Group buying phenomenon overview

What's the big idea?

The omniscient Wikipedia says that group buying (Tuangou) is a recently developed shopping strategy that originally came from China. A number of people (strangers or not) connect over the internet and agree to buy a specific product making terms with a vendor in order to get the best possible discount for group purchase of the same item. The point is to create a bigger group and negotiate a better price. At that, the consumers benefit by paying less, while the vendors benefit by selling more items at once.

This model seems to be an ideal blending of retail and wholesale especially for online providing the easiest way to gather buyers from all over the world. Both sites benefit. Group buying creates balance between demand and supply and increases the market efficiency. Shoppers pay the lowest prices available; sellers extend customer reach and profit margins. As a customer, you only have to wait a period of time for the group to form and the deal to close; all the rest is not your concern. Pretty convenient, isn't it?

Looking back into the history

The first group-buying sites were not successful and had really hard times. When Mercata.com and Mobshop.com launched back in 1999, some thought it was the next big thing in eCommerce and the next best emodel since eBay. Say, Mercata.com claimed to bring a unique business model to the internet by allowing individuals to make group purchases lowering the prices based on higher volumes. At that, the price for each product continued to fall as more people joined the group to buy the item. However, it burned through $90 million in less than two years and had to cease all operations since a private investment could not be raised.

Mobshop.com basically operated under the same model. Also launched in 1999, it shut its doors in 2001 and started to focus on software business. Apparently, as with almost everything on the Internet, the group-buying concept was just ahead if its time. The internet wasn't initially designed for eCommerce, eCommerce saw its great potential and tried to exploit it, but it wasn't ready. I guess, the concept appeared to be the victim of bad timing.

Present day realia

In the meantime, though the first attempts to bring group buying model to life failed, the new market players appeared. Social fun shopping network Pikaba.com has recently launched Group Buy service, which is designed for many purposes. First, each group is a discussion area where the group members can share requests, advice, recommendations, exchange ideas etc. Not only users can unite into groups to request discount from sellers for any products, sellers can also build their own groups to sell in bulk and make special group offers.

Let's take also GroupBuyCenter.com, the place where vendors create and shoppers participate in group buying to sell and buy aftermarket automotive items. Bargain.net.au, an Australian based online store, also provides group buying opportunities for consumer electronic products and computer parts.

P.S. Learn more about group buying from Group Buying on the Internet: Problems and Possibilities presentation by Alan S. Davis.