The Use and Value of Web Sites
Overview
On the Net
Web Sites
a. Income from Web Sites
b. Costs of a Site
c. Benefits of a Site
Passive Web Sites
On the Web, But Without a Site
Not on the Internet
Not Using a Computer
Policy Questions
Final Comments
Overview
Small-business owners have difficulty remaining technologically current. The problem is not only cost, but the learning curve involved. Computer and Internet technologies are good examples. It is clear that small-business owners for the most part have no choice but to adopt new technologies in some fashion, including computer and Internet technologies. In fact, some argue that the Internet, in particular, offers small business a unique opportunity to overcome the economies of scale that often bar them from competing effectively against larger firms. Others view the Internet’s impact differently, arguing that brand names enjoy enormous advantages on the Internet and that costs to drive consumers to a firm’s Web site are beyond the capacity of smaller firms. Still, the Internet and business Web sites are facts of life. Small-business owners must compete in a market-place where the Internet and business Web sites are ubiquitous and where they are central to the business strategies of many. Hence, this edition of the National Small Business Poll focuses on The Use and Value of Web Sites.
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On the Net
A healthy majority of small businesses now use the Internet for business-related activities. Fifty-seven (57) percent of small employers report its use (Q#1). Not surprisingly, the Internet is exploited more commonly in firms employing 20 or more people (70%) than it is in smaller firms. Still, 55 percent of those employing fewer than 10 people incorporate the Internet into their business-related activities.
Most use the Internet for multiple purposes. The two most common are communicating by e-mail with suppliers and/or customers (83%) (Q#8A) and gathering business-related information, such as prices, new products, etc. (80 percent) (Q#8E). The third most common application is the purchase of goods and/or services (61%) (Q#8B). A smaller proportion conduct financial affairs, e.g., online banking (27%) (Q#8C) or bid for contracts (21%) (Q#8D).
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Web Sites
Sixty-one (61) percent of small employers on the Internet report that they have a business Web site (Q#9). That number translates into 35 percent of all small employing businesses. But Web sites are relatively new to small business. Approximately half of the sites (47%) have been active less than two years (Q#14) and the average life of small business Web sites is just 21 months. Only one in five (20%) have been operating three years or more.
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a. Income from Web Sites
Web sites can produce income for a small business in several ways. However, the most common are indirect, i.e., the Web site serves as a stimulant to transactions made by more conventional means. For example, 58 percent of small employers report the site stimulates sales, but the actual transactions are made in the site owner’s place of business (Q#15C). Fifty-two (52) percent report the site stimulates sales, but the actual transactions are made over the telephone, fax, or email (Q#15B). Thus, small-business owners most often find that site value is grounded in the information it provides, much like an electronic Yellow Pages ad. While the indirect revenue impact of Web sites is more common among retail firms than others, all sectors find that Web site-tied income is more often indirect than direct.
The most frequent way of producing income directly from the Web site is through direct sales, i.e., the capacity to buy right from the site. Twenty-four (24) percent report their site produces income in this manner (Q#15A). (A similar survey question, Q#10, yields a 35 percent positive response, but the contexts of the two suggests the 24 percent the better estimate.) Ads on the site produce income almost as often (21%) (Q#15D). The remaining techniques to generate income from the site do so in relatively few cases: 8 percent report paid subscriptions to materials on the site (Q15#E), 5 percent receive commissions for directing business to another site (Q#15F), and 6 percent obtain Web site income from sources not otherwise listed (Q15#G).
Web sites typically are not yet profitable for small firms. Only 28 percent of small employers with a Web site report an operating profit over the last three to six months (Q#16); 16 percent say that they experienced an operating loss; 38 percent call it break-even and 16 percent simply don’t know. The high percentage of “uncertains” reveals the difficulty many small-business owners appear to encounter in evaluating the financial impact of their sites. Repeatedly, large percentages of small-business owners with Web sites are unable to provide even general information regarding the costs and benefits of their sites. Their reticence to make even broad estimates, e.g., profit or loss, suggests that measuring the costs and benefits associated with a site are very difficult and that the owner is forced to make judgments about it by impression rather than numbers.
