Web's Next Big Thing Is Small
By Leslie Walker
Thursday, February 17, 2000; Page E01 You would think the Internet was going to turn every small business into Amazon.com or Dell Computer.
Never mind that most big Web sites are still hemorrhaging money, or that small sites typically draw fewer visitors than your living room. The Internet industry is behaving as if it is going to transform mom-and-pop merchants into e-commerce billionaires. Fearful of missing this wave, venture capitalists have poured hundreds of millions of dollars into two dozen Web sites with such names as AllBusiness.com, Workz.com and OnVia.com. They are electronic service centers, providing advice and tools to help small companies do business on the Net.
"This space is heating up," said Michael Shulman, chief executive of AtYourOffice.com, a start-up in Rockville with 40 employees. "It's going to be a huge business in terms of the potential for profit. We offer a free human resources management tool for small businesses, a background-screening service for new hires, and tools that most small businesses have not been offered before."
How hot are small-business portals? Two weeks ago, NBC Internet Inc. paid $225 million in stock to acquire AllBusiness.com. OnVia.com is on track next week to become the first of these sites to go public in what promises to be a sizzling offering, despite the company's negative gross profit margins. Recently, a California incubator paid $7.5 million to acquire the domain name Business.com to launch yet another entrant. And in Washington, the U.S. Chamber of Commerce is announcing a partnership today with AtYourOffice.com to provide e-services for its fledgling Web center, ChamberBiz.com.
These portals are in a market-share fight as fierce as the one e-commerce vendors waged over Internet shoppers a few years ago. And just as early Internet consumers weren't too sure they wanted to buy online, much less where they should start, small businesses today seem bewildered by sites vying to help them do e-business.
"It's surprising how many of our clients can't say what their objective is," said Rich Schott, owner of Funmark Internet Advertising, a small firm in Stevensville, Md., that has led more than 1,000 businesses into cyberspace. "The most common response we get when we ask why they want a Web site is 'Our competitors are online.' "
But the smart money says small businesses will figure it out soon and turn into big business for winners of this race. By all accounts, the small-business e-market will be huge. The federal government estimates half the nation's output comes from businesses with fewer than 100 employees. There are 8 million to 28 million of them, depending on how you define small business.
"They have always been fragmented geographically and by industry, so it's been hard for companies looking to provide products and services to the small-business community," said Teymour Boutros-Ghali, chief executive of AllBusiness.com. "The huge hoopla is that the Web appears to be breaking down those distribution hurdles. The opportunity goes both ways: Here is a new land where small businesses can promote their products more broadly, and also where they can be reached more effectively by big businesses."
In the past year, Amazon, Yahoo and Microsoft have joined IBM, Intel and AT&T in offering low-cost (typically, $20 to $60 a month) point-and-click tools for creating and hosting small Web commerce sites. Newcomers upped the ante by offering comparable tools for free. (Freemerchant.com, BigStep.com and eCongo.com let you create free Web storefronts quickly by filling out forms.) More advanced services (payroll, inventory management, sales force automation) are rolling online daily and being combined with site-creation tools at these one-stop service centers.
The start-ups aim to make money from advertising and commissions on services, but the competition is stiff. So stiff, in fact, that OnVia has been selling goods substantially below cost to grab customers---13 percent and 24 percent below what it paid for the goods, on average, during two quarters last year, it disclosed in federal filings.
Look for a major shakeout by late next year. Rest assured there won't still be two dozen virtual mom-and-pop help centers still open by then. Not with competition from the likes of Microsoft Corp., which created bCentral.com last fall as the place where it intends to roll out its own e-business services, including a rented version of its familiar shrink-wrapped Office software suite to be hosted and used entirely online.
Last week Microsoft debuted a new Web-site building service for $39.95 a month at bCentral. My test of Microsoft's site-creation tool, however, suggests it is one of the clunkier ones, even though it offers more flexibility than most because you can import a site into Microsoft's FrontPage 2000 software, modify the design and republish it. That's a feature software maker NetObjects Inc. also aims to offer for the site-building service it launched this week at GoBizGo.com.
Like all the e-business centers, bCentral offers marketing tools to help sites attract customers, such as a free banner-ad swap program called LinkExchange, an affiliate sales program that lets sites earn commissions by referring their customers to big Web stores. BCentral also offers e-mail software that can be used to communicate directly with customers. The portals are still struggling, though, to figure out which tools really work.
The half-dozen sites I randomly queried who participate in LinkExchange, for example, were disappointed in the traffic generated by the banner-ad swaps. Several were also disappointed in Microsoft's affiliate marketing program, ClickTrade.
Scott Noftle, a Canadian musician, tried to market his Web site about bass guitars using bCentral. He signed up to be an affiliate for five big musical equipment sites and earned few sales commissions, even though his Bass101.com draws decent traffic--about 10,000 visitors last month. "The revenue payout just did not seem to be enough--less than $10 per month," he said.
Others reported modest success. John Watts, a home-improvement contractor in Ellicott City, said his Web harmonica sales have grown steadily since he started the business almost on a lark four years ago. The spurt came in December, when he began using Freemerchant's tools to handle sales for his Coast2CoastMusic.com site. Sales doubled to $6,000 in December and have gone higher since then, Watts said. He thinks the reason is that his new order forms are secure and look more professional. In the early days, he took orders via e-mail from a home page on America Online.
"It still amazes me that I am selling harmonicas and other equipment to people around the world from my desk at home," Watts said. "I have shipped to Japan, Malaysia, Brazil, South Africa and all over Europe, including Moscow."
It's not Amazon, perhaps, but it's enough for the 47-year-old contractor to start exploring other Web tools and reevaluating the Net's potential to remake his career.
And all the business portals are banking on millions more like him coming their way soon.
For a guide to business portals and other online resources for small businesses, go to www.washingtonpost.com/walker.
Tech Thursday columnist Leslie Walker will host a live Web chat about the future of newspapers today at 1 p.m. with John Sturm, president and CEO of the Newspaper Association of America. To participate, go to www.washingtonpost.com.
© Copyright 2000 The Washington Post Company
ncG1vNJzZmivp6x7uK3SoaCnn6Sku7G70q1lnKedZMSxedKrrWiPgJiusXuRaWdpZWBnfHKDjmlwcKpdZX9yg49pZKKcqGO1tbnL