Small Businesses Buy, But Shy to Sell, Online

US small business spending on online transactions and purchases grew more than 1,000 percent, rising from $2 billion in 1998 to $25 billion in 1999, according to a report by Access Markets International (AMI) Partners and Inc. Magazine.

The number of small businesses transacting on the Net increased from 1.8 million in 1998 to 2.8 million in 1999, representing an increase of 55 percent, according to the study.

“There’s been a spectacular rise in online purchasing,” said Andy Bose, President and CEO of AMI-Partners. “Clearly, the growth in the small business market segment, which represents a significant critical mass, is driving the future of B2SB (business to small business) e-commerce. We are projecting that small business online purchases will register $118 billion by 2001, emerging as a critical driver of overall B2B e-commerce.”

The report estimates that 670,000 small businesses have ventured into the online auction arena, bidding for products and services. Nearly 1 million small businesses plan to participate in online auctions in 2000. It also found that 1.3 million small businesses are interested in using the Internet to collaborate or pool with other small businesses to buy in groups to obtain better prices for products and services.

But while small businesses may be turning to the Internet to buy, they are not using it to sell, according to the study.

“There is evidence of e-backlash among small businesses in launching secure e-commerce sites for selling their wares on the Net,” Bose said.

Concern over high costs, inadequate IT support service, and an overall perception that products and services are not well suited for Web-based sales, clearly illustrates that IT vendors need to quickly and efficiently implement programs that meet the demands of today’s small business customers.

Barriers to Launching E-Commerce Sites*
Products/services not
readily sold via Web
Upfront cost 31%
upgrade cost
Lack of in-house
IT support
Online security issues
such as fraud
* Percent of small businesses without Web sites
Source: AMI-Partners

An estimated 600,000 small businesses were selling their products and services via e-commerce sites in 1999 up from 400,000 small businesses in 1998. The value of such transactions rose from $14 billion (1998) to $25 billion (1999), representing an increase of 79 percent.

“The Internet offers a plethora of opportunities for small businesses and the IT companies that serve them, but significant numbers of small businesses remain unconvinced that the Internet can be used to foster their company’s revenue growth,” Bose said. “Six out of 10 small businesses don’t believe that the Web is well-suited for selling their wares, and they feel overwhelmed by the technological challenges involved in order to establish a solid online presence. This paradoxical evidence of e-backlash presents unparalleled opportunity for IT vendors, especially given the success of those small businesses that are selling online.”

Among the 7.4 million US small businesses, 4.2 million access the Net, representing a penetration of 57 percent. Almost 17 million, or one-quarter of small business employees, use the Internet, according to the report. Since 80 percent of small businesses have fewer than 10 employees and they’re relatively split between metropolitan and outlying areas, e-commerce offers tremendous efficiencies and economies of scale.

More than half of the small businesses responding to the AMI-Inc. survey noted that a constant, high-speed connection to the Internet would be useful, and 40 percent were interested in receiving and providing customer service and support via the Internet.

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