Doing Business on the World Wide Web

By Michael T. Childress and Michal Smith-Mello; Peter Schirmer

Perhaps the most important innovation for business in the 1990s is the World Wide Web. It literally did not exist a decade ago, but furious competition among information technology companies has led to rapid improvements in the capabilities of the Web. Today, users can view live video, listen to live audio, exchange information and ideas in "real time," and make purchases online in a relatively safe environment. One of the great strengths of the Web is its absence of borders. Customers can make purchases from a company without ever knowing where it is located; it could be two blocks down the street or halfway around the world.

Online shoppers are on the rise, as are online revenues. One market research firm reports that the percentage of Web users who make purchases online rose from 19 percent in 1995 to 27 percent in 1997.(1) Another market research firm estimates that online transactions will total $9 billion in 1997.(2) And many of the people who don’t make purchases online still use the Web to research products or services they want to buy. In fact, more than 20 million Americans have come to view the Internet as an indispensable part of their lives.(3) Such a powerful tool could be a tremendous help to Kentucky’s businesses, particularly rural ones far from major markets.

But are Kentucky firms using the World Wide Web to sell their products? A few are. No directory of Web addresses is complete, so we can only estimate the number of Kentucky businesses with Web sites. During the spring and fall of 1997, we purchased a commercial listing of URLs and conducted our own exhaustive search of the World Wide Web. We found 1,366 Web sites for businesses based in the Commonwealth. Kentucky has about 80,000 firms with employees and approximately 113,000 self-employed persons.(4) At best, our estimates suggest that less than 1 percent of Kentucky businesses had a Web site at the time these data were collected though, as shown in the illustration of the chronology of Kentucky web sites, the numbers are expanding rapidly. Our analysis of 1990-1996 data on registered web sites collected by the Danvers, Massachusetts firm, Pro CD Inc., found that while the number of sites has expanded dramatically in Kentucky, the number of businesses with a web site is one of the lowest among surrounding states (see Figure 1).(5) Consequently, Kentucky businesses are moving more slowly than those in surrounding states to seize the opportunities and the competitive edge that a presence on the World Wide Web enables.

Figure 1: Estimated Number of Businesses with Web Sites, Kentucky and Surrounding States

We surveyed the Kentucky businesses we found in our search of the World Wide Web and asked them where they are, who they are, how they benefit from having sites on the Web, how they developed their sites, what the sites cost, and how they use the Web to sell products. We mailed surveys to 719 Kentucky businesses with Web sites and received responses from 408, a response rate of 57 percent. In this section we present the results of what may be the first statewide survey of Kentucky’s businesses on the World Wide Web.

.com Comes of Age: A Chronology of the Registration of Kentucky Business Sites on the World Wide Web

Who’s Using the Web?

Kentucky’s business establishments are concentrated in the Lexington-Louisville-Northern Kentucky triangle, so it is no surprise that a majority of Kentucky’s businesses on the Web are based in this area. Jefferson County alone is home to 41 percent of the 1,366 known Web businesses, 14.5 percent are in Fayette County, and 9.5 percent are in Boone, Campbell and Kenton counties. Nearly two thirds of Kentucky’s Web businesses are in these five counties. Yet the five counties are home to only 30 percent of the state’s population and 40 percent of the state’s businesses. (See Map 1.)

Map 1: Kentucky Businesses with Web Sites

But a handful of rural counties have a higher percentage of businesses on the Web than Lexington, Louisville, or Northern Kentucky. In 1995, the most recent year for which establishment data are available, Lyon County had 173 firms with employees, and it has 12 known Web businesses, the highest ratio of Web businesses to total firms for any county in the state. Elliott, Henry and Boyle counties also have high ratios of Web businesses to total firms. For its size, the town of Berea also has many Web businesses. The relatively large number of Web businesses in at least two of these rural areas—Lyon County and Berea—is partly explained by the presence of a local business or organization that has created a community business directory to act as host to other businesses.

Web businesses are sparse in eastern and south central Kentucky. More Web businesses are located farther west, in Bowling Green, Owensboro, Henderson, and Paducah. Rowan County and Calloway County, homes to Morehead State University and Murray State University, also have several Web businesses.

