There's more negative buzz coming from Gaopeng, the group buying joint venture between Groupon and Tencent (HKEx: 700), which, when combined with other industry noise indicates a sharp downturn in online ad spending may be on the horizon. Just two weeks after reporting that Gaopeng had stopped advertising on Baidu (Nasdaq: BIDU) and Google (Nasdaq: GOOG) because they were too costly (previous post), Chinese media are reporting that Gaopeng has begun laying off staff to cut costs. (English article) The reports seem a bit fragmented and indicate a gradual lay offs began as early as April. But what does seem clear is that Gaopeng isn't gaining nearly enough sales and revenue in China to justify the rapid build-up in its staffing and ad spending since its formation late last year. The latest Gaopeng developments echo similar recent buzz, with e-commerce executives saying competition has become incredibly fierce and unsustainable, and many players will be forced to cut back their advertising spending in the months ahead to keep from losing money. None of this should be surprising, since China now boasts at least three other big group-buying sites that have received major new funding this year (previous post), and the e-commerce space has also become a jungle in a very short time, with names like Wal-Mart (NYSE: WMT) joining a space that was already crowded with big homegrown names like Alibaba and 360Buy. (previous post) This kind of hyper-competition can hardly be comforting for companies that derive a big part of their revenue from advertising spending, most notably  Baidu, Sina (Nasdaq: SINA) and Sohu (Nasdaq: SOHU), whose sites are popular with advertisers. I would look for all three of these companies to report sharp slowdowns in revenue growth starting late this year, and some consolidation in both the e-commerce and group buying space, which could see Gaopeng close down as Groupon focuses on more promising growth markets.