The Trouble With Groupon

I’d been meaning to try out a newish waffle place in my neighborhood, but instead it’s closing down, and the proprietor blames Groupon. I think it’s pretty clear if you read the letter that he ought to primarily blame himself. It turns out that cooking waffles is one thing, but running a business is another, and you can’t run a successful waffle business unless you understand something about business.

But I do consider this yet another reason to be skeptical about the underlying Groupon business model. In a fundamental way, their business doesn’t work if participating in Groupon doesn’t pay off for business owners. And Groupon structures the timing of its payouts in a way that makes it weirdly less favorable to a restauranteur than a conventional 50 percent off promotion would be. In exchange it offers you access to a big mailing list. But there’s a substantial cash-flow price to be paid over and above the cost of the discounting.