Slate magazine recently ran their article, "Ding, Dong The Deal is Dead," in their earnings report section regarding Groupon's poor business model. It looks like Groupon was a causality of the internet's new shiny object syndrome. People thought that because it was new and looked snazzy it might work, but it's still failing to produce value for both the clients and for themselves.
Rakesh Agrawal, an analyst and journalist who spent many years working in the local advertising business, writes, "Groupon was riding high because its most important constituency—the small businesses who slashed their prices to entice Groupon’s customers—was getting ripped off. When Groupon runs a deal with a local business, it demands very unfavorable terms. First, the merchant is asked to substantially reduce his prices. Then he has to agree to give Groupon a huge split—often 50 percent—of the tiny amount that he does make from each Groupon sale. For instance, if my fast-food shack normally sells a burger-and-shake combo for $10, Groupon will want me to offer it for $5, and then take half of the $5 sale—so I’ve just sold $10 of merchandise for $2.50."
The lesson is to be wary of the fast buck from a new internet formula. Take a good look at what you're getting yourself into and remember that newer doesn't always mean better.