Fall 2000 E-comm Final Report - Industry Canada

The SES Web Entrepreneurship SurveyFall 2000

A Profile of Canadian Small Businessesand Electronic Commerce

Industry Canada Electronic Site License

SES Canada Research Inc.Toronto, Canada

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The SES Web Entrepreneurship Survey SES CANADA RESEARCH INC.

Industry Canada Site License - Fall 20001

December 2000

Dear Reader,

For over a decade, SES has provided strategic research, executive counsel andinnovative solutions to Canadas leading decision-makers. As part of itspractice of tracking public opinion and business trends, the firm launched theSES Web Entrepreneurship Survey in the Spring of 1999.

We believe that having timely and accurate data on emerging on-line businesstrends is critical to corporate and government decision-makers involved in theInternet. Conducted every six months, the SES Web Entrepreneurship Surveyidentifies opportunities and assists subscribers in understanding theperceptions of small businesses as they relate to the commercialization of theInternet.

With a final sample target of 1,000 small businesses, the SES WebEntrepreneurship Survey is one of Canadas most significant researchbenchmarks on small businesses and the Internet.

Nikita James Nanos Bruce KirbyManaging Director Senior Consultant

SES Canada Research Inc.,401-250 Consumers Road,Toronto, CANADAM2J 4V6tel 416.821.3160fax 416.821.3052

http://www.sesresearch.comhttp://www.sesresearch.comhttp://www.sesresearch.com



1.0 EXECUTIVE SUMMARY................................................................................................................. 41.1 WHO ARE THE INTERNET USERS?...................................................................................................... 51.2 WHAT IMPACT WILL THE INTERNET HAVE ON BUSINESS? ................................................................ 51.3 HOW BIG IS THE SMALL BUSINESS E-COMMERCE MARKET?............................................................. 61.4 WHAT ARE SMALL BUSINESSES DOING ON THE INTERNET? .............................................................. 71.5 WHAT'S NEXT?.................................................................................................................................. 81.6 KEY FINDINGS FALL 2000 SURVEY................................................................................................ 81.7 KEY FINDINGS SIX MONTH TRENDS............................................................................................... 9

2.0 MARKET OVERVIEW................................................................................................................... 102.1 DECISION-MAKER PROFILE ............................................................................................................. 112.2 BUYING AND SELLING USING THE INTERNET .................................................................................. 112.3 SIZE AND SCOPE OF ELECTRONIC COMMERCE ACTIVITIES.............................................................. 192.4 SIZE OF THE SMALL BUSINESS E-COMMERCE MARKET ................................................................... 222.5 INTERNET CONSULTANTS................................................................................................................ 22

3.0 ATTITUDES TOWARD ELECTRONIC COMMERCE ........................................................... 243.1 IMPORTANCE OF INTERNET.............................................................................................................. 243.2 IMPACT ON BUSINESS ...................................................................................................................... 283.3 BENEFITS & BARRIERS.................................................................................................................... 33

4.0 E-BUSINESS ACTIVITIES............................................................................................................ 364.1 COMMUNICATIONS AND INFORMATION ........................................................................................... 364.2 ELECTRONIC COMMERCE TRANSACTIONS....................................................................................... 393.8 BANKING AND PAYMENTS............................................................................................................... 413.9 SUMMARY OF ACTIVITIES ............................................................................................................... 43

5.0 CONCLUSION ................................................................................................................................ 44

6.0 DEMOGRAPHIC TABLES............................................................................................................ 45

7.0 INTERNET & E-COMMERCE ACTIVITIES............................................................................. 54

8.0 SURVEY METHODOLOGY ......................................................................................................... 748.1 SAMPLE SELECTION ........................................................................................................................ 748.2 CONFIDENCE LIMITS ....................................................................................................................... 758.3 FIELD PROCEDURES......................................................................................................................... 768.4 TRAINING ........................................................................................................................................ 768.5 VALIDATION.................................................................................................................................... 778.6 CODING ........................................................................................................................................ 78

QUOTING SES CANADA RESEARCH INC. INFORMATION AND DATA:Internal Documents and PresentationsQuoting individual sentences and paragraphs for use in your organizationsinternal communications does not require permission from SES. The use of large portions or the reproduction of anySES document in its entirety does require prior written approval and may involve some financial consideration.External PublicationAny SES information that is to be used in advertising, press releases, or promotional materialsrequires prior written approval from the Managing Director. A draft of the proposed document should accompany anysuch request. SES reserves the right to deny approval of external usage for any reason.Reproduction is forbidden unless authorized.

TABLE OF CONTENTS

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LIST OF TABLES

TABLE 1 SCOPE OF INTERNET IMPACT ON BUSINESS ............................................................. 45TABLE 2 TYPE OF INTERNET IMPACT ON BUSINESS.46TABLE 3 PAST E-COMMERCE ACTIVITY ..................................................................................... 47TABLE 4 FUTURE E-COMMERCE ACTIVITY................................................................................ 48TABLE 5 OUTSIDE CONSULTANT USE ......................................................................................... 49TABLE 6 CURRENT INTERNET USE............................................................................................... 50TABLE 7 INTERNET AND BUSINESS SURVIVAL......................................................................... 51TABLE 8 INTERNET AND NEW BUSINESS OPPORTUNITIES.................................................... 52TABLE 9 INTERNET AND PROFITABILITY THREAT .................................................................. 53TABLE 10 E-MAIL................................................................................................................................. 54TABLE 11 WEBSITE FOR EXTERNAL COMMUNICATIONS......................................................... 55TABLE 12 WEBSITE FOR INTERNAL COMMUNICATIONS.......................................................... 56TABLE 13 CONDUCTING BUSINESS RESEARCH........................................................................... 57TABLE 14 SELLING YOUR GOODS AND/OR SERVICES ............................................................... 58TABLE 15 MAKING TRAVEL ARRANGEMENTS............................................................................ 59TABLE 16 PURCHASING COMPUTER EQUIPMENT AND SOFTWARE....................................... 60TABLE 17 PURCHASING OFFICE SUPPLIES.................................................................................... 61TABLE 18 FINDING A NEW SUPPLIER FOR GOODS...................................................................... 62TABLE 19 FINDING A CONSULTANT FOR SERVICES .................................................................. 63TABLE 20 SENDING ELECTRONIC INVOICES TO CUSTOMERS................................................. 64TABLE 21 RECEIVING ELECTRONIC BILLS FROM SUPPLIERS.................................................. 65TABLE 22 ELECTRONICALLY PAYING BILLS THROUGH YOUR BANK .................................. 66TABLE 23 PROVIDING CREDIT CARD INFORMATION FOR PURCHASES................................ 67TABLE 24 ELECTRONICALLY RECEIVING PAYMENTS .............................................................. 68TABLE 25 TRACKING BANK ACCOUNT BALANCE...................................................................... 69TABLE 26 SUBMITTING A BANK LOAN APPLICATION............................................................... 70TABLE 27 SUBMITTING TAX RETURNS TO THE GOVERNMENT.............................................. 71TABLE 28 REMITTING TAXES TO THE GOVERNMENT ............................................................... 72TABLE 29 ACCESSING GOVERNMENT SERVICES........................................................................ 73



1.0 EXECUTIVE SUMMARY

For Canadian entrepreneurs, some of the thrill of the Internet is gone. Sixmonths ago at the height of the tech stock boom expectations for theInternet and e-commerce were at an all-time high.

The views expressed in the Fall 2000 SES Web Entrepreneurship Survey are notquite the same. After a year of steady growth in the number of Canadian smallbusinesses engaged in electronic commerce (from Spring 1999 to Spring 2000),the last six months have actually produced a marginal decline from 41%engaged in electronic commerce transactions last Spring to 40% this Fall.Similarly, Canadian entrepreneurs are now more skeptical about theimportance of the Internet and its benefits than they were earlier.

