Future of group buying rests with tech giants

China's largest IT companies have much to offer to surviving platforms

Chinese group-buying website lashou.com announced last week that it will sell a controlling stake to Sanpower Group, a Jiangsu-based conglomerate.

Lashou.com has already received several rounds of venture capital funding over the years. The first such injection came in 2010, when GSR Ventures, Milestone Capital, Richemont and others conducted a $166 million transaction which reportedly valued lashou.com at $1.1 billion. As one of China's largest group-buying companies at the time, lashou.com was eager to go public. Yet several attempts to list on the NASDAQ in 2011 and 2012 were derailed by disappointing financial results and waning confidence in Chinese stocks among US investors.

Sanpower seems like a suitable investor for lashou.com. Sanpower contains several listed companies and has interests in a host of brick-and-mortar retailers. In April, Sanpower spent 200 million pounds ($322 million) on an 89 percent stake in House of Fraser, a 165-year-old retail establishment in the UK. Later, in June, Sanpower partnered with Sailing Capital to purchase US retailers Brookstone Holdings Corp for more than $173 million. After these high-profile acquisitions, Sanpower looks to be focusing on its e-commerce ambitions with its stake in lashou.com.

Sanpower's real-world resources and expertise in physical retailing will surely be welcomed by lashou.com now that China's once red-hot group-buying market is no longer fraught with the same degree of competition that marked its earliest days. Driven by frenzied demand from deal-hungry shoppers, the industry hit a high water mark back in August 2011, when over 5,000 group-buying platforms were said to be operating in the country. The herd was thinned down to just 176 operators by June, indicating a mortality rate of 96 percent according to data from tuan800.com, a Web portal for the group-buying industry. Financial constraints, consumer complaints and a race-to-the-bottom mentality among platform operators have all been cited as factors behind the industry's dramatic consolidation.

The lucky few who survived the industry's implosion have much to gain. Statistics from tuan800.com show group-buying turnover hitting 29.4 billion yuan ($5 billion) in the first half, an all-time high.

How will China's remaining group-buying platforms thrive into the future? History shows that access to funding support is one of the biggest determiners of growth and success in the Internet industry. Meituan.com, currently China's largest group-buying company by market share, received funding from Alibaba Group in July 2011, according to Analysys International. In February, dianping.com - which offers group-buying discounts as well as a platform for restaurant reviews - sold a 20 percent stake to Tencent Holdings Ltd. Nuomi.com was also purchased outright by Baidu Inc earlier this year.

Group-buying platforms should cement their ties with leading Internet companies in order to make better use of their e-commerce capabilities. For their part, China's big tech names look eager to incorporate these platforms into their core business areas. Baidu, for instance, can leverage nuomi.com's online resources and large base of registered users with its own Baidu Maps as it steps into the online-to-offline commerce market, a burgeoning area where the benefits of traditional retail and e-commerce are combined. Meanwhile, its stake in dianping.com will help bring Tencent - or more specifically, its highly popular WeChat service - into the lives of millions of diners and restaurant-goers.

Now is the time for group-buying websites to make good use of the financial resources on offer from many of the country's leading technology names. Of course, these tech companies also boast hundreds of millions of users of their own, among other resources.

There is little doubt that uniting with China's Internet titans is an advantageous and inevitable trend for group-buying platforms. The group-buying operators who lived through the industry's chaotic early days have shown the sharpness of their competitive edges when it comes to surviving in a fierce market place. Those who resist the trend toward consolidation and inclusion risk losing out on their hard-won gains.