The Deal is off. Are you still buying? (How Groupon fell into mediocrity in China, just like Google and eBay)

Groupon recently set up a joint venture with a Chinese Internet company, Tencent, and launched Gaopeng 4 months ago. Regardless of all the attention, this Chinese version of Groupon ended up being taken down by Tencent a few hours after its launch because of internal miscommunication. And its earnings have been disappointing. Gaopeng’s best sales month, from March to June, yielded 7.38 million yuan (US $1.14 million), which is not even 10% of its average U.S. monthly income.
Groupon Clone Sites in China

However, Groupon’s far-east expedition should not be seen as a total failure. Ever since Groupon successfully dominated the online-deal market in North America, hundreds of Chinese companies have been sprouting using the same business model. From 3 to 5 sites in early March to almost 2,000 sites now (including Lashou,, Ayatuan, Meituan, etc.). The abrupt increase of group-buying sites was definitely encouraged by the rise of Groupon and its simple model. In China, when a company is considered “valuable” there will inevitably be tons of copycats with similar business models.

But as for Groupon, they made some serious mistakes:

Market research:

  • Boycott phenomenon – Groupon’s business model is not new for China. Most of the search engine websites like introduced shopping sections three to five years ago. And since 2010, a new group-buying site pops up, on average, every two days. Most of these sites have been copying Groupon’s model, so when Groupon announced its expansion to China, many of the clone sites got anxious and formed an alliance to encourage a boycott of Groupon. A foreign company is always better off taking the “I come in peace” approach than pressuring local competitors to resist. Whereas Groupon has been taking a high profile stance hiring from local group-buying sites and hurriedly pushing everything forward without taking time to develop mutual-trust in its business relationship.
  • Market Reshuffle – even though the group-buying market is close to saturation, many of these companies are still in their infancies, trying to catch up with the big kids in terms of logistics, transaction processes, and customer support. Some websites even sacrifice their revenue for volume, offering prices lower than their overhead would otherwise dictate. How can Groupon (or Gaopeng) compete against these tactics? According to Watch China Times, “after the period of rapid growth, the group-shopping industry had entered a slowdown, and a market reshuffle was expected.”The question is: did Groupon pick the right time to jump in?

Business partner / internal structure:Very few know how Gaopeng operates aside from the fact that it runs under a COO instead of a CEO. Even though this is ostensibly an equal partnership, the venture is apparently a wrestling match between Groupon and its Chinese partner. When Tencent took down the site a few hours after its launch by Groupon, it was hard not to speculate as to the nature of the relationship between these two companies. According to Tech Crunch, we should expect Tencent to “end up shafting Groupon.”

Another problem of the joint venture is its structure. Although it’s the world’s third-largest Internet company with offerings of instant messaging, online gaming, social networking, e-commerce and mobile services, Tencent does not have a strong customer service or regional sales team nurturing both customer or merchant relationships. Groupon’s key strengths (data collection and business outreach within the U.S.) are not a factor in China. What’s more, Groupon’s senior executives don’t speak Chinese and don’t appear to have a clue about the Chinese market.

Value Assessment (brand equity & merchandise value):

  • Groupon’s brand identity / equity – According to a few sources including Bloomberg Business Week, Groupon is in the process of acquiring (or already did) the domain, But when you look up these two sites, you can still tell there are two different Chinese kanjis on their logo. If Groupon’s goal is to raise IPO justification, it has to build brand awareness. Otherwise, how can Groupon convince Chinese consumers to use Gaopeng if consumers cannot even figure out what site they are using?
  • Merchant value assessment – According to Gaopeng’s COO, Yun Quyang, “Gaopeng is seeking an edge in China with world-class brands, like Apple, Inc.”Here is my question: what kind of stuff would you buy online with a 25% – 50% discount? Meals. Movie tickets. Skin-care products. What about branded products like iPhones or Coach bags? I’m convinced that discounts often do more harm than good to companies who actually enjoy brand awareness. Do you really think Coach, Dior, or Apple will sign on for a deal with Gaopeng? I doubt they will.

Groupon, with its enormous resources, still has a chance to capture a significant portion of the market share; but only if it is willing to work methodically toward long-term success rather than expecting short-term profit. Groupon must also recruit local talent (or at least someone who speaks the language and is familiar with the culture) at the management level. In a heated battle against thousands of group-buying sites and an upcoming market reshuffle, whoever preserves their resources and lasts the longest will eventually win the race.


1. Groupon: “Getting It In The Ass” In China
2. Groupon: Still Getting Pwned In China
(The two Tech Crunch posts are from Tom Anderson, co-founder of MySpace. interestingly enough, MySpace was also a failure in the Chinese market)
3. Breaking, Acquired
4. Groupon China Off To A Bad Start
5. Groupon Spars with Tencent; Joint Venture Isn’t Inspiring Local Confidence
6. The Groupon of China
7. Investor turns to rival website after Gaopeng’s performance disappoints
8. Exclusive Data On Groupon’s U.S. Revenues And February Falloff
9. Groupon’s IPO Filing Reveals Incredible Growth And $2.6 Billion Revenue Run-Rate (Charts)


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