Chapter Two: Business Survey

Vermont Internet Commerce Research Project Final Report

Chapter Two: Business Survey

Quantitative Research

Executive Summary

Nearly one-quarter (24%) of the surveyed businesses do not maintain a storefront or warehouse and operate only on the Internet. Over 100 different companies were mentioned as Web site hosts, though two Vermont-based companies were mentioned most: Together.net (15%) and Sovernet (10%). However, the remainder were mainly located out-of-state.
The majority of businesses (62%) have on-site staff who update and make changes on a day-to-day basis to the Web site. The remaining 38% use outside consultants and/or their Web site host.
Three-quarters of the businesses pay less than $100 per month for their Web site hosting.
The three main factors that affected businesses’ decision of where to host their Web site were: price, location (local service), and range of options.
Businesses are extremely satisfied with the services of their current Web site host. Respondents scored their Web site host at an average of 4.25, on a scale of 1 to 5, with 5 being the best score.
Businesses have been using the Internet for sales for an average of two years. Approximately 42% of the businesses have been using the Internet for a year or less (as of December 1998).
The average number of Web site visitors is 20,548 per month. However, this average is slightly inflated due to a small group of businesses receiving very high levels of visitors. Overall, 80% of the businesses receive 10,000 visits or less each month to their Web site, and of that group 20% receive less than 100 visits.
An average of 12% of the Web site visitors actually purchase a product or service from the Web site. Based on the number of visitors, businesses have an average of 2,393 people who make monthly purchases. Again, this average is inflated due to a small group of businesses conducting high levels of monthly sales. Overall, 62% of the businesses have less than 100 sales each month to visitors.
Of those persons who purchase a product or service each month, an average of 19% are repeat customers.
Nearly three-quarters (73%) of the businesses stated that the Web site has increased their overall sales. They reported an average 39% increase in overall gross sales due to Web site purchases. However, once you remove the outliers from the data (the small number of companies with high levels of sales) the average is closer to 33%.
Approximately one-quarter (27%) of all these businesses’ overall gross sales is directly attributable to the Web site.
The Web sites are increasing sales in all of the businesses’ market areas; 59% of the businesses stated that the Internet has helped them reach previously untapped markets.
The increase has mainly been in the national market and overseas markets.
The main decision-maker concerning the expansion of Internet commerce is the Owner or President (84%). Only 6% stated that the Director of Marketing made decisions about Internet sales. But, management was rated very highly for being supportive of the use of the Internet to increase sales. On a scale of 1 to 5, with 5 being the best, management received an average score of 4.34.
Three-quarters of the businesses believe that the Web site has either somewhat or greatly increased their competitiveness in the marketplace.
Approximately 43% stated that the sale of their products or services on the Internet has led to expansion of their business operations. However, only 18% believe that it has led to the hiring of more employees. In those cases where additional staff was hired, it was fairly small. On average, four full-time employees and two part-time employees were added, depending on business type and location.
The vast majority of businesses are optimistic about their future Internet sales; 85% believe that they will increase during the next 12 months. Also, 71% believe that their company needs to invest more time and resources in developing their Internet sales program.
Nearly three-quarters (73%) state that the proper technology exists in Vermont to effectively conduct business on the Internet. However, the open-ended qualitative responses reveal some technology concerns that may be obstacles (discussed within the Insights section that follows).
More than three-quarters (78%) advertise their ability to sell products or services on the Internet. The main advertising methods are: Internet (24.4%), magazines (20.8%), and catalogs (15.2%).
Only 25% of the businesses believe there is public resistance to buying its products or services on the Internet. Also, less than one-third (31%) possess a secure site for financial transactions.
Businesses stated that the main issues or obstacles to the public buying items online are: fear of stolen credit card, lack of knowledge, and can’t see/try the product. They state that the biggest selling points of the Internet for commerce are Information Availability (38%) and Convenience (32%).
Only 4% of businesses (19 businesses) required a loan from the bank to develop and start their Internet sales program. Of those, 63% (12 businesses) said that the bank was somewhat or very willing to provide the loan.
The idea of using the Internet as a source for business sales was mainly generated in-house at the businesses – 49% stated the idea was from an internal staff member. Of the remainder, 23% stated that a computer consultant proposed the idea of Internet commerce.
Two-thirds of the businesses do not take advantage of any training programs to help their business better utilize the Internet for sales. The main reason was that they "didn’t see the need" (45%). An additional 26% stated that they lacked the time to attend. Cost was an issue with only 9% of the businesses.
Businesses rated Web-based tutorials and printed Web literature fairly weak in terms of their usefulness. Internet classes and workshops were rated slightly higher, but the businesses preferred in-house Internet training and staff due to their usefulness and tailored application.

