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SMALL FIRMS TAKING OFF AS BIG SPENDERS ON THE NET

Posted on May 23, 2000

      Last year, small firms spent $25 billion for goods and services over the Internet -- more than 12 times the previous year, according to a study released May 16 by New York's Access Markets International (AMI) Partners Inc.

      For the first time, business-to-business spending topped online consumer spending -- by a whopping $5 billion. Meanwhile, the number of small businesses transacting business online jumped 55 percent to 2.8 million from 1.8 million in 1998.

      "There's been a spectacular rise in online purchasing by businesses with one to 99 employees," said Andy Bose, chief executive officer of AMI-Partners. "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 study, co-sponsored by Inc. magazine, also reports these statistics on the growth of online business with small businesses:

• 4.2 million (57 percent) of the 7.4 million U.S. small businesses access the Internet.

• Almost 17 million, or one quarter of 68 million small-business employees, use the Internet.

• 1.3 million small businesses are interested in using the Internet to collaborate with other small businesses to buy in groups to obtain better prices for products and services.

• 670,000 small businesses have ventured into the online auction arena and nearly 1 million small businesses plan to bid for products and services this year.

• An estimated 600,000 small businesses sold goods and services via e-commerce sites in 1999, up from 400,000 in 1998. Meanwhile sales rose to $25 billion from $14 billion.

      However, not all the findings were positive.

      While small businesses are turning to the Internet and making online purchases in record numbers, many are skeptical about whether launching e-commerce sites and selling online will actually boost sales.

      "There is evidence of e-backlash among small businesses," said Bose. "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 establishing a solid online presence."

      Specifically, they are concerned by high costs, inadequate technical support and security issues involved with conducting business online and outsourcing critical business functions.

      The average small business spends $170 a month on Web site support, according to Bose. Some are not sure what they are getting for their money but feel they have no choice given all the predictions for growth in online commerce.

      AMR Research of Boston released a study this week that suggests B2B e-commerce will reach $1.7 trillion by 2004. It contends that many companies that do not take an aggressive approach in preparing for the digital marketplace will lose customers and ultimately fail.

      B2B e-commerce momentum is being driven by two main opportunities, according to AMR:

• Cost Savings. Reductions in selling, general and administrative expenses could exceed $50 billion in 2004.

• Trading Exchanges. These allow smaller companies to solicit customers, respond to bids and take orders via the Internet with minimal investment in technology.

      Hundreds of B2B exchanges and auction sites are available to help businesses buy and sell everything from industrial parts to chemicals. A growing number of online businesses are helping small businesses pool their orders.

      Last year, small businesses spent $220 billion on business services, and an increasing number are turning to online providers to handle everything from hiring and training employees to handling insurance, payroll, direct mail and other corporate chores.

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