Small Businesses' Use of the Internet: Some Realities

Simpson Poon <>
Swinburne University of Technology

Jim Strom <>
Manchester Metropolitan University
United Kingdom


By now we have seen many reports on how small businesses can use the Internet for business development. In general, these reports focus on how small businesses can set up Web pages for advertising and marketing, sharing information with customers, distributing software and documents, and receiving customer responses. Others also mention the use of Usenet newsgroups and e-mail lists for expertise exchange and indirect advertising. However, not many are reporting empirical studies on how much benefit small businesses actually derive from the Internet and in what way. Questions about what small businesses are using the Internet, what is driving them to use the technology, and how business relationships are being supported by the use of Internet are still lacking. In this paper, we report on the results of a study of small business use of the Internet both in Australia and the UK. Our intention is to present evidence on the current status of Internet use among small businesses and to provide some answers to the above questions. We hope that the findings are of interest to both the information technology (IT) and the business communities who engage in small business research.



Since the Internet has become a business tool instead of merely a research network, businesses both large and small have seized the opportunity to explore how to use it to become more productive and competitive. At the same time, media reports have speculated how the Internet will allow businesses to access a global-wide customer base up to millions. It is now better known that although there may be a large number of users on the Internet and that the potential of doing business with these users does exist, it is nonetheless not straightforward, or at least getting business directly from the Internet is not as simple as it was first thought. Blatant advertising and broadcasting "make-money-fast" opportunities only end up attracting disapproval instead of actual business. However, does it mean that the once-promising global network has lost its charm, or rather that harnessing the potentials of the Internet requires a more in-depth learning process? With the newer concepts such as the intranet or even the extranet, there are more opportunities to exploit the Internet technology beyond its existence as a common global network to encompass enterprise-wide networks and inter-organizational systems. Given all these developments, what are the effects on small businesses? Can small businesses use the Internet to become more competitive and responsive to the global market? What are the barriers and realities when small businesses attempt to use the Internet?

As business activities on the Internet gain momentum, there are an increasing number of research efforts focusing on the impact of the Internet on existing business models (see, for example, Cronin, et al., 1994; Benjamin and Wigand, 1995; Hoffman and Novak, 1996; Quelch and Klein, 1996). However, relatively few focus on how the Internet has affected small businesses. Barker (1994: 81) is among the first who conducted research on the importance of the Internet for small businesses. He concluded that searching for customer information and obtaining specific information for marketing purposes were the most important benefits the Internet offered to small businesses. He projected that small businesses in the well-established "Internet industries," knowledge and information industries, niche markets and new business types which fit well when conducted over the Internet are the main groups that will be first to benefit from the Internet. Since then, a number of other researchers have studied different aspects of small business and Internet use. For example, Fuller and Jenkins (1995) reported an experimental study on the learning and business transformation process of small business adoption. They found that the information richness of the environment in which the firm operates, the necessity to collaborate in order to compete, and the business cultures present in communicating electronically all play an important role in ongoing Internet use. Poon and Swatman (1995) analyzed the government policies of countries with well-developed Internet connectivity and found that all were encouraging small businesses to use the so-called information superhighway to become more effective and efficient in the global competition. More recently, more diversified studies on small business Internet use have emerged. Abell and Lim (1996) have carried out a survey study on the use of the Internet by small businesses in New Zealand. Lymer et al. (1996) constructed a business impact model based on a number of case studies on how the Internet impacts on different aspects of a firm. Sieber (1996a, 1996b) studied how Swiss firms are using the Internet and the issue of "virtuality" on future organizational forms. Although these are generally exploratory studies, they have illustrated the current and potential impact that small businesses face in the electronic commerce era.

In the following sections, we will first discuss a two-phase project on the study of Australian small business Internet use with comparisons drawn with a study carried in the UK. Then we present our findings and address some current and emerging issues faced by small businesses when it comes to the business use of the Internet. Finally, we will outline follow-on research projects based on this study.

