How does Groupon work?

It's important to understand that Groupon isn't for everybody -- and it isn't meant to be. The service was designed to attract a specific demographic: young, urban professionals who want to explore their cities affordably. The kinds of deals featured on Groupon fall squarely into the category of wants, rather than needs. They advertise products and services that you may not have otherwise tried if the price wasn't so low.

Here are the most common types of Groupon deals:

Writer Noreen Malone jokes that Groupon deals paint a picture of American desire warped by too many "Sex and the City" reruns [source: Malone]. Lots of eating and drinking, lots of grooming and yoga classes -- and if all else fails, the occasional cosmetic procedure.

The most common type of Groupon deal is a 50 percent discount on a certain amount of product, measured in dollars. For example, instead of offering 50 percent off of Bob's entire bill at Eatsa Pizza, the deal is for $20 worth of food for $10 dollars. Groupon always tells you how much money you saved and at what percentage of the original cost. And not all Groupon deals are for $20 or less: The site also features cosmetic dental procedures priced at $2,999 (a 62 percent discount) and true luxury items that retail for tens of thousands of dollars.

All Groupon deals come with some restrictions. For starters, they must be used before the expiration date. Some Groupon deals are limited to new clients or first-time customers. Many restaurants limit Groupon users to the regular menu, not the daily specials (or alcohol), and some restaurants specify that only one Groupon can be redeemed per table. It's important to read the fine print before buying a Groupon to make sure that it meets your expectations.

Now, let's look at some of the advantages and disadvantages of Groupon for businesses.