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E-Commerce for the Rest of Us, Maybe


by Glen Emerson Morris
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Recently both Microsoft and IBM announced they were going to target small to mid-sized businesses with e-commerce products and services. It doesn't reflect a change of heart, it's just that the enterprise market (aka Fortune 500) is saturated and the only growth areas left are with smaller businesses.

Overall this is really good news for the majority of businesses in America. They've long been ignored by the major Internet infrastructure providers. Now big research and development dollars will be spent developing cost effective e-commerce hardware and software for companies that measure sales in millions, not billions.

This couldn't come at a better time. Just as small to mid-sized businesses are responsible for creating most non-agriculture jobs in America, small to mid-size businesses also make most of the sales, both over the counter and over the Internet. The magazine Internet Retailer has released a publication listing the top 500 e-commerce businesses, and interestingly enough, there were very few Fortune 500 companies on the list. The top category of Internet retail businesses were apparel shops, and very few Fortune 500 companies make or sell apparel.

Not only are the total sales on the Internet going up, but the number of companies selling on the Internet is also going up. One interesting statistic concerns the number of sellers who have left eBay to set up their own e-commerce site. Two years ago, most sellers left when their yearly sales hit $300.000. Now, most sellers are leaving when sales hit $150,000 per year.

EBay has become a kind of school for small brick and mortar to learn the techniques of selling online, and the processes and procedures needed for order fulfillment. Pulling, packaging and shipping orders is not a part of normal over the counter retail, and it can take a year or more for a business to get reasonably proficient at it.

Even more difficult will be learning how to setup and support an e-commerce Website. The Fortune 500 companies all have in-house information technology departments that can develop and test e-commerce Websites. Most smaller companies don't, and this will present an extra barrier to overcome, but it’s getting easier all the time.

Today there are hundreds of e-commerce services that will provide everything a business need to sell on the Internet. Order fulfillment is still up to the business, but almost everything else is available, for a price, and with a wide variety of options.

So, does all this add up to a new era of prosperity for small to mid-sized businesses? Maybe, and maybe not. Whether e-commerce for smaller businesses will take off may depend on the fate of net-neutrality legislation, and so far, things are not looking good.

At issue is the concept that all traffic Internet should be treated equally. The idea to date has been that a person or business bought a certain amount of bandwidth for a certain amount, and then they used it for whatever purpose they had in mind, with no additional charges.

The new approach, as legislation sponsored by Senator Ted Stevens would have it, is a world where telecoms could use their ability to impede or prevent traffic on the Internet for economic or political reasons. According to SavetheInternet.com, there are cases where this has already happened.
  • In 2004, North Carolina ISP Madison River blocked their DSL customers from using any rival Web-based phone service.
  • In 2005, Canada's telephone giant Telus blocked customers from visiting a Web site sympathetic to the Telecommunications Workers Union during a labor dispute.
  • Shaw, a big Canadian cable TV company, is charging an extra $10 a month to subscribers in order to "enhance" competing Internet telephone services.
  • In April, Time Warner's AOL blocked all emails that mentioned www.dearaol.com — an advocacy campaign opposing the company's pay-to-send e-mail scheme.
The net neutrality advocates are mostly concerned with free speech issues, but the business aspect could cause real and long term damage to the economy. At the very least, larger companies could use their economic clout to keep smaller companies from being competitive on the Internet. As the above cases indicate, telecoms are beginning to make it more expensive for their competitors to interconnect, and this trend will get a lot worse if Stevens' legislation passes.

Americans are already paying more for high speed access to the Internet, and getting less bandwidth for the money, than residents of nearly all other industrialized countries. America now ranks 16th in per capita bandwidth. Many Asian countries get speeds up to 50 times faster than the average American connection, and Korea currently has 40 times the per-capita bandwidth of the United States.

One of the biggest obstacles to developing a competitive Internet infrastructure is the monopoly based franchise system, which adds unnecessary time and expense to Internet development. Verizon, for instance, has about a hundred lawyers working on getting franchises, and by the end of 2005 had only won 40 franchises out of the 10,000 markets it serves.

The franchise approach, left over from a time of vastly different technology and economics, might work on a state level, but when applied on a community by community basis it becomes prohibitively expensive, especially when you factor in the cut of the proceeds that many communities demand.

There’s no doubt America desperately needs a new communications policy, but killing net neutrality is not the way to go. It would be much better to kill the franchise system and open the market to real competition. If telecoms spent the money on infrastructure they currently spend on winning franchises, America would be well on the way to competitiveness.

Failure to mandate Internet neutrality at a national level is only going to make communications less efficient. Telecoms say they need to make more money to be able to improve infrastructure, but if history is any measure, under a franchise system the additional revenues will only go to senior executive bonuses and trophy wives. Monopolies rarely innovate by their own choice. In a free market, companies have to.

It would be more than ironic that just as the information superhighway finally connects with small to mid-sized businesses, it is transformed by politicians into a toll road with speed bumps. Unless the average American business manages to influence Washington, and very soon, that’s exactly what is going to happen.

Glen Emerson Morris has worked as a technology consultant for Network Associates, Yahoo!, Ariba, WebMD, Inktomi, Adobe, Apple and Radius, and is the developer of the Advertising & Marketing Review Data CD.

Copyright 1994 - 2010 by Glen Emerson Morris All Rights Reserved

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