Overview

As part of the overall Internet commerce research project, the Small Business Development Center commissioned Action Research to conduct a quantitative survey of Vermont businesses that conduct sales on the Internet. The goals of the research were to:

Identify what types of businesses are currently conducting commerce over the Internet.
Quantify the types of benefits that businesses have accrued from engaging in Internet commerce.
Evaluate the performance of Vermont’s current Internet support infrastructure.
Describe the prevailing attitudes toward doing business on the Internet expressed by lenders, consumers, businesses, etc.
The data in this chapter of the report will address these issues and aid the SBDC in developing strategies that will address the needs of Vermont businesses in expanding their use of Internet commerce. The chapter draws attention to the major issues and insights discovered from the survey data. A separate chapter follows that contains the actual recommendations for SBDC, drawing from this and the other phases of the research project.

Appendix "A" that follows the report contains compiled charts and tables for each survey question for the quantitative survey of the businesses. Appendix "B" contains cross-tabulations of the most pertinent questions of the business survey and gives further insight into the relationships of certain survey responses. And finally, Appendix "C" contains all the open-ended responses from the qualitative portion of the business survey. Review of the open-ended statements will provide further anecdotal information to support some of the conclusions within this report.

Methodology

A total of 454 surveys were completed within the state of Vermont between November 16 and December 8, 1998. Computer-assisted telephone interviewing was used to collect the data and prevent data errors. The survey data was collected from businesses in Vermont that had a presence on the Internet. The list was developed from a variety of sources and compiled by KM Lists, which specializes in targeted sample development. A total of 2,300 Vermont businesses were identified with an Internet presence. During the interviewing process, it was discovered that approximately 1,300 actually sold products or services on the Internet; the remainder used the Internet only for advertising purposes.

There were no technical or administrative problems encountered with the survey instrument or the calling procedures. The collected data provides a 95% confidence level with a +/- 4% margin of error. This exceeds standard statistical levels for significance and accuracy in survey work. Also, Action Research achieved a 50% response rate, which meets the nationally reported average for survey work, though it is slightly below the Vermont average of 55% (which is based on residential surveying). The slightly lower response rate is attributed to the difficulty in reaching the appropriate person to interview at some businesses. Also, the response rate for business surveys is typically lower than that of residential surveys. Nevertheless, all collected survey data is within required levels for analysis and action.

Demographics

The survey collected a range of demographic data about the businesses, in addition to data regarding their Internet commerce. It is useful to refer to this information since it can provide insights into and greater understanding of the challenges facing particular types of new businesses seeking to enter the Internet sales market. The concerns or issues of a small, home-office bookseller will differ from those of a computer hardware manufacturer with its own warehouse. Also, the benefits to the State economy are different, depending on whether it is a one-person home office business with no storefront or a multi-building complex employing hundreds of workers. For this reason, the reader should keep the following data in mind as he/she reads the full report.

The survey data of the businesses conducting Internet commerce revealed the following notable information:

35% are home-based businesses (mainly one-person shops in a home office); an additional 33% are single establishments (a small building or storefront).
44% are selling a service over the Internet, such as vacation packages ("bed and breakfasts"), consulting ("computer services"), or real estate (homes, property). Retail businesses account for approximately 30% of the group, with items ranging from books to software. A surprising 16.5% of the population is manufacturers selling their service (the ability to manufacture products) or finished goods.
94% have their main office or headquarters in Vermont. One-quarter (26%) are located in Chittenden County. Windham (13%) and Washington (11.5%) counties were the next most concentrated areas of businesses conducting Internet commerce. However, it is interesting to note that even rural Essex and Grand Isle counties possessed some businesses engaged in Internet sales.
The average age of businesses is 13 years, though a large portion has been in operation only for a year or less.
The average number of full-time workers employed is 22 and the average number of part-time employees is nine. However, these averages are slightly inflated due to outliers (a small group of very large businesses) and, overall, are much lower for the younger businesses and the home office businesses.
Approximately 24% of the businesses are solely located on the Internet, meaning they do not possess an actual storefront or warehouse. The vast majority of this group is the home office businesses.
62% of the businesses have a staff person on site who updates and makes changes to the Web site on a day-to-day basis. The remaining portion is dependent on consultants and/or their Web site hosts.
75% spend $100 or less each month for their Web site hosting.
The businesses have been using the Internet for sales for an average of two years.

The demographic data appears to indicate that businesses in Vermont conducting Internet commerce are small (in terms of physical and staff size) and are still new to the idea of Web site sales. However, there is a good mixture of business types experimenting with Internet commerce, and they are distributed across the state (not overly concentrated in one area). A large portion seems to possess the technical knowledge and skill in-house to operate/update Web site sales tools, but there is substantial reliance on outside consultants.

