Groupon model - is it flawed?

Wasn't really sure about their business model for a long time now to be honest and I think there has been a few questions about it mainly because on average it doesn't seem to benefit the businesses that use the service from previous stories that we have all seen.

You would think that they would be making money had over foot though but hey have I don't know all the overheads that they have.

I think they pay out a fair chunk of their revenues out to the small businesses and they spend the rest growing.
There is no point making profit when you're in the growth phase, you have to spend everything and more on growing, ads, marketing, acquiring new businesses and customers.

The problem is that this "intermediary" business model is going to inevitably alienate some customers as some of the small businesses Groupon recruits will scam people, treat customers not as nicely as Groupon might like it or run out of business before they handle all the customers from Groupon.

This will affect Groupon's brand by association and it's already happening ... a lot of customers have stopped using Groupon because they can't really know the quality of the services they're getting.

On the other side, small businesses must realise that they get mostly price sensitive customers with 0 loyalty that are really hard to convert into regulars.

I do agree that the Google offer must seem very appealing now.

I know of 3 plumbing company's that used Groupon to generate lots of work for them and the same 3 company's nearly went out of business simply because they could not make any money out of the contract, they ended up running around like headless chickens to earn nothing, they lost work to normal fee paying customers and to make matters even worse their reputation went out the window, when the customers who wanted something for nothing were let down with failed appointments...

This is interesting, looks like Groupon is trying to re-invent itself, and is now moving in to the local deals and local business directory space, from what I can gather trying to become more like foursquare.
Groupon Makes Bid To Become Local (Deals) Search Engine

"Groupon Local Marketplace"

So what's the verdict, reckon this could be the way forward? Or just reacting to pressure from investors?

A pattern i am noticing is that a lot of companies are not honouring what is promised, especially restaurants, e.g. meal for 3 when at the restaurant results in a special groupon customers menu with a much reduced selection. I suspect tactics like this are a way of businesses protecting themselves as a result of them losing out so much.

The only people who make money with Groupon, is Groupon. And the only people who use Groupon are cheapskates who want something for nothing and expect it i.e. Go for a

apparently not, according to their results!

It is actually a very strange business model. Your wondering how they made a loss but someone tell me how they make profit?

I would have thought skimming off every business that puts up an offer must be lucrative, unless it really is a case they have to buy in all of their traffic and mailing lists