Here's why Groupon works: data compression. A groupon is a signal compressing all of the economic data in an entire city into a single very best offer, at a rate of one per day. Consumers are overloaded with information and seek simplification, the value derived is a function of the ratio of compression.
Here's how Groupon can fail: they start offering more than one coupon per day. Anything that increases the perceived noise/signal ratio in crowded inboxes.
Targeted deals based on real-time inputs (weather, slow day in the business, new story about a competitor, etc).
Add in hyper-local targeting and enough automation and you have the holy grail of local commerce.
Correct. 1 refers to the rate per individual inbox that was entirely essential for their initial growth and traction. Total volume and market segmentation > 1 ... is a no brainer for any business. While they can now afford to alienate and loose businessmen and others with low inbox noise tolerance, limiting the bandwidth they consume in each individual's inbox is still their weakest link and one of the only ways for them to actually loose subscribers.