(1) The willingness of restaurants and other businesses to offer a 75% discount in the hope of attracting repeat customers at the full price.

(2) The inability of competitors to elbow in and offer either restaurants or consumers a better deal.

(3) Cutting costs sufficiently to turn an operating profit.

I’m personally puzzled at their inability to turn the 75% discount into a profit. Admittedly they pass the majority of that along to the customers, and spend even more on convincing new customers to sign up with them, but it shouldn’t be THAT expensive to attract business. And if it is, then your business might not be as promising as you hoped.

A month ago we received a Groupon (actually a look-alike competitor) offer for a local restaurant that we’ve already visited a couple times and enjoyed. Still didn’t bite because the setup ultimately seemed to be more hassle than it is worth.

Will be hard to build a $10B business on that.

Nope. Not interested. Even for the low, low price of $50.

Restaurants view Groupon as a straightforward marketing expense. They lose money (and Groupon gains money) on coupons and they hope they will get customers to sample their offerings and become repeat, full-paying customers, thereby covering this initial marketing expense.

The question is whether or not this is cost-effective for restaurants. (They have plenty of other marketing channels they could use.) Attracting only coupon users is a recipe for bankruptcy. So they have an incentive to keep coupon use to a minimum. And if enough Groupon users don’t turn into full-paying customers, restaurants will pull out and Groupon will be dead, regardless of how many customers Groupon has or how well consumers like it.

On the upper end, you have Gilt City, Bloomspot, and I’m sure many others.
On the bottom end, you have tons of competitors.
On the middle, you have Livingsocial, plus Google and Amazon muscling in.

Groupon was first to the largest market, but they were behind Livingsocial when it came to buying into the travel market, they were behind Scoutmob when it came to the mobile market (the failing Groupon “Now”) and they are behind Gilt City, etc. when it comes to the upper end market.

They can still grow and do well, but I’m sure all this competition means that they’ll have to be a little more merchant-friendly. Right now, I’m seeing increasing numbers of desperate low-end retailers on Groupon, especially in Groupon Now.

Every business that is easily duplicated by competitors has a NPV of zero. Groupon is such a business and soon competitors will drive revenues down.

Bye bye business case…

Yes, Groupon’s early subscribers are more profitable than the later ones, but it is also true that the marginal cost of finding new subscribers increases over time quite dramatically. So if the old subscribers become inactive, then it can become incredibly expensive to find new paying customers. Does the Groupon business model support high cost customer acquisition? Yet to be proved.

I’ll sell you one of mine for $50.

$70 per email address seems a bit pricey. If someone is willing to spend $70 per customer, I’m pretty sure that someone can do a lot more than what Groupon is making out of each of its customers…

Sorry. Not convinced.