55Tuan claims to be First Profit-Making Chinese Groupon

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Xu Maodong, CEO of 55Tuan, claimed yesterday that the Chinese groupon wannabe has turned a profit of millions Chinese yuan in the month ending December 25th of this year, making 55Tuan the first of its kind to turned profitable at large scale. Manzuo said it make a net income of 1 yuan in this September, which sounded more like a PR effort.

Founded in early 2010, it took 55Tuan nearly 3 years to pocket real money in a disordered market filled with numerable replicates which are backed by some confused venture capitals.

Chinese group buying market was crowded by more than 6000 similar services with little or no differentiations at its peak in this May (stats according to group buying market researcher Lingtuan.com). As of now, only 2000 remained due to lackness in new financing support (VCs are getting more realistic and conservative) and their own inability to make money.

Back in the middle of last year, Xu announced to refocus 55Tuan away from just daily deals (55tuan.com) to an one-in-all online platform (55.com) for local merchants, mostly life services providers. The strategy seems to be working, Xu said that 55.com also broke even recently.

China’s group buying market has come to a point that Matthew effect started to work, according to a stats by tuan800.com, a Beijing-based group buying service aggregator and observer, in this November the biggest ten in the market grabbed more than 96% of the market share with a combined RMB 1.795 billion sales. The big guys dominate while the remaining 2000+ sites scrambled for only 4% of the market, high unlikely they could come up with a new trick to find a way out anytime soon, especially when industry gross margin is averaged at about 6%. At such low rate – thinking of Groupon’s between 40% and 50% – even the big guys need to operate on a scale to sustain their business. Scale, at the same times, means large output in headcount, money among other resources. It’s a risky double-edged sword. Play it well, scale brings in money, otherwise loss.

For example, 55Tuan now operated in about 130 Chinese cities and partnered with about 10k local merchants.