Many of the businesses are still in the "incubator" stage, trying to create enough business on the Internet so that they can expand and add employees. The large number of home-based businesses and Internet storefronts with only one or no employees indicates that the businesses are still in the early (and shaky) formulation period. But, it also appears that the financial costs are fairly low for them to operate the business once it is set up on the Internet, providing a better opportunity to become established without worrying about overhead each month. Thus, these businesses are involved in less risk regarding their ultimate success/failure. However, without growth from these businesses there is little direct benefit to the State.

Insights

After reviewing the data, we have identified seven key issues requiring attention by small business service providers and state and federal government. We describe those issues in this section and then outline in the report’s Recommendation chapter our ideas for addressing all the items discovered during the project research.

A) The first major insight from the survey data is that there is a major discrepancy on the part of business decision-makers between the perception of what consumers’ behavior is regarding the Internet and the actual reality of that behavior. The survey reveals that only 25% of the businesses believe there is any public resistance to the purchasing of products or services on the Internet. However, this perception is not an accurate reflection of consumers’ attitudes. The focus group portion of the research strongly states the opposite: the public is resistant to Internet commerce for a variety of reasons.

The businesses were asked to identify possible obstacles to consumer purchases on the Internet, and overall the businesses identified the same issues that were revealed in the focus groups. The businesses stated that the biggest obstacle is the fear of credit card information being stolen; in other words, the worry about financial security on the Internet. This was one of the major issues raised by consumers during the focus group stage of the research. But, what is startling is that even though some of the businesses are aware of this problem, they are not acting to correct it. Less than a third of the surveyed businesses possessed a "secure site" for financial transactions. Today, consumers are being informed via the computer media and classes that they should not purchase anything from an unsecure Web site. So, two-thirds of the businesses are unknowingly inhibiting their own sales by not providing the secure site option. The cost of creating a secure site for financial transactions is high, but it is worrisome to see that so many businesses are missing so much potential business by not acting to remove the consumers’ financial security concern.

The businesses also mentioned that a lack of knowledge on the part of the consumers is a potential problem concerning Internet sales. Again, this was seen in the focus group sessions; there is a lack of public understanding about how the Internet works and what happens when one purchases a product online. In essence, this is an issue of marketing and educating through the use of marketing. Very often, people don’t undertake something new unless they see other people doing it first or hear from their neighbors, coworkers, or family how easy or wonderful something is. Purchasing on the Internet is a new approach to obtaining items that one wants, just like the first mall was when it began replacing the corner drugstore. Businesses are not adequately marketing the strengths of the Internet and educating people about its advantages (e.g., convenience, information, etc.). The businesses do not appear to fully realize that they need to convert the public to the concept of Internet commerce and instead, are hoping that people will come naturally to it (which is a much slower, inefficient way to gain customers).

The last important obstacle that businesses identified as a potential issue with the public is that they can’t see or try the product. To a certain extent, this is true and applies to certain items, but it is not an insurmountable obstacle. Internet commerce Web sites are becoming more sophisticated and can now include graphics that provide several different views of a product, sound support (whether music or voice description), and site interactivity (seeing the product or service in action). There are still technological obstacles in regard to these new advances, but the possibilities exist to create Web sites that overcome a consumer’s reluctance to buy because he/she can’t see the item. It appears that some businesses may be overlooking these online presentation tools which can have a large impact in gaining that visitor’s first purchase.

Based on a comparison of the survey responses and the information learned from the focus groups, it is fairly clear that the businesses are greatly underestimating the public’s resistance to buying things on the Internet and not addressing the concerns as strongly as they should. It may be partially an issue that the businesses are run by people who already are comfortable in purchasing items on the Internet in their personal lives, and are no longer aware of the resistance that the average consumer has to the idea of online shopping. There is a gap between the awareness of the businesses’ decision-makers about consumers’ Internet behavior and the reality of the public’s perceptions about online commerce. There will need to be an educational strategy by SBDC targeted at both groups, but mainly at the businesses, so that they can overcome the potential obstacles.

B) The second major insight that comes directly from the survey data concerns the training of business staff and management. A surprising two-thirds of the businesses do not take advantage of any training programs to help themselves better utilize the Internet for sales. In trying to understand this, the first thought is that these businesses are heavily reliant on outside consultants to handle all their Internet commerce needs. However, the data does not indicate this, since 62% of the businesses stated they have an in-house staff member who maintains and updates the sales Web site on a daily basis. This raises two serious questions. Why don’t the businesses undertake more training? What impact might this low level of training be having on their Internet commerce?

The answer to the first question is fairly simple: they don’t understand the need for training. The main reason businesses said they don’t undertake training is that they don’t see the need. In some cases, this might mean that their in-house staff possesses enough expertise and training, and that additional training for staff is not required. Also, some of the businesses do rely on outside computer consultants to handle all the duties, again, relieving the need for internal training. But, this failure to understand the need to stay up-to-date on Internet commerce technology and marketing strategies is a serious concern.

