Gaopeng, the Groupon China to Merge with FTuan?

Words have been whirling that Gaopeng, the JV of Groupon and Tencent would be merged with FTuan, another Chinese daily deal service invested by Tencent by the end of next month, a move highlighting Groupon’s retreating and that Tencent’s gaining more control over the venture.

It is said that Gaopeng’s keeping losing money made Groupon begin to have second thoughts about its China venture.

Gaopeng’s Pitfall

Groupon and Tencent set up Gaopeng with US$ 100 million (50 million for each) in February of last year when there were already innumerable competitors fighting over each other in the market. At first, on hearing Groupon was coming to China, local copycat Groupons were concerned that the originator’s experience and expertise in the realm combined with Tencent’s money and local knowledge would pose big threats to them. However, in this case, one plus one doesn’t equal two as it should. Gaopeng’s bumpy drive in the fast lane led to many issue, in retrospect, and eventually led to its withdrawal from the investment.

Gaopeng’s pitfall in China could be boiled down to: a) blind expansion even before getting to understand local market; b) hire too many expat executives who have little knowledge of local market or couldn’t even directly communicate with local staff because of language barrier; and c) failure to acknowledge different market conditions in implementing successful experience.

At its peak, the Chinese subsidiary of Groupon boasted a headcount of over 3,000 and operated in more than 70 cities in China. As of now, it only operates in fewer than 20 cities, according to people familiar with the matter. Last time I talked to someone who just left Gaopeng Beijing office, he told me that after several rounds of downsizing, even people who survived have found nothing serious to work on.

It also hired an army of expat executives globally, while lots of them were not able to communicate with local sales team since they barely speak Mandarin or understand local market. Now, nearly all expats have left.

Groupon’s successful efforts in other countries through luring foreign talent with fat salaries, launching massive marketing campaigns, amassing as many users as possible in short amount of time worked well in markets including Europe, Russia, Japan and Singapore. But it failed in China.

The company believed that its email marketing strategy would work like a charm as it was in other markets. However, firstly email is far less popular than instant messaging service like QQ that Chinese people use almost everyday; secondly, there’s no strong customer loyalty here as people always flock to the best deal.

Merge with FTuan

It seems like a smart move to merge Gaopeng with FTuan since both of them were invested by Tencent, and it doesn’t make too much sense for Tencent to retain three similar businesses, yes, you read it right, besides Gaopeng and FTuan, Tencent also operated a QQ Tuan.

Local media quoted a Gaopeng staff claiming that Tencent wasn’t happy about Gaopeng’s operation, so its stakes in Gaopeng will be transferred to FTuan and the latter will consolidate Gaopeng and QQ Tuan’s operating.

Some Gaopeng people now worried about their job, a new round of downsizing seems inevitable during the consolidation.

After the group buying frenzy in last year, the once bloated market with nearly 6,000 Chinese Groupons is so much cooler now with north of 3,000 still struggling to weather the winter. Even the number of daily deal sites falling by half in less than a year, there are still too many for the market. Eventually, to many China group buying market observers, only 5 to 10 can realistically survive.