Groupon is a fundamentally bad business and I wouldn't touch it with a 10 foot cattle prod. Some say that we know they're not profitable but that's really not

Groupon is a fundamentally bad business and I wouldn't touch it with a 10 foot cattle prod. Some say that we know they're not profitable but that's really not the point. By counting customer acquisition as an extraordinary expense they are implying that: 1. The value of that customer is AT LEAST as much the cost of acquisition; and 2. That cost also accounts for the natural loss of customers. This is shady because (IMHO) daily deals customers have very little loyalty to the providers of those services, there is no natural barrier to prevent customers moving to LivingSocial or whomever and the high margin on deal split is transitory because increased competition will reduce what is really nothing more than the artificial scarcity introduced by Groupon's one deal a day (per market). But none of that is why Groupon is a bad business (IMHO). Consider: Groupon offers a deal, people buy it and Groupon and the provider split those proceeds in some fashion. I believe--but don't know--that the provider has to wait for some large part of those proceeds too. Basically that delay is Groupon's cash flow. So what's the best outcome for Groupon and the provider? One of two things: 1. The customer doesn't use that coupon. Groupon and the provider pocket the free money; or 2. The customer spends above the coupon or is a repeat customer such that the "marketing cost" (to the provider) of the Groupon offer is amortized over multiple visits and/or higher spend such that they make a profit. In the case of (1), many providers really don't want customers to use coupons. There are plenty of anecdotes from people getting bad reactions when they tell a proprietor or a waiter or whatever that they're using a coupon, particularly in restaurants. Worse, coupon users may be people who are prepared to pay full price anyway or the influx of coupon users may prevent full-paying customers from being able to use your service. The propaganda is that you can sell unused capacity. While true for some businesses I think you'll find that many people try to use Groupons in, say, restuarants at otherwise peak or busy times. There are some success stories of (2) but plenty of failures too. What isn't built into Groupon's financial statements is account risk. There is a strong argument that a failing business can make one last roll of the dice with a Groupon offer. If they fail, they were going under anyway. I actually don't know if Google (disclaimer: I work for Google) tried to buy Groupon or not and if we did, at what price. The press reports Groupon turned down a $6 billion offer. My personal opinion is that Google dodged a huge bullet if this is true.