Group buying web sites may have slipped from the news recently, but the group deal seller Wowo is putting the sector back in the headlines with its hopes for an IPO on the U.S. Nasdaq market.
With only a few major players in China's group-buy market, Wowo may still not have enough leverage to take the lead even if its IPO is successful.
Wowo will be the first Chinese group-buying website listed in the U.S. if it completes an IPO before the end of this month as required by its investors. If successful, the company will raise nearly 69 million U.S. dollars, but that may still not be enough for Wowo to compete with the big players in the market.
In January, top group-buying website Meituan raised 700 million dollars in D-round financing. Analyst says Wowo's seeking an IPO is more of a symbolic move.
"It is more likely to be a request from the investors, or the company is looking to benefit from being the first Chinese group-buying site listed on the U.S. capital markets. But the IPO won't be of much help to its business success. What's more important is its ability to establish itself in the local market," said Pan Wei, research director.
Wowo is one of the few left out of thousands of group-buying websites that used to exist in the Chinese market. The business model was introduced to the country in 2010 and the number of players peaked at over 5,000 in 2011.
There are fewer than 200 now. The sharp decline has made some wonder whether the fad of group-buying is wearing off, but sales figures say otherwise.
Last year, the market turnover grew more than 108 percent year-on-year to nearly 75 billion yuan and users of group deals almost doubled to 1.2 billion people. Consumers still find group-buying attractive.
"I still use group-buying because it offers great discounts," group buyer Timothy Sui said.
Meituan, Dianping and Nuomi are the most popular group-buying websites in China and together they generated 88 percent of all sector revenue last year. Each of them is backed by one of the country's Internet giants Alibaba, Tencent or Baidu.
Pan says financial support from the BAT will continue to be important to the survival of group-buying websites in the future since profitability is low in the industry and promotion activities keep burning capital.
The companies, however, should continue looking for other growth opportunities.
"Group-buying will be extended to include more local life-services.The emphasis will be more on the combination of online service and offline customer experience, beyond just offering discounted products. Also, the group-buying market will be extended to third- and fourth-tier cities where companies can reach more customers and business partners," Pan said.
Food, entertainment and travel products remain the top three group-buying categories, but revenue generated by so-called local-life services - things like in-house manicures or food delivery services -- grew nearly 90 percent in 2014 from a year earlier to over six billion yuan.
