February 23, 1998 Watching the growth of the Internet economy The expansion of Internet commerce represents more than just a business opportunity for your company -- although it is definitely that. It also represents the birth of a new global, Internet-driven economy. Sure, you've heard this before. And it's true that the success stories of a few large companies do not an economy make, even if those companies are generating millions of dollars in business each day through the Web. But now there's hard evidence that Internet commerce is spreading beyond a few large corporations and becoming a truly widespread phenomenon -- a fact has important implications for your company, whether it's a multinational corporation or a small local business. The clearest evidence of an emerging Internet economy can be seen in the large numbers of small businesses now using the Internet to buy and sell. Unlike big companies with generous IT budgets, these small business efforts are indicators of an underlying economic trend. Because there are about 7 million companies in the U.S. with less than 100 employees, small businesses are making a big business impact. Increasing sales A recent study by venture capital research firm Access Media International (USA) Inc. shows that 1997 was the year in which small businesses really embraced the Internet. According to AMI's Global Small Business survey, small businesses saw only about half a billion dollars in combined online sales in 1996, but that number spiked to $3.5 billion in 1997. Moreover, small business sales are expected to more than double this year to $7.5 billion in combined online revenues. These businesses are not just stumbling onto the Web, either. AMI analyst Ryan Brock told me that small businesses are making deliberate, calculated IT investments to help them realize I-commerce goals. "They are really embracing the medium as something that a fairly constrained business can use to get out there and expand their selling area," Brock said. In other words, small businesses -- which are typically limited by geography, the limits of smaller marketing budgets, and similar constraints -- are finding that the Web gives them access to global markets with a comparatively small up-front investment. Small businesses are using the Web to make purchases as well as sales. In 1997, small businesses purchased about $600 million worth of goods and services via the Web -- that number is expected to grow to $1 billion in 1998, according to AMI's survey. Currently, the largest number of those purchases are for computer products, but the share for other types of products and services is growing, Brock told me. Your competition? With so much buying and selling happening online, the Web is starting to transform into a real marketplace. It's easy to foresee a time when small companies do most of their purchasing and a great deal of their selling through the Web. Thus anyone who sells goods or services to small businesses will need to be on the Web in order to remain competitive. But small businesses will also increasingly compete with large corporations that until now have had exclusive access to global markets and technologies that automate production and purchasing. In the Web marketplace, bigger is not necessarily better. A small company may be able to deploy technologies similar to those of a large corporation, but its small size will enable it to react more nimbly to marketplace changes than its bigger brothers and sisters. "These technologies are really enabling [small businesses] to go head-to-head with larger businesses," Brock said. It's also evident that the Web makes cooperation and partnerships between small and large companies simpler. For instance, instead of using expensive, proprietary EDI systems that lock out small trading partners, large corporations can use extranets and Web-based technologies to automate business with everyone from a mom-and-pop shop to Wal-mart. One thing is for sure -- small businesses aren't just sitting around waiting for the Internet to open for business. They're going after Internet technology aggressively and are implementing I-commerce solutions right now -- with tangible benefits to their bottom lines. "Small businesses who are embracing this technology have a clear set of objectives," Brock said. "They're saying: 'We're making this investment and we expect to see it pay off in terms of increased inquiries and increased sales.' And it is paying off." How are you taking advantage of the Internet economy? Write to me at dylan@infoworld.com. Dylan Tweney is the editor of InfoWorld's Focus on I-Commerce section online and in print. Missed a column? It's easy to catch up -- just click here.