Is Groupon Bad For Business?

Everybody likes a good deal — especially in a down economy. That might explain the explosive growth of Groupon, an online service that offers deep discounts on everything from restaurants to hotels to sporting events.

Groupon has become one of the fastest growing companies in the world. That’s why Google offered to buy it for $6 billion last December, an offer that Groupon passed on as it prepares to go public.

If you've never used Groupon, here's how it works: The company contracts with local merchants and offers online coupons that provide dramatic discounts, sometimes as much as 80 percent. Consumers save a lot of money, and merchants get a slew of new customers. Well, in theory.

There's just one multi-billion dollar question: Are daily discount sites like Groupon a good deal for businesses? The jury is still out, though a number of recent studies are raising doubts.

The latest study comes from a team of researchers at Boston University who concluded that merchants who work with Groupon do get a surge of new customers. But that increase may be short-lived, and might end up hurting businesses in the long run.

John Byers, co-author of "Daily Deals: Prediction, Social Diffusion, and Reputational Ramifications" and associate professor of computer science at Boston University, joins us to discuss the issue with Ben Edelman, assistant professor of business administration at Harvard Business School and co-author of "To Groupon or Not to Groupon: The Protability of Deep Discounts."

Guests:

• John Byers, associate professor of computer science at Boston University


• Ben Edelman, assistant professor of business administration at Harvard Business school