For Liu Kuang, an Internet company founder, the massive closure of China's online-to-offline businesses (O2O) is expected as kicking of businesses are really not easy, citing that the reliance on burning money to establish an enterprise is an unsustainable approach.
Liu shared that the age of the O2O businesses was fueled by the strategy of group-buy websites offering discount coupons for their services and products, and daily deals.
This group-buying model has provided traditional vendors the opportunity to catch up with the so-called Internet age and generate business traffic even outside the typical business hours. Additionally, the scheme has transformed the behavior of the consumers, engaging them to check some services online more often.
Nonetheless, as daily deal online platforms opened new doors, they have also created a number of problems. One of which is the possibility of thinning of revenues as customers become used to discounted prices.
Liu added that consumers who seek bargains are usually not loyal to one business. Chinese consumers have also found that poor experience often comes with cheap deals, subsequently hurting the image of the deal sites.
But as more consumers have gained access to the Internet via mobile devices, the O2O model has still seen an explosion. And at the end of the day, online sellers still widely adopt the discount method to entice consumers.
O2O platforms said that the discounts have helped them accumulate consumers, especially those who are new to this type of business; though they have confirmed that the same method has made it difficult for them to build niche markets.
Liu also took note that price competition generates minimal profits for investors, a circumstance that may hinder them from putting more investments.
As of the recent period, the utilization of big data in businesses is now leading the O2O platform operators to enter the so-called O2O 3.0 era. With the said technology, O2O owners can now predict and target consumer demand.