Also, more than one-fourth of the businesses cited a lack of time to attend classes as the main reason they do not participate in any training. When one considers that these are small businesses with very small staffs (in many cases, no staff) it is understandable that people cannot find the time to escape their operational duties and advance their Internet commerce knowledge. This point was also clearly voiced in the merchant focus groups phase of the research. However, a lack of time should not be an excuse since virtually every business is engaged in a fast-paced, competitive marketplace, where knowledge and skills must be constantly updated or else a business will lose its edge. So, as with the explanation that they don’t see the need for training, the lack of time excuse is a clear issue of awareness and educating the business decision-makers about the importance of training to remain competitive.

This essentially answers the second question for us: what impact might the low level of training have for Vermont businesses? The simple answer is that they will lose competitive ground as they fail to take advantage of new Internet technology, apply software improvements, or try updated marketing strategies. Businesses in Vermont start at a disadvantage compared to businesses in New York City, Boston, or other larger metropolitan areas due to an older technology infrastructure (described in greater detail later in this chapter). Thus, it is of even greater importance that Vermont businesses educate themselves about the newest Internet trends, technologies, and applications, and be among the first to institute them as part of their Internet sales strategies. A lack of knowledge about changes in the Internet marketplace can inhibit a business’ growth and allow competitors (in other states or overseas) to expand successfully and gain inroads in the market segments that Vermont businesses should hold. Also, reliance upon outside computer consultants for expertise can be expensive and is not a healthy situation. Consultants are not always immediately available, and their vision of how to market a Vermont business on the Internet may not always be the most beneficial approach.

These items do raise serious concern about the lack of training occurring in Vermont of businesses’ staff and management. Those businesses that stated they do undertake training appear to choose a variety of options: conferences, seminars, Chamber of Commerce events, online tutorials, and self-help books. The main focus of those businesses that do take advantage of training is on Web site design and marketing strategy. Also, businesses seemed more open to training opportunities that had a personal connection (one-on-one), such as in-house training. It is these businesses that will possess the competitive edge in the national and international marketplace and be able to expand their operations, benefiting both themselves and Vermont. The businesses that ignore training opportunities (not due to issues of cost or availability) are placing themselves at a competitive disadvantage in the long term.

C) The third important insight that is revealed by examination of the survey data concerns businesses’ choice of where to host their Web site. Only about one-fourth of the businesses have their Web site hosted within Vermont, meaning, by a Vermont-based service provider. The vast majority are using the services of companies outside of Vermont. This translates to a loss of potential tax revenue and jobs within Vermont. Examination of the data reveals three reasons for the prevalence of non-Vermont service providers.

The foremost factor in businesses’ choice of a host site is price; the businesses are looking for the most affordable service possible. Many of these businesses are on a limited budget and cannot afford to pay $100 or more each month for Web site hosting. There are reasonably priced host site providers in Vermont, but the choices are very few. Also, they do not cover all parts of Vermont. One of the largest complaints from the businesses was the lack of choice in Vermont, thus an inability to "shop around" for the best price and service. Many chose to use the services of companies in Boston due to lower prices and range of services provided.

The second major factor in businesses’ decision was the location of the host site provider. Many businesses were looking for a local service (within Vermont) that possessed a strong reputation and service reliability. Unfortunately, there are very few choices for Vermont businesses to consider. Where possible, businesses adopted local companies like Together.net and Sovernet, but overall, many more businesses went out-of-state (although they remained with companies in the New England region). The issue of location is important to the businesses because they want a service provider that:

Is familiar with Vermont culture and attitudes
Is available quickly for consultation or problems
Employs Vermonters and keeps expertise within the state

The pool of competitors for Web site hosting in Vermont is fairly small when compared to the larger markets of Boston and Albany. There are a number of local one-person home operations that do Web site hosting, but their services are mainly targeted at the residential home-user (personal Web sites) or very small businesses who are only advertising and not selling. Therefore, businesses are forced to choose one of the very limited business-oriented providers, or to go out-of-state where there are more choices (in terms of price and service options).

This also relates to the third reason for businesses’ choice of providers: the type of services available. The needs of these businesses are quite different from the needs of a residential user who wants a personal Web page. The businesses are looking for a variety of options, such as:

Interactive features
Tracking and data collection
Secure site transactions
Inventory management

These needs are quite different from the needs of the casual personal Web site. Also, the businesses require Web sites that can handle multiple pages, multiple graphics, and even sound. These types of features require strong expertise in design and maintenance of Web sites, beyond that of most local Web site providers in Vermont. Therefore, in order for these businesses to obtain the services they want or need to be competitive on the Internet, they are forced to look out-of-state. The businesses that are using Together.net or Sovernet are those with simpler needs and less Web site sophistication. However, the businesses that are growing and expanding (and experiencing the most success) are those that are using the services of more experienced and skilled Web site construction and maintenance providers. Granted, these options are slightly more expensive but the potential return is also greater. It is very likely that Vermont businesses would use other Vermont businesses for the Web site service if the skill and experience existed in the region at a reasonable price.

