During the height of the dot-com boom, the future looked bright for online group buying services.

Newly launched companies such as Mercata.com, Mobshop and LetsBuyIt.com followed a simple business plan: They created Web sites where online shoppers hunting for the same items could place orders together in hopes of obtaining sizable discounts.

It seemed like a great concept. The sites were free for consumers and made money by charging commissions and fees to the sellers of the products. Support was strong from investors, vendors and media. Within a few years, however, virtually all of the services failed. Traffic on the sites slowed after an initial boom. Most visitors didn’t make purchases, and as the number of buyers went down, prices went up.

Now a similar concept—though with important differences—has arisen and is booming in China. It’s called tuangou, which loosely translated also means group buying.

Tuangou services still start on the Web, where they invite shoppers to register for buying events involving certain manufacturers or retailers. Then they organize bus trips to those stores or outlets where participants who registered—often numbering in the hundreds—negotiate discounts as a team. Another key difference: Tuangou shoppers know their final price before making the purchase, and receive their goods immediately. Earlier group buying sites indicated final prices only after purchasers agreed to buy, and deliveries sometimes took weeks.

Divergent Paths

Such differences matter. Two of the biggest earlier-generation sites, Mercata.com in Bellevue, Wash., and Sweden’s LetsBuyIt.com, filed for bankruptcy protection in 2001. A third, Mobshop, discontinued its consumer service in 2001, though it continued selling software for e-commerce.

Of the more successful tuangou sites, meanwhile, Shanghai-based Liba.com, founded in 2003, says it has 1.6