Those with a Web site estimate that 13 percent of their current total sales result directly or indirectly from their Web sites. The average conceals a significant variation across firms. For example, 28 percent say their site accounts for less than one percent of sales while 12 percent say that they account for more than 25 percent (Q#18).
However, 22 percent cannot or will not make an estimate; they appear to have no idea of the impact their Web site has on sales. Asked to project the impact of their Web sites on sales into the future, small-business owners forecast that their Web sites will generate an increasingly large share of their sales. They anticipate that in 12 months 17 percent of sales will result from their Web sites (Q#19). But 26 percent cannot or will not answer. They also forecast the figure rising to 28 percent in five years (Q#20). But 36 percent cannot or will not answer the five-year projection. Thus, small employers believe Web sites will stimulate or yield an increasingly large share of their sales, even though a substantial proportion become increasingly uneasy the farther the impact is projected into the future.
While larger firms are much more likely to engage in e-commerce with other businesses than with consumers, that is not true for small business. Small businesses do very little e-commerce with other firms. Forty-five (45) percent report that less than one percent of their Internet sales are to other businesses and 26 percent do not know (Q#17). Eight percent say that all of their Internet sales are to other businesses. A firm’s industrial sector often dictates its customer base. So, it is likely that customer distributions are simply echoed in small-business Internet sales.
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b. Costs of a Site
The costs of building most Web sites operated by small businesses appear modest. It also appears that about one-third of those with a Web site have no idea how much theirs cost. The lack of information on Web site cost is surprising given the normal sensitivity of small-business owners to costs in general. Thirty-five (35) percent spent less than $1,000 directly on construction of their site including fees for outside consultants or service providers where applicable (Q#22); just 8 percent spent $10,000 or more. But 35 percent did not know (very few refused to answer) and the reason(s) for it is not obvious. Direct costs, such as requested here, are clear, though perhaps Web site expenses are typically bundled under an expense category such as advertising, promotion, or computers. It is also possible that the costs are often so small that they are lost in the bigger picture. Nonetheless, the lack of response on direct costs continues a pattern for other questions regarding the cost of Web sites. For example, 33 percent with Web sites say that they and their employees spent a total of fewer than 16 hours (2 days) building their sites (Q#23); just 16 percent spent more than 40 hours, the equivalent of one man-week. Thirty-seven (37) percent did not respond.
Small-business owners also appear to have difficulty quantifying the costs of operating their Web sites. One-third (34 percent) spend less than $50 a month operating their site and another eight percent say their cost is between $50 and $99 per month (Q#24); just 11 percent report these costs as $500 a month or more. Thirty-two (32) percent did not respond. If one assumes a proportionate distribution of non-respondents, almost half spend less than $50 a month to operate their sites. This cost figure is plausible given that most sites are used primarily as an advertising medium. Modest operating costs parallel modest time spent by in-house personnel on their sites. Twenty-seven (27) percent spend less than an hour per month; over half (56%) spent less than one day (eight hours) (Q#25). Thus, once a site has been created, the costs of operation, both in terms of direct outlays and employee time, appear minimal.
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c. Benefits of a Site
The most frequently cited benefit from a Web site is “additional customers.” Fifty-two (52) percent feel that their Web site brought them more customers than they had previously (Q#26B). A non-mutually exclusive 14 percent feel that the site brings them “new types of customers” (Q#26C). A new type of customer might be retail customers rather than distributor customers or older customers when the traditional market has been younger customers. One in five (21 percent) indicate that their site has helped them increase sales outside the United States (Q#26F), though small-business export sales have never been particularly significant. However, only 24 percent say that their sites have helped them increase total sales (Q#26A). New customers curiously appear not to have translated into increased sales for many. One explanation for the apparent contradictory information is that the “additional customers” are so few or buy so little that it makes no noticeable impact on overall sales.
There are potential benefits from a Web site other than increased sales. One potential benefit is reduced costs, perhaps through lower unit marketing and distribution expenses. Twenty-one (21) percent say that their Web sites reduced their costs per unit sold (Q#26D). Thus, even if these firms did not gain a single additional sale from the site, cost savings may have more than justified site costs. Since Web sites are increasingly common and almost universal among large firms, a Web site may be necessary to improve (or even maintain) a small firm’s competitive position. Customers or potential customers may expect a site, for example, and the business owner may feel obligated to have one. However, just 8 percent feel a Web site improves their competitive position (Q#26G). (No question was posed about maintaining it.) The most important question is whether or not the site “increased business profits” and few feel that it did. Just 8 percent report their site increased profits while 89 percent report that it did not (Q#26E).
