Photo via freshnetworks.com

As we look back on the various online marketing and e-commerce trends of 2010, the one that sticks out is the incredible growth of localization. And there’s no better example of this phenomenon than the rise of Groupon, which recently shocked the business world when it rebuffed a reported $6 billion offer from Google.

Groupon dominates the sub-category of localization known as social commerce. Social commerce websites include group buying sites like Groupon, which promote daily deals in specific cities through email and social networks (typically, a minimum threshold of buyers is needed for the deal to come into effect), coupon sites like RedFlagDeals.com and “flash sale” sites such as Beyond The Rack, where discounts are offered to members only.

Groupon operates on a percentage model, taking a cut (usually around 50 percent) of revenues from vouchers bought through the online promotion, with the rest going to the retailer.

With their ability to leverage social networks and amplify word of mouth, social commerce sites have not only changed how brick-and-mortar businesses view the Web, but are also providing Web-based businesses with a powerful tool to increase sales and generate brand buzz.

Groupon’s meteoric rise

You’d be hard pressed to find any media critic at the end of 2009 who predicted the rise of social commerce as a trend, or Groupon as a billion-dollar company. At the time, pundits were expecting 2010 to be characterized by the proliferation of social media and the increasing importance of mobile marketing.

Since then, Groupon has grown to well over 50 million subscribers in 35 countries and has been consistently adding at least six cities a month for most of the last year. This meteoric growth has led to a recent $1 billion investment and the apparent decision that Google’s rumoured $6 billion just wasn’t good enough.

And while Groupon is by far the biggest of the social commerce or group buying companies, it has plenty of competitors, most notably LivingSocial (which recently got a major boost from Amazon), nipping at its heels.

Beyond brick and mortar

There’s been lots of talk about how Groupon and its imitators are breathing new life into the offline world. But there’s much more to social commerce’s potential than the phenomenon of brick-and-mortar businesses leveraging the Internet to get people through their doors. What’s been overlooked is the tremendous opportunities social commerce offers e-commerce-oriented businesses.

Groupon itself appears to have realized this and has been running a variety of national campaigns with e-commerce sites since this past Black Friday (similar to the Woot.com model). For companies like chocolate.com and barclayswine.com, one can only imagine the incredible brand exposure of a city-by-city Groupon campaign throughout the continental United States.

With that in mind, here are three ways that social commerce can fundamentally change the world of online marketing:

Acquiring new customers

Social commerce represents an almost risk-free way to attract new customers. There is no upfront advertising cost for businesses, no paying for clicks, impressions or committing to an up-front budget. Even better, the business controls the cost of customer acquisition depending on the type of discount they choose to offer.

Now, some have questioned whether Groupon is a good deal for all merchants, considering that the company takes a significant portion of voucher revenue and that many Groupon buyers are bargain hunters whose sole loyalty is to Groupon itself (call them “Groupon groupies”). But any type of promotion will attract people looking to take advantage of a good deal on a one-time basis. The onus is on the merchant to turn new customers into loyal, long-term advocates.

Selling up

Once you have drawn a new customer to your site, chances are they’ll find something else that floats their boat. Social commerce promotions are an excellent way for e-commerce merchants to increase their overall orders due to impulse buys, or by offering incentivized specials once customers come through their virtual doors.

Restaurant deal recommended on Facebook

Free publicity

This may be the most interesting perk of social commerce promotions. First, there is the viral aspect of having people tweet your deals or post them on Facebook. Numerous deal aggregator sites also help prolong PR buzz for days. Second, search volume and direct traffic increase exponentially when a promotion is in play, which ultimately boosts sales.

For instance, the online printing company I work for ran deals on RedFlagDeals.com over two days in November, resulting in a sevenfold spike in daily traffic on both days. Worth noting was a 500 percent increase in direct traffic, a 200 percent increase in search traffic (both paid and organic), as well as an expected increase in referral traffic from RedFlagDeals.com.

As you can see, social commerce and the Groupon phenomenon is not just helping increase the potential e-commerce revenue stream. It’s also changing the way businesses promote their brands online.