Groupon, Tencent, Alibaba and China

Are Groupon and Tencent venturing into China? The rumor goes on but it seems that both Internet giant have already strike a deal. Mobinode confirmed it. It was rumored that the site will be fully launched this year May.

To match up with Groupon’s ambitious plan in China, it was reported that 1000 staff would be operating in over 200 cities. The figure could go up to 4,000, according to an undisclosed source.

The new employees are mostly in sales positions and will be trained to handle deals capacity to avoid another embarrassing mess up like the recent one in Japan. Groupon China is also looking for talented people to spearhead the market.

Will this Groupon-Tencent partnership succeed in China? I believe so. The partnership itself already looks like a success formula: Cash + Operation knowledge + Market knowledge. Although revenue is shared, Groupon is better off having a slice of the China market than having none at all. The Chinese market is complex and Tencent will prove to be a useful partner in the long run.

However, Groupon China will face strong resistance from Alibaba’s Ju Hua Suan (loosely translated as group savings), which was launched March last year. Despite being a late entrant, Ju Hua Suan has recorded US$30 million in annual sales at the end of 2010. It has over 5 million registered users and each user spent an average of $6. The Alibaba Group proves to be a formidable opponent as Chairperson Jack Ma and team are highly skilled in the Chinese e-commerce market. Alibaba has recently invested $4 billion in warehouses to make sure online purchases are delivered within 8 hours upon payment in China.

Surely, Alibaba would also want a share in the lucrative online group buying market in China and will fight all out to be the market leader. On the other hand, Tencent’s core product focuses more on Internet communication like QQ instant messaging.

Can Tencent match up to Alibaba? Alone, no. That’s why the partnership was formed. Tencent understands that this is a great opportunity to leverage on Groupon’s model to put a firm footing in China’s e-commerce market. Its success will depend on three factors: (1) The smoothness of the partnership between Groupon and Tencent. (2) If the same operational model and style would work in China. The difference in culture is something that Tencent will have to address. (3) How Groupon China will differentiate its service from the other clones.

I wonder how Alibaba will react to this move. It will be an interesting battle to watch. China is really getting hot.

Note: Groupon and Tencent have yet to confirm with us on this matter.