“Here’s how sites like Groupon and LivingSocial work: They ask retailers in a city to offer steep discounts ranging from around 50% to 90% off on things that would appeal to locals. Examples include 79% off spa services, 54% off at paintball, 57% off at a restaurant with Malaysian cuisine and half off for doggie day care. The site lists one retailer a day and takes a portion of the revenue generated by a deal.”
Read more in a primer from the WSJ.