ten group buy sites performed the best, with a collective resolution rate of 71 percent. On the other hand, that’s down from 85.2 percent in 2010.

Of course, the complaints Tuan 800 accepted over 2011 are only a fraction of the total group buy customer complaints, as many, probably most, complaints were submitted directly to the group buy operator’s customer service department or even to the government. Beijing’s Industry and Commerce department, for example, saw group buy complaints skyrocket last year.

Still, Tuan 800′s numbers don’t look good, and many of the unresolved cases are likely to remain unresolved as more group buy operators face bankruptcy.

[Beijing News via Sina Tech, image via Shutterstock]

Group buy sites, group buy sites everywhere, yet not a drop of profit! Yesterday, we were talking about Tuanbao, but today, it’s Renren’s (NASDAQ:RENN) group buy company Nuomi, which lost over $9.6 million in Q4 2011 according to Renren’s quarterly filings. That brings Nuomi’s total yearly losses to more than $24 million. Yikes.

During the quarter, Nuomi took in over $2 million in revenue, but that wasn’t enough to match more than $11 million in operating costs. Renren itself came out of 2011 with a net profit of more than $40 million on the year, but of course, that number would have been much higher without that dead albatross Nuomi.

The especially bad news is that Nuomi seems to be losing money with increasing speed. In the first quarter, it lost $3.7 million but in Q2 that rose to $4.5 million and Q3 saw it rise again to $6.5 million. One has to wonder whether Renren will decide to cut bait here rather than continuing to let its financials get banged up by massive Nuomi losses. Or perhaps, like the Mariner who shot the albatross, Renren will be doomed to wander the earth for eternity, sharing its grim quarterly financials with passers-by as a cautionary tale about why one should never invest in a group buy website.

[via Sina Tech]

While most of the far-too-numerous daily deals sites in China are going through a rough time, the woman-oriented group buying website MaiHao has today announced that it has secured some major investment funding.

The VC backing amounts to US$5 million, coming mainly from the Washington-based ICI an unidentified US investment firm. MaiHao’s CEO and co-founder, Hong Miaolong, hasn’t explained to the media how the funding might best be spent or invested.

[UPDATE on March 3rd - After checking with ICI, it is not the source of the investment funding, and seems to be a mistranslation on my part. The local media seems to identify only an unspecified US investment firm].

The MaiHao site – at 17mh.com – sells discounted deals on products such as make-up, skincare products, and clothing. The company guarantees that all its branded products, such as Clinique and L’Oreal, are genuine items, which can be a serious issue on some group buy and e-commerce sites in the country. There are plenty of other deals sites taking a similarly specialist approach – in terms of focusing on women and a certain genre of products – such as Rakuten China’s group-buy portal which is a joint-venture between Rakuten (JSD:4755) and Baidu (NASDAQ:BIDU).

The timing for the MaiHao funding news is pretty apt, as today is International Women’s Day.

[Source: JRJ Finance - article in Chinese]

Speaking to China Business News, Ren seemed to blame investors for the company’s massive layoffs, saying that they had pushed him to expand rapidly during the first half of 2011, and then forced him to lay people off in the second half of the year. One investor apparently promised to deliver some “rescue money” only after Tuanbao slashed costs. But after the layoffs, Ren says, this investor gave only one million RMB ($158,000) and told Ren to tell everyone at the company that’s all they were going to get. Ren characterized this as “acting like a hoodlum” and said he was very disappointed by the investor.

As for the layoffs, sure, Tuanbao is down to about 100 employees after having more than 2,300 at its high point last year. In other words, it laid off 96 percent of its staff in less than one year. But Ren sees things differently: at one hundred employees, the company has twenty times the staff it did back when he founded it with a team of five.

Ren offered some sound advice for startups: pay attention to the person when you’re looking for investment, because money taken from the wrong person “is like poison.” True, but perhaps it’s not a great idea to be bad-mouthing all one’s former investors while simultaneously looking for investment to support a company with no income?

Whatever, Ren’s not worried about that. And he’s not worried about old shareholders blocking new investors from buying into Tuanbao. If they do, he says, the company will go bankrupt and he can just start a new company with the new investors, free of the old investors’ influence. Good to know, but it makes you wonder why any merchant would want to work with Tuanbao when its own founder is apparently willing to declare bankruptcy and start a new company at the drop of a hat.

When we looked at the most recent stats last month for the group-buy market in mainland China, we noticed some interesting phenomena, such as the top three sites – Meituan, 55Tuan, and Lashou – now look like an established hierarchy, and movie tickets were the hottest leisure deals.

And now the source of those stats, the aggregator and deals analysts DaTaoTuan, has made an infographic showing why movie coupons are such an important differentiator for a daily deals site, potentially bringing in over half a million sales worth over 10 million RMB (US$1.58) to a single company. Movie ticket deals now account for 13.4 percent of all revenue in the mainland China group-buying sector.

In summary, before looking at the infographic below, it seems that Meituan and 55Tuan are making the biggest piles of celluloid-derived cash, with Meituan bringing in 13 million RMB ($2.06 million) in the space of nine days with its movie deals across 44 Chinese cities. The infographic astutely points out that cinema tickets are way expensive compared to the usual pirated DVDs here – like, 70 RMB tickets versus 7 RMB discs – so big discounts are proving to be a great way for deals sites to bring in new customers and reconnect with old ones as well.

[Source: DaTaoTuan’s blog]

Empty office after TuanBao closed numerous branches and laid off staff

Chinese magazine The Founder (创业家) ran an interesting in-depth feature today on TuanBao, also known as Groupon.cn, the group buy company that grabbed up the Groupon domain, forcing the real Groupon to call its China service Gaopeng. The article focuses on founder and CEO Ren Chunlei (you may remember him from those rumors that the company had gone bankrupt and he had fled), who apparently has managed to pull the company out of its death-spin. Sort of.

Apparently, Ren has managed to slow the downward spiral by doubling down on Tuanbao. He’s put his life savings into the company, mortgaged his house, and has apparently found a new investor who’s willing to back TuanBao, although the deal isn’t finalized yet. And the company is working to pay back retail partners it owes, albeit gradually as its debts are significant.

