From the February 2000 issue of Startups

Internet penetration for home offices and small businesses with five or fewer employees rose from 7 percent in 1996 to 48 percent in 1998, and should top 80 percent by 2002, according to a new report from Cahners In-Stat Group, a leading industry research firm.

SOHOs, which constitute the majority of small businesses, spent roughly $3 billion on Internet technologies and services in 1998, the company reports. In the future, these businesses plan to make Internet-related investments in equipment, high-speed access and applications, says Kneko Burney, director of markets and computing for Cahners In-Stat Group.

Like the emergence of the Internet itself, this small and homebased market's adoption of the Web, e-mail and other online technologies happened quickly, she says. "The Internet quickly popped up on the SOHO decision-makers' radar screen," Burney said. An executive summary of the report and table of contents can be found online at www.instat.com/abstracts/ms/soho/1999/sh9805ms_abs.htm.

According to research by CyberDialogue, about 56 percent of small-business owners described the Internet as "essential" to the success of their business. Of 33 percent who sold products or services online, half said their online sales have met or exceeded their expectations. And of those businesses that took orders on their Web sites, the majority said their online operations were accounting for 23 percent of their total annual sales.

The single strongest driving force for online adoption continues to be the falling cost of PCs, combined with heightened awareness of the Internet and the various resources and services found online, Burney says. Additional allurements come in the form of online application service providers, such as HotOffice Technologies (www.hotoffice.com), which allows individuals to network and share documents and calendaring applications online, and I-Business Network (www.i-bn.net), which handles accounting and bookkeeping operations online.

Moving forward, the rise in business-to-business activity among SOHO and more traditional companies in the next few years should further entice small organizations to make the investment in online technology and adoption, Burney says. "There are more and more useful--and in some cases necessary--resources on the Web for businesses, including very small ones," she says. "They can better manage, market and grow their businesses using tools provided by companies online."

Small businesses are also shopping on the Internet for computer products, office supplies, books, travel services and financial services, says Thomas E. Miller, vice president of CyberDialogue. The total value of small-business online orders between 1998 and 1999 was $19 billion, up from $11.4 billion in early 1998.

"The real drama is not so much in the sheer numbers of new small businesses online but in the fact that these small businesses are becoming increasingly dependent on the Internet," Miller says. "In addition to selling online, entrepreneurs are comparison shopping for business suppliers online. Nearly half of all online small businesses expect to cut costs by using the Internet."