Research methods

Due to the newness and changeable nature of the area of study, we decided to use multiple research strategies. Because we were interested in the issues encountered by small businesses when using the Internet, it was logical for us to select our subjects from those who were already using the Internet rather than from small businesses across the spectrum. In order to avoid biases in the study outcomes, we selected small businesses from different business sectors.

The first phase of the Australian study involved a questionnaire sent out to a group of 341 small businesses (Note 1). Most of the businesses have a Web page set up on the Internet and a small minority of them have only an electronic mail (e-mail) address. We manually visited the Web page of each potential respondent to gain as much understanding as possible on the organization and to obtain the name, if listed on the Web page, of the owner/director of the firm. The questionnaire was addressed to the owner/director and sent out via e-mail with a message explaining the purposes of the survey. We encouraged respondents to return the answered questionnaire using e-mail but also provided a fax number and a postal address for those who preferred to work on hard copy. At the same time, we informed potential respondents that if they desired, we could send them a hard copy of the questionnaire instead. Only a few respondents took up this option.

We received 129 responses, which constituted a 37.8% response rate. Details of the survey analysis are available from Poon and Swatman (1996). Out of these respondents, we invited 23 of them to participate in the second stage research--a case study project. The 23 respondents were chosen based on the criteria that:

In the case study, we invited the owner of each of the 23 firms for a one-hour interview. We asked the participants open-ended questions aiming to clarify answers in the survey research and to gather additional information which was not captured by the survey. The case study helped to provide an in-depth understanding of the underlying issues such as the competitive advantage gained through the use of the Internet and the effect on developing business relationships.

In the UK study, an IT questionnaire, organized by the Micro and Small Enterprises Unit in Manchester, was mailed out to approximately 200 organizations in the North West of England during April and May of 1996. We received 98 completed returns; of these, 38 were from respondents connected to the Internet and using it for business.

Results and discussion

The results and discussion of the Australian study presented in this section are a summary of what has been published in Poon and Swatman (1996) and Poon and Swatman (1997). Readers who are interested in the full details of the results should refer to the above articles. A summary of the UK study is also presented.

Respondent's organizational characteristics

In terms of organization characteristics, most of the respondents can be classified as micro-to-small businesses. Almost half of the respondents (51.9%) only have 5 or less employees. The next largest groups were the 6-10 person firms (14.0%) and the 11-30 person firms (15.5%). The domination of smaller size businesses bears a similarity to the Abell and Lim (1996) and Sieber (1996) sample.

In terms of turnover, almost a quarter (26.4%) of the firms have less than A$100K turnover, although one-fifth of the firms (20.9%) have a turnover above A$1.5M. This is followed by the group with a turnover between $101-200K (10.1%).

Almost one-third (30.2%) of the respondents believed they belong to industries which do not fit into the traditional classification scheme (The Australian and New Zealand Standard Industrial Classification). This is due to two reasons. Firstly, many of the respondents within this category are from the non-traditional and mainly IT industry. One such example is the Internet-spawned business sector. Secondly, some of them can simultaneously belong to multiple industry sectors. For example, one can act as an advertising and marketing agent, a multimedia specialist, and an Internet consultant. The second largest group (22%) was the communications industry. This category includes those who are in the networking and technology business as well as those who provide services to the media communications sector. The third largest group belongs to the retail industry (15%).

More than half (58.1%) of the respondents were involved in an international market, and 70.5% marketed their products/services nationally.