The survey, conducted by SES Canada Research, interviewed a randomlyselected national sample of 1,000 Canadian decision-makers from businesseswith 50 or fewer employees. Interviews were administered to individuals atthe small business who were responsible for decisions related to the Internet.This survey report is part of a longitudinal study of Internet trends trackedevery six months.

While there has been no recent growth in the number of small businesses usingthe Internet to buy or sell goods, there has been a jump in the amount boughtand sold. In addition, while the total number of Internet users has remainedflat, the extent to which the current Internet users take advantage of the newcommunications medium has broadened significantly.

The result has been an increasing polarization between those who are using theInternet and those who are not. The small businesses not currently using theInternet are more skeptical about its effects and the benefits it can bring to theirbusiness. Skepticism does not reflect a negative concern about e-commerce or afear that it will harm their business. Instead, Internet non-users simplyperceive the Internet as irrelevant to their day-to-day operations.

Internet users have also grown more questioning of the Internets impact andits ability to transform their business. However, the tempering of their viewshas not prevented them from finding new ways to incorporate the Internet intoall aspects of their business.



There is no question that last Spring represented the peak of a wave of hopeand anticipation regarding the Internet and e-commerce. In its wake,expectations are more modest and growth is slower, but for those using theInternet it continues to become a deeper, richer experience.

1.1 Who are the Internet Users?

The number of Canadian small businesses using the Internet has not changedsignificantly, considering the margin of accuracy for the research, since the Fallof 1999. (Fall 1999 74.1%, Spring 2000 73.5%, Fall 2000 76.5%).

The profile of small business Internet users has remained consistent in thecurrent SES Web Entrepreneurship Survey. The two factors most closelycorrelated with Internet adoption continue to be the size of the business and theage of the key decision-maker. Businesses with the most employees are thosemost likely to use the Internet. Almost nine out of every ten (88%) of smallbusinesses with 25 to 49 employees report using the Internet. Similarly, thelikelihood that a small business will be using the Internet declines as the age ofthe key decision-maker increases.

Although the gap is relatively small, male entrepreneurs (78%) haveconsistently been more likely to use the Internet than female entrepreneurs(75%). This difference increases significantly when the depth of usage isanalyzed. For example, 50% of male small business decision-makers are usingthe Internet for e-commerce compared to 31% of women.

1.2 What Impact Will the Internet Have on Business?

Canadian entrepreneurs remain enthusiastic about the potential offered by theInternet and e-commerce, although some views have tempered over the pastyear. The vast majority of small businesses believe the Internet will have somesignificant effect on their business, with 40% saying that impact will be major.

While still high, the number of small business decision-makers who believe theInternet will have a major impact on their business is significantly below what



it was last Spring. This is particularly significant among those using theInternet today. Six months ago, 57% of Internet users believed it would have amajor impact on their business. Now, only 46% do.

At the same time, some of the optimism about the Internet has waned. Amongall Canadian small businesses, 78% believe it will have a positive impact. Whilea large number, it is the first time in the history of the SES Web EntrepreneurshipSurvey that the positive response has fallen below 80%.

Some of this shift in attitudes is likely linked to the changes that have takenplace in the media and the external environment. When the stock market andparticularly Internet stocks were booming, the optimism tends to be reflectedin media stories describing the boundless possibilities of electronic commerce.When the markets reversed, so did the coverage, and a growing skepticismcrept into the views of entrepreneurs.

1.3 How Big is the Small Business E-commerce Market?

While the number of businesses engaging in electronic commerce has notincreased, the scale of their e-commerce activity has grown significantly. Thiscontinues to reflect the fact that new e-commerce entrants tend to begincautiously and build business over time.

From Fall 1999 to Spring 2000, the number of e-commerce participants grew,but the average level of activity declined. From Spring 2000 to Fall 2000, thenumber of small businesses engaged in e-commerce remained flat, but theaverage level of activity increase markedly

Last Spring, the average small business had purchased $1,300 in good andservices over the previous year. This Fall, that average had increased to $2,500.Overall, SES has estimated that the last year has seen Canadian smallbusinesses spend $720 million buying goods and services. This represents amarginal decline from Fall 1999.

For small businesses selling over the Internet, the average value of the pastyears sales was $2,600 (down from $3,700) last Fall. However, the growth inthe number of businesses participating in e-commerce sales has produced anoverall growth in the market from $240 million to $350 million.

Increasingly, small businesses in Canada are migrating from beingpredominantly an e-commerce market for other businesses to target offering



their goods and services via the Internet. In addition, those transactions bothbuying and selling are becoming more focused on dealing with otherCanadians, both businesses and consumers.

An important question for future study will be whether the average value oftransaction increases in the future. As existing e-commerce participants becomemore comfortable with the Internet as a transaction medium and as moreopportunities exist to expand business by exchanging invoices and paymentselectronically the overall volume of business should increase. Given theincreasing intensity of other Internet activities, the e-commerce market willlikely reflect the same behaviour.

1.4 What are Small Businesses Doing on the Internet?

As described above, the overriding trend that appears in the Fall 2000 survey isthe increasing intensity of small business Internet use. While the overallnumber of Internet users has remained flat, the number engaging in virtuallyevery Internet activity studied has increased.

This has been particularly significant for activities where entrepreneurs areusing the Internet to communicate or gain information. E-mail continues to bethe dominant Internet activity with almost 97% of Internet users saying theyused it. More than half also use the Internet to conduct research, accessgovernment services, and access their bank accounts. An area of substantialgrowth has been the number of small business Internet users who have decidedto establish their own website to communicate with customers and suppliers.This has jumped from 59% to 67% over the past six months.

However these are not the only activities which are being adopted by Canadiansmall business. While not as widely adopted, the percentage of businessesengaging in a wide variety of e-commerce and financial transactions continuesto grow. One of the fastest growing activities is using the Internet to access abank account. In 18 months, the percentage of Internet users engaging in webbanking has grown from 25% to 51%.

The growth in both use of Internet-based government services and Internet-based banking reflects the role of supply in adoption of new technology. Asthere have been more opportunities presented for small business to engage in aparticular activity, the numbers doing so have increased significantly. Some of



the more complex activities such as remitting taxes or applying for a bankloan for which there are limited opportunities available, continue to producethe lowest levels of adoption and have not reflected the growth pattern of otheractivities.

1.5 What's Next?

The rush of hype and excitement surrounding the Internet has gone, and in itswake the rate of adoption of the Internet and e-commerce by Canadian smallbusinesses has slowed down.

However, there is no evidence that Canadian entrepreneurs are abandoningeither the Internet or e-commerce. In fact, in a variety of ways, those currentlyusing the Internet are finding new and valuable ways to move their businessinto the on-line world. As the Internet increasingly becomes integrated into allaspects of the operations of small businesses, it will grow increasingly vital totheir success and future.

More than anything else, the continued positive experience of Canadian smalle-businesses will ultimately persuade the laggards of the value and benefits ofthe Internet and the opportunities presented by electronic commerce.

1.6 Key Findings Fall 2000 Survey

! 76% of all small businesses in Canada currently use the Internet.! 40% of all small business decision-makers have bought or sold

something over the Internet during the past twelve months.! 44% of small businesses have plans to buy or sell over the Internet

during the next year.! The average amount purchased by Canadian small businesses over

the Internet was $2,500.! The average amount sold by Canadian small businesses was $7,600.! The Canadian small business market for Internet e-commerce

purchases was $720 million over the past year.! Canadian entrepreneurs have sold approximately $590 million

during the past twelve months.



1.7 Key Findings Six Month Trends

! Perceptions of the significance of the Internet have declined as thenumber of entrepreneurs who believe it will have a major impacton their business declined from 48% to 40%.

