E-commerce and (other) small business

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E-commerce and (other) small business
By Leon Worden
Friday, August 13, 1999

he Internet is decimating small businesses, one of our City Council people said recently. Congress was wrong, she suggested, for barring local governments from, in effect, taxing the Internet out of existence.
    I know. Scary stuff.
    Not only do Internet vendors already pay taxes like every other business— including sales taxes— but more significantly, almost all Internet businesses are small businesses.
    The difference between the ones you’ve heard of— Amazon.com, eBay, CDNOW— and the ones you haven’t heard of, is that the ones you’ve heard of, succeeded. They started small and got bigger. They grew for all the usual reasons a business grows— they had the right idea at the right time and pitched it to the right investors.
    I realize the right hand of government doesn’t always know what the left hand is up to, so it may surprise some that both the city of Santa Clarita and the Valencia Industrial Association, independently, are working on ways to beef up our community’s (and our businesses’) Internet presence.
    Here are some numbers that should rattle some cages at City Hall:
    According to a recent study by Jupiter Communications (a company that started small and grew into a respected new media research firm), consumer e-commerce revenues will total $11.9 billion in 1999 and $41 billion in 2002— yet only 6 percent of those sales (6.5 percent in 2002) will represent incremental sales— sales that would not have been made otherwise.
    In other words, 94 percent of the consumer sales on the Internet are sales that are being “taken away” from other venues for commerce, such as brick-and-mortar retail stores and print catalog houses.
    What should our city government do about it? Find ways to discriminate against Internet vendors by taxing them more than a Main Street retailer would be taxed? That’s screwy, not to mention un-American and illegal.
    Far better would it be for our government to promote Santa Clarita as a good place to do e-business, and to help our existing businesses take advantage of the Internet. It’s in the city’s best interest to help local retailers increase their market share— in part because tax coffers grow when local wealth increases.
    Can it happen? Can we become a place that nurtures e-commerce? I put a simple question to Kay Dangard, chief spokesperson for Amazon.com.
    “Why Seattle?” I asked.
    “There is a huge pool of technical talent here,” Dangard said. “At that time (1995), when Jeff Bezos decided to found Amazon.com,... one of the nation’s biggest book warehouses (Ingram) was right down the road. Also, it’s a lovely place to live.”
    It’s a pretty good place for worldwide shipping, too, and as home to the likes of Boeing and Nordstrom headquarters, “Seattle is an entrepreneurial town,” Dangard said.
    (At 7.5 percent, by the way, sales tax in Washington state is comparable to Los Angeles County’s 8.25 rate, and 7.25 in other parts of California.)
    So there’s your basic recipe, Santa Clarita. Build a skilled labor pool, identify the right products to sell, and maintain a high quality of life.
    Luckily, the components are falling into place. College of the Canyons has stepped up its workforce training programs in recent years, local business leaders are in the midst of assessing our industrial strengths, and our quality of life isn’t too shabby. Shipping-wise, we sit astride one of the nation’s largest superhighways, and we’re a stone’s throw from the Port of Los Angeles.
    Adapting to change is never easy, least of all for government. These days, changes are occurring faster than ever— and those changes affect the traditional media as much as anyone.
    Look at what the Internet is doing to newspapers. According to a June survey, online display-type advertising is starting to eat into newspaper and phone company Yellow Pages revenues.
    The survey found that more than 17 percent of businesses in 14 major U.S. markets advertise online, and the Internet captures 7 percent of their non-broadcast advertising budgets. One researcher predicted the Web will capture 27 percent of the total by 2002.
    Of course, by 2002, more of you will be logging onto The-Signal.com for your local news. Many of you already do. And therein lies the answer to the question you were about to ask. To prosper in the years ahead, newspapers will have to come up with new and creative ways to generate more revenues online and add to their slate of e-commerce offerings— which, at The-Signal.com, already include online display (“banner”) advertising, online classifieds and web page hosting.
    John Sturm, head of the Newspaper Association of America, had the right response to the Internet advertising survey. “Newspapers are moving to meet that competition online,” he told USA Today, “and will continue to have the advantage that (other) on-liners don’t have, which is the ability to promote and value-package print and online.”
    The Internet won’t kill The Signal, and it doesn’t have to kill other SCV businesses. But our local entrepreneurs will need help— in the form of a positive entrepreneurial environment— to fully seize the online opportunities.

Leon Worden is The Signal's business editor.