Laid-off employees take photos to commemorate their time at TuanBao

It hasn’t always been easy to keep the faith, either. In the article, Ren talks directly about employees who betrayed him, though he doesn’t name names, and says that the rumors that he had fled came from a TuanBao employee. But like most group buy sites, TuanBao’s biggest problems were all about money:

Click for an interactive version of this chart

In a move to combat the problem you can see in the above chart — that sales are growing, but too slowly to combat the massive net losses — TuanBao has set off in a bold new direction: everything on the site is now free. The idea is that this cuts way, way down on the company’s overhead while hopefully putting it in a position to become the group buy site with the most completed deals. It’s about sharing, Ren says, with TuanBao being a bridge between merchants and customers. “We want to be the Taobao of the group buy industry,” Ren said.

But how will they make any money? Who knows. No one but Ren, and he isn’t saying. He says he has a plan; time will tell whether or not it’s any good. And we may not have to wait long. With the company low on cash, Ren will have to make his move soon if TuanBao is to survive.

[The Founder via Sina Tech, the full story is worth checking out if you can read Chinese]

Group-buy aggregators and analysts Dataotuan are back in action, tracking 125 deals sites throughout January to find the latest trends among consumers in China, and to see how the sites themselves are performing.

In summary, this time around we observe that movie ticket deals are a new craze among buyers, Groupon’s (NASDAQ:GRPN) Gaopeng.com is failing and flailing, and for the first time we meet some shopping-only deals sites, such as Xiutuan, that avoid the usual array of restaurant offers. In the broader market, we finally see some stability as the top five sites, led once again by Meituan, retain their positions.

Here are some of the key slides from Dataotuan’s newest monthly report:

Market Share in January

After more than a year of tumult in this group-buy sector, we now see a clear hierarchy, led by Meituan and 55Tuan, just as it was at the end of December. Meituan is indeed consolidating its lead.

Look down to 14th position on the pie chart to find Gaopeng, Groupon’s official venture in China. Its market share slid slightly once again; now at 2.1 percent, it’s down from 3.2 percent last October, and has been cut in half since its 4.2 percent share of the pie last August.

Number of Deals Actually Sold

The number of deals that are actually sold is, of course, a good indicator of their quality. In this respect, the two market leaders show that they also offer attractive deals. In this area, we almost always see strong form from Dianping and the Renren-invested Nuomi, both of which always seem to know what their customers want. You’ll note that Gaopeng was offering a lot of deals, but it – once again – failed to turn that into a large number of sold items.

Movie Tickets in Demand

Movie tickets deals are now – excuse the pun – a hot-ticket item on many deals sites, growing to now account for 13.4 percent of all revenue in the mainland China group-buying sector. It is therefore the largest subcategory of leisure purchases.

Shopping Deals

The report covers, for the first time, shopping-only deals sites, which tend to sell stuff like make-up, watches, clothes and accessories, and not items like restaurant deals, holidays, etc. And so we encounter some new names: Xiutuan.com seems to be the market leader, though this market is clearly less stable and it fluctuates each month. Tuanxiu seems pretty solid as well. But this sector does have a few recognizable names, such as the Walmart-invested Yihaodian, and the cosmetics-oriented Miqi, which last year attracted some VC funding. Both those are mainly conventional e-commerce sites which also do daily deals on the side.

Check out the full report as a slideshow at the source link below.

[Source: Dataotuan’s blog]

Tuanbao's banner: Tuanbao will offer a totally new service starting February 2.

As of right now, Tuanbao’s site still offers only group buying deals. Clicking on the red banner just reloads the homepage. So not only is there no new service in sight, but Tuanbao is essentially running a big red ad announcing they failed to meet their own deadline. That is…odd.

The Beijing Business Times is reporting that in an interview yesterday Tuanbao general supervisor Li Wei declined to comment on the situation, and calls to Tuanbao’s customer service number went unanswered. Penn Olson’s calls to Tuanbao repeatedly resulted in a busy signal.

The on-site banner is not the only place Tuanbao has made promises of a new service. Last week, Tuanbao CEO Ren Chunlei posted to his microblog account that the company would be entering a new business. But what this new service will look like — if it’s even real — has yet to be seen, and given that Tuanbao’s self-imposed deadline has already passed, it’s beginning to look like perhaps it never will be.

Unlike the common group-buying websites in China, Handsup.cn has an interesting new spin. It is the first domestic site that allows consumers to request deals. Seeing goods or service which they want, users can create and promote their own deals, turning a local business’s customers into its biggest advocates. It will be interesting to see if it’s successful.

According to Handsup, it takes just three steps for consumers to request a deal:

1. Find an item that you’d like to buy. Other e-commerce sites like Taobao or Amazon China can be used for ideas.

2. Submit the idea along with a photo, pick a realistic discount amount, and add a deal description. Here it goes through a review process behind the scenes. If the deal is approved, you will see it in action on the site. Now you can wait for it to gain traction, or rally people to sign up for the deal by sharing it online.

3. Again behind the scenes, if enough people are interested in the idea, Handsup reps will contacts businesses with the details, and if a business approves it, the deal is on. Now you can buy it with a nice discount – such as the USB-powered speakers pictured below that come with a 35 percent discount.

The more people 'hands up' a deal, the greater the discount will become.

The advocator of the deal will get a reward of 100RMB for each deal that goes on sale, no matter if he or she buys it.

There are three levels of price for each deal (pictured above); the more people vote – or ‘hands up’ – the deal, the greater the discount could become. This is how Handsup inspires social sharing and word-of-mouth marketing in its innovative group-buying model.

This consumer-to-business (C2B) model – in contrast to the usual B2C on the likes of Meituan and Lashou – is so new in China that nobody knows whether it will be success or not. Liu Lei, one of the founders of Handsup, says that his website offers a stronger deal alternative than those normal group-buying sites, and lower prices as well.

Currently, the items on Handsup.cn range from clothing and gadgets, to food and cosmetics. Its revenue model is more traditional, though – getting a cut of the daily deals that are bought by its users.

[Source: Tech2IPO - article in Chinese]

China’s second-largest e-commerce site, 360Buy, continues its very aggressive expansion today with the launch of a hotel booking site. It’s quite a break away from the company’s usual focus on books, electronics, and clothing, and is a significant threat to the country’s main travel services, Ctrip (NASDAQ:CTRP), Elong (NASDAQ:LONG), and Qunar. The B2C e-commerce site started selling plane tickets last summer, and so now it has augmented its offering to the point that it has a fully-fledged travel service.

