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Thursday, June 16, 2011 09:12 am

Trouble at Groupon?

We all like to see homegrown Illinois businesses succeed, but sometimes they get a little too cocky. That may be the case with Chicago-based Groupon.

The Internet startup, which offers one discount coupon per day for various U.S. cities, is being sued in a San Francisco federal court for alleged "false and misleading business and advertising acts" the company utilizes on Google. Our fellow altweekly, the San Francisco Bay Guardian, has the story:

"In essence, the tour company claims that Groupon is dominating Google searches with offerings for discounted local tours — of, say, Alcatraz — that don't actually exist."

Meanwhile, Harvard business professor Benjamin Edelman condemns the company for its alleged abuse of consumer protection laws.

This does not bode well for Groupon as it tries to take the company public, especially as potential investors grow concerned about the company's business model.

"In the days since Groupon Inc. filed papers for an initial public offering of its shares, pundits and analysts have pored over the daily online deals provider’s financial numbers — and raised serious questions about its long-term viability. "

Normally, we here in Springfield probably don't care much about whether a Chicago-based Internet business succeeds or fails, but there's a lot of state money on the line. In October 2010, Gov. Pat Quinn gave Groupon a $3.5 million "business investment package" to help them expand. The company essentially gets $3.5 million in tax credits over the next 10 years in return for a promise to create 250 jobs and stay in Illinois. Quinn later appointed Groupon co-Founder and chairman Brad Keywell to his Illinois Innovation Council, which is supposed to recommend ways to make the state more tech savvy for business.

These challenges to Groupon's business model and practices come at a time when Illinoisans are starting to feel like big businesses have Illinois over a barrel. The State Journal-Register has an Associated Press story today detailing the sweet tax deals the state has doled out.

We'll see whether these setbacks turn out to be a minor bump in the road for Groupon or a major regret for the entire state.

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