Win-win-win

Wang Sining, a 31-year-old software engineer who lives in Beijing, recently bought a water heater for 2,338 yuan ($345.35) on a group-buying website. The cost was about 400 yuan ($59.1) less than the market price.

"I'm now decorating my new apartment. Many of my neighbors are also purchasing their home appliances or even furniture on group-buying websites. This can save us a lot of money," he explained, adding that if there is a chance to take part in a group-buying deal for washing machines or refrigerators, he will definitely seize the opportunity.

The popularity of group-buying websites is not only good news for buyers like Wang Sining, but also for retailers.

Lin Youxian runs a new Thai restaurant in Shanghai and signed up with a group-buying website in early June. He has been using the site to sell dinner deals and his restaurant's sales have jumped by a monthly average of 50 percent.

"Group purchasing saved us the cost of advertising and made sales faster, although the profit is lower," Lin said. "Anyway, for beginners like us, to establish contact with customers is especially important."

In China, a shop full of visitors is normally more attractive to customers than one with few people stepping in. Thus, many retailers are happy with group-buying methods that improve their "popularity."

"Our sales increased by 30 percent," Xiao Jing, who works at a hairdressing salon in Beijing, told ChinAfrica. She said that before beginning cooperation with group-buying websites, nearly 60 percent of the salon's sales were contributed by its VIP members. However, it is never easy to persuade consumers to apply for membership, since normally they need to pre-pay a large deposit.

"Now, we see a significant increase of clients, and the VIPs' contribution has been cut down to one third of our sales," added Xiao Jing.

A source familiar with the industry said that at present, group-buying websites are making money mainly by getting a cut of the deals from retailers.

"They earn money quickly, but the industry threshold is quite limited for business start-ups, since technically there is nothing difficult in making a website. Apart from some necessary procedures such as applying for the ICP (Internet content provider) registration, you hardly need any initial capital investment," said the source, who prefers to remain anonymous.

Huang Weiyu entered the group-buying industry in May 2010 with his 1288.com website. In an interview with China's national TV station, CCTV, he said the average daily net profit of the site is more than 2,000 yuan ($295.42), which is "moderate" in the industry.

"On the best days, [I get] hundreds of thousands of yuan," he said, adding that he works alone for 1288.com and his initial investment was no more than "several hundred yuan."

Official statistics show that from May to July, more than 400 newly registered group-buying websites emerged in China, with the number of investors still rising.

Risks

When a consumer orders a particular product on a group-buying website, he needs to pay immediately through a third-party payment platform, instead of to the retailers. Industry insiders believe that provokes at least two problems: one is that customers are facing risks in ensuring their consumption after payment; the other is that the retailers have no means of accurately monitoring sales, and must depend on the website to give them an honest account.

Some experts are worried that the fast developing industry has out-paced the formulation of relevant laws and regulations. Some small, independent group-buying websites are already involved in scams that have led to disputes.

Mr. Lin, from Beijing, recently bought a 20-yuan ($2.95) pot dinner package on a group-buying website. The meal originally cost 89 yuan ($13.15). However, when he went to the restaurant two weeks later, he was told the discount had been canceled long ago.

According to the restaurant manager, the website refused to make an advance payment to the restaurant, and informed them that only 22 buyers had ordered the discount, far below the required number agreed in their contract. So the restaurant had canceled the deal.

But Lin says that the website had stated that the target was 30 buyers, and that 563 people had already placed the order, so the deal should have been valid.

Xu Yachen, a staff member at the China Consumers' Association, said customer complaints about online group-buying had blown out since February and accounted for about 30 percent of all e-commerce complaints.

As for the future of group-buying websites, Analysys International, an Internet marketing consultancy, has predicted, "Most independent websites will be washed out in the competition, and the survivors will be those with large resources in terms of customers and retailers."

According to Analysys International, by the end of 2010, the sales volume of China's group-buying industry is expected to reach 980 million yuan ($143.77 million).