Let's look at the details: Although it is extremely attractive to more than 35 million users, Groupon earns its revenue from the small businesses that run price promotions through the site. In a recent study, I found that Groupon promotions, as they are currently structured, end up being unprofitable for close to one-third of the small businesses that run them.

In my study sample of 150 businesses that ran Groupon promotions between June 2009 and August 2010, 42% said they would not run a Groupon promotion again. Their main reasons were that a significant proportion of Groupon redeemers are extremely price sensitive, barely spending beyond a discounted product's face value. Not surprisingly, repeat-purchase rates at full price were also low — just 13% — for these businesses.