Group-buying websites have exploded in China, resulting in a variety of sites and market competition that lacks a clear leader. Picture: 55tuan.com (Internet Photo)
As of the end of June, China had 4,678 group-buying websites, according to statistics published by Goutuan.net, an online directory of group buying in China.
The high volume of group-buying websites is in striking contrast with last year, when the very first such website in China, Meituan.com, was launched.
In the span of one year, the number of group-buying websites in China has expanded from one to nearly 5,000. The resulting market is a competitive one that is guaranteed to drive thousands of firms out of business.
Meituan CEO Wang Xing said only five group-buying websites are likely to survive after September this year. Agreeing with Wang, Xu Maodong, CEO of 55tuan.com, a major group-buying website in China, said 90% of group-buying websites would shut down by the end of this year.
Websites are clearly finding it hard to access new loans as investors have gradually lost interest in the once-hyped market.
As firms scramble for market share, subways, bus stations and public places in Beijing, Shanghai and Guangzhou have been the sites of massive advertising campaigns by group buying sites.
Meituan.com announced it would invest 140 million yuan (US$21.73 million) in marketing efforts this year. Feng Xiaohai, CEO of Manzuo.com, called his firm's eight-figure investment to adopt popular Japanese anime character Doraemon as the company's mascot "a smart marketing move."
The advertising efforts, however, are expected to slow down later this year as firms shift their marketing focus online.
Lashou CEO Wu Bo said they would advertise more on Goutuan.net, a group-buying aggregator, and internet search engines later this year.
Xu Maodong, too, said, "We will focus more on online advertising for effective and targeted marketing."
China had 42.2 million group-buying users at the end of June 2011, according to figures released by China Internet Network Information Center (CNNIC), the government agency in charge of affairs related to the internet.
The competition has also led to a decline in profit margins. Group-purchasing websites, on an average, saw 15%-18% profit margins last December. The figure has since dropped to 5%, as of Tuesday.
Wu explained that some websites, to increase sales, "purchased ten dollar yuan (US$1.55) merchandise and sold it for eight yuan (US$ 1.24)."