The new portal, at hotel.360buy.com, also includes discounted daily deals on hotel bookings, making this something of a challenge to the country’s leading group-buying sites, Lashou, and Meituan.

360Buy said in a press release accompanying the launch that is has 20,000 hotels on the new site, across mainland China, Hong Kong, and Macau.

In recent months we’ve seen the company make acquisitions, plan to open an e-book platform, and launch a luxury brand clothing store. It’s all a part of 360Buy’s stated aim to expand well beyond its initial product range and challenge Alibaba’s Tmall.com, the current market leader, for top spot in China. It may seek to IPO in the US, if economic conditions improve, in 2012.

General Summary
Willis Wee spoke with James Tan, the co-Founder of 55tuan who we have written about before and managing partner at QuestVC. James discussed his own experiences going to China to do business there, and explained that while his experience there has been a fruitful one so far, that it can often be an arduous process for foreign startups to adjust to the market there.

Liveblog

#10:09: Typically we want to invest in local startups, because for foreign startups to come into China and learn the local system, local markets — it can take as long as three years, and that’s just too long.

#10:07: If your idea is something we think makes sense for Chinese market, we would be happy to help you do everything along the way. But at the same time we don’t want to make it too comfortable.

#10:06: On China besides Beijing: You can explore, but its still pretty much about Beijing for me. That’s where companies can find the necessary talent. The country can support many hubs, but there is still one major center and that’s Beijing.

#10:04: James refers to how many companies in China “copy first and innovate later.” If you look at all the big startups in China. Baidu, like Google. Tencent like MSN and ICQ. All of them started as copied but differe greatly from the originals now. It means localizing and innovating on top of the initial idea.

#10:01: I’m not going to defend [Chinese copying], but if a good idea comes from the west, it will be copied anywhere in the world. Executing well is important, because even if you copy, it may not work if it is not executed well.

#10:00: Advice to entrepreneurs: Find good partners. I think events like this help, I would love to see Penn Olson do an event like this in Beijing.

#09:59: There is a crisis of trust in Chinese companies that started back in May or June. We took a step back to look at the best time to list. We had to step back and ask, do we need capital or not.

#09:58: There are many ranking criteria. We typically go by revenue, which see us in the top three. Top three players are always consistent. There are only three sites that have a transaction value of 200 million RMB. Every day we transact more than $1 million.

#09:57: Three months after launch we had about 80 competitors.

#09:56: James explains how he went to China on a scholarship, met cofounders there. Cofounders all from Qinghua university.

#09:53: 55tuan is one of China’s largest ecommerce site. But the model has changed much since it started.

Of all the Groupon clones in China, TuanBao is probably the most audacious, given that it bought the groupon.cn domain name out so early that the real Groupon had to change its name to Gaopeng when it entered the country. Since then, though, TuanBao has not exactly been flourishing. Last fall, we reported it had laid off 80 percent of its staff, but seems that despite that, the company is in financial trouble. I am shocked.

Rumors started spreading a few days ago that the company had gone bankrupt and the company’s CEO had disappeared. On his Sina Weibo account, CEO Ren Chunlei denied the company was bankrupt and that he was planning to run away, saying that the rumors online were false. Meanwhile, though, TuanBao Executive Director He Xiaoling admitted that like many other group buy sites, TuanBao has encountered financing problems and had laid off additional staff prior to the Chinese New Year holiday, which has just ended.

Famed angel investor Xue Manzi says that he met up with CEO Ren Chunlei over the holiday, and that in private Ren had also confirmed the company had financial problems. Of course, that’s not a big surprise given that he also posted this message to his weibo account:

Calamity is a touchstone of the human experience. I will not run! It’s not in my nature, in 1996 at my own startup my guiding principle was: no surrender, no compromise, no losing determination, no defeatist words, no planting false evidence…

So who knows exactly what’s going on, but it’s pretty clear that at the very least, things are not going well.

[via Sina Tech]

The Indian startup Freecharge.in has announced this afternoon that its has secured funding worth Rs. 20 crores (US$4 million) from Sequoia Capital – the second time it has been given a cash boost by the same VC firm.

Freecharge allows users in major cities in India to get free coupons – either by mail, or in the form of e-coupons – when they pay via the website to top-up their mobile, data, or TV credit accounts. It’s similar to the group-buying/daily deals model – as pioneered by the likes of Groupon (NASDAQ:GRPN) and Livingsocial – except that the goodies actually are free. The service claims to have grown to 1.5 million users since its inception just 18 months ago, and to be one of India’s highest transacted e-commerce sites.

The company says that the new injection of funds from Sequoia will be used to add new products, add merchants as partners, and to advertise the service to consumers.

Sequioa Capital’s managing director, Shailendra Singh, said in the accompanying press release:

Freecharge has created a new online model, enabled by couponing. We were attracted to Freecharge because it isn’t another daily deals site, but one that leverages a very localized phenomenon of pre-paid mobile and DTH [direct to home] services, to generate demand for large merchants. […] Some of the e-commerce merchants that offer coupons on Freecharge have seen their sales grow 50 to 100 percent due to Freecharge alone.

Merchants currently participating in the coupon deals on Freecharge include McDonald’s, Puma, and Best Buy.

Despite a tough year for many group buying sites in China – including lots of terrible publicity such as huge spikes in customer complaints – lots of consumers turned to such deals sites for their most important event of the year: Chinese New Year dinner.

The deals aggregator Tuan800 has revealed that in China’s 10 biggest cities, people snapped up 734 ‘Year of the Dragon’ dinner deals that sold 54,000 times, amounting to a total of 2.97 million RMB (US$470,000) worth of festive food. That represents growth of 940 percent since the last Chinese New Year back in 2011.

The holiday period as a whole saw even larger group buying stats, as people bought about 11,000 deals that sold 1.83 million times to a total value of 65.92 million RMB ($10.4 million). And remember, that’s not the nationwide figure; that covers only 10 large cities. For the grandest of totals, Tuan800 claims the entire deals sector in China saw 11 billion RMB ($1.74 billion) in sales in 2011.

Meituan.com and Lashou.com emerged as the leaders in this ferociously competitive market last year.

