Economic Impact of Open Source on Small Business: A Case Study by Mike Hendrickson Roger Magoulas and Tim O'Reilly

Author:Mike Hendrickson, Roger Magoulas, and Tim O'Reilly
Language: eng
Format: mobi
Tags: COMPUTERS / Programming / Open Source
Publisher: O'Reilly Media
Published: 2012-07-18T04:00:00+00:00

Benefits of a Web Presence

There are many benefits for SMBs with a web presence: ready and mobile access to information about your business, online advertising, print advertising, email marketing, ecommerce stores, social network marketing and commerce, and others. It’s worth emphasizing that having a web presence helps expand an SMB’s potential customer base to cover the entire world. Twenty years ago, an average SMB would be hard-pressed to get customers outside of their own geographic region, let alone their own town. A web presence today breaks down those geographical boundaries. In any event, we know that SMBs are a growing part of the Internet economy, and, from the McKinsey study, that those SMBs most heavily invested in web technology grow the fastest.

It is difficult to quantify every aspect of this benefit. However, following the lead of Google’s report on the economic benefit of Google Adwords [11], it is possible to use Google Adwords online advertising as a kind of proxy for economic impact.

It’s a safe assumption that SMBs uses Google AdWords to help boost their revenue. We know that spending on Google AdWords works best if users go to a landing page with a clear call to action. In addition, having a website allows SMB owners to conduct simple A/B tests to increase conversion rates. Assuming that the average SMB owner who controls their own landing pages is able to meet Google’s conservative estimate ( 8 * (what you spend on AdWords) ). So what does this mean when you aggregate all SMBs that have a web presence, or more importantly, those that do not have a presence are losing potential huge revenue gains. So let’s look at a formula that could help us get more insight into the revenue gains or losses due to a web presence. Note that we are not covering the 70% of SMB online ad spend not used for Google Adwords — clearly, SMBs get some value for these investments that increase the economic impact beyond the calculations we show below.

(Total online ad spending by SMBs) $5.4 billion * (share of ad spending on Google AdWords) ⇒ 37% (online search) * 80% (Google share) * 8 (this is the Google multiplier: $1 of ad spending ⇒ $8 revenue) = Economic impact of Google AdWords = $12.8 billion

Next we create a blunt estimate of the dollars that could have gone to SMBs that don’t have a website. We use the US census count of SMBs [12], and an amalgam of estimates of how many SMBs have no web presence [13]:

US SMBs (2010): 5,300,000 est SMBs offline: 30%

(# of SMBs without a website ) 1,590,000 * ( EconImp_Goog_SMB / # of SMBs with a website ) ( $12.8 billion / 3,710,000) = (AdWords economic impact left on the table) = $5.5 billion

This is an estimate, because we are assuming that EconImp_Goog_SMB came solely from SMBs with websites. (You still can use AdWords even if you don’t have a website, but you probably need to be able to optimize your landing pages to maximize conversion and get to the 8 multiple from Google.

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