Nearly half of China's group buying sites now closed amid heated competition

2,859 group buying sites in China have closed, down from a total of 6,069 sites

China's group buying market, once booming with new companies, has matured to the point that now close to half of the country's group buying sites are closed, according to a research firm.

2,859 group buying sites have shut down, leaving 3,210 still in operation, said a new report from the China e-Business Research Center. In total, the country has produced 6,069 group buying sites.

China's number of group buying sites have now reached the same level they did at the end of 2010, the year when the group buying market saw a surge in new sites in the country, adopting the daily deal approach Groupon popularized in the U.S.

But while many of China's group buying sites have gone belly up, the market's total transaction value continues to grow. For the first half of this year, the value reached 14.65 billion yuan (US$2.3 billion), an increase of 124 percent from the same period a year ago, according to the China e-Business Research Center

Tight competition along with low margins in the business has forced many struggling competitors to either close or merge with other sites, experts have said. Groupon, for instance, announced in June it would merge its own Chinese group buying venture with local player FTuan into a new company.

Along with the site closures, the market is also undergoing other changes, one of them being the rise of group buying sites from established Chinese Internet firms, according to group buying portal operator and analytics firm Dataotuan.

Previously, independent group buying sites dominated the market, said Liao Wenli, CEO of Dataotuan. But now sites from e-commerce giant Alibaba Group, along with Chinese review site Dianping have emerged as market leaders. In this past second quarter, Alibaba's group buying site, Juhuasuan, had a 21.5 percent share of the market, the largest among its rivals.

At the same time, a small number of sites have shifted away from offering limited time daily deals, and are instead focusing more on providing discounts on products like a traditional shopping e-commerce site, Liao said.

The number of China's group buying sites will continue to decrease, given that many are hardly active, she added. "They don't launch as many deals, and the deals don't last a very long time. At some point, they will become more like an e-commerce site," Liao said.

Group buying sites in China will also likely continue to struggle to earn a profit. Many are forced to keep margins low in order to offer attractive daily deals at a good discount, Liao added. "Almost all the top websites in the beginning of this year made a plan to become profitable by Q3 or Q4," she said. "But even if they are doing very good, I really doubt they can make a profit."

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