An advertising poster states "Group purchases cost less" at a sourcing fair in Weifang, Shandong Province. The annual volume of online group buying is estimated to have hit 30 million yuan in big cities. [China Daily]

Chinese Internet start-ups have a unique skill in identifying the hottest online innovations from the United States, quickly copying the business model and then localizing the service in China.

Those entrepreneurial skills have given birth to Chinese technology giants like Baidu, Alibaba and Tencent - many of which later gained a competitive edge over their US rivals in the China market.

The latest US target for Chinese Web "wannabes" is a US site called Groupon.com, which is the online version of the traditional group discount. But Groupon takes that idea one step further by extending bulk discounts beyond group travel and restaurant specials to a variety of services like 50 percent off one-night's hotel lodging or an inexpensive yoga class

Groupon basically offers one coupon each day from all kinds of businesses, but the catch is that enough people have to sign up for the discount online before the deal kicks in. The idea is that people will tell their friends to get on board and create the group leverage to make the deal financially lucrative.

With the ability to drive hundreds, even thousands, of customers into brick and mortar businesses, it's no wonder the Groupon business model is working.

During the past two months, Chinese sites peddling similar services in China have blossomed from just a few to over 400.

"The market is very exciting," said Wang Xing, 31, founder and CEO of Meituan.com, one of the few group-buying sites that have attracted over 100,000 members since going live in March.

That success stems from Meituan's ability to stand out from most e-commerce sites that only focus on selling general consumer items like clothes and shoes.

Similar to Groupon, which was first launched in November 2008, Meituan provides a deal-of-the-day that enables users to enjoy a fat discount for local products and services.

Some of the breaks can be as much as 90 percent off the original retail price.

"People are stimulated to purchase when a product is offered at a much cheaper price than usual," said Wu Bo, chief executive of group-buying website Lashou.com, adding that impulse buying partly explains why group-purchasing sites are gaining in popularity.

He estimated that the annual transaction volume of group buying could hit 30 million yuan ($4.39 million) in big cities like Beijing, and 50 times that figure nationwide.

According to figures from the China Internet Network Information Center (CNNIC), 632.9 million people bought via the Internet last year. In big cities such as Shanghai and Beijing, about 40 percent of the online population often buy products and services online.

According to Wang, Groupon can take 30 percent to 50 percent of sales as commission. But in China, similar websites like Meituan can take much less, about 10 percent of the total sales, due to fierce competition.

Besides Meituan, websites such as 17buy.com, ftuan.com and 5151tuan.com are also providing similar services.

Chinese Internet giants including Alibaba's Taobao.com and social networking site Kaixin001.com, have all launched their version of group-buying websites as well.

"The main problem with these sites is that they provide similar, if not the same, services, which can't generate customer loyalty," said Chen Shousong, an analyst with domestic research firm Analysys International.

Chen estimated the number of Groupon copycat websites in China has reached 400. A large number of group-buying sites, he said, will gradually fizzle out.

"It may still take some time for Chinese sites to grasp the essence of group buying and to differentiate themselves from others," said William Qu, investment director of BlueRun Ventures, which has yet to invest in any Chinese Groupon-like websites.

Su Huiyan, an analyst with research company iResearch, also believes that although the market for new Groupon-style businesses has potential, many group-buying websites may not generate enough revenue to survive on commissions alone if they don't cover as many cities as possible.

Among the Chinese copycat websites, Wu Bo is maybe one of the few innovators. As the founder and chief executive of Lashou.com, Wu said he believes that he needs to focus on the Groupon format or he will have little chance of financial survival.

About three months before Wu launched Lashou.com in March, he and his team developed mobile software that enables people to "check in" at different businesses, like restaurants. The first to check in at a designated food joint in a set time frame, for example, will be awarded points. When a preset point level is accumulated, users can receive a coupon or gift from the restaurant.

Wu said the website has currently over 300,000 users, over 90 percent of which have used the service via mobile phone.

"By combining mobile services with group buying, I believe we can find a way to differentiate ourselves," he said.

(China Daily June 4, 2010)