[Source: DoNews - article in Chinese]

These stats come from the group buy aggregator and analytics company, Dataotuan. For the December figures it looked at 125 deals sites across 345 cities.

Last month saw the further rise of 55Tuan, rising to be second in terms of market share. Lashou, once the leader in this industry, has suffered quite a knock, dropping down to fourth:

Lashou’s drop might well be due to a lack of popular deals. That’s something that Dianping, Nuomi, and Meituan are doing – as they often seem to do – very well:

Compared to the last time we looked at the deals market in the country, the average price of a deal went up a meagre 3RMB to now be at 140RMB (US$22):

2011 Daily Deals Sector in Summary

Looking at 2011 as a whole, Dataotuan observes that the top 10 deals sites take 71.8 percent market share of the whole industry – while the top 11 to 20-placed websites fight over 16.7 percent share. The remaining crumbs are scrapped over by literally thousands of rivals:

So, despite a number of controversies at individual Chinese deals sites, and industry-wide issues such as customer complaints and some sites way behind in paying merchants, the whole sector has somewhat stabilized and a clear hierarchy has been plotted out. But that doesn’t mean that 2012 will be any less competitive.

For the full stats, plus some insights from deals sites across Asia, hit the source link below.

[Source: Dataotuan]

Here’s a sentence we’ve never uttered before: Good news for Groupon in Asia! Yes, the American group-buying service Groupon (NASDAQ:GRPN) has extended its lead even further in the Taiwanese daily deals sector, and now commands over half of the market share on the island.

The last time we looked at the situation in Taiwan back in July 2011, we saw Groupon had 47.7 percent market share there as the entire group-buying industry grew by 8.3 percent. The very latest data, once again from Goodlife.tw, for December shows that the entire sector shrank by a minuscule 0.9 percent, and that Groupon Taiwan has grown in that time-span to now have an even firmer grasp – a full 52.37 percent in market share.

Gomaji and 17Life remain a consistent second and third place. The latter half of 2011 was good news not just for Groupon, but also for 17Life (gaining 5 percent), and for the mainland contenders Lashou, and Nuomi. That last one is partly owned by the Chinese social networking site Renren (NYSE:RENN). Meanwhile, both Gomaji and Yahoo’s (NASDAQ:YHOO) Taiwan deals portal remained stagnant. JiGoCity – which also operates in mainland China – is not shown in the graph but is another riser, ending the year in sixth place with a 4.1 percent share.

We’ve taken some of the raw data and made a chart to show how things have changed in Taiwan from July to December last year (click to enlarge):

Much of the top eight deals websites in Taiwan remain stable as the whole market shows less volatility than the ferocious scene in daily deals in mainland China.

Groupon entered Taiwan by acquiring the already successful local deals site Atlaspost exactly a year ago. At the time, Gomaji and 17Life were still its main competitors.

Meanwhile, the US site LivingSocial still hasn’t entered Taiwan, despite an aggressive push into Asia last summer. Perhaps it could jump-start its move into the stable Taiwanese group-buy market by buying up either Gomaji or 17Life.

[Source: Goodlife.tw - article in Chinese]

Is this what the future holds for group buy in China? (via Sony Pictures)

2011 has been a rough year for China’s group buy sites. That’s evident just from the fact that there are an awful lot less of them than there were back in January. Over the year more than 2,000 group buy sites closed. But is 2012 the year of the comeback? Or is it the apocalypse?

For the beginning of the year at least, it’s looking more like the latter, at least as far as group buy sites are concerned (no word yet on whether the world will end in 2012, but Bruce Willis is still alive, so we’re probably safe). Chinese analysts are suggesting that the first three months of 2012, at least, are going to see even more group buy sites closing their doors, with Spring Festival being an especially rough patch. Given the current scale of the market, some insiders are suggesting that 90 percent or even more of currently extant group buy sites will close sooner or later. Many may be sooner.

Why close on Spring Festival? One reason is that the holiday, which marks the new year in the lunar calendar, is a traditional time for Chinese people to make changes. It’s likely that right now there are group buy sites limping along purely for the sake of making it to Spring Festival just to ensure their workers have money to bring home and celebrate with.

Of course, losing your job isn’t exactly the best way to kick off China’s biggest holiday. But if industry analysts are right, lots of those jobs are doomed anyway. Perhaps it’s best to end the year with a clean break, and then start the new year with something fresh. If we’re lucky, maybe some of the folks from failed group buy sites will try out new startups and work on something a little more interesting!

[via TechWeb]

Yesterday we told you about how Hong Kong-based Lokaly Network Limited (which operates Lokaly) was acquired by group buying service platform Dealised. And today we’re hearing more news about the company, as the South China Morning Post (also Hong Kong-based) just unveiled plans for a new luxury discount site, developed by — you guessed it — the folks over at Lokaly.

The new SCMP service will be called RedeeME (redeeme.com.hk) and will specialize in discounts on services like higher-end hotels, spas, and restaurants — all under the initial slogan “Live the high life at a reduced price.” The site is online, but is currently in ‘coming soon’ mode, with ‘soon’ being January 4th according to today’s announcement. One the service is up and running, it will offer discounts deals for one week, and coupons will be emailed to customers which they can then redeem with the merchant.

Of course, the South China Morning Post is a subscription only newspaper/service, so and its director of advertising and marketing services, Sophia Yu, thinks that this bodes well for the company’s venture into the group buy space:

What our new service brings our advertisers is the unique target of known quality affluent shoppers. Our audiences are willing to spend for the finer things in life [and by] offering RedeeME to our advertisers, we enable them to get prominent exposure to a guaranteed and profiled audience, while showcasing their products in a brand-enhancing premium environment… We have the added advantage of being able to market RedeeME not only via social channels but also through the South China Morning Post, our magazines and publications, scmp.com and through our many partner channels, ensuring we reach quantity as well as quality audiences.

It remains to be seen whether this is a worthwhile endeavor for SCMP. The newspaper is joining the group buy party a little late, in a time when merchants’ trust in such services may be fading. If neighboring China is any indication, it’s a space best avoided.

But for companies like Lokaly/Dealised whose purpose is to help others crack that difficult group buy nut, well, that area just might be a little more promising.

