Daily deal site 24quan Pitfall May Signal Imminent Bubble Bursting

Manzuo, one of the innumerable daily deal sites in China, caught everyone by surprise when it announced spending tens of millions of RMB to use well-known Japanese cartoon image Doraemon as its spokesman several weeks ago.

And this is just part of the efforts has been made to attract customer and traffic, and hopefully more deals by Chinese daily deal sites. As we pointed out before, other methods employed by Chinese daily deal sites to lock in prospective customers include: “free lottery”(lashou, meituan, nuomi and so on, with awards including house, Apple laptop, cars, life-long water and electricity bill payment) to celebrity spokesperson (Lashou, Groupon.cn, Manzuo, Jumei and so on).

So, raising mint of money, bleeding tons of cash, how did they do in performance?

According to local report, 24Quan, the fourth group buying service in terms of penetration in China according to market research firm iResearch, is so short of money that the Beijing-based company cannot pay up its campaign bills. Anonymous 24Quan staffs disclosed that several high-ranking managers haven’t got their payroll for two months.

24Quan raised tens of millions US dollars from an unspecified Asian consortium lately this February. It’s only been less than 5 months after the funding that the company was reportedly ran short of money. Something noteworthy is, 24Quan is the second largest daily deal site in terms of sales in China in this May according to Tuan800, a daily deals aggregator.

Industry observers remarked that, that’s because the company lacks behind in cost and expenditure control, as well as expanding into nearly 300 cities in such a short time and spreading money in campaign and promotion. Huge expansion means a whole lot more headcounts, while big campaign speaks to money splurging. For instance, 24Quan splashed RMB 5 million yuan (US$ 773 thousand) in Beijing subway campaign from this March to April. And also the company has invested a lot in TV commercial and other media promotions.

Wang Huiwen, VP of Meituan, the largest Chinese group buying service in May in terms of sales according to Tuan800, posted a message on Sina Weibo, saying :” Read the CNNIC 2011 First Half Internet Report, group buying customers increased 125%, seems strong right? However, in the first half, marketing expense, group buying practitioners, operating expense, investments all rose ten times, and the bubble is fairly big now. Winter is coming soon, sure there’s spring after winter, it’s just you need to make it through till then. ”

Meituan and Lashou are also haven’t break even yet. Lashou is said to be burning RMB 40 million to 60 million (US$ 6.18 million to 9.28 million) monthly. As for Meituan, Wang said that it did well in cost control so its cash flow isn’t bad.

24Quan’s pitfall could be a sign for the imminent bubble bursting, the question is, who will outlast the others?