My experience with Groupon was fairly short. Basically, as an advertiser, you need to have surplus capacity that costs you nothing to fill. So if you have empty restaurant seats and food costs are less than 25% of your total costs then can make sense to use Groupon to bring people in. Even if it ends up costing you a bit of money to meet all these new customers, it can still be a fairly cheap way to get your name in front of a lot of people.
Ditto for, for example, English classes or spa treatments. The cost to you of servicing the Groupon customer is very low, so you offer the deal to bring people in and hope that you can sell them something else later.
I'm not sure if it's a sustainable way to do business in the western world, but in Taiwan it seems that you're just giving away something for cheap to people who are unlikely to come back and spend real money. Taiwanese consumers love deals and discounts, and there is always another deal on Groupon so basically you get this group of people getting cheap deals for stuff at the expense of advertisers.
Not surprisingly, the result is that there's a fairly limited pool of advertisers offering deals. And basically they're all copying each other, or trying to out-compete each other in a race to bankruptcy. If you don't have deals on Groupon then you're not in the game, so everyone has to offer a deal even though it's killing them. Hence, the deals are not very good.
I have some friends who tried to create an alternative, using the same business model. It's at least bilingual, and some of their deals were a bit less ordinary, although it doesn't look like they're being very successful. http://www.yordoo.com/en/recent_deals