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It's a Merry Time for E-Tailers

Online holiday shopping hit an all-time high last year, with $21.5 billion in fourth-quarter revenue reported by Internet companies, according to the Commerce Dept. A new survey of Web-based outfits shows that this year, most online-business owners believe their fourth-quarter revenues will be up at least 10% over last year's figures. Increased gasoline prices and rippling aftereffects from 2005's mammoth natural disasters will drive more people online to make purchases this year, the entrepreneurs believe.

John Enright, marketing director for Affinity Internet, the Web design and marketing firm that conducted the survey, hopes his clients are right. He spoke recently about the findings with Smart Answers columnist Karen E. Klein, who covers entrepreneurship and small-business issues. Edited excerpts of their conversation follow:

How is the survey conducted, and who participates in it?

It's an invitation-only survey that we sent to a representative sample of our customers. Some 61,709 customers were invited to participate, and more than 2,725 responded. A large majority, 77%, of the businesses surveyed have 10 employees or fewer. An additional 11% have between 11 and 25 employees, so they're small businesses.

What did the survey findings show about the entrepreneurs' projections for the holiday shopping season?

Fifty-four percent believe their revenues from this season will be better than last year, and 39% felt their sales would be about the same. Only 7% are expecting revenues to be worse than last year. So these businesses are optimistic about the amount of revenue they're going to generate on their Web sites in 2005.

Was there any concern about holiday spending being down this year because of the hurricanes' impact on consumers, particularly along the Gulf Coast?

Actually, a lot of the negative impacts on the economy in general, like increased gas prices and displacement of people, can be positive factors for Internet holiday shopping. People are concerned about driving to malls, or they're in an area where travel isn't as convenient as it used to be, or brick-and-mortar establishments are no longer functioning. In all those cases, doing your shopping online will be a better bet this year.

The same holds true for small-business retailers whose physical locations are not reopened yet. If they've diversified and opened a channel on the Web, they can still generate revenue through their online transactions as long as their products are warehoused somewhere outside the disaster zone and can still be shipped.

Most of the companies that participated in the survey are very small. How are they marketing themselves effectively amidst the enormous competition online?

As a part of the survey, business owners were asked what marketing and advertising strategies they felt were most effective in drawing people to their sites and increasing sales revenue. A large majority of respondents, 53%, found that word-of-mouth was the most effective. Online marketing came in second, with 45% percent identifying that as extremely important to their business success.

Being visible in Google (GOOG) is now a big advantage for small companies because of the localized search capabilities of Google and the other major search engines.

How is regional-search capability affecting these companies?

We're seeing an increasing number of service businesses become interested in online marketing, and specifically wanting to buy advertising on Google, where it used to be primarily people who sold products that wanted to do that. So even if you have a local service company, like a landscaping operation or a law office, you can buy online advertising targeted to your specific geographic region.

The small companies love it because they only pay for the traffic they get, and that makes it a good value. And we're finding that consumers are searching online for all kinds of goods and services, not just tech-focused products anymore.

Your survey showed that online marketing by your clients is up by 17% over last year. But there are still barriers to advertising and marketing online that some survey respondents identified. What are they?

The biggest problems are cost and time. Our survey respondents identified cost of advertising as the biggest barrier. The second biggest was lack of familiarity with creating online campaigns, followed by the idea that online advertising is too time-intensive for them to do and, finally, that's it's too difficult to track the results.

Business owners say they are overwhelmed trying to run their businesses and also carve out time to update their Web sites, put fresh content on their pages, and research effective online-marketing techniques. The problem is that when small companies decided to go online, there were no big tasks that were eliminated from their workday, and one huge new task -- creating, maintaining, and updating a Web presence -- was added. It's challenging to do it all.


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