Groupon overwhelms San Francisco bakery
missionlocal.org
missionlocal.org
As the article mentions, Groupon has plenty of competitors, with probably room for more.
You could advertise in print, on Yelp or elsewhere and pay money out without knowing whether a customer will actually use your business. Even with PPC you rarely have the ability to track to the sale for businesses like this (restaurants, salons, action sports, entertainment etc).
With Groupon, you don't pay a cent. Instead, you just price your goods/services at break even and get hundreds of new customers in the door. If even a small percentage become repeat business, that still seems like a pretty good idea.
Underpricing a free (for consumers) service, on the other hand, seems like a terrible idea for a business.
Mind you, that's why I'm poor and those guys now have a billion dollar company.
EDIT: I should add that this is a blog post written by someone heavily involved in their operations, so there's a reasonable amount of detail.
"Starting just after 6 am, Groupon sent out emails to its roughly 200,000 Boston subscribers. I knew that there might be a problem when I checked a few minutes after receiving my email (I am a subscriber). They'd already sold 30. By 11:00 am, they'd sold more than 2000. We finally had to beg them to shut it down at 2600 (we could have set a limit initially but didn’t think to)."
Also, I'm wondering if they offer analytics advice (for a small fee, of course) to their biz customers, e.g. for this type of deal in this location, you are expecting to get on the average N customers.
It's not sustainable.
Others grouse about Groupon's fee. "It's a bold thing for a company to make 50 percent for essentially hawking an e-mail list," says Lincecum. Mason makes no apologies. "We have a waiting list of hundreds of businesses in our larger cities," he says. "Demand is much higher than supply. If I remember high school economics correctly, that means our margin is too low."