I have been a huge fan of Groupon since I first discovered them late last year.  A couple days ago I bought this Groupon for 51% off house cleaning.  I just called the cleaning company to try to book an apartment cleaning, but they are completely booked until the end of August – that’s 5 weeks from now.  Whoa.  Beyond some mild frustration of not being able to have my apartment cleaned sooner, I was completely blown away that one day of promotion on a website could fill a company’s entire bandwidth for more than a month.  The company even said they’re trying to hire more cleaning crews in order to handle the excess demand.

There was an article on TechCrunch the other day that highlights the role of social media in small business marketing and the impact that Groupon seems to be having on small businesses.  One of the case studies in the article focused on a restaurant in San Francisco called Stone Korean Kitchen (coincidentally, one of the owners of the restaurant, Robby Kwok, is a former colleague of mine at Yahoo!).  From the article, here’s another example of my point above:

But what really tipped the scales for Yoo was Groupon.  Yoo says that restaurant saw significant traction in both sales and traffic to its Yelp sites and Facebook page when the restaurant signed up for a Groupon deal in April. Stone Korean Kitchen sold 2600 groupons in one day, and saw a packed house for two months for both lunch and dinner. Now Yoo says that they see around 5 to 10 Groupons per day instead of 30 or 40 but the restaurant is still seeing a good number of repeat customers from the Groupon deal, says Yoo.

One effect of the Groupon deal, besides increased sales, was that there were a flux of Yelp reviews. It took the company six months to accumulate 80 reviews on Yelp and after the deal, the restaurant accumulated 90 reviews within three months. Yoo also says that he’s seen a steady increase in Foursquare check-ins following the Groupon deal.

So Groupon not only generated an instant influx of sales (albeit at a discount), but also drove tremendous ripple effects from the promotion:

1. Repeat customers
2. Influx of Yelp reviews – likely increasing exposure on Yelp, leading to more future business
3. Increase in Foursquare check-ins – again, more exposure

It can be very difficult for new small businesses to stand out from the crowd and get the flywheel going so to speak.  While it is likely hard to measure the value of these ripple effects, they are no doubt beneficial to the business.  Beyond the direct sales and social media benefits listed above, the Groupon model provides other benefits to small businesses:

1. Favorable cash cycles – the businesses get paid before they have to deliver the service.  That can be pretty powerful for small businesses.
2. Redemption rates – not everyone who buys a Groupon will redeem it before it expires.  That’s cash directly to the small business’ bottom line.  I would bet that the unredeemed Groupons just about pay for the fee that Groupon takes from the promotion.

In summary, beyond being a great consumer product, Groupon is an exceptional marketing vehicle for small local businesses.  Anytime you can satisfy the needs of both consumers and businesses (and make money in the process, lots of money), you have a great business on your hands.