Apr 18, 2012 · 2 minutes

It has been well established that Groupon sucks in China, badly. Now, as if we needed it, we have further confirmation. Gaopeng, the daily deals company’s joint venture with Chinese Internet giant Tencent, is going to merge with a similar service FTuan before the end of next month.

Chinese tech blog Tech Node reports that the move shows Tencent is asserting its control over the money-losing venture. As it happens, Tencent is also an investor in FTuan, which effectively competes with yet another Tencent-owned daily deals service called QQ Tuan, which leverages the company’s 700 million instant-messenger users. Like Gaopeng, FTuan’s fortunes have been waning in recent months, with the service slipping out of the country’s top-10 deals services last October.

FTuan, which has 2,000 employees, closed a $60 million third round of funding last September. Meanwhile, Groupon invested just $8.6 million for a 40 percent stake in the GaoPeng joint venture, according to the Wall Street Journal.

Tencent has apparently been dissatisfied with the way Gaopeng is being run, so it will transfer its stakes in the Groupon-led effort to FTuan, leading some Gaopengers to worry about losing their jobs in the likely event of downsizing. At last year's TechCrunch Disrupt Beijing, Tencent founder Pony Ma was less than glowing about Groupon. In response to Sarah's question about the company, Ma said "I don't want to speak ill of a partner..." before going to say that in general it has proven that the Chinese market is vastly different than America's.

The Gaopeng-FTuan merger is just another chapter in the sorry saga of Groupon’s China woes. The American company made some classic “not in China” errors in entering the market, failing to learn the lessons of similar failed efforts (Yahoo, eBay) that came before them. Rookie errors, as outlined by China Internet watcher Bill Bishop, included: hiring too many foreigners as top management (China, as Google has discovered in its battle against Baidu, presents an intensely parochial business environment); staffing up too quickly in market, where it can be difficult to find talent with the right qualifications; top-loading the staff with too many bankers and management consultants; and mishandling mass layoffs that communicated the impression that Gaopeng was toxic.

Bishop has also speculated that Tencent only invested in Gaopeng in order to block Groupon from becoming a serious competitor with QQ Tuan. The FTuan merger announcement seems to add weight to that claim.

Certainly, Tencent, which sports a cute penguin as its logo, has been aggressive in having a finger in every Internet pie in China, to the point where competitor Qihoo 360 is suing it for unfair market practices.

But in this space, at least, Tencent could use all the help it can get. Neither QQ Tuan nor FTuan are even remotely threatening to dominate China’s group-buying market, which gives new meaning to the word saturation. February figures show that Meituan (15 percent), 55Tuan (11.8 percent), Dianping (10.7 percent), and Lashou (10 percent) are the market leaders in a space that counts more than 3,000 competitors. That number might seem high, but there used to be nearly 6,000 "Groupons" in clone-happy China. Industry experts reckon only 10 can ultimately survive.

Gaopeng, once a top-10 contender, is now an also-ran, registering barely two percent market share, and Tencent has probably just signed its death warrant. Perhaps Groupon's biggest mistake was underestimating just how ruthless the friendly penguin could be.