What we are seeing is that Vermont businesses take the issues of cost, options, and location very seriously, but have difficulty finding the right combination of features at a reasonable price within Vermont. The limited choices in the state (which are mostly confined to the Chittenden County area), are forcing businesses to take their money to out-of-state companies. This is a serious concern for Vermont since that is money that should remain within the state and foster employment opportunities. Even though the businesses stated very strong satisfaction with their Web site providers, it is likely that they would seriously consider opportunities within Vermont if available. Also, it is important to note that as new businesses get involved in Internet commerce, they will be faced with the same situation and will be sending their dollars and service out-of-state, causing an ongoing financial hemorrhage for Vermont.

D) The fourth insight that the survey data reveals concerns the financial and employment impact of Internet commerce on Vermont businesses. Nearly 73% of the businesses surveyed have experienced an overall increase in sales that are directly attributed to the Web site. Also, the businesses reported an average 39% increase in their overall sales due to Internet commerce (though it is closer to 33% once the outliers are removed from the analysis). This is a significant increase in sales and proves that Internet commerce is a profitable and valuable market for Vermont businesses. A respectable number (43%) of businesses have expanded their business operations as a result of the Internet sales.

However, the business expansion has not led to an across-the-board hiring trend. In fact, only 18% of the businesses stated that they’ve added staff as a direct result of the Internet sales. Of those who have added staff, the average was four full-time and two part-time employees. (Again, these averages are slightly inflated due to the large outlier companies.) So, the expansion of business and increased Internet sales have not translated directly into widespread hiring by Vermont businesses. This information was useful, but it still did not provide a clear picture as to which businesses are adding staff and at what point this occurs. Therefore, deeper examination of the data was required.

It was determined that the number of visitors and the number of purchasers at the Web sites would be the best indicators for determining business expansion points. Both groups (visitors and purchasers) were broken into levels, running from the low to the high end in terms of Internet commerce. These levels were then compared against the businesses’ behavior in regard to expansion and hiring. This comparison data proved extremely useful in identifying at what point the businesses grow large enough to consider additional staff. It should be noted that the correlation between the two items is strong, though not exclusionary. Another factor that could not be measured and evaluated, but could be having an impact, is the businesses’ sales in non-Internet related markets. However, since the survey questions were specifically phrased as expansion and hiring as a result of Internet sales, outside factors were adequately controlled for purposes of this initial analysis. Therefore, the following data provides a strong and significant correlation between visitor/purchase levels per month and expansion behavior.

	Expansion	Hiring	Expansion	Hiring
Visitor Levels	Yes	Yes	No	No
Less than 100/month	21.8%	10.9%	72.7	83.6
100 to 1,000/month	47.9%	13.8%	48.9%	80.9%
1,000 to 10,000/month	48.6%	29.7%	48.6%	66.2%
10,000 to 50,000/month	76.7%	36.7%	23.3%	60.0%
50,000 to 100,000/month	58.3%	50.0%	41.7%	50.0%
Over 100,000/month	72.7%	54.5%	18.2%	36.4%

So, upon comparing these levels, we see there is a direct parallel that as the visitor levels rise, the business expands and hires new employees. Except for a downward spike at the 50,000 visitor mark, the trend is very clear: as the Web site visitation increases, more staff are needed. However, visitor levels are not as strong an indicator of a business’ likelihood to expand and add staff as are purchase levels. With purchase levels, we see a similar trend:

	Expansion	Hiring	Expansion	Hiring
Purchase Levels	Yes	Yes	No	No
Less than 100/month	38.5%	12.5%	58.7%	81.7%
101 to 500/month	74.1%	37.0%	25.9%	55.6%
501 to 1,000/month	76.9%	69.2%	23.1%	30.8%
1,001 to 10,000/month	71.4%	35.7%	28.6%	64.3%
Over 10,000/month	88.9%	44.4%	11.1%	36.4%

Again, we see there is a direct parallel that as the purchase levels rise, the business expands and hires new employees. Except for a downward spike at the 1,000 purchases mark, the trend is very clear: as the Web site purchases increase, more staff are needed.

(The anomalous downward spikes on both charts – 50,000 visitor mark and 1,000 purchases mark – appears to be the result of one or two large businesses that are remaining static in regards to their Internet commerce growth. However, without conducting a couple of follow-up interviews with the businesses in question, the hypothesis cannot be substantiated.)

The following two charts show the trend line and display the intersect point at which businesses show substantial expansion and hiring initiatives.

