You've seen the headlines; "Groupon rejects $6 billion offer from Google", "Amazon buys stake in Living Social for $175", "Google is rumored to be courting BuyWithMe". Why the excitement? Well, it's simple; social buying networks are hot.

You may ask, "what is a social buying network?". A social buying network is an organization that brings together traditional "brick-and-mortar" businesses with customers by using the internet.

There are several networks. Groupon is the leading company, followed by Living Social and BuyWithMe.

It works like this. The network lures customers with the promise of discounts on their favorite local products, services and events. All they have to do is register on the network's website for free email notification of deals.

Merchants want to access these potential customers because they are willing buyers; by signing up with the sight, the members are stating, "I want to buy stuff in my city!". So they offer a product or service using the network. The merchant specifies that a minimum number of items must be sold. The network notifies it local members about the deal. Interested customers pay the network; the network subtracts a commission, then pays the merchant. The deals only go through if the minimum number of buyers is met. Everyone wins; the merchant gets new customers, the customers get a discount on the purchased item, and the network makes a nice commission.

Let's look at an example:

Ruth owns a salon and day spa in Miami. Her most profitable service is a massage. While reviewing her sales figures, Ruth discovers that 75 off), with a minimum of 10.

Groupon sends emails to its Miami members, telling them about the discounted pedicures. 10 members purchase the pedicures. Groupon collects the $180, subtracts their commission, and sends the balance to Ruth. The customers print a coupon, which allows them to get the pedicure when they desire.

Groupon is happy because of the commission that they have earned. Ruth is happy because she now has ten PREPAID new customers that she can try to get to upgrade to a full-price massage. And the customers are happy because they saved 50% on their pedicures.

One key thing to remember is that, unlike traditional advertising, the burden is removed from the merchant and placed on the network. The merchants do not pay cash; they provide the goods when a customer presents a coupon. The network has an incentive to meet the minimum sales requirement specified by the merchant. If minimum is not met, the network does not receive any money.