Kentucky’s Web businesses range from the very small (one in three has fewer than 5 employees) to the very large (12 percent have 100 to 500 employees and 4 percent have more than 500). They also sell almost every product and service imaginable. Table 1 lists the percent of survey respondents who sell selected goods and services. Among the goods and services submitted in the "Other" category are aquarium maintenance, conveyor belts, Thoroughbreds, mattresses, Civil War relics, teddy bears, comic books, bags, industrial steam boilers, clay, jewelry, carriage services, aerial imagery, expert witnesses, game tickets, land surveying, bows for dogs, auction services, biological reagents, and business consulting.

Table 1: Goods and Services Sold by Kentucky’s Web Businesses

Web Site Benefits

Three fourths of Kentucky’s businesses with Web sites believe the World Wide Web has helped them, and nearly all believe that the Web will help them over the next five years. More specifically, a little more than half of the businesses believe having a Web site has increased sales, helped them sell to people in new geographical areas, and helped them sell to new kinds of customers. However, these were not the most commonly mentioned benefits; 84 percent of these business owners said having a Web site enables them to provide information about their products and services, 80 percent said it enhances their market image, and 62 percent said it helps them retain and attract customers. Only one in five said having a Web site reduces costs.

Perhaps one reason more businesses do not believe having a Web site has increased sales is that customers are still concerned about security. As the technology improves, though, more people will be making purchases online. Presently, 14 percent of Kentucky’s Web businesses have a secure link that allows customers to submit a credit card number and other personal information. Online sales are not brisk. Two thirds of the firms that accept orders online estimate that less than 10 percent of total revenue comes from Web sales. Nonetheless, one out of ten estimates that Web sales account for at least 40 percent of total revenue, and more than one quarter expects to receive at least 40 percent of total revenue from Web sales within the next 10 years.

Firms that take orders online are far more likely to believe that sales have increased as a result of their Web site: 49 percent strongly agree that having a Web site has increased sales, while only 22 percent of those firms that do not take orders online strongly agree. However, setting up a secure site to accept credit card numbers and other personal information is more complicated and may be more expensive than just putting a Web page on a server. Firms that accept secure Web orders paid Web developers about 25 percent more to have their sites set up.

Figure 2: "Having a Web site has helped our business increase sales."

The benefits of having a Web site vary somewhat depending on the industry of the business. Those in the tourism industry are the most likely to say that sales have increased as a result of the Web site; about a quarter of these businesses believe online transactions will account for at least 40 percent of their business within the next 10 years. "We have had more calls on our B&B (bed and breakfast) through the Internet than any other source," wrote one small business owner. Tourism businesses were also the most likely to say that having a Web site has helped reach customers in new geographical areas.

On the other hand, businesses that offer medical services or professional services, such as accounting, banking, engineering and financial services, are the least likely to say that sales have increased as a result of the Web site. Nor are they particularly optimistic that online sales will increase appreciably. These businesses see their Web sites more as a way to enhance their professional image and to recruit employees. They were twice as likely as other firms to say that their Web sites help them with hiring.

Exactly half of the agricultural and arts and crafts businesses say that having a Web site has increased sales. Arts and crafts businesses were the second most likely (after tourism businesses) to say that their Web sites have helped them find customers in new geographical areas. Interestingly, though, arts and crafts businesses are the least likely to agree that having and maintaining a Web site is worth the cost.

Computer- and Internet-related businesses enjoy many benefits from having a Web site. They are the most likely to say a Web site enhances their market image, and they are by far the most likely to say that their Web sites enable them to improve customer service. One third say their Web sites reduce costs, 20 percent say their Web sites help them recruit employees, and nearly 80 percent say that within the next five years having a Web site will be worth the cost. That is considerably higher than almost any other group.

