These small-scale businesses, often dubbed as online-to-offline or O2O, lure most consumers due to the bargained prices they implement. (Photo : www.chnsourcing.com)
Car8 is a smartphone app that offers carwash services to local users in Beijing for just 10 yuan ($1.57). This is a significant deduction from the usual 20-30 yuan charge from regular carwash establishments.
According to Liu Qiang, the creator of the app, the goal was to build a base of loyal customers through the pricing scheme and then eventually implement an increase in price. By July, the app was unable to further sustain its operation and ceased its services.
"You need a huge user base to cover the costs of operating the business," said Liu.
Various smartphone service applications in China have followed suit due to the lack of funds necessary for their continued operation, according to a report by the Wall Street Journal.
These small-scale businesses, often dubbed as online-to-offline or O2O, lure most consumers due to the bargained prices they implement. A subway tuna sandwich and drink on Ele.me, for instance, costs just 9 yuan with the delivery. When compared to the regular price of 31 yuan at the nearest subway shop, most would prefer to order though the app.
The recent stock-market chaos in China and the concern regarding slow economic growth have doused investor interest in O2O startups. In addition, news about dozens of failed O2O startups have also started circulating in the media, the report furthered.
However, while some small enterprises have gone out of business, other apps that have a better funding and business model are enduring. For China's deep-pocketed Internet companies like Alibaba Group Holding Ltd. and Baidu Inc., the seemingly unprofitable sector still holds potential for growth.
"In terms of the market that has not been grabbed yet, it's a blue ocean," said Zheng Liang, vice president of Baidu's group-buying platform called Nuomi.
According to Zheng, the company is analyzing user behavior in an effort to make informed recommendations to other customers.
"What we're seeing is that the smaller ones are failing, while some of the bigger ones are holding up," said Jixun Foo, a managing partner at GGV Capital.