The paucity of reported benefits from Web sites, particularly the small number who indicate the site contributing to greater profitability, raises an entire series of important questions not addressed here. One of the first is measurement. How does the small-business owner/manager gauge how many new customers are generated by his site and the contribution of the site to sales? Another involves current investment as a means to position the business for the future. Do small-business owners see their investment as a short-term loss for a long-term gain? A third is the position of the site in the overall strategy of the firm. How does the site complement its other efforts?
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Passive Web Sites
Small-business owners are more likely to use their sites to generate sales indirectly than directly. Sites without the capacity to sell directly are effectively passive and simply provide the potential customer information that can be used in a traditional sales format. Therefore, passive Web sites do not seem to take full advantage of the site’s potential. The immediate question becomes why does such a relatively small proportion choose to sell directly over the Internet?
The overwhelming reason for the lack of a direct selling capacity is that the business’s “products and services don’t lend themselves to sale on the Internet” (Q#11B). Three of four (77%) cite this “inapplicability” reason for their actions. Unfortunately, the number of cases in each industry is small, but it does appear that some industries, e.g., construction, are far less likely to find direct sales conducive to their operations than industries like retail.
Small businessmen and women offer other reasons for the lack of direct selling much less frequently. “Don’t see a benefit from one” is cited by 37 percent (Q#11H) and 15 percent note the “amount of time it would take” to create or install the capacity (Q#11E). A smattering of owners list additional reasons: “Haven’t gotten around to it yet” (14%) (Q#11D), “infrastructure is not yet available” (14%) (Q#11F), “initial cost is too high” (11%) (Q#11A), “too much online competition” (5%) (Q#11C), and “don’t know how to do it” (4%) (Q#11G).
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On the Web, But Without a Site
Fifty-seven (57) percent of employing small businesses use the Internet for business-related purposes (Q#1). Of those on the Web, 61 percent (35% of all small employers) have a Web site and 39 percent (22% of all small employers) do not (Q#9). The most frequently cited reason for not having a Web site by the 39 percent on the Internet without one is that their “products and services don’t lend themselves to sale on the Internet.” Fifty-six (56) percent, lead by those in construction and services, offer this “inapplicable” explanation (Q#12B). The second most frequent reason (45%) given for not having a Web site is that the owner doesn’t see any benefit from one (Q#12H). The third most frequent response is perhaps the most interesting. Thirty-eight (38) percent claim that they just “haven’t gotten around to it yet” (Q#12D). This response suggests that they feel a Web site is worth having, but it is not worth having enough to channel any effort in that direction, at least to date.
Respondents provide several other reasons for their decision, but much less frequently. One in four (25%) say they do not yet have a Web site due to the amount of time it would take (Q#12E); 17 percent say that they do not know how to do it (Q#12G); 13 percent feel the infrastructure is not yet available (Q#12F); 7 percent believe the initial cost is too high (Q#12A); and 4 percent say there is too much online competition (Q#12C).
About half of those on the Web but without a Web site expect to have a site a year from now. Twenty-five (25) percent will “definitely” have one and 21 percent “probably” will (Q#13). Perhaps many of those who just haven’t gotten to it will do so this year.
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Not on the Internet
Forty-three (43) percent of all employing businesses are not on the Internet (Q#1). Of that number, 32 percent expect that they will be using the Internet for business-related activities in the next year (Q#3). Seventeen (17) percentage points say they will “definitely” be on the Internet and the remainder “probably” will. But that does not mean they plan to have a Web site. Only about half (45%) who plan to go on the Internet within the next year also plan to have a Web site (Q#4). If this group follows through on their intentions (and assuming no net loss or gain from entries and exits), the proportion of small businesses with a Web site could rise to as high as 70 percent. That is not likely, but their expressed intentions indicate that the number of sites will continue to grow.
