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Report: Groupon To Bed EBay, Yahoo, CitySearch, Others

In the next several weeks, social buying site Groupon will announce revenue sharing partnerships with eBay, Yahoo, and CitySearch, sources tell TechCrunch. Still, despite being "one heck of a startup," TechCrunch's Michael Arrington argues that Groupon and its backers are in for one heck of a reality check.

Regarding the issue of scale, the social buying site "needs a lot of sales people for each market it handles and already probably has more than 2,000 of them on payroll," notes Arrington. "But the real problem is the complete lack of a network effect to protect its business." As a result, "Competitors can flourish and margins will get crushed." But don't take Arrington's word for it. Benchmark Capital's Matt Cohler says regarding Groupon's business model: "There are neither barriers to entry nor are there switching costs in that product. Typically when a product has those characteristics margins tend to collapse over time."

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