Small Internet Retailers Are Using Web Tools to Level the Selling Field

E-Commerce Report from The New York Times

By BOB TEDESCHI
Published: December 19, 2005

AMAZON, Walmart.com and other online retailing giants have always had upstarts nipping at their heels. But the little guys are starting to bite harder.

Just how sharp their teeth are, however, is a matter of some debate.

Of the $26 billion in sales that are projected for Internet retailers this holiday season, about 45 percent will go to small retailers, according to Forrester Research, up from 42 percent last year. Even so, with revenues starting to flatten at eBay, the site so many of them use to market their wares, some analysts doubt they will ever be able to break through the 50 percent mark.
But other analysts are not so sure. In the fast-changing world of Internet commerce, they say, smaller merchants have gained two important advantages: Google and consumers who are fussier than ever.

"The game has changed," said Gene Alvarez, an analyst with Gartner, a technology consulting firm.

In years past, any retailer could put up a Web site fairly easily, although it had little chance of attracting the attention of Web browsers unless it had enough money to advertise on well-known sites like AOL and MSN. Yahoo and Amazon, which have long sold cheap Internet storefronts to small businesses, sweetened the deal by listing the businesses on their sites in return for a sales commission.

But that exposure, while significant, pales in comparison to the publicity Web merchants can now gain by spending a few nickels per click on a text ad on Google. "Before, people couldn't find these smaller guys," Mr. Alvarez said. "But now these stores can be much more easily discovered on Google."

At the same time, consumers are displaying a growing appreciation for small online retailers. According to the Kelsey Group, a media consulting firm, the portion of Internet searches that include local elements like "dry cleaners and Greenwich Village" or "art galleries in Easton" has doubled in the last year to 20 percent.

One reason for that, no doubt, is the spread of high-speed Internet connections, which allow users to click through multiple merchants without waiting hours for Web pages to load.
All of which leads to another phenomenon that could further threaten the dominance of the big players - simplified e-commerce software with the potential to lure hordes of hitherto reluctant merchants onto the Internet.

According to eBay, nearly 650,000 small businesses in the United States have an online presence, a sizable figure but a tiny fraction of the 7.5 million companies that the Kelsey Group estimates market most of their goods directly to consumers. Many of the holdouts have resisted the Web because they deem the transition to be too difficult, too expensive or both. But now, Yahoo Stores, ProStores from eBay, NetSuite and other companies that help businesses operate online hope to change the minds of the hesitant with software and services that are cheaper and easier to use.

"We're moving into the next generation for small and medium-sized businesses who want to sell online," said Mr. Alvarez of Gartner. "Even a one-person shop can open an online store that's much more refined than it would've been a few years ago."

Liz Herbert, a Forrester analyst, said the biggest change in e-commerce software in the last few years was that it no longer comes in a box. It is delivered online, so businesses do not need technology specialists to install and run the company's system.

EBay has for years offered sellers the chance to set up their own ministores, called storefronts, in this fashion, but the company this year intensified its efforts to reach small businesses that might not be interested in selling solely on its site. In January, it bought Kurant, an e-commerce software company, for an undisclosed sum; this year it renamed the service ProStores and upgraded the software with added features.

According to Chris Tsakalakis, eBay's senior director of stores and platforms, the ProStores service, which costs from $7 to $250 monthly, gives sellers templates to use in setting up a store, and will carry an online catalog of 10 items or more. For those who pay $30 or more a month, the service includes a personalized Web address, a secure checkout process and a selection of more sophisticated business tools, like those that help managers improve the store's rankings on search engine results.

Such software tools sound like an obvious place for Google's engineers to focus, particularly if the company wants to attract more local businesses online so they will buy more Google ads. But Google - which last month began giving away software to help Internet managers analyze their site traffic, but has not otherwise pushed into e-commerce services - does not offer live customer service, and this is one market where such service is critical, executives said.
"We have hundreds of live agents that are highly trained, answering questions around the clock," said Rich Riley, vice president and general manager of Yahoo Small Business. "That gives us a real head start."

And increasingly, these services include more than just the ability to post a Web site and accept transactions. NetSuite, a privately held company co-founded by Lawrence J. Ellison, Oracle's chief executive, and Evan Goldberg, one of Oracle's chief technologists, has improved its tools for companies that want to manage their entire business - including payroll, shipping and marketing - through the Internet.

For some retailers, like Mess Makeup, a New York seller of cosmetics, that is the most important feature in the latest incarnation of e-commerce services. "I could go to the Bahamas, pull out my laptop, look at inventory, see how many leads came in, track people's shipping, and everything's extremely user-friendly," said Adam Furman, a former software consultant who co-founded Mess Makeup two months ago.

Mr. Furman, who pays NetSuite about $1,000 a month for one of its more sophisticated service offerings, said he would have had to spend $500,000 to $1 million to develop the same technology on his own a few years ago. "And we would've needed to hire a tech team of our own," he said. "Now we can concentrate more on just selling makeup and building our business."

http://www.nytimes.com/2005/12/19/technology/19ecom.html