[webwright]

"Because of this, most Groupon clients (the businesses) end up losing money, and never offer a second or third discount via GroupOn."

That's false.

in Q3/2011, 33% of Groupons merchants were people who were doing it for a second time. That number was up to 56% in Q1 of this year.

The deals are getting less lopsided-- $12 for $24 at a restaurant where it's challenging to eat for anything less than $50 is a pretty good buy for a restauranteur. With most of their costs tied up in fixed costs (real estate, etc), they aren't losing much (if any) on this a deal of this size.

You're also somewhat wrong when you say, "The original idea was that Groupon would team up with a business and provide deep discounts to consumers to encourage them to try out that business."

That was part of the original idea, but there are a few other benefits. 1) Filling empty seats for businesses whose costs are largely already incurred 2) It's an effective cash advance for the business- they recognize the revenue quickly (it's like a Kickstarter campaign).

[patmcguire]

I don't think you're correct about the cash advance - as I recall the merchant only gets paid when the coupon is redeemed. Groupon keeps the float and the breakage.

[webwright]

Here's a recent state of things... It's a bit of a moving target, but they get a big chunk up front.

http://venturebeat.com/2012/05/07/groupon-tightens-its-payme...

Another thing to realize is that they get the money REGARDLESS OF WHETHER YOU REDEEM IT. EVER. Depending on the type of Groupon, upwards to 20% of them are never redeemed (this is a dirty secret of gift cards, too).