Is Groupon Business Model profitable for Merchants? for Consumers?

Best known among voucher vendors is Chicago-based Groupon, a 2,5-year-old startup already touting a ten-digit valuation and, purportedly, recently rejecting a $6 billion acquisition offer from Google (should have they really?).

Groupon business model is illustrated below using Osterwalder’s canvas.

Groupon Business Model

Hundreds of websites offer discount schemes similar to that of Groupon.
Many studies, from both academics and business activists, have been conducted on the Groupon business model profitability for merchants and consumers. See references at the end of this post.
The results of the studies were not totally rosy to a certain category of merchants, and consumers.


Here is a summary of some of the concerns:

Consumers:

The discount vouchers service presents many intriguing questions: 

1. merchant goes bankrupt after issuing vouchers but before performing its service?
2. What happens if a merchant simply refuses to provide the promised service? 
3. Since vouchers entail prepayment of funds by consumers, do buyers enjoy the consumer protections many states provide for gift?
4. Must consumers using vouchers remit tax on merchants' ordinary menu prices, or is tax due only on the voucher-adjusted prices consumers actually pay?
5. What prevents consumers from printing multiple copies of a discount voucher and redeeming those copies repeatedly?

Merchants:

merchants considering whether to offer discount vouchers, the most important question is the basic economics of the offer: Can providing large voucher discounts actually be profitable?

Voucher discounts are worthwhile if they predominantly attract new customers who regularly return, paying full price on future visits. But if vouchers prompt many long-time customers to use discounts, offering vouchers could reduce profits.
For most merchants, the effects of offering vouchers lie between these extremes: vouchers bring in some new customers, but also provide discounts to some regular customers

The findings of an academic study of Rice University from 2010, 
from 150 Groupon businesses in 19 cities 66% profitable; 32% unprofitable.

• Restaurants were the most unprofitable category, describing Groupon customers as "entitled," poor tippers, and definitely not repeat customers.
• Spas, on the other hand, were the most profitable
• 42% said they would not use Groupon again

The recommendations include: selective, partial offers, designed to link to repeat behaviour.

References:

http://www.blogs.ubc.ca/paulcubbon/

http://mashable.com/2010/08/19/gap-groupon/
Harvard Business School: http://www.hbs.edu/research/pdf/11-063.pdf
http://primitus.com/blog/whats-the-secret-success-of-groupon/
http://www.ruf.rice.edu/~dholakia/