! The shift in perceived importance was greatest among smallbusinesses currently using the Internet, where those describing it ashaving a major impact declined from 57% to 46%.

! Internet security continues to grow as a concern for Canadian smallbusiness decision-makers as 25% of those not currently using theInternet cited it as a barrier, up from 16%.

! Despite security concerns, the percentage of small businesseswilling to provide credit card information over the Internet hasgrown from 19% to 25% in the past six months.

! International e-commerce transactions are increasingly focused onbilateral trade with the U.S. as 93% now say it is their primarytrading partner, an increase of 11% since last Spring.

! The scale of e-commerce activity has grown significantly, with theaverage purchase total for small businesses increasing from $1,300to $2,500. The total small business market grew 75%.

! The magnitude of e-commerce sales by small businesses also grew,with average sales increasing from $2,600 to $7,600, representing a68% jump in the total Canadian market.

! E-commerce is increasingly being used for basic businesstransactions by all Canadian small businesses:

! those using the Internet to book travel increased from29% to 37%;

! those using the Internet to purchase computer hardwareand software increased from 21% to 28%; and,

! those using the Internet to purchase office suppliesincreased from 14% to 24%.

! Bank-mediated financial transactions have also been growingrapidly. Among all Canadian small businesses, the percentageusing the Internet to check their bank accounts has grown from29% to 39%and, and pay bills has grown from 22% to 29%



2.0 MARKET OVERVIEW

The Internet bubble has burst. The collapse of most dot com stocks over thelast six months has been reflected in a renewed skepticism among Canadiansmall business decision-makers regarding the Internet and e-commerce.

This change in views is apparent in the responses to the Fall 2000 SES WebEntrepreneurship Survey. After a year of steady growth in the number ofCanadian small businesses engaged in electronic commerce, the 40% whoreport having done so this Fall is actually a slight decline from the 41% lastSpring. Similarly, Canadian entrepreneurs in Fall 2000 are more skepticalabout the importance of the Internet and its benefits than they were in Spring2000.

However, the end of the hype does not mean the end of the Internet nor theend of e-commerce. While there has been no recent growth in the number ofsmall businesses using the Internet to buy or sell goods, there has been a jumpin the amount of goods and services bought and sold. In addition, while thetotal number of Internet users has remained flat, the extent to which currentInternet users take advantage of the new communications medium hasbroadened significantly.

The result has been an increasing polarization between those who are using theInternet and those who are not. The small businesses not currently using theInternet are more skeptical about its effects and the benefits it can bring to theirbusiness. However, this skepticism does not reflect a negative concern about e-commerce or a fear that it will harm their business. Instead, Internet non-userssimply perceive the Internet as irrelevant to their day-to-day operations.

Small businesses using the Internet have also grown more questioning of theInternets impact and its ability to transform their business. This tempering ofviews has not prevented them from finding new ways to incorporate theInternet into all aspects of their business.

There is no question that last Spring represented the peak of a wave of hopeand anticipation regarding the Internet and e-commerce. In its wake,expectations are more modest and growth is slower, but for those using theInternet it continues to become a deeper, richer experience.



2.1 Decision-maker Profile

For the past 12 months, the number of Internet users has remained essentiallyflat considering the margin of accuracy for the research (Fall 1999 74.1%, Spring2000 73.5%, Fall 2000 76.5%). However, as we will describe below, the mannerin which those small business Internet users are using the Internet has changedsignificantly.

The profile of small business Internet users has remained remarkably consistentacross multiple waves of the SES Web Entrepreneurship Survey. The onlydemographic qualities closely related to Internet usage are the size of thebusiness and the age of the principal decision-maker.

Larger businesses are more likely to have adopted the Internet than smallerones. While almost 9 in 10 (88%) businesses with 25 to 49 employees arecurrently using the Internet, only 59% of those with less than 5 employees aredoing so.

Similarly, small business decision makers between the ages of 18 and 29 aremuch more likely to use the Internet than those led by individuals over the ageof 50. Of the younger group, 85% are using the Internet for their business,compared to only 62% of the oldest group.

Much less significant, but consistent over time has been a small difference inInternet use tied to gender and region. Men continue to use the Internet at arate slightly higher than women (78% vs. 75%), although women slightlyoutnumber men in the total sample. Similarly, businesses based in WesternCanada are slightly more likely to be using the Internet while those in Quebecare slightly less likely to do so. (Ontario and Atlantic Canada have consistentlybeen very similar and fall between the other two regions.)

2.2 Buying and Selling Using the Internet

While three-quarters of Canadian small businesses have been using the Internetfor the past year, many have not taken full advantage of all the capabilities andservices it has to offer. The Internet is used for a variety of activities, includingcommunications, information gathering, electronic commerce and banking.Entrepreneurs tend to progressively incorporate the Internet into their day-to-



day business over time by gradually expanding the scope of activities in whichthey engage.

During the past 12 months, 40% of Canadian small business decision-makerssurveyed have used the Internet either to buy or to sell goods and services. Thistotal is a marginal decline from the 41% who reported engaging in e-commerceduring the Spring 2000 SES Web Entrepreneurship Survey. After steady growthover the previous year, the 2000 results indicate a temporary stalling of e-commerce growth among Canadian small businesses. Additional responsesimply that future growth will occur, but at a slower pace than in the past.

The last three waves of the SES Web Entrepreneurship Survey have shown agradual flattening of the rate of Internet and e-commerce adoption amongsmall businesses. From the Spring to the Fall of 1999, both the number ofInternet users and the number engaged in e-commerce activities increasedsignificantly. Over the next six months, to the Spring of 2000, the percentage ofInternet user remained flat, but those engaged in e-commerce continued togrow. Over the past six month, both Internet usage and e-commerce haveremained flat.

Past E-Commerce ActivityHave you bought or sold goods or services using the Internet

in the past twelve months?

No59%Busines Only

16%

Both Business and personal

15%

Personal Only10%



Naturally, almost all of the small business decision-makers who have engagedin e-commerce are those using the Internet for their business. However, a smallpercentage (9%) of those not using the Internet for business have engaged in e-commerce for personal purposes. A negligible number (



The differences between men and women as Internet users are reflected evenmore strongly in their e-commerce activities, and have actually increased overthe past six months. Small businesses led by men are significantly more likelyto have engaged in electronic commerce than those led by women (50% of menversus 31% of women). This gap has increased significantly over the past yearbecause men have continued to adopt e-commerce in increasing numbers,while women have not. (see Chart Comparison of E-commerce Activities byGender, next page).

Comparison of Past E-commerce ActivityHave you bought or sold anything using the Internet for either personal

or business use in the past twelve months?

19%

10%

18%

10%

12%

12%

0% 5% 10% 15% 20%

Both business andpersonal

Personal only

Business only

Male Female

Comparison of Past E-commerce Activity: Fall 1999 and Spring 2000

Have you bought or sold anything using the Internet for either personalor business use in the past twelve months?

50%

47%

40%

31%

34%

31%

0% 10% 20% 30% 40% 50% 60%

Fall 2000

Spring 2000

Fall 1999

Male Female



The number of small businesses engaged in actively buying or selling throughthe Internet will likely continue to increase over the next twelve months, butmore gradually than it has in the past. One-fifth of those who have not done soin the past have plans to buy or sell goods or services at some point in the nextyear.

Those entrepreneurs intending to engage in e-commerce in the future includeboth Internet users and non-users. A majority (53%) of Internet users intend tobuy or sell something using the Internet in the next year. However, only 16%of small businesses not currently using the Internet have plans to engage in e-commerce in the near future.

Both of these results represent substantial declines from the Spring 2000 SESWeb Entrepreneurship Survey, when 64% and 38% of Internet users and non-users, respectively, had future plans to engage in e-commerce.

Comparison of Future E-commerce ActivityDo you plan to buy or sell anything using the Internet for either personal or business

use in the next twelve months?

