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How Will Europe's Online Market of Small Businesses Recover? From the beginning of the crisis, the online space became the main market for entrepreneurs and especially small businesses. But the countless 'freebies' made it nearly impossible to make a profit.

By Julia Skupchenko Edited by Jason Fell

Opinions expressed by Entrepreneur contributors are their own.

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Since early 2020 when countries across Europe and beyond started to introduce lockdowns, entrepreneurs working primarily in-person — e.g. workshop facilitators, trainers, coaches and many others — lost access to their local face-to-face market. To keep afloat and save their business, most of them decided to quickly develop or adapt a service to sell online. The large inflow of new online offerings made it hard for both: entrepreneurs who were online already and the ones who just decided to join.

Imagine every Saturday you go to a big market (not something we do anymore, but you might still remember it). It has everything: food, clothes, white goods, antique items, books. It is not easy to know where is what, but it has a great atmosphere, it's lively and interactive. You often meet your friends there and you spend hours walking around together. Sometimes you come there for an item you know you need and sometimes just to see what calls your attention.

One Saturday when you arrive at the market, you see that it became much bigger than before. Half of the stalls seem to have a sale on, while the other half is simply giving everything away. Fruits, vegetables, shoes, dresses, fridges and microwaves — anything you see has its free twin. At first look, they all seem the same. Naturally, you wander into the part of the market with free items. Since they are the same quality it doesn't make sense to waste your Saturday budget on things you can get for free.

You spend an entire afternoon walking from one stand to another looking for more things to get. By the end of it, you are tired, your hands are full, and you saw that some of the items are not exactly top-quality but you can't be bothered to go through yet another 20 stalls of the same product in the paid area. So you call it a day and go home. You and thousands of other market visitors that came there.

What about the sellers?

None of them made any profit. One half didn't because they were giving their products away at no cost. The other half didn't because they still tried to sell but could not compete with the "freebies." Arguments such as "we have better quality" were too weak against something that was completely free.

A few Saturdays later, after this happened, again and again, the market shut down. The sellers with free items got exhausted from not having any return on their investment and lost interest in their trade. The others that still tried to sell went bankrupt and had to get a job to support their families. The customers stopped coming as well because of how aggressive everything was advertised and how difficult it was to make sense of what was on offer.

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Now imagine that the "Saturday market" is actually the world of online services and the situation described is what has been happening since the beginning of the crisis. Here are the issues with what transpired:

Oversaturation. Let's say before 2020, only 20 percent of all services from small businesses were offered online. Suddenly, with the lockdowns, the remaining 80 percent of face-to-face services got transferred into the online market. Not surprisingly, it started to overflow with offers.

On top of that, the offers were quite similar. The only difference was in the price: from low to mid-price to unbelievably expensive. The channels used to advertise and sell them became even more diverse than before. That made it almost impossible for potential customers to find what they were looking for and compare options. The online market became oversaturated.

Drop in quality. The average quality of services offered online deteriorated. It was not enough to move what was done in-person into an online form and expect it to give the same results.

Recognizing that, many entrepreneurs and companies started testing their services by offering them completely for free. That in turn "cannibalized' the market for the ones who were building their online business model long before the crisis.

Lower demand. It is true that the prolonged confinement moved potential customers online as well. But unlike the supply, the demand side did not move there in full. Many of the prospects were suffering slowdown and losses in their own businesses. They did not require services that were not essential for survival.

Short transactions. There are still things offered online that remained (or became even more) popular: a movie streaming channel, an app for live stream, or another digital tool that people need or love. The majority offered not by small businesses but by large well-established companies. Zoom, Netflix, Disney, Remote Working, and others are self-explanatory and easy to use. Their advantage is that they don't require a call to explain why you need it. The transaction happens in one click and you can immediately benefit from what you paid for.

A revival of all things good?

But for the millions and millions of small businesses competing online in Europe and elsewhere, offering tailor-made business consulting, educational services, facilitation and workshops, coaching and advice of all kinds — every day it becomes a little bit harder, sadly resembling the "Saturday market."

On the bright side, it is inspiring to see that there are many stories — gathered through the nonprofit United Nations registered initiative Lockdown Economy — among small businesses with tangible products that became more successful online.

A little family bakery in the Philippines got endorsed by a celebrity on Twitter and suddenly they had more customers than they could imagine. Or a store in Albania with everything for babies and toddlers that has been around for a decade but never done anything online is now actually selling things through a very simple online account. A home-based crochet studio in Lebanon that started as a hobby, thanks to Instagram and the word of mouth reached thousands of people in a couple of months.

This trend looks like a revival of all things good: local, handmade, green, healthy, sustainable. What you can see is that customers are still gladly paying for things that make them happy.

Julia Skupchenko

Head of SDG Partnerships and Reporting

Julia Skupchenko is an award-winning entrepreneur and sustainability leader with over a decade of experience in the field. She is the co-founder of the Think Tank AlterContacts, leading SDG Acceleration Actions recognized by the United Nations and awarded by the European Parliament.

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