Unless you have been living under a rock recently you can t fail to have noticed the craze that is sweeping the Internet about group buying. While this is certainly not a new concept (Sam s Club is effectively a nationwide group buying scheme where you can get wholesale prices because so many people are buying the same products), many commentators are acting like Groupon and Living Social have invented something brand new. So how do it work exactly? Essentially it is one big mailing list, their company value is in the number of emails they can send out. You tell the website where you are located – but note that only limited locations are available at present, and then every day they will email you unbeatable deals from businesses in your area.

However, to actually take advantage of these offers a 'tipping point must be reached – that is to say a certain number of people must also buy in to the offer in order for it to become active.

Here s an example: Say a restaurant is offering 3 meals for the price of 1, which is a great deal, but in order for it to become active at least 150 people need to buy it.

Now here s where Groupon have come up with a really fantastic piece of viral marketing. If you love the deal so much it s in your hands to try and get more people to buy, so you can email the offer to your friends and family, promote it on your social networks like Facebook and Twitter etc. So getting back to our example, say 145 people have bought in to the offer, it s still 5 people short before the offer expires and because it didn t reach the tipping point all the customers get a refund. However, if it does reach the 150 buyers required, then it will automatically email a coupon code to the buyers. The types of offers you can get when you sign up to a group buying website can be very varied, from restaurants, spas, extreme sports, beauty treatments, flying lessons, cinema tickets, entertainment and more, infact you could have an entire weekend of fun for a fraction of the full price when you are a member of a group buying site.

The group buying sites make their money by splitting the discounted price with the business promoting the offer. A site like Groupon is estimated to take between 30% and 40% per deal and with its current membership levels that means it makes an estimated $40,000 for every deal that it sends out – not a bad return for building an email list!

Since group buying works on a location basis, the growth potential remains strong and a lot of businesses are creating their own group buying websites to serve the local area. Infact there have been Groupon clones springing up around the world, in Europe, Latin America and China, many of which are receiving high levels of funding due to the low start up cost and high profit margins.