The top five most important factors which drove them to using the Internet were (most important first):

Rank Internet usage driver
1 Direct and indirect advertising
2 Low cost communication
3 Easy access to potential customers
4 Company image enhancement
5 Form and extend business networks

The least important factors which drove them using the Internet were (least important first):

Rank Internet usage driver
1 Competitor's performance benchmarking
2 Inter-office documents exchange
3 Access to government and trade organization data
4 Product delivery
5 Online sales and transactions

The UK survey produced a slightly different ordering of reasons for using the Internet, with advertising and business promotion falling behind communications and information retrieval:

Reasons for using the Internet % of respondents
External e-mail 89%
Casual browsing for information 82%
Searching for Web pages addresses 79%
Information research 58%
Advertising/promoting the business 50%
Linking to a professional body 39%

In addition, only 47% of the UK respondents are actively interacting with common interest groups on the Internet by participating in newsgroups and discussion forums. Out of those who have access to the Internet, 44% have a Web presence (in the form of a Web page). This result is in accordance with the lower priority placed on advertising and marketing by the UK group as compared to the Australian group. Another interesting result is that e-mail use in the UK was not limited to just external communications. In fact almost half of those who have Internet access also use e-mail for internal communications. The reason for this is unknown at this stage but one of the reasons indicated in the Australian study for why e-mail is so much embraced compared to other Internet applications is the asynchronous communication ability and the documentary record of the action. We suspect this may be an important factor for internal e-mail use.

In terms of communications capability, the Australian study showed that apart from the conventional telephone, 81.4% of the small businesses are also equipped with a mobile phone. The high percentage of mobile phone users has the important implication that mobile Internet access is likely to be embraced once it is affordable, which will happen in the near future.

Beside telephone and fax services, one half (50.4%) of the Australian respondents correspond with their business partners using e-mail, with another 32.6% using other services on the Internet to communicate or coordinate projects.

Although both the Australian and UK survey results provided us with a general profile in understanding how small businesses use the Internet for business, we felt that it was important to gain further insight into the ways which the Internet was really being used. Some of the more in-depth issues were discovered during the Australian case study presented below.

The most used function of the Internet: a communication medium

Despite the claim by Australian small businesses that marketing and advertising were the most important factor leading to their Internet use, further discussion during selected interviews revealed that small businesses most often use the Internet as a communication medium, as corroborated by the UK survey results. The interviewees found that the ability to communicate, particularly with international customers or business partners without necessarily being worried about their whereabouts was convenient. E-mail allowed a non-intrusive message exchange, and the ability to exchange multimedia documents provided convenience and cost-savings among some of our participants.

From the case study, a local printing supplier firm has a Swiss company as its business partner. Often they need to exchange design documents. In the past, such document exchange was done using the postal services or fax. With e-mail, digital documents could be exchanged as e-mail attachments and this greatly reduced the turnaround time. Also, this reduced ambiguity when joint design work was involved because any changes could be made directly on the document. The important point is that these were all achieved without added communication costs.

Another example was a philately auction firm which has both local and overseas customers. Recently, the owner has joined a number of mailing lists related to philately issues. Participating in the discussion of the mailing lists enabled him to carry out indirect marketing. More importantly, he also allowed buyers to submit proxy bids in auctions via e-mail. Using e-mail to communicate, particularly with overseas customers, allowed him to cut down the time required for the negotiation process with minimum costs.

In fact, out of the twenty-three participants interviewed in the Australian study, the majority indicated that human communications and document exchanges have had the most profound effect on their businesses since their use of the Internet (Poon and Swatman, 1997), even though they first started to use the Internet believing it was an important channel for direct and indirect marketing. This pattern is observable from both the Australian and UK studies, and the result is similar to Abell and Lim (1996)'s findings, in which 90% of their respondents use the Internet to communicate with outside companies.

Perceived benefits: what competitive advantage really means

More than one half (53.5%) of our respondents claimed they have gained competitive advantage and another 32.6% believed they would have gained competitive advantage in one year's time. Only 8.5% of the respondents were doubtful whether the Internet could provide further competitive advantage beyond what they could get from other means. We were intrigued by such a positive response and therefore set out to investigate further what their meaning of competitive advantage was.

