Groupon talks with China’s largest Internet co.

By Dow Jones Newswires
Posted Jan. 17 at 6:51 a.m.

Groupon is in talks with Chinese Internet giant Tencent to form a partnership to accelerate its effort in the critical Asian arena, said several sources with knowledge of the situation.

Terms of the deal are unclear, but sources said that it is likely to involve some sort of co-branded joint venture effort between the two–a key strategic move for Groupon given the hard-to-penetrate-if-you’re-not-Chinese Chinese market.

More typical for Groupon has been to buy a top local player abroad and rebrand it, such as its launch of Groupon Hong Kong, Groupon Singapore and Groupon Philippines and Groupon Taiwan through the early December acquisition of daily deal sites uBuyiBuy, Beeconomic and Atlaspost, respectively.

Moving into the lucrative international arena, where there are innumerable clones of the dominant social buying service, is one of big strategic reasons for Groupon’s recent $1 billion funding and also last week’s very noisy IPO toe-dipping.

In China, cloning popular U.S. Internet brands has become an art form. That includes one particularly appalling ripoff in China that looks exactly like Groupon and is actually called Groupon.cn.

Of course, global expansion–especially in the famously difficult Chinese market, where the government favors native companies to an unprecedented degree–has stymied many other U.S. Internet phenoms, from eBay to Google to Facebook.

But for Groupon, especially with its public offering plans and need to distance itself from close rivals such as LivingSocial, it is a must-do to reach the deal-crazy and huge audience in China.

Thus, having Tencent as its partner is an obvious plus, given it is one of the biggest Internet services in the country, including its huge QQ instant messaging offering.

In addition, there is a strong link between Tencent and one of Groupon’s key investors, Mail.ru Group.

Mail.ru owns 5% of Groupon, said numerous sources, and Tencent is an investor in Mail.ru, which recently had an IPO.

And DST Global, an investment vehicle that is now separate from Mail.ru–although it shares Russian exec Yuri Milner, who is Mail.ru Chairman and also DST CEO–is also a Groupon investor.

– By Kara Swisher Of WSJ’s, ALL THINGS DIGITAL

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