Group buying in China has exploded with over a thousand sites trying to get their piece of the pie. Low barriers to entry mean that many start but don’t intend to stay in it for the long term, but instead aim to get acquired by a bigger player like Lashou or Meituan. This strategy was highly suspected with the Groupon.cn acquisition by Groupon.com not too long ago.

It is reasonable to have localized group buying deal sites but it is not rational to have hundreds in the same city unless they are vertical like Jumei.com for women’s products. Death and consolidation will eventually happen to many of them.

Also with so many group buying sites, in the long term it may hurt merchants. If the coffee shop next to you is offering a deal, you may feel pressured to have a bigger and better deal. This cycle of “1-upping” could lead to an ongoing price war and squeezed profit margins, which may eventually put them out of business. Group buying may also cultivate behaviour of only buying from a merchant if there is a deal on; therefore weakening customer loyalty based on true value.

With the proliferation of group buying sites, the next evolution of course is group-buying aggregators such as tuan800.com and 1000tuan.com. Many of them make money from affiliate sales based on CPC (cost per click) or CPA (cost per acquisition). Dataotuan.com, a daily deal aggregator and analytics platform has just recently some interesting findings from their research.

Here’s a summary:

  • In terms of the total revenue, the top 10 deal sites account for nearly 70% of the marketing share
  • Lashou controls the biggest market share at 14.4% in terms of revenue
  • QQ has the most deals, which shows its aggressiveness in merchant acquisition.
  • Sina is no.1 in total number sold and average number sold per deal, but its total revenue and the number of deals is much less than the other big deal sites.
  • A top deal is based on quality not just discount size, has flexible usage terms, offered by trustworthy merchants and can be redeemed at many locations
  • Gaopeng, or the Chinese arm of Groupon.com rounds out the top 10. Let’s see where they move after founder Andrew Mason’s emergency visit to Beijing.

Full Report here.

It is still too early to tell what will happen to the group-buying model and if it will last, but I foresee many of the sites dying and a new model emerging based on customer loyalty and a great deal. That wave is already building up in the Silicon Valley and will definitely wash up over China soon.