> So, then the question is, if there is nothing that prevents a race-to-the-bottom, aren't the companies that maintain the highest operational efficiencies (and

> So, then the question is, if there is nothing that prevents a race-to-the-bottom, aren't the companies that maintain the highest operational efficiencies (and profitability) - not the ones that grab fastest the most of the ultimately indefensible lands - going to be the ones that prevail, in the end? Yes, yes, yes. As the OP correctly notes, this business model does not generate positive network effects for subscribers and, in my opinion, for merchants either (i.e. the larger the list of subscribers the smaller percentage of high quality sales leads generated). I think Groupon was scaling under the assumption that their business model was social and that network effects would be generated somewhere down the road once they were at scale. As we have seen, in mature Groupon markets where they are locally at scale, this has not occurred. From my outside perspective, it seems that Living Social might be in a more sustainable place than Groupon (although I might be biased as I'm in their home market of DC). They generated some goodwill by taking a smaller cut of deal revenue than Groupon and, anecdotally, do a better job at maintaining good relationships with their merchants. Their deal quality (i.e. range/quality of merchants) has also been consistently better than Groupon's in my experience.