China’s state media blasts troubled community group buying companies for ‘burning cash’
- A number of start-ups have either filed for bankruptcy or reduced operations amid the ‘subsidy wars’ in the community group buying market
- No player in this market is expected to turn a profit in the short term
The commentary blamed some community group buying operators for abusing their platforms’ power to disrupt the market, including dumping low-priced goods, as well as illegally collecting and using consumers’ personal information.
“This field, which should have entered a stage of benign development, is now in an unhealthy state because of the subsidy wars,” said Chen Ying, founder of Nice Tuan, in an internal letter on Saturday.
Those setbacks signal that the Chinese internet industry’s once-foolproof formula – achieve explosive growth on the back of subsidies and later raise prices to generate profit, while collecting massive amounts of user data – is no longer viable.
How Beijing’s scrutiny brought an early winter for community group buying
“No one can make a profit in the short term,” said Zhuang Shuai, founder of Bailian Consulting. “Service and innovation have stagnated, which has resulted in serious internal discord in the entire industry.”
Many of China’s technology giants have squeezed into the group buying market since the coronavirus pandemic started, acquiring new users with the lure of low-priced goods and providing community leaders with high commission fees, according to Zhuang. Group buying provided a way to cut out the middleman by connecting food suppliers directly with end customers.
That situation has made community group buying a target for Beijing, which has increased regulatory scrutiny of Big Tech firms. Community group buying, according to some state media reports, put local food merchants and traditional wet markets at a disadvantage against Big Tech companies with their economies of scale.
Alibaba in hiring drive for sizzling community group buying business
“Burning cash for community group buying operators is not a long-term thing,” said He Yixuan, an analyst at research firm Analysys. “Operators need to invest a lot in obtaining new users and improving their supply chain.”
“For the tech giants, their money doesn’t grow on trees,” He said. “If there is no good profit in the short term, they also face financial pressure.”