36%

23%

6%

25%

72%

6%

4%

7%

0% 10% 20% 30% 40% 50% 60% 70% 80%

No


Personal only

Business only

Non-userUser



Both the lack of growth in electronic commerce activity reflected in the Fall2000 survey and the drop in future expectations represent a significant change

from the previous patterns. The reported past e-commerce activity from theSpring 2000 survey closely matched the future activity that had been forecast ayear earlier. At the time, the future e-commerce plans of Canadianentrepreneurs indicated that 57% intended to engage in e-commerce over thenext 12 months.

However, at the half-way point of that year, there has been no increase in e-commerce activity. In addition, there has been a substantial drop in futureplans as of the Fall of 2000. Now, only 44% of small business decision-makersplan to engage in e-commerce over the next year. This would represent a smallincrease over current activity.

This break in the trendline reflects less excitement over the importance andpotential of the Internet, and a more modest expectation for the pace ofadoption. Of course, just as the forecasts from six months ago proved overlyoptimistic, so may the current expectations be overly conservative. Newopportunities may cause e-commerce adoption to re-accelerate just as it hasslowed down in recent months.

Comparison of Future E-commerce ActivityDo you plan to buy or sell anything using the Internet for either personal or business

use in the next twelve months?

36%

23%

6%

25%

72%

6%

4%

7%

0% 10% 20% 30% 40% 50% 60% 70% 80%

No


Personal only

Business only

Non-userUser



The differences in e-commerce activity between the different demographicgroups mirrors the differences in overall Internet use. As with the genderdivide described above, the gap between the largest and smallest companieshas also increased over the past six months. For companies with fewer thanfive employees, 22% of the decision-makers have used the Internet to buy orsell something in the past twelve months, a substantial decline from 37%reported during Spring 2000. For businesses with 25 to 49 employees, thenumber engaged in e-commerce has increased from 47% to 56% over the sameperiod.

This gap is also reflected in future e-commerce plans, particularly regardingplans to engage in e-commerce for business purposes. However, as with theoverall future plans, expectations for future e-commerce activity by allbusinesses have declined since last Spring. (see Chart - Future E-CommerceActivity by Business Size, below).

Past and Future E-commerce Activity - by Survey

15% 19% 15%21% 19%

11% 10%

17% 15%17%

16%

27%

21%

17%

5%9%8%7%

0%

10%

20%

30%

40%

50%

60%

Spring 1999FuturePlans

Spring 2000Past E-

Commerce

Fall 1999 FuturePlans

Fall 2000Past E-

commerce

Spring 2000FuturePlans

Fall 2000FuturePlans

Both business and personal Personal only Business only



While overall the trend in small business e-commerce has been increasing, notall entrepreneurs currently using the Internet to conduct business plan tocontinue doing so. 12% of respondents who stated they had bought or soldgoods or services over the Internet during the past 12 months state they do notplan to do so in the next 12 months. This number has not increasedsignificantly, but is now larger relative to the percentage of small businesseswho have not engaged in e-commerce, but plan to do so in the future.

Entrepreneurs who have used the Internet for both personal and business e-commerce are those most committed to continuing its use in the future. Only5% stated they did not have plans to engage in e-commerce over the nexttwelve months.

The progression of small business to the Internet and then to e-commerce willnot be as smooth as had been expected. While small businesses continue to usethe Internet and e-commerce for their business, the rate ofd adoption tends toincrease or decrease depending on the external environment and economictrends. The questions raised about the viability of Internet business modelsover the past six months have clearly affected the attitudes of small businessdecision-makers and their actions.

Future Business E-commerce Activity - by Business SizeDo you plan to buy or sell anything using the Internet for either personal or business use

in the next twelve months?

12%

21%

19%

21%

18%

15%

23%

27%

0% 10% 20% 30% 40% 50% 60%

Fewer than 5employees

5 to 9 employees

10 to 24 employees

25 to 49 employees


Business only



2.3 Size and Scope of Electronic Commerce Activities

To further assess the extent to which Canadian small businesses are engagingin electronic commerce, survey respondents indicating that they had bought orsold goods or services were asked additional questions regarding the extent ofthat business and with whom it was conducted.

Similar to last Spring, close to half (46%) of small businesses conducted almostall of their e-commerce transactions with other Canadian consumers andbusinesses. However, there has been a small shift towards entrepreneurs whoprimarily engage in transactions with foreign counter-parties. Overall, thisrepresents a slight decline in the share of transactions conducted betweenCanadians, and a slight increase in those transacted with international clients.

The international transactions that take place are heavily weighted towards theUnited States. When asked which foreign country did they conduct the mostbusiness with, 93% identified the U.S. This total is an 11% increase from thenumber of small business decision-makers who identified the U.S. six monthsago, and a return to the same level of U.S. business identified in Fall 1999.

Comparison of Location of E-commerce ActivityWhat percentage of those Internet transactions occurred with a Canadian

supplier or customer?

47%

42%

11%

46%

35%

19%

0% 10% 20% 30% 40% 50%

90% or more

10% to 90%

10% or less

Fall 2000Spring 2000



While there were not many entrepreneurs who identified a country other thanthe U.S., most of them (4.2%) identified Europe as the primary site for theirinternational business. This too represents a substantial shift from Spring 2000and a return to a level similar to Fall 1999.

Each of these respondents was also asked to state the dollar value of theirtransactions separating buying and selling over the past twelve months.While the total number of small businesses engaging in e-commerce has notincreased since last Spring, the amount of Internet business being conductedhas grown substantially.

For those using the Web to buy goods and services, the median response was$1,000 in annual purchases, double the median of last Spring. Close to half(46%) stated they had bought less than $500 in goods and services. Almostone-fifth (19%) indicated total purchases exceeding $5,000. This represents asignificant shift from the Spring 2000 results when only 4% of respondentsreported purchases exceeding $5,000.

The increase in the quantities small businesses are selling over the Internet iseven more noticeable than that for purchases. The median response whenasked the dollar value of Internet sales was $5,000. Six months ago, it was only$500. Only 9% said they had had sales less than $500 and 35% stated that theyhad exceeded $20,000

The charts on the next page show the breakdown in both purchases and sales inthe Spring 2000 and Fall 2000 surveys. (see Charts Internet Purchases andInternet Sales, next page). The shift in this distribution reflects the growingexperience that Canadian small businesses have with electronic commercetransactions.

From Fall 1999 to Spring 2000, the number of entrepreneurs engaging in e-commerce transactions increased, but the average size of those transactionsdeclined. Over the last six months, there were relatively few new e-commerceparticipants, but the amount of business they conducted grew significantly.



Small Businesses Internet SalesPercent of sellers in each category

13%

32%

15%

23%

17%

4%

5%

16%

27%

48%

0% 10% 20% 30% 40% 50% 60%

$0 to $100

$101 to $500

$501 to $1000

$1001 to $5000

$5001 and up


Small Businesses Internet PurchasesPercent of purchasers in each category

25%

41%

9%

21%

4%

15%

31%

13%

22%

19%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

$0 to $100

$101 to $500

$501 to $1000

$1001 to $5000

$5001 and up




2.4 Size of the Small Business E-commerce Market

Based on the dollar values that respondents ascribed to their e-commercebusiness, an estimate of the overall small business market was developed.Using the responses from the survey, an overall average was calculated of$2,500 for each small business using the Internet for e-commerce purchases and$7,600for e-commerce sales.

By applying this average to the overall percentage of Canadian entrepreneursengaging in e-commerce and estimates from Statistics Canada of the totalnumber of small businesses in Canada, an approximation can be derived of thetotal Canadian market.

The estimated size of the small business market, as a purchaser of goods andservices, is $720 million. This represents a very large jump from the estimatesgenerated based on the Spring 2000 SES Web Entrepreneurship Survey. The totalnumber of businesses using the Internet for purchases did not increase, but theamount they purchased jumped markedly, producing overall market growth of75%.