An interesting finding during the case study interview was that the participants often translate perceived benefits into competitive advantage. At this stage, none of the participants was keeping records on how much the Internet helped to bring in new business or boost sales. The reason for this lack of records was due to the difficult causal relationships in the new electronic commerce model. For example, acquisition of a product or service often involves a number of stages including: information gathering, option evaluation, bargaining and negotiation; then payment, delivery and post-sales support. Customers may use the Internet for only part of the purchase cycle (e.g. a walk-in customer who gathered information over the Internet before coming into the shop). Also, many small business owners were interested in the potential of the Internet as much as the immediate cost savings ability. One participant asserted that having an Internet (e-mail address) connection was as necessary as the need for a fax number. It is difficult to quantify how much business the fax service can bring in, but it is essential to have a fax machine in most businesses. This will be similar in the near future for the Internet. In fact most of the small businesses we interviewed indicated that savings or earnings directly from the Internet were marginal. However, they unanimously agreed that as long as they can afford the access and service charges, they would keep the Internet connection despite the fact that it was not immediately justifiable in a cost/benefit perspective. Based on the participants' responses, we classify perceived benefits into direct and indirect as well as long- and short-term (see Figure 1).

Figure 1. A diagram showing direct and indirect benefits over time

The role of the Internet in the business relationship development process

In our survey projects, we gathered that a significant number of our respondents were using the Internet to collaborate with their business partners. We, however, did not know how much the Internet was used in the different stages of business relationship development. In the Australian case study, we formulated a model to represent the four stages of the developmental process: namely, search for business opportunities; explore collaboration possibilities; consolidate project details; and structured information exchange (see Figure 2). Using this four-stage model, we can discuss how our participants are using the Internet to supplement typical business activities.

Figure 2. A four stage model of business relationship development

Stage 1: searching for business opportunities (high usage)

The Internet, particularly mailing lists and Usenet newsgroups, has been used by a philately firm and a printing equipment supplier to explore potential business opportunities. Such a process can be either a one-way (supplier push) or a two-way (interactive) approach. The printing equipment supplier has a Web page set up to advertise and market its products. Through Usenet newsgroups (eg. alt.industrial), the owner of the philately firm responds to enquiries and at the same time provides product information.

The printing equipment supplier has been trying hard to ensure that its Web page is linked to a number of search engines. Since its owner has business links in Switzerland and Germany, he has also submitted its Web page to regional search engines in Europe. At the same time, he has been eager to answer enquiries received via e-mail about the firm's products and to look for potential business opportunities by browsing other Web pages. By monitoring search engine results, he tried to gather other companies, both local and overseas, who provide similar products.

The philately auctioneer has been participating in mailing lists dedicated to exchange and discussion of philatelic issues and has managed to link up with people interested in his auction items. Some of these collectors, who are often overseas customers, even offer their collections to be auctioned by the owner of this firm. The owner of the firm also subscribes to a number of Usenet newsgroups which he feels are related to his business. He is already making some of his auction items available on his company's Web page by displaying a graphics catalogue. This has provided him some tangible cost-savings because the paper-based version is expensive to print due to high quality graphics requirements. The owner of the firm also believes that the Internet will bring in additional businesses because he has noticed that some of his customers are actually from academic institutions worldwide and have established Internet access.

Stage 2: Exploring possibilities for collaboration (low usage)

A senior partner of a small Australian law firm provides an interesting example to show how the Internet can be used as a medium to explore collaboration possibilities, without incurring heavy time or expensive overheads. This law firm has been approached by an overseas businessman interested in setting up business establishments in Australia. This businessman wanted the business to be established in such a way that he would attain maximum flexibility and benefit, but the senior partner was unsure if this strategy would work. Unfortunately there was little help available locally to confirm the senior partner's strategy, due to its novelty. An enquiry was posted on a mailing list and a number of Usenet newsgroups. A UK legal firm provided leads to the senior partner which enabled him to make contact with a researcher at Cambridge University who has published on this particular issue. This law firm is now in collaboration with the UK legal firm and they are involved in a number of joint projects.