Although the numbers sound good, nothing is as compelling as success stories like that of Lexington-based Moore Diversified Products. The company invented a product that enables apartment managers to monitor utilities, security systems and other electronic functions using a cable TV network. Sales of the RUM540 were slow until Moore advertised the product on its Web site. Now, the product is used in several states and in China, Ireland, Brazil and the Philippines. The Chinese alone expect to buy $3 million worth of RUM540s a year.(6)

In general, it would appear that most businesses are satisfied that they benefit from having a Web site. Forty-five percent strongly agree that having and maintaining a Web site is worth the costs, and another 30 percent mildly agree. Almost two thirds strongly agree that their Web sites will be worth the costs within the next five years. We now examine some technical considerations, such as who designs the Web sites, what their content typically includes, who hosts the Web sites, how many people visit the Web sites, and how much it all costs.

Web Site Development

Businesses can create a Web site entirely on their own, they can hire someone else to do it, or they can do a combination of both. About 40 percent of Kentucky’s Web businesses created and developed their own Web sites. Close to half left the Web site creation entirely to someone else, and the remaining 10 percent combined internal efforts with outside help. Businesses that did some or all of the development themselves used a combination of resources. About one third read a book, magazine article or some other publication about Web page development. The second most popular resource was the source code of other Web sites; many businesses talked to other people who have designed Web sites; and a little over one quarter of businesses used Web site development software such as Fusion or FrontPage.

Figure 3: Web Site Development Costs

Firms that hired someone else to do some or all of the work most commonly used a friend, relative or other acquaintance. Word-of-mouth hiring is also very important. Less than 10 percent found someone to create their Web sites in a newspaper, magazine, or on the Web. The fee businesses paid for help in developing a Web site ranged from $10 to $40,000. One third of Kentucky’s Web businesses paid $1,000 or more for someone else to develop their Web site, and the median fee was $600.

The content of the Web sites is pretty standard. Over 80 percent of Web sites have information about products and services, general information about the company, an e-mail address, and a street address or telephone number. Sixty percent of Web sites have product pictures, and 40 percent provide customer service or product support. Updates for the Web sites are not particularly frequent. Only 5 percent of businesses change their sites daily, and 15 percent change them weekly. More than half change their Web sites less than once a month or never. Firms that rely on someone else to update their Web sites generally have little trouble getting an update, and only about half of the businesses have to pay for an update.

By far the most popular means of advertising a Web site is to submit the site to search engines or directory services; two thirds of Web businesses do so. About one third of Web businesses have a link to their page on a regional Web site, such as those sponsored by a local Chamber of Commerce or a local development group. A far lower percentage of businesses participate in electronic shopping malls or send mailings (either electronic or traditional) to customers and potential customers. About 8 percent do nothing to promote their Web sites.

Annual visitors to Web sites range from a few dozen to hundreds of thousands. About 40 percent have more than 1,000 visitors per year, 20 percent have more than 10,000 visitors per year, and 6 percent have over 100,000 visitors per year. There is not a very strong relationship between size of company and number of hits: many small companies have tens or hundred of thousands of hits, while some large companies have fairly low numbers of hits. 

Web Site Costs

Once a Web site has been created, the files need to be stored on a Web server. These machines are typically quite expensive, which explains why only about 20 percent of businesses have purchased a server. The median price paid for a Web server is $3,800, and a handful of businesses reported paying more than $20,000. The rest of the businesses pay another company to host their Web sites. The median monthly "rent" for a Web site is $50 and the average is $78.

Fifteen percent of Kentucky’s Web businesses have hired additional staff to maintain their Web sites. There is a clear relationship between the number of hits on a Web site and whether a company has hired a new person to maintain it. Over 40 percent of firms getting 100,000 hits a year or more have hired someone to maintain the Web site, compared with only 5 percent of firms getting 1,000 hits or less.

Conclusion

The businesses we surveyed are generally satisfied with their Web sites. Most benefit from having a Web site and believe it is worth the costs or will be within a few years. Still, the Web may not be for everyone, at least not today. Businesses that provide only local services, such as plumbers or day care centers, and businesses that sell a fairly homogenous product, such as fast food restaurants, should ask themselves whether they are going to sell many hamburgers or repair many faucets in other states, let alone other countries. Nor is cost a trivial concern. Most businesses have invested a significant amount of time and money into their Web sites. With a median fee of $600, Web site development by an outsider is not cheap. Even if a business develops a Web site entirely by itself, a typical Kentucky Web business pays hundreds of dollars a year in "rent" to have another company host its site on the Web. One more consideration is quality. As much as businesses emphasize the importance of having a Web site to enhance market image, it is not enough to put anything on the Web just for the sake of having a presence. Going the cheapest possible route—asking your neighbor’s kid to design your page and then buying stripped-down Web hosting services—may not help your business much if the quality, functionality, and accessibility of your Web site suffer.