For small businesses using the Internet to sell goods and services, the increasewas even more significant. Their total revenue for the past twelve months wasapproximately $590 million. This reflects a 68% increase in total sales from the$350 million market estimate based on the Spring 2000 survey. (While averagesales for small businesses exceed purchases, the number currently selling is lessthan the percentage currently buying, so the overall market is less.)

The overall estimate, therefore, is that the Canadian small business e-commercebalance of transactions between buyers and sellers is now negative $130million. This is larger than the Spring of 2000, but smaller than the Fall 1999result. While Canadian small businesses have significantly expanded theirInternet-based sales, their purchases have grown even faster.

2.5 Internet Consultants

Incorporating the Internet, and particularly e-commerce, into your business isnot a simple task. Consistently, a significant number of entrepreneurs identifythe complexity of the Internet as a reason for not using it. Another solution for



some small businesses is to find external support to help their Internet andelectronic commerce efforts.

The small business entrepreneurs surveyed were asked whether or not theyhad ever hired or considered hiring an outside consulting firm to help them dobusiness on the Internet. 21% indicated that they had hired an outsideconsulting firm to help them, an increase of almost 4% from last Spring andalmost 8% over the past twelve months. Larger businesses were more likely touse consultants. 34% of businesses with 25 to 49 employees have engaged aconsultant, while only 12% of those with fewer than five employees had.Naturally, almost all of those using a consultant are Internet users.

Hired Outside ConsultantHave you hired -- or considered hiring -- an outside consultant to help with your

Internet business?

62%

9%

26%

79%

9%

6%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

No

Yes, has considered

Yes, hired

Non-UsersUsers



3.0 ATTITUDES TOWARD ELECTRONIC COMMERCE

The attitudes of Canadian entrepreneurs are closely linked to their actionsregarding the Internet and e-commerce. Three-quarters of Canadian smallbusinesses are using the Internet in their work and 40% are using it to transactbusiness.

To better understand the forces either helping or hindering the adoption of theInternet and e-commerce in Canada, small business decision-makers wereasked to provide an assessment of the importance of the Internet and how theybelieved it would affect their business.

Those using the Internet for business are more likely to view it both as animportant development and to view the Internet as positive for their businessand its future. However, as the stock market bubble surrounding Internetstocks burst, so did some of the more extreme views regarding the Internet andits impact on small businesses.

However, the shift in views has not been towards more negative opinions, butrather towards greater indifference. This is particularly true among the quarterof small business decision-makers that have not adopted the Internet. Inprevious waves of the SES Web Entrepreneurship Survey, the primary reasonInternet non-users had stayed away was that they didnt consider it importantenough. Over the past six months, this apathy has only increased.

3.1 Importance of Internet

The number of small business decision-makers who believe the Internet willhave an impact on the future of their business decreased for the first time. ThisFall, 16% stated that they believe it will have no impact on their business, a sixpercent increase since the Spring. Almost four in ten (37%) entrepreneurs notusing the Internet say it will not have an impact on their business

These results are actually very close to the views expressed during the Springand Fall of 1999. Clearly, at the height of Internet mania the expectations ofsmall business decision-makers got caught up in the excitement and producedthe unusual results of last Spring.



Not surprisingly, Internet adoption by small businesses is closely linked totheir views regarding the importance of the Internet and whether they believeit will impact their future. Only 10% of Internet users believe the Internet willnot impact the future of their business, while almost half (46%) believe it willhave a major impact.

Small businesses not currently using the Internet have very different views.Only one-fifth (20%) believe the Internet will have a major impact on theirbusiness and 37% say that it will simply have no effect. For both users and non-

Impact of Internet on BusinessDo you believe the Internet will have a major impact, minor impa

or no impact on your business?

M ajor Im pact

40%

M inor Im pact

41%

N o Im pact

16% Unsure

3%

Internet Impact on Business -- by Survey

39% 40% 48% 40%

40% 41%39%

41%

17% 15% 16%10%

0%

20%

40%

60%

80%

100%

Spring 1999 Fall 1999 Spring 2000 Fall 2000

No ImpactMinor ImpactMajor Impact



users, close to four in ten believe the Internet will have some impact, but that itwill be minor.

The decrease in perceived importance of the Internet has affected both Internetusers and non-users, although those not using the Internet changed their viewsthe least. The hype surrounding the importance of the Internet particularlyinfluenced the views of Internet users. One year ago, 47% believed the Internetwould have a major impact on their business. That increased to 57% last Springand dropped back to 46% this Fall. The comparable numbers for those notusing the Internet were 18% to 22% to 20%.

In addition to the direct question about the importance of the Internet, thesmall business decision-makers were asked whether they agreed or disagreedwith a number of statements that reflected the importance of the new medium.

When small business decision-makers were asked whether they view theInternet as critical to the survival of their business, similar results wereobtained. Among business Internet users, 40% either agreed or strongly agreedwith that statement, an decrease of 4% over six months, but still significantlyhigher than in Fall 1999.

For non-users, overall agreement grew slightly to 20%, but three-quartersdisagreed. Significantly, 25% of small business decision-makers not using theInternet said they strongly disagreed with the statement regarding thecriticality of the Internet, almost twice the percentage of Internet users.



As with the opinions on the importance of the Internet, the change in views ofInternet users has been more significant than those of the non-users. Over thepast six months, Internet users have become less likely to view the Internet ascritical to the survival of their business. Most significantly, the percentage whostrongly agreed with the statement was cut in half from 12% to 6%.

Comparison of User and Non-user Internet ImpactDo you believe the Internet will have a major impact, minor impact

or no impact on your business?

10%

42%

46%

37%

38%

20%

0% 10% 20% 30% 40% 50%

No Impact

Minor Impact

Major Impact

Non-UsersUsers

Comparison of Internet Users by SurveyThe Internet is critical to the survival of your business.

13%

45%

34%

7%

11%

44%

32%

12%

13%

52%

27%

6%

0% 10% 20% 30% 40% 50% 60%

Strongly Disagree

Disagree

Agree

Strongly Agree

Fall 1999Spring 2000Fall 2000



3.2 Impact on Business

There are two aspects to the potential effect that the Internet and e-commercecan have on Canadian small businesses. First, as discussed above, what is themagnitude of the Internets impact does it change the entrepreneurs business?Second, what is the direction of that change is the impact positive ornegative?

Overall, three-quarters of small businesses asked (76%) stated the Internetwould be positive for their business. This is a marginal decrease from theresponses received last Spring. However, only 1% said they believe theInternets impact will be negative, also a marginal decrease. The remainingbusinesses those who says the Internets impact will be neutral increase from15% to 21%.

As with other attitudes, Internet users are more likely (80%) to view theInternet positively than are non-users (51%). However, neither group isinclined to be pessimistic towards the Internet future. Instead, non-Internetusers were simply more inclined to believe that the Internets impact will beneutral (37% for non-users; 20% for users). Over the past six months, bothInternet users and non-users have shifted towards a more neutral stance.

In addition to Internet users being more optimistic than non-users,entrepreneurs who perceive the Internet as having a significant impact on theirbusiness are more optimistic than those who see it as less significant. Amongsmall business decision-makers who say the Internet will have a major impacton their business, 90% say that impact will be positive. For those who say it willhave a minor impact, only 64% believe it will be positive. Again, the differencebetween the two groups is the proportion who believe the Internets impactwill be neutral. Very few of either group forecast a negative effect.

Interestingly, this split has actually widened over the past six months. Whilethe overall number of small business decision-makers who believe the Internetwill have a major impact on their business has declined, those who believe itwill have that impact are even more optimistic. For those who believe theInternets impact will only be a minor one, the percentage viewing it as positivehas declined by 7%.



