(ex-Groupon dev)

The businesses that Groupon works well for have a) unused capacity to service additional marginal customers, and b) good retention/ongoing business once people try them. Good examples: gyms, salons, masseuses, adventure sports, skydiving, concerts, travel packages, overstock goods, etc. Bad examples: popular, crowded restaurants. Unfortunately, people eat out a lot more than anything else, so a lot of people bought Groupons for businesses whose business model didn't match Groupon's value proposition.

This was not well understood in 2012 (well, maybe it was to leaders of Groupon/Living Social/etc that had the numbers) and so the market size was not clear. But everyone knew that the returns would go to the biggest player, hence the intense competition for funding, advertising, customers, and merchants.

I suspect that Groupon's competitive landscape is one reason why Uber has been so aggressive in fundraising and expanding - to win at lower cost than having to battle every every market, and correctly size fundraising to the actual market.

Groupon's "deal" is very different these days. The restaurant (or service provider) sets the particular offering - usually it's a specific menu item, which they can produce at low cost for all the Groupon customers. And it's not always 50% off, or often times they'll offer something like "dinner for two for the price of one". The last couple times we've used Groupons it amounted to maybe 10-15% off the total bill - enough to get us into the restaurant when we wouldn't otherwise go, but still quite profitable for the restaurant.

It's basically the same as getting coupons in the mail, but with a lower cost of distribution and a channel that people actually pay attention to.

This might be in your area only. Where I live, most of the groupon deals are still for 50% off without any additional weird restrictions.

The major problem with the flash sales sites is they provided very little upside to the business offering the deal. Taking a small hit in a 50% off deal could be considered part of the cost of customer aquisition if the customer comes back. However a very large segment of the flash sale demographic are not desirable repeatable customers. The deal is clear, they're there for the large discount, and probably will only be back if you give it to them again.

They work best when you have a very inexpensive product where you can still make a profit by doubling your MSRP then selling for "80% off". Doesn't do wonders for your brand though, which is part of why the company I work for which has been doing this for the better part of a decade is trying to move away from the model.

Are you including Groupon in "these sites"? What they offer are essentially promotional deals, just like sales or coupons you get in the mail or from a newspaper or, these days, from online websites. Why not? It draws in new customers who might have been on the fence about trying your product/service, puts butts in seats at restaurants, boosts the sales figures, and gets your name out there. If it didn't work, Groupon would go under.

I suspect Living Social's main problem is that it's a me-too service that doesn't offer much of an advantage over Groupon. Google ended their Offers a year or two ago; also a me-too effort, and I think Amazon Local also shut down.

I don't think your Groupon experience is representative.

It is not, but it's still relevant. It created a lot of FUD for business owners. I was working on a startup in that industry at the time; I can't tell how many times we got the question from prospective customers: "how are you different from Groupon/LivingSocial, because I have friends who got screwed by them."

In the end I decided it wasn't worth the effort trying to build a startup that required hours of our time to convince/train each customer for a meager (<$100 monthly) amount. Way too much overhead.

But it's still an experience. Enough of one that he/she is willing to post about it publicly, perpetuating how the service feels - cheap.

It was a good thought too. I've known about Groupon and Living Social for years, but have heard too many stories about the businesses they supposedly work for frowning upon customers that attempt to use the coupons. Restaurants putting patrons in the back or in some side room, giving them limited options on the menu etc...

Seems counter-intuitive that restaurants would treat them poorly. If you're savvy enough to use Groupon, you're probably savvy enough to leave a Yelp review.

It's interesting how one's perspective on something differs, one sees it as "cheap" while another sees it as "thrifty". Related to upbringing, perhaps? I love it when I can get two $60 meals for one $60 price.

Your point about Yelp reviews is good, but I'd say that reviews from people with Groupons, Living Social deals, going on Restaurant Week, etc. are generally worthless, and I've often wished for a way to filter them out. And it's really for much the same reason that I think restaurants tend to not value those customers a lot. First, if they'll only come in with a really great deal, they're not likely to become repeat customers at full price. And it's not profitable to nurture a customer base who only buys when there is a sale (just ask JC Penney). And since they've already demonstrated themslves to be "thrifty," they're also less likely to buy extras like alcohol, dessert, etc. that make the visit profitable. There are few businesses that want to attract people who care only about price, but that's the behavior that Living Social and Groupon encourage.

Secondly, and admittedly on a much more anecdotal note, it seems that these customers are prone to acting entitled and complaining loudly about things that are non-issues compared to the regular clientele. Most people who don't like Thai food simply don't go to Thai restaurants. But there's a pretty decent Thai place near my house that tried Groupon, and got a handful of really bad Yelp reviews from people who seriously seemed to just hate Thai food. A couple of them explicitly mentioned Groupon, and the owner told me that she believes that all of those reviews were Grouponers (and the deal didn't restrict what they could buy, so they got the same food as everyone else). Their complaints had nothing to do about the specifics of the restaurant (which has almost universally good reviews). This serves no one. The diners get a meal they didn't like. The restaurant takes a ratings hit. And Yelp users see artifically low ratings for a good restaurant. If I'm looking for a Thai restaurant, I don't care what people who dislike Thai food think -- I already know they'll hate it.

It was mine, too. Any time I was eating with someone who pulled out a Groupon, I wanted to pick up the tab just so as not to be so gauche as to use a coupon to pay for food. It was just a terrible user experience.

Why is that gauche? The way I understand it (I've never actually used Groupon myself), the restaurant chose to offer its service at the deal, already at a cost to your host. It's not like your host was falsely claiming there was a hair in their food to get it for free. Are you also against using restaurants.com type services?

A new business or a business expanding their current menu always has an issue with distribution. It used to be solved with ads in the newspaper, Yellow Pages, fliers under windshield wipers.

Groupon and LivingSocial's value-add is allowing a small business to gain distribution relatively on the cheap compared to other methods.