Groupon Retreats, Dianping Mobilizes 中国团购业继续整合
The shakeup in China’s online auction space continues, with global pioneer Groupon (Nasdaq: GRPN) effectively retreating from the market just a year and a half after it entered while up-and-comer Dianping passes an important milestone in the mobile space. The shake-up has been going on since the beginning of the year, fueled by rampant competition that has caused many Chinese consumers to rapidly lose interest in group buying deals from companies that look increasingly shaky as many run out of cash and are forced to close or make massive cutbacks. Of course the big really news from this space has yet to come, but could be just a month or 2 away when I predict that cash-challenged giant LaShou will either be forced to shut down or get purchased by one of the industry’s stronger players. But more about that in a moment.
First let’s look at the latest news, which has Gaopeng and FTuan, 2 mid-sized group buying sites, finalizing their merger to form a new company named Groupnet. (Chinese article) This combination has been talked about for several months now (previous post), and was engineered by leading Internet firm Tencent (HKEx: 700), which was a major stakeholder in both companies.
The merger will see former FTuan managers run the new company, with the former Gaopeng brand focusing on higher end products and FTuan focusing on more mainstream offerings. Gaopeng is the former joint venture between Groupon and Tencent, and previous reports indicated Tencent would own 50 percent of the new company while Groupon would keep a minority stake. That means Groupon is effectively being sidelined in the new venture, most likely becoming a passive investor in Groupnet.
From my perspective, this looks like a good development for everyone, as the new venture will have a clear controlling shareholder in Tencent, which can provide valuable resources. In the meantime, Groupon can focus on its own troubled core business in the US without extra distractions in the difficult China market.
Meantime, media are also reporting that Dianping, a company that specializes in user-generated restaurant reviews and group buying, recently reached an important milestone when its mobile user base crossed the 40 million mark, officially surpassing its users who access the service over traditional desktop PCs. (Chinese article) Dianping is an intriguing company, as it originally started out as a user-focused ratings company similar to US-based Yelp, and earned a reputation both a popular and profitable site in this core area before entering the group buying business.
That’s an important distinction from other group buying sites, most of which were set up exclusively to capitalize on the group trend and have never earned any profits. Mobile Internet is the direction of the future, and clearly Dianping is releasing these latest figures to show it is preparing for a time when most people access information from their smartphones and tablet PCs.
I personally like Dianping because of its more diverse business nature and also its profitability, and also like the new Groupnet due to its size and Tencent and Groupon connections. Either of these companies could emerge as the eventual industry leader in China’s group buying sector, and I could easily see one or both making bids for LaShou in the months ahead.
Bottom line: Groupnet and Dianping are emerging as 2 consolidators in China’s group buying sector, with either potentially set to make a bid for struggling LaShou in the next few months.
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