Small business decision-makers surveyed were also asked whether they believethe Internet will open new business opportunities for them or whether it willthreaten their profitability. Again, the overall results indicate business Internetusers are more positive than non-users.

In addition, the number of respondents who agreed or strongly agreed with thestatement about new opportunities continued to increase, although with moretempered views. One year ago, a total of 61% of entrepreneurs supported thestatement. This has since climbed to 73% last Spring and 81% today. However,over the last six months, the percentage who strongly agreed with thestatement declined by 7% (from 27% to 20%). This was more than offset by anincrease in those who agreed from 47% to 61%.

Internet Impact by SignificanceBreadth and type of impact of Internet on small businesses in Canada

2%

32%

64%

1%

9%

90%

0% 20% 40% 60% 80% 100%

Negativ e

Neutral

Positiv e

Major Impact

Minor Impact



The number of small businesses who agreed or strongly agreed that theInternet posed a threat to their business continued to decline (although lesssignificantly over the past six months than over the previous six months).Again, it reflects some moderation of views towards the effect that the Internetwill have.

Finally, every respondent was asked the open-ended question, If you were todescribe the Internet and its future impact, if any, on the Canadian economy,what words would you use?

While this question produces a mix of responses, they tend to cluster into twomain groups. The most common answers focused on the significance of theInternets impact on the economy (huge, significant change, structural change)and the belief that the Internet would have a positive effect (more productiveeconomy, positive impact, increased sales, more convenience).

The general structure of the response to this question has remained consistentacross all four waves of the SES Web Entrepreneurship Survey. More than 80% ofrespondents choose a term that falls into one of the two groups representingimproved productivity or structural change. However, in previous waves of

Comparison of Fall 1999 and Spring 2000The Internet will threaten our profitability.

11%

61%

21%

4%

19%

57%

14%

4%

21%

62%

12%

1%

0% 10% 20% 30% 40% 50% 60% 70%

Strongly Disagree

Disagree

Agree

Strongly AgreeFall 2000

Spring 2000

Fall 1999



the survey, both groups of responses were similar in size. This Fall there was asignificant shift in top-of-mind views towards the significance of the Internetover its positive effects. (See Table Open-ended Impact Question, next page).

As with the questions discussed above, this appears to reflect some mellowingof the views of small businesses. When asked to pick a way to describe theInternet, they still jump to terms that indicate a substantial change in theirbusiness or industry. It is the magnitude of change that appears to dominatetheir thinking, and it has crowded out the optimism reflected in surveysconducted last Spring or the preceding Fall.

However, consistent through all the SES Web Entrepreneurship Surveys is the factthat very few small business decision-makers are fearful of how the Internetwill change their lives.



Open-ended Impact QuestionIf you were to describe the Internet and its futureimpact, if any, on the Canadian economy, whatwords would you use?

User Non-User% %

Group 2 Change 71.1 72.8Huge changeSignificant ImpactStructural Change

Group 1 Productivity 10.8 5.5Increase ProfitsMore Productive EconomyPositive ImpactIncrease SalesMore JobsMore Information

Average Impact 7.5 9.3Globalize Economy/More Competition

4.5 3.9

Passing Fad /Useless 1.2 4.6Black Market/Hurt Economy 4.0 2.3

TOTAL 98.1 98.4



3.3 Benefits & Barriers

While less than one-in-four Canadian small businesses say they do not use theInternet in any way, they still represent a significant segment of the potentialmarket. To assess what has been preventing them from engaging in e-commerce, the non-Internet users were asked an open-ended questionregarding why they were not on the Internet.

The results have remained remarkably consistent for the past 18 months. Eventhough the subset of non-users has declined from 39% of the sample to 23.5%,the reasons they identify for not using the Internet are largely unchanged.There are no major barriers preventing Canadian entrepreneurs from using theInternet.

Small business decision-makers not using the Internet simply do not see it as apriority. They are much less likely than Internet users to view the Internet ascritical to their business and less likely to believe it will have a major impact ontheir future success. When asked to describe what is keeping them off theInternet, 61% state that their main reason for not using the Internet is that it isnot necessary for their business, a substantial jump from the 49% whobelieved it was not necessary during Spring 2000.

Most of the other small business decision-makers not currently using theInternet gave responses that also indicated it was simply not a priority. Theyincluded:

! Dont know enough about it (2.1%);! Dont have the time to set it up (6.0%);! Dont have a computer (11.9%); and,! Too expensive (8.9%).

Over the past year, those not using the Internet have actually grown less likelyto identify a practical barrier preventing them from using it. Instead, they areincreasingly just waiting for the killer app that will make the Internet and e-commerce something they consider important to their business. It shouldnt besurprising that people who resisted the temptation of the Internet at the heightof the boom are continuing to resist it six months later.

All of the small business decision-makers were asked separately to identify thekey benefits and barriers to using the Internet for their business. Again, morethan half (56%) of the small businesses surveyed simply could not name a



barrier or stated that there were none. Among those who could identify abarrier, the most commonly cited problems were a lack of security (30%), thatservers are not reliable (16%), that it was too expensive (12%) and the fact thatthe Internet requires a lot of training (8%).

Small businesses using the Internet were more likely to cite security (32%versus 25% for non-users) as a barrier to Internet use than non-users. Thenumber of small businesses identifying security as the primary barrier toInternet use has more than doubled from 12% in the Fall 1999 survey. Thisincrease in concern is reflected in the responses of both Internet users and non-users and likely results from the considerable media attention that web hackersand e-mail viruses have received over the past year.

In addition to security, Internet users were more likely to complain about thereliability of servers (18% for users versus 10% for non-users) and the difficultyof finding information (8% vs. 2%).

Small businesses not using the Internet were much more likely than smallbusiness Internet users to raise concerns about impersonal nature of theInternet and claim their business is simply too small to take advantage of it.Among non-users, 20% identified its impersonal nature as a barrier, while only8% of Internet users did. Similarly, 11% said the small size of their business wasa barrier compared to 5% of those using the Internet.

When asked to identify the key benefits of using the Internet for business, evenmore significant differences between users and non-users emerged. Half ofnon-users simply could not identify any key benefit to using the Internet,compared with 18% of Internet users. The percentage of respondents whocould not name a benefit has increased over the past six months for bothgroups.

Internet users were particularly likely to cite e-mail as a key benefit of using theInternet. Among Internet users, 11% volunteered e-mail as the Internetsprimary benefit compared to 6% of non-users. Three in ten (29%) of Internetusers identified using the Internet for research as a key benefit.

Non-users were more divided in their views of the benefits of using theInternet. Most of the non-users who could identify a benefit to using theInternet were split evenly between research, using the Internet for advertisingor marketing, and the convenience or time saving it offers.



However, non-Internet users were significantly more likely than Internet usersto cite advertising or marketing as a key benefit of the Internet. Only 13% ofInternet users mentioned advertising compared to 24% of non-users. This gaphas actually widened over the last six months, although both groups were morelikely to identify advertising and marketing as a benefit than they were lastSpring.

Multiple waves of the SES Web Entrepreneurship Survey have demonstrated thatthose not using the Internet are more likely to see it as an advertising mediumthan are those using it, who tend to focus more on its communications andresearch capabilities.



4.0 E-BUSINESS ACTIVITIES

Recognizing the benefits of the Internet and choosing to use it in your businessis only the first step along a path that leads to widespread use of electroniccommerce. As described above, while 76% of Canadian entrepreneurscurrently use the Internet, only 40% have actually bought or sold goods orservices over it.

All of the small business decision-makers surveyed in the SES WebEntrepreneurship Survey were asked about a series of Internet and e-commerceactivities. Those currently using the Internet were asked whether they alreadyengaged in the activity. All respondents were asked whether they wouldconsider performing the activity using the Internet or whether they wereactively planning to do so.

