How Does Groupon Make Money?

May 3rd, 2010 - By TheEditor

(TechCrunch) — Groupon takes the old Entertainment Coupon Books that your mom used to buy and brings it to the social web. Groupon sells a “Deal of the Day” in each of it’s now 52 supported cities offering significant savings for local restaurants, service providers, activities and memberships, and takes a commission. The trick is that the deal is only “triggered” once enough people buy in. This creates the incentive to share the deal with friends and family, until “the deal is on.” It’s great for local businesses because they can set the parameters for the offer and they know a minimum for how many offers they will have sold in advance. By combining the social web and virality with hard-to-replicate deals, Groupon has created a network-effects business for commerce that makes its model highly attractive (hence, every week seems to bring new copycats).

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