None of this is meant to discourage businesses from putting a site on the Web; it is just a reminder that creating and maintaining a Web site is a business investment, just as hiring a new employee or renting more office space is, that has costs as well as benefits that must be weighed carefully.

Should location affect the decision to have a Web site? Probably not. Our survey results suggest that the costs and benefits of having a Web site are similar for all businesses, regardless of location. The only significant difference we found between rural and urban Web businesses is the kinds of products they sell, which simply reflects the fact that Kentucky’s rural and urban economies differ. However, few rural businesses evidently are on the World Wide Web. We tried very hard to find Web businesses in eastern and south central Kentucky without much luck. This suggests that rural Kentucky is missing some big opportunities because the Web can help alleviate the spatial barriers that businesses far from large markets and major transportation routes face.

In the coming years, the Web will become increasingly useful, even necessary, for businesses. But we don’t need to wait to see how it can help Kentucky’s entrepreneurs. Small businesses, rural businesses, businesses selling an incredible variety of goods and services, have already told us that sales increase, market image improves, new customers are found, costs are reduced, and new employees are recruited because they have Web sites. "For a small business owner that normally may not have access to large organizations, the WWW is the answer!!!" wrote one company in response to our survey. "[The Web] draws interest from [the] northeastern United States in Kentucky crafts," wrote another. "I am finding that a number of our customers are checking on the Internet and educating themselves about our services before calling us," wrote a third. We received countless similar responses, but one business perhaps best illustrates the potential the Web holds for small entrepreneurs. A rural clothing manufacturer with fewer than five employees told us, "The Internet has allowed me to reach customers and make sales all over the world in less than three months. My customers have been so pleased that they have linked us to their sites, written manuals about us and passed out literature about our company . . . I could not have done this in years without the Internet." What we wrote in the introduction to this section is worth repeating: Perhaps the most important innovation for business in the 1990s is the World Wide Web.

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Footnotes

1. Beyond the Hype: Internet ‘Indispensable’ to Many, Disposable to Others," online, Internet (available at: www.finsvp.com/0506.html) 2 Feb. 1998. Return to text.

2. Forrester Research as cited by CommerceNet, online, Internet, 2 Feb. 1998 (available at: www.commerce.net/stats/indust.html#ec). Return to text.

3. "Beyond the Hype . . . " Return to text.

4. The Department of Employment Services, Cabinet for Workforce Development, estimates Kentucky’s self-employed population for 1996 at more than 129,000, but cautions against relying on these estimates. Here we use SBA estimates. Return to text.

5. The number of web sites was obtained from the PRO CD Internet Directory of over 450,000 web addresses (Pro CD Inc., Danvers, MA). These are web addresses that were registered between 1990 and 1996. We excluded inactive and non-commerical sites (e.g., *.net, *.org, *.edu, etc.) as part of our search criteria and found 1,009 Kentucky businesses with a web address. One should note however that an examination of the listings reveals duplicates for some businesses, but this duplication does not appear to be widespread. The total number of businesses is the sum of self-employed and businesses with employees in 1996. These data were obtained from the SBA state profiles (http://www.sba.gov/ADVO/stats/profiles/). According to SBA, Kentucky was home to 78,044 businesses with employees and approximately 113,000 self-employed persons in 1996, for a total of 191,044 businesses. Finally, for our purposes the relative differences between the states are more important that the absolute number of web sites per 1,000 businesses because the Web is changing and evolving so rapidly that any attempt to describe a "snapshot" is outdated immediately. Return to text.

6. Jim Jordan, "Web Site Nets Big Break for Local Company." Lexington Herald-Leader 13 Dec. 1997: B1. Return to text.