The results produced by the Spring 2000 survey were consistent with previouseditions. Small business Internet users move towards the Internet and e-commerce in phases. The responses have consistently broken down into threeprogressive stages:

! Communications and Information! Electronic Commerce Transactions! Banking and Payments

4.1 Communications and Information

Virtually every study of Internet usage has shown that e-mail is the killer appof the new medium. 97% of Internet users (74% of all small businesses) saythey use e-mail in their business. For 11%, e-mail is the key benefit theyperceive in the Internet.

Closely behind e-mail in Internet activities is using it for conducting businessresearch. Almost three-quarters (73%) of Internet users say they use it forconducting research over the Web. Almost 30% identified the ability to conductresearch as one of the primary benefits of the Internet.

The combination of those two functions communications and information represent the core uses to which the Internet is applied by Canadianentrepreneurs. Closely related to those two is establishing a website to allow abusiness to present information about itself to the external world. Half of allsmall businesses (and two-third of those currently using the Internet) report



operating a website for external communication. In addition, 59% of Internetusers have accessed government services over the Web. All of these representcontinuing steady growth in the depth of Internet use by Canadian smallbusinesses. Each wave of the SES Web Entrepreneurship Survey hasdemonstrated that, even without growth in the number of Internet users, thereis growth in the number of ways the Internet is used.

The largest jump in these numbers is the percentage of small business Internetusers who have established a website, which increased from 59% to 67%. As thenumber of Internet users was growing quickly, the proportion with a websitelagged the growth in other activities. Presumably, it takes new businesses sometime to get comfortable with the tools and capabilities of the Internet beforethey actually try to establish their own site.

Smaller, but sizeable minorities of businesses using the Internet have engagedin a number of related activities that are all focused on communications andinformation. For example:

! 45% have used the Internet to find a supplier of goods or services;

Business Internet User Activity ProfileE-mail - Research - External Website - Gov't Services

28%

18%

19%

1%

9%

6%

5%

0%

4%

10%

3%

1%

59%

67%

73%

97%

0% 20% 40% 60% 80% 100% 120%

Access Gov 'tServices

External Website

Research

E-mailUsers Engaged

Users - Planning

Users - Consider

Users - No



! 37% have established a web site for internal communications; and,! 25% have searched for a consultant using the Internet.

While Internet use is closely correlated with the size of a company, not allactivities are. Size does not tend to influence whether businesses use e-mail oruse the Web for business research. However, there is a significant gap betweenthe smallest and largest businesses regarding whether they operate a websitefor either external or internal communications. For example, among businesseswith less than 5 employees, almost half (49%) of Internet users currently have awebsite, but 78% of businesses with 25-49 employees do. Similarly, less thanone-quarter (23%) of the smallest group of companies operate an Intranet sitefor internal communications, but almost half (48%) of the largest companies do.

The number of small business decision-makers currently not using the Internetwho are either planning or considering engaging in Internet activities continuesto increase. This has occurred despite the increasing skepticism regarding theInternet voiced by the group of entrepreneurs not currently using it. For

Business Internet Non-user Potential Activity ProfilePlanning to engage in activity in the future

22%

37%

28%

38%

40%

50%

15%

27%

29%

24%

30%

45%

8%

8%

10%

21%

19%

30%

0% 10% 20% 30% 40% 50% 60%

Find a Consultant

Find Supplier

Access Gov't.Svces.

External Website

Research

E-Mail

Fall 1999

Spring 2000

Fall 2000



example, half of those not using the Internet are giving consideration toadopting e-mail. Particularly significant over the last six months is thepercentage planning or considering a website for their business. This hasjumped from 24% of non-users last Spring to 38% today.

The only exception is the insignificant decline in the number of smallbusinesses not using the Internet who are considering using it in the future toaccess government services. However, the 28% who now say they are planningto remains almost three-times as high as the 10% who said so during Fall 1999.

Fundamentally, the Internet is a communications network. Communicationsand information activities are both the easiest to perform by new Internet usersand require the least change in existing business practices and habits.Naturally, they are the functions Canadian entrepreneurs adopt first.

4.2 Electronic Commerce Transactions

The second stage of Internet and e-commerce adoption begins when businessesmove beyond the exchange of information or communications to actuallyconducting transactions. As described above, 40% of all Canadian smallbusiness decision-makers have used the Internet either to buy or sell goods orservices in the past twelve months.

When specifically asked about selling over the Internet, 47% of small businessInternet users say they are currently engaged in doing so. Another 12% statethat they are already planning to do so and a further 12% are considering it.

These numbers are essentially unchanged from last Spring However, amongthe set of businesses not currently using the Internet, there has been asignificant drop in those planning or considering adopting it as a selling tool.While 40% of non-users indicated an interest in selling over the Internet sixmonths ago, only 29% are either planning (17%) or considering (12%) is today.

Less popular but growing are a variety of transactional electronic commerceactivities. Among small business Internet users:

! 49% have already used the network to make travel arrangements;! 37% have bought computer hardware or software over the Internet;! 33% have received a bill using the Internet;! 31% have bought office supplies using the Internet; and,! 23% have sent an invoice.



The three activities that reflect direct Internet-based transactions (travel, buyinga computer, and buying office supplies) have all continued to grow quickly inacceptance. The more administrative activities (receiving bills and sendinginvoices) have not been growing as quickly, likely reflecting the additionalcomplexity of managing billing and paper requirements for record-keeping.

Business Internet User Activity ProfileHas engaged in activity in the past

31%

23%

33%

37%

49%

19%

25%

31%

29%

39%

16%

22%

27%

25%

32%

0% 10% 20% 30% 40% 50% 60%

Bought OfficeSupplies

Sent an Invoice

Received a Bill

Bought a Computer

Make TravelArrangements

Fall 1999

Spring 2000

Fall 2000



3.8 Banking and Payments

The third stage of e-commerce adoption is the use of the Internet for bankingand for making or receiving payments. These types of activities tend to be themost difficult for small businesses to adopt and raise the greatest concernsabout privacy and security. It is one thing to send an e-mail and another toplace an order for new office supplies, but it is something quite different totrust the transfer of funds to this new medium.

Where Canadian small businesses have moved into using the Internet forfinancial purposes, it has been driven by large service providers who offerprecisely those guarantees about security and reliability.

Basic electronic banking is the fastest growing Internet activity. Half of smallbusiness Internet users (51%) have used the Internet to check their bankaccount balance and 38% have used it to pay bills. However, while these arebanking applications, they tend to have more in common with thecommunications and information activities above. Checking bank accounts (apure information application) has grown quite rapidly, more than doublingfrom the 25% level in the Spring of 1999. Paying bills through a website hasincreased almost as quickly from 21% to 38%. While there is a transactionalcomponent to paying bills and a lower adoption rate in practice the billpayment services are operated through major financial institutions. The web-based function is merely to request that the payment be made (which takesplace through existing payment systems) and does not directly involvetransferring funds.

Slightly less popular, 31% of Internet users have submitted an electronic taxreturn and 30% have received a payment electronically. Like banking and billpayment, these are activities in which a financial institution often plays anintermediary role, and the Internet primarily serves as an access channel to theexisting service.

For every financial activity measured, the percentage of Internet users engagingin it has increased during the past six months. Some, such as checking a bankaccount or paying bills, have had significant increases. Others, such assubmitting a tax return or applying for a bank loan have only increasedmarginally. (see Chart Internet Activities Spring and Fall Comparison Banking and Payments Activities, next page).



One of the most interesting issues regarding small business e-commerceactivities has been the willingness to provide credit card information over theInternet. Over time, the percentage of small business Internet users who saythey have provided credit card information has doubled from 16% to 32%.However, a majority (55%) of Internet users and three quarters (77%) of non-users say they have not even considered providing credit card information overthe Internet. While the willingness to provide a credit card number has grown,there continues to be a significant amount of concern about its safety. This isalso reflected in the number of Internet users who have stated that security is abarrier to Internet use.