Group buy sites have been naughty this year

Group buying sites in China haven’t been having a great time, and apparently neither have their customers. Beijing’s Industry and Commerce Department revealed recently that e-commerce complaints account for nearly thirty percent of all the complaints they received this year, and group buying complaints have exploded; the department received twenty-eight times more complaints about group buying sites this year.

Of course, part of the reason is that the group buying sector has itself, exploded over the past year. While the group buying concept certainly enjoyed some popularity in China in 2010, it didn’t really hit its full stride until early 2011.

The complaints received by the department run the gamut from allegations about unfulfilled promises to slow shipping, flawed products, etc.

Yesterday, more than twenty e-commerce companies including Vancl, 55tuan, and 360buy publicly promised to improve customer service by responding to complaints quickly, actively providing customers with receipts and purchase information, and refraining from false advertising and selling counterfeit products.

[China News Web via Sina Tech, image source]

Acquired!

Dealised, the group buying service platform, has acquired Hong Kong-based Lokaly Network Limited (LNL). The acquisition sum isn’t disclosed.

LNL provides group buying solutions and also owns ValuUp, a deals site. This deal seems very much like a talent acquisition to me. The co-founders of LNL, Doug and Matt Aitken (who are brothers), will join the Dealised team and head up its Hong Kong operations. Matt Aitken commented on his decision that “the growth prospects, direction, and opportunity that come with being part of the Dealised team are tremendous.”

Dealised claimed that the Hong Kong deals market is estimated to generate US$60 million in annual revenue and is growing strongly. That’s quite a remarkable figure considering Hong Kong has just over seven million inhabitants and so doesn’t have the sheer size/volume of China or the U.S. I’m suspecting that Dealised has mainland China in its mind and this acquisition in Hong Kong will bring it one step closer to the country.

“The Hong Kong deals market is worth more than US$60 million and is growing. Our Hong Kong team will help us grow right across Asia,” said Dealised CEO Jonathan Marchbank.

Dealised previously raised $5.3 million from SingTel Innov8. You can catch my interview with Marchbank here.

According to the Beijing News, yesterday consumer advocacy groups in twenty-one cities including Beijing, Shanghai, Tianjin, Macau and Hong Kong, released the results of a survey of group buy customers. According to the survey, over 60 percent of group buy customers have had their consumer rights violated in some way.

Reported problems included exaggerated advertising, products and services that differed from what was advertised, failure to fulfill promises and agreements, difficulty returning products, complicated purchasing and service procedures, and listing fake original prices to give the appearance of steep discounts.

The advocacy groups called on group buy sites to establish some standards for quality of service. As far as we’re aware, the report didn’t call out any specific sites by name; thus, no one has responded to it. It’s hard to be sure how seriously to take that 60 percent statistic, but it doesn’t seem out of the question, especially given all the problems even the top-ranking group buy sites have been having recently.

[Image source]

via DailyDealMedia

Gaopeng, Groupon’s (NASDAQ:GRPN) official China JV with Tencent, has not been working out well. Recently, problems like personnel issues and a shrinking market share have been eclipsed entirely by a fake-watch-selling scandal. It all started a month ago when the company offered Tissot watches for just a quarter of their usual price as a daily deal. Hundreds of customers partook and then discovered that the watches were fakes, shipped with convincing (but also counterfeit) certificates of authenticity.

That was bad enough, but customers pursuing legal action have kept the scandal in the news. China’s Ministry of Industry and Commerce has gotten involved and, in a series of different checks, has invariably found the watches Gaopeng was offering (via one of its vendors) were indeed fake. Most concerning for Gaopeng is that yesterday, Shanghai police reported they were already investigating the case and that they would be looking into Gaopeng’s criminal culpability if the company is indeed found to have been involved in the selling of counterfeit products.

Since the Ministry of Industry and Commerce has already announced the watches sold to consumers that it has inspected were fake, it’s highly unlikely that a police investigation would find Gaopeng to be innocent. But it’s not clear yet exactly what the company’s punishment might be.

Meanwhile, Gaopeng is attempting to place band-aids on the wound by calling customers who bought the watches and offering to up the amount of compensation money they are eligible for, according to at least one watch buyer. Remarkably, though, the compensation they’re offering is still pretty terrible — if customers send back the watches, they’ll refund double the full purchase price.

It’s the second time they’ve upped their compensation offer since the scandal first broke, but at this point it’s hard to imagine the damage isn’t already done. With consumer trust in group buy sites flagging as finacial issues force them to close offices, a full month of news about Gaopeng’s untrustworthy products — and now a possible criminal investigation — things are definitely not going well for Groupon’s poorly-executed excursion in China.

[Via Sina Tech]

Updated stats for China’s fierce group-buy market seem to suggest that we can now crown a triumvirate of winners – Lashou, Meituan, and 55Tuan. That’s because the trio has finally nailed the holy grail of leading in terms of market share, number of deals sold, below average discounts, and highest revenues. To make that even better, Lashou has a higher than average deal price (where the average deal sold is 137 RMB, which is US$22).

As with the last time we looked at this sector in-depth, the stats are provided by Dataotuan. One major difference is that Tencent’s (HKG:0700) group buying portal, QQTuan, has been ignored as it’s now deemed to be more of a deals aggregator. Taobao’s Jua Hua Suan is similarly left out of these stats.

Here are a five key slides from the presentation which shows figures that go up to the end of October, which are the newest available. (Hit the source link below to see the full show):

Daily Deals Market Share

Lashou once again cements its lead as the top indie startup in this segment, with 12.7 percent of market share evaluated by revenue. Groupon’s (NASDAQ:GRPN) venture in China, Gaopeng, is still clinging on just outside of the top ten.

In fourth and fifth places are some hard-charging smaller rivals – 58Tuan, and 24Quan. The latter has been in the news for all the wrong reasons this month, so it’ll be interesting to see if that progress is sustainable:

Revenue and Deals Sold

This industry has been so painful – with lay-offs, protests, unpaid merchants, etc. – because the revenue from such deals is often so low, leaving the labour-intensive group buy sites struggling to survive on single-digit profit margins. The bad news (as seen in the final slide below) is that average revenue is still dropping, although the average deal price is trending upwards (despite a jolt downwards in October).

FTuan will be familiar to regular readers, but it seems to be sliding down in everything except the average price of its sold deals.

