NetMarkets Are Attracting Small Businesses

IMT Strategies Inc., Stamford, Conn., an affiliate of technology research firm Meta Group, surveyed more than 300 small businesses and found 8 percent had become early participants in Net markets.

Those businesses reported that at least 25 percent of their sales were generated through online marketplaces, according to the study, which was released late last year.

The same group anticipated marketplace sales to exceed 50 percent by 2002.

The numbers are significant because there are 8 million small businesses (fewer than 50 employees) in the world, growing at an annual rate of 40 percent, IMT analyst Steve Diorio says.

In addition, the percentage of sales is far greater than most companies, which do 95 percent of their sales offline.

The study shows online marketplaces emerging as a place for larger corporations to gather market data on small businesses and find potential customers.

"If I'm selling to small businesses I want to learn to a higher degree of detail what they're looking for, because either I can build the marketplace they want to participate in or go to the marketplaces where they're playing," Diorio says. "I think these guys [large corporations] have been looking for a silver bullet for years to reach this market."

Global 2000 corporations have a "significantly lower" level of participation in marketplaces because of greater risks, including loss of control over profit margins and customer information, and potential conflict among sales channels, the study found.

For example, participating in a marketplace could draw business away from longtime distributors.

On the other hand, small businesses see marketplaces as an opportunity to take customers away from larger players and as a chance to expand their reach beyond regional markets.

"Little businesses don't care [about the risks]," Diorio says. "They've got everything to gain. They're going for it."

The study also found that software and professional services were sold more often in marketplaces than products, which are logistically more difficult to sell.

"The factory [buy and sell] processes are so rigid, that you have to get it 100 percent right," Diorio says, "whereas hiring a person or contracting a person may be a little bit more channel ready, easier to do online."

Despite the findings, the study did not disprove expectations by most analysts of a major shakeout among independent marketplaces that will eventually leave only a small handful operating in each vertical industry.

Among the 2,000 to 2,500 vertical marketplaces expected to be operating by 2001, the "vast majority have little or no liquidity," Diorio says.

"A lot of times they have sellers, but there's no buying going on -- no transactions," Diorio adds. "That's what we mean by liquidity -- no critical mass of transactions. As a consequence, there will be no profits."