Even among those currently using the Internet, there is a dichotomy betweenthose who trust it enough for a credit card and those who dont. Interestingly,the shift from refusal to engagement appears to derive from a change in

Internet Activities -- Spring and Fall ComparisonBanking and Payments Activities

15%

19%

30%

31%

32%

38%

51%

15%

19%

22%

30%

26%

30%

39%

11%

14%

19%

22%

25%

29%

30%

8%

9%

15%

17%

16%

21%

25%

0% 10% 20% 30% 40% 50% 60%

Submit Bank Loan

Remit Taxes

Receive Payments

Submit Tax Return

Provide Credit cardInformation

Pay Bills

Check Bank Account

Spring 1999

Fall 1999

Spring 2000

Fall 2000



perspective. Consistently, few Canadian entrepreneurs say they are planning touse a credit card, but havent yet done so.

Finally, the two Internet applications least popular among small businesses areactually remitting taxes on-line (19%) and using the Internet to submit anapplication for a bank loan (15%). These results are unchanged from sixmonths ago. In both cases, a major constraint is simply that there are currentlya limited number of opportunities to do so.

3.9 Summary of Activities

The difference between the different stages of Internet adoption are particularlyprofound when the groups of activities are observed together. The chart belowdemonstrates the average adoption rate for Internet users for each of the threegroups of Internet activities discussed above:

! Communications and Information! Electronic Commerce Transactions! Banking and Payments

Two themes emerge. First, communications leads Internet adoption followedby e-commerce and then financial activities. Second, all three areas havereflected consistent growth over time. Even as attitudes and expectations swingup and swing down, the Internet continues to work its way into the core fabricof business life in Canada.

Stages of Internet Adoption -- by Survey

57%53%

48%47%

37%32%

27%22%

14%20%

28%24%

0%

10%

20%

30%

40%

50%

60%

Spring 1999 Fall 1999 Spring 2000 Fall 2000

Communications & Information E-commerce Transactions Banking & Payments



5.0 CONCLUSION

The collapse of the dot com bubble has not brought about a collapse of theInternet or e-commerce for Canadian small businesses. It has slowed theirgrowth, and it has tempered some of the runaway expectations for the Internetthat existed at its peak last Spring.

However, while the number of Internet users and the number engaged in e-commerce transactions has remained flat, those using the Internet continue todo so in greater depth and regularity. The breadth of Internet uses is expandingacross the board and the amount of business being conducted electronically isgrowing rapidly.

The hype may be gone, but the Internet remains, and day-by-day it becomesmore and more entrenched in the daily fabric of business for Canadianentrepreneurs.



6.0 DEMOGRAPHIC TABLES

TABLE 1 SCOPE OF INTERNET IMPACT ON BUSINESS

Id like you to think of the future of your business. Do you believe the Internet will have a major impact, minorimpact or no impact on your business?

MajorImpact

MinorImpact

NoImpact Unsure

% % % %

All Respondents 40 41 16 3

RegionWest 36 50 11 2Ontario 34 41 22 3Quebec 52 32 13 2Atlantic 30 42 26 2

Internet UseUser 46 42 10 2Non-user 20 38 37 5

Number of Employees4 or less 27 35 35 45 to 9 43 41 13 310 to 24 41 46 12 225 to 49 47 40 11 3

Years in BusinessLess than 1 year 29 57 14 01 to 4 years 26 36 35 45 to 9 years 38 41 20 210 years or more 42 42 14 3

Respondent Age18 to 29 50 37 11 330 to 39 41 44 15 040 to 49 39 44 14 450 to 59 31 42 23 560 plus 48 26 22 4

Respondent GenderFemale 37 41 20 3Male 44 41 13 3

Note: Totals may not add up to 100 as a result of rounding.



TABLE 2 TYPE OF INTERNET IMPACT ON BUSINESS

Based on your current business plans, do you believe this future impact will be positive, negative or neutral?

PositiveImpact

NegativeImpact

NeutralImpact Unsure

% % % %










TABLE 3 PAST E-COMMERCE ACTIVITY

Have you bought or sold anything using the Internet for either personal or business use in the past twelvemonths?

Yesbusiness

only

Yes,personal

only

Yes, bothpersonal

andbusiness No Unsure

% % % % %

All Respondents 16 10 15 60 0

RegionWest 13 10 16 61 0Ontario 14 9 13 64 0Quebec 20 10 15 55 0Atlantic 12 14 14 60 0

Internet UseUser 20 10 19 51 0Non-user 1 9 0 90 0

Number ofEmployees

4 or less 9 7 6 78 05 to 9 15 13 15 58 010 to 24 16 7 17 61 025 to 49 23 13 20 44 0

Years in BusinessLess than 1 year 29 0 0 71 01 to 4 years 7 6 13 75 05 to 9 years 18 10 14 58 010 years or more 16 10 15 59 0

Respondent Age18 to 29 19 8 17 57 030 to 39 22 10 15 53 040 to 49 13 12 15 60 050 to 59 10 9 12 69 060 plus 0 4 15 82 0

Respondent GenderFemale 13 10 8 69 0Male 19 10 22 50 0



TABLE 4 FUTURE E-COMMERCE ACTIVITY

Do you plan to buy or sell anything using the Internet for either personal or business use in the next twelvemonths?

Yesbusiness

only

Yes,personal

only

Yes, bothpersonal

andbusiness No Unsure

% % % % %




Number ofEmployees

4 or less 18 6 12 50 145 to 9 15 6 21 45 1410 to 24 23 3 19 45 1025 to 49 27 7 21 36 9






TABLE 5 OUTSIDE CONSULTANT USE

Has your business ever hired or considered hiring an outside consulting firm to help do business on theInternet?

Hired afirm

Hasconsidered No Unsure

% % % %










TABLE 6 CURRENT INTERNET USE

Does your business currently use the Internet?

Yes No% %

All Respondents 77 24

RegionWest 82 18Ontario 75 25Quebec 73 27Atlantic 76 24

Internet UseUser 100 0Non-user 0 100

Number of Employees4 or less 59 415 to 9 77 2310 to 24 80 2025 to 49 88 12

Years in BusinessLess than 1 year 43 571 to 4 years 56 445 to 9 years 77 2310 years or more 79 22

Respondent Age18 to 29 85 1530 to 39 84 1640 to 49 77 2450 to 59 61 3960 plus 70 30

Respondent GenderFemale 78 22Male 75 25



TABLE 7 INTERNET AND BUSINESS SURVIVAL

Now Im going to read you some brief statements about the Internet and your business and Id like you to tellme whether you strongly agree, agree, disagree or strongly disagree.

Statement: The Internet is critical to the survival of our business.

Stronglyagree Agree Disagree

Stronglydisagree Unsure

% % % % %




Number ofEmployees

4 or less 5 21 56 14 55 to 9 4 33 44 19 010 to 24 5 32 45 16 325 to 49 8 34 43 13 3






TABLE 8 INTERNET AND NEW BUSINESS OPPORTUNITIES


Statement: The Internet opens new business opportunities for us.



% % % % %




Number of Employees4 or less 9 60 20 5 75 to 9 21 59 14 3 410 to 24 22 63 12 2 325 to 49 26 62 9 1 2






TABLE 9 INTERNET AND PROFITABILITY THREAT


Statement: The Internet will threaten our profitability.



% % % % %




Number of Employees4 or less 2 13 64 13 75 to 9 0 13 65 17 410 to 24 2 12 61 23 225 to 49 1 10 58 30 2






7.0 INTERNET & E-COMMERCE ACTIVITIES

TABLE 10 E-MAILNow Im going to read you a list of Internet services an

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