Getting back onto the subject of 24Quan, you’ll notice from the blue bars that its large discounts – way above average – are causing lower than average deal prices. It’s presumably a deliberate strategy to try break into the top three.

Hop on over to DaTaoTuan’s site for the full 30-slide presentation, which includes break-downs of the most popular kinds of services sold, and which parts of China have the best-quality deals.

[Source: DaTaoTuan’s blog]

Lashou, one of China’s leading group-buy sites, is rumored to be expanding into the more conventional e-commerce segment next week with the launch of ‘Lashou Mall.’ Chinese tech media reports that the Lashou Mall – due for launch on December 8th – would be aimed at helping consumers buy services online from local small businesses in a more straightforward way than the current ‘deals’ method. The fees charged to local firms could be as low as 1,980 RMB (US$312) for six months.

The group-buy/daily deals segment in China has been frantic and fierce this year, marred by lawsuits, protests, firings, and unpaid merchants. Plus, margins are tight – possibly below 10 percent for the sites themselves – and many are losing money.

A shift towards the B2C – or B2B2C – sector, would seem a good way for Lashou to scale, diversify, and secure fatter margins all at the same time. As per today’s rumors, it sounds like an open platform of the sort that Alibaba’s Taobao Mall pioneered in 2008, and which has gone on to be the country’s leading e-commerce site.

Lashou Mall vs Taobao Mall?

Purported lower overheads for vendors on Lashou Mall would be quite timely and pertinent, as the past month has seen both virtual protests and actual, physical demonstrations by smaller businesses running on Taobao Mall due to rule changes that brought in much higher cash deposits. If it turns out to be true, Lashou Mall’s much lower rents could be disruptive in the industry, especially amongst much smaller family-run companies.

Lashou is supposedly listing in the US this month, but it’s believed to have been delayed by regulatory issues. A major announcement from Lashou next week would be in contravention of the pre-listing quiet period – and so would indicate that the IPO was either significantly delayed or cancelled altogether.

[Source: QQ Tech news - article in Chinese]

A sweet hangout location for whoever finally wins the group buy market in China

The group buy business in China has gotten so rough that I don’t need to link to specific cases anymore. No, all I need to do is say group buy, tag link it, and let you browse for yourself through what has become a grotesque gallery of layoffs, closings, late payments, dissatisfied clients, and shattered dreams. It’s pretty grim, and it’s only getting grimmer — today China’s major tech sites are reporting on rumors that group buy sites like Groupon.cn (not associated with the real Groupon, although its official China JV Gaopeng isn’t doing well either), 58tuan, and Fantong are all significantly behind on their payments to merchants.

Some are apparently so behind, in fact, that merchants can’t expect to see payments before next year. Beijing Business Today spoke with one Beijing restauranteur who had tried several group buy sites, and said that most of them paid her back on time or after a minor delay, but that Fantong had delayed her payment for a full month — so far. They still haven’t paid, and she says if they don’t get the money soon, they’ll stop accepting coupons users bought from Fantong.

And that’s not a unique case. Ms. Xu, a representative for a merchant that worked with Groupon.cn, told the paper that because the Groupon.cn employee originally responsible for their case had quit (or perhaps been laid off), their repayment had been continually pushed back to the point that Groupon.cn now owes them nearly 200,000 RMB ($31,000). Another merchant told a similar story about 58tuan, saying he was owed hundreds of thousands of RMB and that the payment had been delayed for over a month.

Not everyone is taking the accusations lying down. Yao Jinbo, the CEO of 58tuan’s parent company, took to his Weibo account to address the reports:

“Over the last week a media outlet has been publishing totally baseless so-called negative articles daily: [our] group buy business is closing, employees are resigning en masse, merchant repayments are late…the next report will probably be that the CEO has an illegitimate child! Is this meaningful? Can’t you pay less attention to us? Cooperators and colleagues, let’s put our effort into doing things that are meaningful for the customer. Even if the entire industry collapses, we’ll definitely be the last ones with the resources and willpower to keep exploring!

It’s very difficult to assess who is telling the truth here. On the one hand, China’s mainstream media is not exactly free of corruption and in highly competitive industries there is certainly a lot of cloak-and-dagger stuff going on between competitors. That said, ‘our competitors are printing mean, made-up things about us in the news’ is something we hear pretty much constantly from every Chinese company we talk to. Everyone wants to cast their own company as the lone knight in a den of thieves, besieged from all sides but soldiering on honorably.

Give me a break.

Anyway, at this point these reports are merely rumors and allegations. But it’s getting very difficult to believe that all these stories about group buy sites in trouble have been somehow drummed up by competitors, in large part because that doesn’t make a whole lot of sense. Yes, spreading rumors that 58tuan doesn’t pay their debts harms 58tuan, but if you’re a group buy company, it harms you too. Less than it hurts 58tuan, for sure, but every one of these stories is going to be seen by a bunch of retailers and merchants who decide the group buy model is just too risky for them to bother with. And that makes the group buy market more competitive.

If these stories are all just plants, the eventual winner of this mud-slinging competition may well find themselves a king upon a throne of skeletons, the ruler of a marketplace its own tactics have left barren by continually sending consumers and merchants the message that group buy sites are not to be trusted.

[Via Beijing Business Today and Sina Tech]

24quan CEO Du Yinan, at right, during Disrupt Beijing's group buy session

Last week we wrote about some of the concerning reports circulating on the net about group buy site 24quan’s, ahem, “restructuring.” Amidst the sort of things we’ve come to expect from group buy sites — branch closings, location-based layoffs — there were also reports of vendors and employees going unpaid or being threatened with withheld wages if they didn’t sign a separation agreement when their branch was closed.

24quan CEO Du Yinan was nice enough to leave us a comment on that story. In essence, he confirmed the layoffs, although obviously not using that particular word:

24Quan is undergoing transformative changes which will help steer the company to sustainability and profitability. We made a difficult decision to close down many under-performing sales centers in third and fourth tier cities and in some of these closures, admittedly, we could have done a better job with communication.

He also disagreed with my assertion that the reports of not paying vendors or employees essentially amount to theft:

24Quan is an honorable business and we pay all of our merchants and employees. At 24Quan, we do more than 10,000,000 US dollars of business per month and therefore we can assure you that we are not incentivized nor motivated to “steal” 3,000 dollars from employees or 300,000 dollars from merchants. We can confirm that people have stolen money from the company during our down-sizing efforts and hence we are taking a measured approach to reimbursements and payments to third parties, painstakingly verifying obligations and payment details. We also acknowledge that some of our ex-employees are unhappy with our decision to close down certain cities and we understand their frustration.

