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Capitol Comment

    Capitol Comment 261 - You’ve Got Money ... The Internet Paves the Way for Small Business

    11/12/1999

    The romantic comedy You’ve Got Mail seems to have found the pulse of the nineties. Tom Hanks plays the chain store bully who forces Meg Ryan’s small, family-owned bookstore out of business. However, that story has been around since Wal-Mart first came on the scene; what makes this a nineties romantic comedy is that Ryan and Hanks meet online, and they fall in love as they exchange email. The Internet has really only emerged in the last four or five years, but already has made a tremendous impact on the way Americans communicate, both personally and professionally.

    Technology and the Internet offer more than just the romantic possibilities highlighted in You’ve Got Mail. There are also incredible opportunities for start-up companies and other small businesses. Innovators create new markets and new ways to compete on almost a daily basis. Startup capital has not been a problem either. It often seems like a "dot com" and an Initial Public Offering (IPO) guarantee millions for new Internet businesses.

    It is now possible to market your products and services to a national audience without spending millions of dollars on a national ad campaign.

    Many of the first E-businesses simply moved traditional retail enterprises online. Companies like Amazon.com, Autobytel.com, and others provided Internet versions of traditional retailers. These companies did not have the geographic confines or employee overhead typically associated with running a business, and these differences have forced bricks-and-mortar businesses to respond with their own E-commerce strategies. The Internet offers exciting opportunities for any business willing to take advantage of it.

    On the Internet, nobody knows you’re a (small) dog. In the same way that big retail chains represented the future for American businesses a decade ago, the Internet has changed the face of shopping in America. Online retailers like Amazon.com and auction sites like eBay offer a whole new level of convenience for consumers who cannot or do not want to make a trip to the store. The Internet promises to give an edge to businesses that adapt to change the quickest – i.e., small businesses with specialized product lines.

    While large retail chains focus on retaining their existing customers, the Internet offers small, local businesses an opportunity to attract new customers and remove many of the geographic barriers that have traditionally prevented them from reaching beyond their community. It is now possible to market your products and services to a national audience without spending millions of dollars on a national ad campaign.

    In addition to removing geographic boundaries, E-commerce offers small businesses many savings and efficiencies that were previously only available to large retailers. The Internet allows companies like Milacron Inc. (metalworking products), to offer services and support to all their customers that they previously could not offer even to their largest customers.1 The Internet also opens a whole new range of options for small retailers who need to purchase goods and maintain inventory.

    Traditional middlemen can use the real-time coordination offered by the Internet to combine the orders of smaller clients and negotiate a better price for the smaller merchants. That is, unless the smaller merchants realize that they can do this themselves and cut the middlemen out of the picture. If aggregation doesn’t help the smaller merchants, there are online auction houses that mirror their retail counterparts, except they cater to businesses. For businesses that want to offer a greater selection, but can’t afford the overhead of keeping seldom requested items in stock, they can use a warehouse’s online catalog and order the items as they need them. The expanded purchasing options and improved services that the Internet offers small merchants can allow them to offer a much broader array of products and services without significantly increasing their prices.

    The large retail chains will still offer certain advantages for consumers, but the Internet can alleviate many of the cost burdens that often force small businesses to close their doors. Rather than the "either/or" dichotomy that exists in the retail market today, consumers could take advantage of the benefits offered by both the large retail chains and the small locally owned and operated businesses.

    Although the full implications of E-commerce remain to be seen, its early impact on the way Americans shop and do business certainly opens a world of opportunities. From stock markets to warehouses, and even the storefronts of Main Street America, everyone is beginning to realize the benefits of the Internet. Those businesses and entrepreneurs who are willing to embrace the Internet and other new technologies will have the opportunity to create a new model for American retailers.

    You’ve Got Mail may have found the pulse of the nineties with retail chains, coffee shop bookstores, and love on the Internet, but as we enter the new millennium there is a bigger picture on the horizon. Traditional business models will become obsolete. It’s no longer bigger, but faster and more efficient that is better. Small businesses will find regulatory barriers, not geographic ones, their greatest headache. However, companies that are flexible and open to new ways of doing business will have tremendous new markets and unlimited potential. Perhaps in the sequel to You’ve Got Mail, Meg Ryan will take advantage of the Internet and leave Tom Hanks and his nineties business plan in the dust.

    1U.S. Department of Commerce, The Emerging Digital Economy II.