Do you think Groupon business model is sustainable?

I think as long as the economy is slow, and purse strings are tight, people will continue to be interested in good deals. (though, it can be argued they are buying things they wouldn't normally purchase- 1/2 photoshoot with a purple monkey anyone?) In any case, deals and sales will thrive when people are trying to save.

My own personal evaluation of the Groupon model is that it is sustainable for Groupon or any other daily deal website using the formula, but it isn't sustainable for most of the businesses using it. I can't recall where I read this, but most businesses only advertise a deal once on these sites because they mostly all lose immense amounts of money, and the discount to fully paid conversion is pretty low.

First of all, Groupon doesn't provide a sustainable model for the businesses that use them. They get a temporary surge of customers taking advantage of the 50% to 70% off, but after that first experience the fall off is sharp. I know of a photographer that essentially ended up working for free for Groupon deal he ran and never saw a repeat customer. There are a couple decent reads on this phenomena here, here, here and you can read about how Quiznos is attempting to beat that trend here

I think if you are going to get into coupon space effectively you'll need to figure out how not to be a knock off of Groupon, LivingSocial and dozens of other clones but offer a new angle on the service that gives you a claim to stake in the territory that Groupon and its clones don't do (or at least not effectively)

I think the business model of Groupon is sustainable.

This is my guess and I base my answer on the assumption, that for this model to be sustainable, both parties (I mean companies that sell goods and services, as well as people who buy them) have to have the interest in using Groupon (or similar site).

In first case, the companies selling goods, if you have some excess goods (be it some rooms in the hotel or some older models of your products), you can either destroy them (good), do not use (hotel rooms) or sell them with a lower price. If Groupon or similar site has a large base of users, it is a good way to sell these excessive products / services - you then have quick group targeted at responding deals with high discounts.

When it comes to the buyers, as long as they see the offers that interest them (especially when it is economic downturn, when the price matters more), they will be using the site. Of course in this case the user loyalty somehow should be sustained (preferably binding people with the site, like Facebook binds users with their site), but it is a different question.

So, to sum up, in my opinion this business model can be sustained, but will have to adapt to function after the initial hype will stop. Even if Groupon and its clones will fail to do that, they will not vanish quick, because it will change gradually, I think.

EDIT:

Read about current projections on how the daily deal market will rise:

Forbes: Who Will Be Left Standing Post-Groupon IPO

The question is a little misleading as it insinuates AdWords is the only medium used to get the word out there.

They may have started that way (honestly, I'm not sure), but I heard of Groupon through word of mouth.

I love food and they have lots of food offers from local restaurants. That's the main reason I keep my e-mail subscription.

If they can keep the majority of their customers happy with deals that interest them, the business should last a long time.

On a side note, a 1/2 photoshoot with a purple monkey sounds pretty awesome.

The whole Groupon success is a great bubble in my opinion. Just take a look at the 'values' of Web 2.0 companies like Facebook, Groupon, Foursquare, Twitter etc.

There will be a second .com bubble burst...

Groupon's success lies in it's fast expansion, and that it is really posh! The whole business model is only good for buyers! Not the sellers, because with the huge discounts a lot of them loose significant amount of money.

It is only 'optimal' for startups, who beleive in the power of their services, and want to reach tons of possible customers.

From the businesses using Groupon perspective it looks like it worked for 2/3 of the businesses http://www.ruf.rice.edu/~dholakia/Groupon%20Effectiveness%20Study,%20Sep%2028%202010.pdf

Looks like their growth has flattened recently http://siteanalytics.compete.com/groupon.com/?metric=uv

but it's take another 6-12 months to see if it's a temporary hiccup or a long term phenomenon.

Groupon makes money by taking a hefty slice of each deal so they have revenue. They didn't try the free model and hope they'd make money somehow later.

From the merchant's point of view the main difference is the minimum buy. So they can plan on hiring more employees etc to meet the demand and are not stuck with being half-successful.

There are plenty of competitors trying to do the same thing. What groupon now has is a huge customer preference database which they can mine for purchasing patterns and use that to sell focused marketing to more merchants.

Some merchants think a groupon promo is worth it for the advertising alone. They can get an email to a few hundred thousand people in one area.

But if I were offered the same chunk of cash as they were I would have sold.

I know some pretty important people from the turkish groupon website markofoni and i would say that the business model used to work pretty well, but it would not work as it would be in the past or at it's initial launch in 2008~.

I would say like @roland pokornyik, that there will be a second dotcom bubble burst.