But — of course — we were interested in learning more, so I got in touch with Mr. Du via email. The following interview is being reproduced verbatim, with only minor edits to correct grammar and spelling. That makes it one of our wordiest interviews, but in this case, we felt it was best to reproduce my questions and Du’s answers in their entirety so that people get a clear understanding of the conversation.

Interview

CC: Certainly, there is no motive for 24quan to steal (relatively) small amounts of money, but if the company owed a debt to merchants and then failed to pay that debt within the stipulated time limits — which I believe is what happened, in at least a couple cases, correct — isn’t that a kind of theft? Certainly, it impacts merchants’ businesses in an adverse way and it’s not something they have any control over…

There is no motivation for 24quan to “steal” money from its merchants. We value our long-term relationships with quality merchants which is paramount to what constitutes our good and everyday business practices. That said, we handle a vast amount of merchant payments on a daily basis. To give you a sense of the size of our business, we have in excess of $12,000,000 of cash turnover – every month. Naturally from this kind of deal volume, we see a small percentage of irregularities. Furthermore, we reserve the right to question and to evaluate merchant claims when we spot an irregularity, as we also take quality control very seriously.

The majority of our merchants provide the services they commit to, however, there are also cases where the merchant will not provide the service they committed to offer to our customers, or there is a serious default in the service given. For example, we reevaluate claims when we are led to believe that (i) the merchant may not have delivered its services per our stated offering, which results in massive customer complaints; (ii) when the contract entered into was fraudulent (a fake chop or altered contract); or (iii) when we believe the merchant has already been paid (we paid but they claim non-receipt of funds).

CC: You said [in your comment] you could confirm instances of individuals stealing from the company. Could you elaborate on this? Has this happened only at branches that are being closed, or is it a more widespread issue? Is this one of the factors that has led to the “communication” issues you mentioned?

From time to time, there are bad apples in a basket of good apples. We employ several thousand people in China and I can say in earnest, that we generally employ good people. Sometimes, when people are let go they fail to return access cards, devices such as their mobile phone, or sometimes a laptop. These are dealt with by withholding the individual’s final severance payment, which is permitted by law. Sometimes our equipment are returned broken and we have to figure out what to do. These situations can sometimes amount to a dispute between an employer and an employee and we settle these pursuant to methods permitted by law.

We also have to manage IP and data theft by employees. We have run into instances where people are spying for a competitor. In these situations, we have to figure out ways to manage HR issues and protection of our business. These irregularities are dealt with by our professional HR team. On occasions, we uncover massive fraud where our employees are working with fake merchants who are just friends working together to scam the company. We manage these incidents and work with local law enforcement. I do not wish to comment on specific branch closures.

CC: How do you anticipate your restructuring and the communication issues will affect the trust of your brand, in terms of consumers, and also in terms of trust from merchants and even from potential future employees you might be interested in hiring/recruiting?

In our industry, it’s not uncommon whereby our brand is being attacked and vandalized by competitors on a daily basis. In 2010, our top competitors engaged in massive smear campaigns attacking us. Early on in 2011 our competitors aired testimony from ex-employees that 24quan is out of money (allegations that are false; we are not going to do what Meituan did – that is to show the CEO holding a bank statement indicating that the company has money). In August, our competitors aired “news” that we do not have any venture investors, all because we did not publicize the amount and closing of our financing.

We have seen it all, and in this highly competitive market, we’re not surprised. We have supportive investors and we are focused on the continued growth of our sustainable business in China. Running a start-up in China is like running for the U.S. presidency: filled with smear/negative campaigns and fierce competition. We do our best by communicating effectively with truth, and over time, people figure things out and recognize that we are a trusted brand and we stand behind our merchants and consumers. We are here to stay.

CC: You wrote: “we are taking a measured approach to reimbursements and payments to third parties, painstakingly verifying obligations and payment details.” Could you elaborate on this approach, and the amount of time you anticipate it taking? Does this also apply to the payment of employees?

Compensation in the PRC is complex as it is. I am not an HR expert, but I can tell you that we make payments to employees on time and pursuant to local laws. We are required to withhold social security, certain tax withholdings, and other local taxes. Often times, if there is a dispute with an employee, it is over the “bonus”. We cannot pay out a bonus for a merchant deal that has not yet taken place, or is subject to re-evaluation when a person leaves. So if a sales person leaves us and breaches the employment agreement and joins the competitor the next day, takes our contacts and laptops from us, do we pay the person a bonus? From time to time, we will see people disagreeing with us over the math and we do our best to settle these because often times, the amount in contention is under $100, but people get very worked up over it.

CC: At Disrupt, you spoke about 24quan having the highest margins in the China group buy market, how the company would be profitable within two months, and how the group buy market in China was being hurt by a few ‘troublemakers’ that were causing vendors to lose trust in the group buy model. You did also talk about the coming “winter” and how companies need to rely on profit rather than capital, but to me, there still seemed to be a sharp contrast between the impression I got of how things were going for 24quan from what you said during that event and then the “restructuring” and communication issues apparently happening now, which seems to be an echo of what we’ve seen from many other Chinese group buying companies leaving a trail of closed local offices, disgruntled employees, and frustrated vendors in their wake. Have I missed something here? What makes 24quan different from the other group buy companies experiencing similar “transformative changes”?

All companies must go through lots of “growing pain” for any meaningful transformation in a down market. Some players may choose to take a soft correction, where others take a hard correction. 24quan is not immune to that painful transformation, especially considering our intent to achieve profitability break-even next month. That, nevertheless, does not detract from the fact that 24quan maintains the highest gross margin in China group buy market, nor does detract from what the “troublemakers” have been doing, past and present, to undermine the healthiness of the market.

We are closing offices that do not generate positive margin (i.e. no deal profit). We are rationalizing our business and eliminating the offices and locations that are not profitable or have no likelihood of achieving profitability in the next 12 months. It tends to be the case that these locations belong to third or fourth tier cities, or in cities which we do not have a meaningful position compared to our competitors.