Other participants do not report any Stage Two activities which have occurred solely over the Internet. Most consider that such activities require some face-to-face activities before proceeding further into Stage Three and Four of the business development model in Figure 2. It seems that although the Internet is a very useful tool for Stage One activities, further consolidation of the initial business contact requires more interaction or perhaps a richer communication medium.

Stage 3: consolidating project details (medium usage)

After identifying collaboration activities and pinning down preliminary collaboration plans, most participants feel comfortable, at least partially, in resorting to e-mail for further exchanges. By this stage the collaborators have already established a more in-depth business relationship and they know the people with whom they are communicating. What seems to be important is the "handshake" in Stage Two which makes further virtual communications worthwhile. All participants agreed that Internet-based communication is preferred if it is more convenient and effective to both parties involved in the communication. At the same time, all agreed that telephone, fax, post and most often face-to-face meeting are still necessary.

E-mail becomes almost the only Internet service used by participants during this stage, although a public relations firm noted a situation in which the Web had been used during this stage of the business development. The owner of this firm described a situation in which he was working on a new product launch for a client that is the regional office of a multi-national company. The headquarters of the client company is in the USA and products are often launched in the US before coming to Australia. As the owner of this public relations firm was finalizing his report over the weekend (which he had to submit on the coming Monday morning), he found out that he needed some vital information on the new product. Knowing the product has been launched in the US, he visited the Web site at the company's headquarters in the US and downloaded the information he needed to finalize the report. In fact, he managed to surprise his client because of the timeliness of the information, which at that time had not even arrived from the US headquarters!

Stage 4: engaging in structured information exchange (high usage)

All participants tend to use the Internet fairly extensively during this stage of business development. Again, e-mail is the principal service used to exchange documents and information.

An IT networking consultant, in particular, suggested that the firm relied so heavily on the Internet as a coordination medium that outages on the Internet have a more serious impact on its business operations than problems on the phone lines. Apart from e-mail, this firm also logs onto customer's computer systems over the Internet to carry out maintenance and diagnostic tests. File Transfer Protocol (FTP) is also used to upload and download information and software.

Other examples of using the Internet to support Stage Four activities include the following:

The philately auctioneer allows customers to submit proxy bids for the firm's auction items via the Internet, which contain all the necessary information for the executor to make a decision on behalf of his/her clients.

An Internet consultancy accesses its clients' Web sites to carry out home page maintenance and allows clients to do their own updates to their home pages if needed.

The printing equipment manufacturer uses e-mail to exchange design documents with its Swiss business partner, by sending an electronic version of its design as e-mail attachments. The owner of this firm said that if e-mail was not used for document exchange, a computer disk or laser-printed documents would have to be physically sent because faxed copies do not provide sufficient resolution for such documents.

Judging from the variety of activities carried out on the Internet, the Internet seems to be most useful to the participants during this stage of the business development process.


This paper presents the findings of a project investigating how small businesses use the Internet in Australia and the UK. We have encountered interesting cases on how the Internet is being used to support business functions. Characteristics of the firm, products/services offered and geographic market scope all have an effect on the successful outcome when the Internet is used to support business operations. Human communication is the main usage although many small businesses started using the Internet believing its value to be in advertising and marketing. Many small businesses do not have quantifiable data showing they have gained competitive advantage and have based their belief of having done so on perceived benefits. However, all feel despite the lack of immediate direct financial returns from using the Internet, they will not disconnect their Internet services as long as they can afford to pay for them. The Internet has been helpful to develop and support business relationships between business partners. How much the Internet is used depends on the different stages of the business relationship development process.

The next stages of our project including further comparison of study outcomes between Australia and UK, and possibly in other Asia-Pacific regions (e.g., Asian industrialized countries). We will also look at the effect of entrepreneurship applied to Internet use.


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Note 1: Because of agreements with survey respondents and case study participants, we cannot reveal their identities.