Based on this chart, we see the trend line shows that significant business hiring begins when the business’ Web site surpasses the 501 purchases point. (The point where the trend line first intersects the downward "No" plot-line.)

Based on the above chart, we see the trend line shows that significant business expansion begins when the business’ Web site surpasses the 100 purchases/month point. (The point where the trend line intersects the downward "No" plot-line.)

Therefore, from these charts and trends, we can see that business expansion (meaning, more resources applied to the business) begins very early and at a low level of visitation and purchasing. But, it requires a substantially higher level of visitation and purchasing to initiate new hiring by the business. Of course, this will vary slightly depending on the business type (tourism versus manufacturing, for example) and on the resources involved with the product or service. But, this data provides a baseline starting point for predicting the behavior of businesses focused on Internet commerce and the possible growth of those businesses that initiate their own Internet sales. Again, it should be noted that the data indicates that only 18% of the businesses have added staff due to their Internet sales. However, when you consider that 85% of the businesses expect their Internet sales to increase during the next 12 months, it translates to a potential for many more Vermont jobs. Internet commerce appears to be an incubator for Vermont jobs and can have a notable impact on the economy so long as the businesses’ Internet purchases continue to increase. But, that impact will be significant only if additional businesses start to engage in Internet sales and marketing.

E) The fifth insight that we have identified from the survey regards what new markets Internet commerce is providing for Vermont businesses. Over 58% of the businesses surveyed stated that the Web site has allowed them to tap into markets that they previously could not reach. When we examined what new markets these were, the breakdown was as follows:

Vermont market (1%)
National market (39%)
International market (42%)
Specialty market (13%)

Based on this, we see that businesses are making inroads mainly with the national and overseas markets. (The international market was usually referred to as overseas nations, as opposed to the Canadian market.) The survey also inquired what percentage increase in sales the Web site has provided in regard to the different markets. The average increase in overall sales reflects the new market incursions being made by Vermont businesses:

Vermont market sales - 9% increase
New England market sales - 14% increase
National market sales - 27% increase
International market sales - 12% increase

The main focus of the businesses appears to be the U.S. marketplace, but international markets are also very attractive and providing Vermont businesses with new income and growth possibilities. The Web sites are providing the businesses with a competitive edge without forcing them to spend large amounts of money to advertise in national or overseas markets, or hire professional marketing firms in other states or countries. This is a huge financial (and time) savings for Vermont business owners, and provides a financial return with little investment capital.

The ability to sell on the Web and reach new markets is the main goal of Internet commerce. It is a source of revenue and new customers that doesn’t require the extensive resources of direct mail or other print advertising. Also, it brings in new revenue for the State, and as the businesses’ Internet commerce grows it increases the potential for business expansion. This benefits the State through more employment opportunities and increased tax revenue (in addition to higher visibility for Vermont itself). However, as impressive as the growth and market incursions being made by the Vermont businesses are, they are far short of their potential. It is estimated that there are over 21,000 businesses in Vermont, and that number increases to approximately 46,000 when home businesses are included. Based on our estimates that only 1,300 are actually conducting Internet commerce (and an additional 1,000 are using the Internet for advertising) there remains a large pool of businesses that have yet to take advantage of the opportunities posed by Internet sales. Also, the 1,300 who are presently engaged in Internet commerce are still fairly new to it (an average of two years or less) and still have a lot of growth potential themselves. Thus, as it presently stands, Vermont businesses have made some inroads into new markets, but when compared against the growth potential, the opportunities that remain are enormous.

F) A sixth insight from the survey data is concerns the advertising efforts of the businesses doing Internet commerce. More than three-quarters of the businesses (78%) advertise their ability to sell their products or services on the Internet. This is a very strong showing, though it should truly be 100%. When we examine the types of advertising used to promote their Internet commerce ability, the main method used is the Internet itself: banners, search engines, and page links. This is the main method for nearly 25% of the businesses. The next most popular method is advertising in magazines. Very few use TV, radio, or newspapers to advertise the Web sites.

What we see from this data is that the businesses are mainly advertising to the online, Internet customer base, which is composed of regular and comfortable users of the Internet. But, the businesses are not overtly reaching out to the casual computer user – the person who has never purchased an item on the Internet. Certain conventional methods of advertising, such as radio, are not practical for promoting the Web sites, but newspaper and TV are certainly avenues that are presently underutilized. The challenge with advertising mainly on the Internet itself is that there is so much "out there." Reliance on a search engine is a dangerous strategy since the search engines return with thousands of sites based on a few keywords and a Vermont business may not place in the top five or ten. (Anything that places lower than the first five to ten returns will rarely get a visit by the consumer.)

