Online Group Buying Takes Off in China, Again

Group buying, the Internet’s hottest e-commerce trend, has ‘boomeranged’ back to Asia.

Groupon, a two-year-old Chicago-based which offers daily internet deals on goods and services, has grabbed the number-one spot in the Japanese market just three months after its August launch, according to president Rob Solomon. Groupon now plans to expand to China, India, Hong Kong, Taiwan and Singapore within the next year, he says.

"We’re looking at all of the big commerce markets in Asia. There’s a lot of potential there,” says Solomon. “Considering we’ve gone from one to 29 countries in just six months, I think we easily can do this by next year.”

Group or “team” buying originated in China about five years ago, when Chinese consumers began hooking up online, and converging on retailers en masse to demand discounts on everything from cars to kitchen sinks. Enterprising Chinese Netizens saw the business opportunity, and started tuangou or “team buying” websites like The sites aggregate consumers in different cities who are interested in a specific product, and provide team leaders to negotiate with retailers. The concept hit the U.S. and went global.

In 2008, Groupon set up a business that took the other end of the team buying stick: the firm will first negotiate with retailers, and then offer a deal a day to subscribers, which ranges from pole dancing classes, laser hair removal and pub food; to cocktails and carnival rides. When the numbers who sign up hit a minimum quota within 24 hours, the deal becomes available to all. Subscribers are encouraged to use social networking sites like Facebook to help reach that tipping point.

The slick, easy-to-use website quickly built a massive following. The website now has over 13 million subscribers, five times the sizeof its closest competitor, says Solomon, and has expanded to 29 countries in North and Latin America, Europe and, most recently, Japan. The company has declined to reveal financial figures, although several media reports say the firm's valuation is about $1 billion.

In China, online team buying remains mostly true to the original concept.

Tuangou flourished in China partly because haggling is part of Chinese culture, and partly because of scale: there were 420 million Chinese online as of June, 2010, up by 36 million from the end of 2009, according to the China Internet Network Information Center. Chinese netizens also spend a lot of time on internet forums, chatting with others who are interested in the same issues or products. There are, for example, 700,000 people talking about cars in online car-related communities; they post 13 million comments about cars each month, according to CIC Data, an Internet consulting firm that tracks China’s blogs, online bulletin board sites and social media for companies. In North America, you just don’t have the same size or scale of pre-existing online communities, says CIC founder, Sam Flemming.

“In China, this grew out of something customers were already doing. Chinese Netizens had already organized themselves online around brands, products and services – then they recognized they have the collective power to do different things: complain a brand not offering good service, or get 55 people together and get a discount,” says Flemming.

Still, there appears to be a huge demand for Americanized version of tuangou; at least 50 Groupon clones have popped up in the last few months. may be making money, but it’s nowhere as successful as Groupon.

“We’ve seen this both with tuangou and with online social games, like Happy Farm; both were developed in China, but made a lot more money in the U.S., because American companies figured out how to monetize it effectively,” says Flemming.

American companies may have made tuangou more saleable to a global audience, but at least one company, North Carolina-based, still credits the concept's Chinese roots. The co-founders of the website decided to set up the company after seeing videos of Chinese consumers storming the shops in places like Shanghai.

“Movies were popping up onto Youtube out of China showing people actually performing tuangou, and it just turned him onto the idea,” says Scott Bowen, Twongo’s founder and Chief Technology Officer. The company's name was chosen as a nod to tuangou.

“The whole idea of team buying is just an excellent concept,” Bowen says.