Dianping CEO Says Daily Deal Company Downsizing is Inevitable

Zhang Tao, the CEO of Dianping, the most popular Yelp-like local merchant recommendation platform in China,  has publicly announced that the Daily Deal market will face corporate downsizing over the next few months. The comment comes after Gaopeng’s office closures.

The reason he gives is that currently the Chinese Daily Deal market is ultra competitive and profit margins are very thin. Companies that are aggressively burning cash in an effort to win market position, by pumping deals out will eventually tire themselves out. Such behavior is reflected in the post I wrote yesterday, about the increasing number of failed deals or deals that sell less than five times. Essentially it shows that sales people are running around trying to get the deals up, which costs time and money but people aren’t buying the deals, which ultimately hurts the group-buying company.

By the end of next year, Tao sees room for only three players. So as the market starts to further consolidate, inevitably there will be more and more office closures and layoffs.

However, Tao is bullish on the opportunity of mobile. He expects in the next two years that mobile users will exceed PC users. Therefore Dianping has invested heavily in its mobile client.  The company will spend $100 million, in order to build out its mobile network platform. Tao is also optimistic about the future of LBS or location based services where relevant information is pushed to a user based on their location.