Also, among the qualitative responses in the survey, when businesses were asked about what type of assistance the government could provide to them, there were several responses that they needed marketing expertise or advice. There appears to be a lack of knowledge on the part of many of these businesses as to what methods will successfully promote their online business and reach new consumers previously unfamiliar with Internet commerce. (Or, will reach those who are familiar with Internet commerce, but unfamiliar with the Vermont businesses online.) When we compare the advertising data of those businesses that have experienced an increase in overall sales due to their Web site, we find that over-reliance on Internet advertising is detrimental. The chart below illustrates that difference by comparing sales change against businesses preferred advertising option:

	Internet advertising	Magazine advertising	Direct Mail
Increased Sales:	23.4%	23.1%	15.0%
Unchanged Sales:	28.3%	13.3%	16.7%

We see from this that the companies experience more success when they put resources into magazine advertising than heavy relying on Internet advertising. This is most likely because they are tapping into that casual Internet user and capturing first-time Internet buyers. They are expanding their customer base by bringing people to the Internet and their Web site, rather than relying on capturing the hardcore Internet user.

We further broke down the survey data and compared the type of advertising used against the monthly purchase levels of the businesses. The comparison data shows the same trend; magazine advertising provides a higher return than other methods because it attracts completely new customers:

	Internet advertising	Magazine advertising	Direct Mail
Less than 100 purchases	21.8%	17.2%	24.1%
101 to 500 purchases	21.7%	26.1%	8.7%
501 to 1,000 purchases	9.1%	36.4%	9.1%
1,001 to 10,000 purchases	16.7%	33.3%	16.7%
Over 10,000 purchases	25.0%	37.5%	12.5%

The data indicates that the businesses receiving a higher purchase level each month are using magazine advertising to a much greater extent. Also, they generally use direct mail (including catalogs) less than businesses with very low levels of Internet purchases. We do see an interesting inverted bell curve in regard to Internet advertising; it decreases for the mid-level purchase ratio, but increases for those businesses with a very high level of purchasers. This seems to say that as businesses decrease their reliance on direct mail, they divert much of their advertising resources back to the Internet. But, at the same time, their magazine advertising continues to increase, so print ads are still playing a vital role.

Overall, it appears that businesses are beginning to become aware of the marketing options available, but are not clear about which will serve their interests most effectively. The developmental stage of the business certainly plays a role, but in order for the business’ Internet commerce to grow, it will need to wean itself away from reliance on the Internet itself and use other methods. Failure to do so will most likely result in the business remaining stagnant, as it is unable to attract new customers at a reliable pace and from new market segments. There is no question that the Internet has a vital role to play in terms of advertising, but it cannot be the sole or number-one method, especially for the youngest entries into the Internet marketplace.

G) The final insight that the survey data reveals is not a surprise, considering the results of past telecommunications research in the state of Vermont. The issue is that Vermont’s telecommunications infrastructure is lagging behind that of other states and is impeding the progress and growth of many businesses’ Internet commerce. At first, the survey data appears conflicting; nearly 73% of the businesses stated that the proper technology exists in Vermont to effectively conduct business on the Internet. However, when we review the responses to the question of what the state lacks in terms of technology, we see that the majority of businesses are very concerned.

It is our opinion that these two pieces of information are not in conflict, but rather, make perfect sense given the context of the state’s infrastructure. At this time, yes, the proper technology exists to conduct very basic Internet commerce. Simple, low-end interactive Web sites can be hosted and can sell to consumers in (and outside of) Vermont. The phone lines exist, allowing for basic interaction at 56k modem speeds. In the larger metropolitan areas, such as the greater Burlington area, cable modems, T1 lines, and other high-speed access options are available. So, Vermont businesses can set up and maintain Internet commerce sites and be successful.

But, compared to other states and the direction that Internet commerce is headed, Vermont’s infrastructure is slightly lacking. In New York, Massachusetts, and other states, cable modem service is widespread. High-speed phone access, such as ISDN, T1, and T3 lines are also widely available in other states, and (due to competition) at a lower price. In Vermont, they are not available in all regions and are excessively expensive for new or developing businesses. These give businesses in those states that are engaged in Internet commerce an edge over Vermont businesses. Consumers are more likely to purchase from the "fast" sites at which they don’t need to wait for several minutes as graphics or sound effects download. (Or wait as the secure site software conducts the financial transaction, which requires sending and receiving data to other sites.) Also, such locations allow a business to create a more interactive and attractive Web site that better meets the needs of the purchaser. In short, high-speed access makes a difference in the number of visitors (and purchasers) attracted and can mean more purchases by visitors because they don’t become frustrated by the poor access and go elsewhere.

An additional problem with the infrastructure in Vermont is the reliability of the phone lines. Businesses stated concern about the state of phone service outside Chittenden County due to weather and other factors. There is a perception that the phone lines are open to major disruption and poor data transmission quality, which, when they are compared to cable modem service or underground fiber optics, is somewhat true. It is possible to obtain reliable high-speed access and service in the state of Vermont, but it is extremely costly. The only options for a business in many parts of the state is reliance on the phone lines or purchase of a satellite service.

