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Groupon's China venture battles crowded market

A woman uses a computer in an internet cafe at the centre of Shanghai January 13, 2010.

NIR ELIAS/REUTERS



The Chinese joint venture of Groupon, the U.S.-based group buying website, expects to take longer to turn a profit and operate with lower margins than its parent, highlighting the differences between the Chinese and the U.S. internet markets.

"The presence of so many competitors is squeezing margins," said Ouyang Yun, head of Gaopeng, which is jointly owned by Groupon International and Tencent, the Chinese internet company. Yunfeng Capital, a Chinese venture capital fund, also has a stake.

"It's probably going to take longer to create a return on investment," Mr. Ouyang told the FT.

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His remarks, in his first interview with foreign media since Gaopeng began operating in February, come as Groupon prepares for an initial public offering.

China has more than 2,000 Groupon clones which fight for market share, often by structuring coupon deals without taking commission just to attract more subscribers.

Coupon deals for cinema tickets have become so competitive that "margins are zero", Mr. Ouyang said, adding that Gaopeng could not afford to stay out of the segment because it needed to add subscribers.

Mr. Ouyang refused to give any revenue or margin data but said Gaopeng had now hired 3,000 employees and expanded to 50 cities in the country.

The company hopes to make up for lost margins with more e-commerce product deals, whereby online retailers offer cosmetics, shoes or clothing at a discount through group buying websites. Under such deals, the coupon sites often get commissions of up to 100 per cent of the coupon value because the retailers treat the deals as part of a marketing campaign.

"We are likely to have more e-commerce deals as a proportion of our revenue than Groupon has in the US," Mr. Ouyang said.

However, industry insiders said that competitive pressure for e-commerce coupon deals is also rising rapidly as some of Gaopeng's rivals are seeking to boost revenue ahead of planned IPOs.

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Meituan, which led the ranking of Chinese coupon sites in May by transaction volume, has been offering to do product deals for zero commission, one person said.

According to people familiar with Gaopeng, Groupon International has given the company "very aggressive" revenue targets for June, and could be trying to boost revenue ahead of the U.S. site's planned IPO.

Gaopeng is also expanding by acquisitions. Mr. Ouyang said the company had already bought "several" coupon site companies to help it enter certain smaller cities, and would continue to do so.

Mr. Ouyang, a senior Tencent executive, holds the title of chief operating officer of Gaopeng. But he runs the joint venture as acting chief executive, backed by four managing directors brought in from Groupon International.

"They advise us on sales techniques, quality assurance and editorial work," said Mr Ouyang, who added that the Groupon International executives might leave as Gaopeng gets more established. They include executives who have helped Groupon expand from the US to markets such as Brazil and South Africa.

Andrew Mason, Groupon chief executive, is due to visit China next week.

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