With respect to the “winter” I referred to at TechCrunch, I refer to the harsh reality that our competitors will also undergo the same painful exercise of down-sizing as capital is drying up and the cost of capital has increased since mid-2011. Merchants will have to ready themselves for deals that are arguably less attractive because our competitors no longer subsidizes deals with perks, rebates, etc. Merchants will need to give us better “margin[s]” and our employees also need to get better at selling. In the past, if their performance was mediocre, they could jump ship to a competitor. Today, there is nowhere to jump to but to get out of the business. This “winter” is really just a consolidation, but I personally believe this consolidation cycle will be felt in a way unlike any other in China’s internet history because there was hyper capital, hyper competition, and hyper growth; coming down from this will not be easy.

CC: What else do you want our readers to know about 24quan?

We want readers to know that we are a real business and we tend to think we are the “good” guys. In China, the good guys often get bullied and are beat up really badly (recall Google, Groupon, eBay and others). We are tough because we rely on resilient execution, sound strategy, effective leadership and a shared vision. Look us up in 2013.

via titanicuniverse.com

At this point, everyone knows that the group buy market in China is, er, going through a rough patch. The question has long since shifted from “is this going to happen?” to “how bad is the damage?” and increasingly, it looks like the damage is pretty freakin’ bad.

Today, the China Youth Daily cites a recent survey of group buy sites in China that found that through October, 1,483 group buy sites in China had closed completely. And in worse news, 456 of those closings were in October, which means things are only getting worse.

And of course, plenty of sites that are effectively closed aren’t yet part of those numbers because their closing is unofficial. According to data released by Etao, as of October over 20 percent of group buy sites hadn’t been updated with new products in nearly a month. Then, of course, there are the many sites that remain operational but have altered their business model so that they’re no longer group buy sites.

So, I guess the new question is “when will things get better?” We don’t have any data for November yet — given that the month isn’t over — but it’s hard to imagine things are getting any better.

Our resident financial expert, Mr. G. O' Rilla, actually reckons that O2O investment figures reached just over "a gorillion dollars so far in 2011."

Stats put together by ChinaVenture show that Chinese web companies of the so-called online-to-offline (O2O) variety – such as group-buy sites and e-commerce travel services – have raised a total of 7 billion RMB (US$1.1 billion) in venture capital so far this year. That rebuts widespread fears of a huge squeeze on funding for web firms, at a time of tightened credit and concerns about the financial integrity of some recent Chinese IPOs.

Among the biggest recipients of VC largesse were Qunar – courtesy of $300+ million from Baidu (NASDAQ:BIDU) – and Lashou’s $110 million from Milestone Capital and numerous other sources. Here’s the table of major investments in this sector (which we took the liberty of remaking and prettifying):

A representative of Chinese investment consultants Asimu told ChinaVenture that these O2O-based services – despite operating in fiercely competitive markets – are bolstered by their offering “the basic necessities of life,” such as food and clothing. He also pointed out that, in such a vast market, “even if you have just a one percent market share […] it’s likely that you can go public.”

That’s borne out by upcoming IPOs for Lashou (though currently being delayed) and Vancl (on course for next month).

A total of 64 O2O-based services have snagged some amount of funding this year (only eight of the biggest names are shown in the above table), which is good news. The only issue we have is that “online-to-offline” is quite a silly phrase, which relates to pretty much everything we buy on the internet. Perhaps suffice to say that e-commerce sites are being viewed – and invested in – as tomorrow’s enterprise titans. And that’s not least because as much as half of China’s poorer urbanites are already using local online shopping sites.

[Source: ChinaVenture - article in Chinese]

We don't recall Yinan Du (right) discussing the 'incur and then ignore massive debt' strategy when he was onstage at Disrupt Beijing last month

Last month at Techcrunch Disrupt, Du Yinan of the group buy site 24quan surprised us all by saying that even in the midst of a market so harsh it has seen massive layoffs at a bunch of Chinese group buy companies, 24quan was expecting to become profitable by this December. How is that possible? Mr. Du didn’t go into detail, but it turns out we should have been listening to Meituan’s Wang Xing instead. Later in the same panel, he said: ‘It’s easy to be profitable if you cut thousands of people; you’ll be profitable next month.’

That may be exactly the strategy 24quan has adopted.

CCTV is reporting that 24quan local branches, like their Huai’an branch, have essentially disappeared overnight. Offices are empty and the people are gone, leaving only angry merchants who are still owed tens of thousands of dollars. This follows earlier reports that 24quans Taiyuan branch owes over 2 million RMB ($312,000) to merchants and is behind in payments, and there are similar reports for other regional areas.

24quan insiders are saying that the central office is closing branch offices and essentially leaving the workers there, who it owes money to, out to dry as they’re threatened by local merchants 24quan owes money to. And there were reports as early as September of large-scale staff cuts of as many as 1,000 employees.

So, is 24quan going to be profitable next month like Du Yinan suggested at Disrupt? It sure sounds like it. Of course, that may be because they appear to be making massive staff cuts while keeping money owed to both employees and vendors, but hey, that’s just business, right?

Oh, wait, no, it’s not business, it’s stealing.

[Via DoNews]

Group buying website Deals and You has raised $17 million from a group of investors, led by Mayfield Fund and Norwest Venture Partners – with participation from Nokia Growth Partners and Intel Capital - according to report from the Business Standard.

The report further states that the 14-month old company has apparently divested around 18 percent to 20 percent to investors and is currently being valued at US$85 million.

Deals And You will be using this latest infusion of capital to invest in technology, infrastructure, hiring talent, and branding. The company is also apparently revamping its website, aiming to deliver an improved user interface to its customers.

Elaborating on the new funding round, Gaurav Kachru, CEO, Deals And You, said:

We are very happy and encouraged by the faith our investors have shown in us. The raised capital will help us continue to build a strong customer focused business with greater investments in technology and infrastructure, which will help better serve our customers.

Known as Wanamo.com in its previous incarnation, this daily deals website was acquired in June 2010 by Group Buying Global A.G. and Harish Behl of Smile Interactive Technologies Group. Two months down the lane, the website was rebranded and launched as Deals And You, raising $1.5 million in funding from Group Buying Global A.G.

The company currently serves daily local deals in 20 cities and national deals ranging across product, travel, and retail in 250 cities in India.