Also, much of the technology issue depends on what the consumer is using in terms of computer, modem, and access service, and what the host site is using. Therefore, many of these technological concerns are not issues that can be addressed by SBDC or the government. However, we mentioned earlier that businesses complained there is a lack of qualified, experienced hosting companies within Vermont. Businesses want more Internet access and host options within the state, but the infrastructure is acting as an obstacle to the growth of these types of businesses. In Chittenden County, companies are starting to appear with the proper skill and technology, thanks to the efforts of Adelphia, Bell Atlantic, Hyperion, and other telecommunications providers. But, outside of the county, the options are very slow in coming. If Vermont businesses are going to expand their Internet commerce and attract new customers then they will need upgraded technology. Also, if the State hopes to bring back much of the lost Web site development and hosting business (and prevent the future loss of such business) then it will need to take action to address the telecommunication technology obstacles.

Conclusion

The survey of Vermont businesses provided many valuable insights regarding the state of Internet commerce and its impact upon our present and potential economic growth. Overall, the results are promising; businesses are beginning to experiment with Internet sales programs and experiencing some benefits. To date, the impact has been limited for the majority of businesses, but almost all are optimistic about its continued growth and success. In addition, although the impact in terms of hiring has not been widespread, it has been notable considering that Vermont’s Internet commerce effort is still in the formative stage.

The data revealed that approximately 1,300 Vermont businesses are presently experimenting with Internet commerce. Of that group, about 18% have added staff as a direct impact of Internet sales and business growth. The average staff expansion was four full-time employees and two part-time employees. So, when we examine the numbers, we see that Vermont has gained approximately 936 full-time jobs and 468 part-time jobs – a total of 1,404 new jobs – as a result of Internet commerce. This may not appear to be a large number, but for a state of Vermont’s size, a thousand new jobs has a positive benefit.

The potential of Internet commerce for Vermont is enormous and still largely untapped. Present estimates are that the state has approximately 21,000 businesses (excluding government, religious, and the self-employed) and 25,000 self-employed home businesses. So, Vermont has a base of about 46,000 active businesses. If the SBDC or State and federal government could develop programs and incentives to move half of that number in the direction of Internet commerce and set them up successfully, the potential for job growth would be amazing. At 50% of all businesses (23,000) and a continued expansion and staff hiring rate of 18% over the course of two years, the state could benefit by the possible addition of 16,560 full-time and 8,280 part-time jobs: a gain of 24,840 jobs, all due to the Internet.

Of course, these are estimates and based on predictions that present trends will continue. As technology improves, more new consumers will be attracted to the Internet and the purchasing opportunities. Also, businesses will improve their online sales services. The remaining question is whether to create and promote general programs that attempt to appeal to all types of Vermont businesses, or whether to concentrate on supporting and aiding only certain types of businesses. The answer is not so clear. When the businesses were asked to name their top-selling Internet product or service, the breakdown was as follows:

Top Selling Items (by category)

Tourism	60
Computer consulting (and Web site services)	48
Manufacturing/tools/equipment	38
Printing/books	36
Consulting (non-computer)	36
Retail sales (assorted products)	34
Computer hardware/software	20
Furniture/accessories	19
Food	17
Clothing	16
Transportation/distribution	16
Music/instruments	14
Realtors/property	13
Videos/photography	11
Art	11
Sports equipment and rentals	11
Architecture/construction services	9
Advertising/Marketing services	7
Toys	6
Medical products	5
Legal services	3
Animals/pets	2
Communication services (non-Internet)	2
Educational services (non-Internet)	2
Used Goods	1

(12 businesses stated "Don’t Know" or refused to answer)

At first glance, it appears that tourism (B&B’s; travel agencies) is the main beneficiary of the Internet commerce efforts. However, it’s informative to see that consulting services and computer-related products/services are also among the leaders. The first reaction would be to say these are areas for future concentration, but that would be unwise. These businesses already know the benefits of the Internet and have made major strides. It is the businesses lower on the list that need to be fostered and supported, especially those that have not yet entered the Internet market. For example, sports equipment, toys, food, and clothing possess strong potential for growth. Also, legal services, insurance options, and banking opportunities are all areas that could benefit from assistance in actively using the Internet as a marketing and sales tool. The service sector of business is still largely untapped on the Internet and it is one of the few ways that a Vermont service business (whether educational, medical, legal, etc.) can hope to gain clients effectively and affordably outside of this region, compete with other businesses, and set itself apart from the competition.

The Recommendations chapter will explore more closely the options available to the SBDC and put forth some ideas based on the research from the survey and focus groups. In some cases, the insights described here have already touched upon the possibilities and will serve as a starting point of discussion.

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