Who benefits from Groupon’s business model? Groupon, obviously. You too, since you get discounted prices and discover new products/services you wouldn’t otherwise have tried. Small businesses benefit as well, so everybody wins, right?

Do small businesses really benefit? The dream is to advertise on Groupon at a steep discount, snag a bunch of new customers, and keep them around as full-price customers because they love the product so much. How often do customers actually stick around, though? The Groupon model worked great in the early days when only a few businesses participated, but now you can find seven competitors for a given restaurant all listed on Groupon as well. The first restaurant you tried gave you an amazing discount and decent food, but the discount only applies to your first couple visits, so you’re going to turn them down in favor of something new. The restaurant sacrificed profits on your initial visit, hoping to keep you coming back, but you return instead to Groupon, the company that profits from your “discovery” of a small business while that same small business is forgotten.