Approximately one-third of those not currently on-line plan to be on-line within the next year. Two-thirds (65%) do not. Seventy-six (76) percent of this group say they do not intend to go online because they “don’t see any benefit” (Q#5). The remainder are divided among several possible reasons, e.g., cost of service is too high.
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Not Using a Computer
Thirty-six (36) percent of those not on the Internet or 16 percent of the total population have a particularly rational explanation for not being on the net: they don’t use a computer in their business-related activities (Q#2). The proportion of small employing businesses without a computer is virtually unchanged from the late 1990s. Beginning in 1998, NFIB posed several questions to small-business owners regarding the extent of their computer use in the context of a potential Y2K problem. Results from those surveys consistently showed 17 percent without computers.
Thirty-one (31) percent not currently using a computer for business-related activities expect to begin using one in their business within the next year (Q#6). Two of three say that they “definitely” will be using one. It is not clear whether those expectations will result in any net gain in the proportion using computers or whether new users will simply offset a number of current computer users either no longer in business or abandoning their machines. Those who say that they “probably” or “definitely” will not be using a computer within the year most often (54%) argue that they don’t see any benefit in one (Q#7). That may seem far-fetched, but one only need look at a two-chair barber shop to understand. A computer is a very expensive appointment book and adding machine.
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Policy Questions
Small-business owners provided brief, but notable information on two policy-related issues. The first is taxation of Internet sales. Though the issue can be a lawyer’s candy store and large businesses with locations throughout the country are affected differently, as a general rule small-business owners do not have to collect and pay sales tax on Internet sales. People have noticed, however, that some small businesses charge sales tax on Internet sales when they apparently are not required to do so. In fact, 20 percent of small-business owners with direct Internet sales report that they charge sales tax (Q#21); 33 percent charge it on some sales and not on others; though 42 percent do not charge tax on any sales. Five percent claim that they do not know or are uncertain whether they charge the tax. While it is possible that each is acting appropriately given state requirements, the most likely scenario suggested by these data is considerable confusion among small-business owners regarding their legal obligations. That likely will continue until a final outcome on the sales tax issue can be reached.
The second policy question involves access to high-speed Internet. The specific policy issues are highly complex and involve some of the largest companies in the country sporting some of the largest political and communications treasuries to support their views. The issues for small business are more basic at this point. While relatively few small businesses across the country have access to high-speed Internet service, 59 percent report that they do and another 16 percent are not sure (Q#27). Those who feel they have access, whether they use it or not, were asked whether access to this technology offers them a significant competitive advantage, a minor competitive advantage, no competitive advantage, or whether they were unsure. Responses suggest no consensus. Nineteen (19) percent believe that access to high-speed Internet offers them a “significant” competitive advantage (Q#28), but 35 percent believe it offers them none. Small-business owners who feel that they do not have access or were uncertain were asked how the lack of access affected them. Their verdict is that the lack of access is “no big deal.” Forty-eight (48) percent say that it creates no competitive disadvantage for their firms and another 32 percent are undecided (Q#29). Only 5 percent believe that the lack of access is a “significant” competitive disadvantage. These data strongly imply that many small-business owners do not distinguish high-speed Internet service from more traditional Internet service. It, therefore, follows that most do not see access to high-speed Internet service as a competitive advantage. That is fine so long as one’s competitors have the same view. But large competitors do not hold that view; many international competitors do not, either; nor do many small-business owners.
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Final Comments
Small-business owners try to keep technologically current. Despite the seemingly stable proportion that want nothing to do with the computer revolution, larger numbers are moving onto the Internet and establishing their own Web sites. Most small employers are investing in this new technology, particularly as costs decline. The question is what are they getting for their money?
The availability of new technology and even its use does not mean that the technology is employed effectively, let alone to optimal effect, nor that it is an integral part of the business or its strategy. Two points made above lend credence to this observation. The vast majority of Web sites do not contribute to the profitability of small firms and many small-business owners cannot quantify the impact or cost of their site. Neither suggest effective use of the technology. Thus, Web sites in many, if not most small businesses, appear as a dangling appendage without purpose other than the appearance of technological currency. The sooner purpose is added (and integrated), the more competitive small businesses will become.