When we compare between different companies, one of the most important parameter we use is their sales volume. Given the same type of business, the more one can sell, the more successful one is. And we believe that should be true for the group buying sites as well.

However, when I talked with a senior executive of a leading group buying site in China recently, he disagreed.  “One of the joke we used to talk among ourselves is that if you are group selling rmb 100 for rmb 99, you can sell as much as you want,” said the executive. Sure, you are willing to make a loss on every deal, your sale volume is virtual unlimited.

And currently, the margin for group buying sites in China is razor thin.  A venture capitalist told me the gross margin group buying sites is about 40% in Japan and about 30% in the U.S.  “But in China, it is only about 4%,” said the venture capitalist, “And I believe that is a bit overstated. Most of them are making losses.”

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Sherman So

Author of Red Wired: China's Internet Revolution, the first book to completely survey the nature of China's internet. (http://redwiredrevolution.com/) She previously was the lead China technology reporter...