40% of Groupon merchants say "never again"

The benefit I can see to restaurants comes with people's preference for familiarity.

True, it'll be a tough blow to serve all that food for cheap, but if you can make people feel good about your restaurant for cheap, I think there is a good chance they'll be back, even if they have to pay more.

It's the reason why national brands can charge such a premium over generic stuff, even when it's exactly the same thing. People are risk averse and a Groupon takes half the risk out of a meal purchase.

I think the Restaurant.com model works better for restaurants since a minimum purchase is typically required and the tip is automatically included based on the actual (non-coupon) price. Although, I do find it hard to get coupons for the more popular restaurants.

HN likes to turn against companies that become too successful - FB, Groupon, etc. I assume it has a little bit to do with sour grapes and a little bit to do with not wanting monopolies forming.

I agree - the groupon price is likely going to become the "reference price" in the minds of most customers, meaning psychologically any number higher than the "reference price" will be considered too expensive. This effect is even more likely to occur on someone purchasing a service or activity for the first time (first impression effect), not to mention groupon buyers are mostly regular deal-hunters.

Groupon is a new method of marketing. At the end of the day, no matter what Groupon or anyone else says, there is not enough data about the results of this marketing to make any predictions.

There are a lot of new variables to consider.  Beyond numbers, the small and medium local businesses that Groupon targets still aren't entirely web savvy. Heck, most of these businesses just figured out how to put together a halfway decent website let alone master an online community based method of marketing.

Groupon has come up in my regular day-to-day conversations with small, local businesses.  To each one, I've said the following:

1) Building your own online audience is more valuable than relying on the one Groupon has. This isn't easy for the strong majority of local business owners, but even a few followers on Facebook point your business in the right direction. Imagine being able to carefully craft your very own Groupon. Even if you only had 50 people following you around the web and even if those followers were existing customers, you could extrapolate the data and gain the experience needed to make a powerful Groupon style campaign successful.

2) On Groupon, offer a drastic discount on a product that you could afford to give away for free.  If you're not capable of doing this, don't do it. This is surprisingly difficult many small businesses because they don't know the true cost of their products. From labor to square footage, most small businesses consider a sale profit without having a complete view of product costs available.

As an example: Every year, a bakery near where I live prepares hundreds of small Cannoli pastries.  The store lines people up down the street and sells a up to 12 at a time for nearly 75% less then what they regularly retail for. The store could afford to give these away for free every single day - they cost $0.06 each to make including labor, materials, packaging, etc. This would be a smart Groupon - get a big rush of people in the store at once with a Groupon then a trickle for the rest of the year. Upsell like crazy and give each customer another coupon for 50% off of their next order and you'll encourage people to spend more.

3) When evaluating the feasibility and hard numbers behind a Groupon, do not assign value to branding or repeat customers. Think toward data collection and future marketing instead. I've seen a lot of companies featured on Groupon that must be thinking "a percentage of these people will come back" or "they'll know the name of my store after this!". Well, they won't. These are people who every-day, check Groupon for the latest and greatest place to save money. Sure, some people will come back and some people will remember your name - but if you assign any value to these things when budgeting a Groupon campaign, you're silly.

4) The smartest Groupons I've seen are those that can be scheduled. From restaurant reservations to car detailing, if you can figure out a way to have Groupon customers call to schedule a time, you'll be ahead of the game. Being able to control the flow of customers can help ensure that 50% of Groupon campaign problems go away.

In short: Your own audience is more valuable then that of someone else. Offer products on Groupon that you can afford to give away for free. Don't get sold on branding or repeat customers. Products and services that you can schedule (even with creative thinking) work the best.