Small business and Web 2.0: hope or hype?
Considering the number of small businesses in the US, the magnitude of their impact on the economy, and the prevalence of "Web 2.0" in discussions regarding businesses, the dearth of scholarly work on small businesses and evolving web technologies seems salient. Web 2.0 is generally defined and distinguished by the presence of increased interactivity in Web applications and an underlying open and collaborative platform. Web 2.0 advocates suggest that the platform eliminates size advantages for businesses and allows small businesses and even single individuals the ability to compete with large corporations. Therefore, in this paper the opportunities and risks in Web 2.0 for small businesses are considered within the context of small business resource poverty.

The structure and elements of Web 2.0 are analyzed and reveal potential opportunities within digital industries; however capitalizing on these opportunities requires resources that small businesses are not likely to possess. Overall, it appears that Web 2.0 is primarily a basis of competition, making it a risk for those small businesses that do not utilize it. In addition, no systematic method for evaluating the return on investment (ROI) of utilizing Web 2.0 applications has been developed. This leaves small businesses on their own to weigh the risks of not participating against the lack of understanding regarding the return on investment (ROI) of Web 2.0.

Given the ubiquity of Web access and the permeation of the Web across numerous product and service categories, understanding and participating in the Web will only grow in importance for small businesses. As such, small businesses would be well served by research on Web 2.0 and its impact on small business success. Based on the analysis fruitful and practically useful research avenues are identified.

Social networks (Analysis)
Small business (United States)
Small business (Analysis)
Internet software (Usage)
Web applications (Usage)
Business owners (Management)
Business owners (Services)
Boyles, Trish
Pub Date:
Name: Entrepreneurial Executive Publisher: The DreamCatchers Group, LLC Audience: Academic Format: Magazine/Journal Subject: Business, general Copyright: COPYRIGHT 2011 The DreamCatchers Group, LLC ISSN: 1087-8955
Date: Annual, 2011 Source Volume: 16
Event Code: 200 Management dynamics; 360 Services information Computer Subject: Small business; SOHO; Company business management
Product Code: 9970000 Small Business SIC Code: 7372 Prepackaged software
Geographic Scope: United States Geographic Code: 1USA United States
Accession Number:
Full Text:

"Especially in a "flat world" where "size matters not," small- and medium-size enterprises and even one-man local businesses or projects can use these [Web 2.0] business models to advantage" (Shuen, 2008)

"The tools of Web 2.0 allow anyone willing to put in the time and effort to harness the tools of the Internet and build the next great startup. Inexpensive and collaborative technology is allowing entrepreneurs to create unbelievable products and services even with meager resources and this environment of innovation should inspire entrepreneurs of any age to tap into the opportunities." (Small Business News, 2010)

Perhaps due to its ambiguous meaning and debated usefulness Web 2.0, and the evolution of web technology in general, and its impact on small business has not been adequately addressed by the academic business community. A recent article search in an EBSCO hosted database of business publications revealed that over the last decade scholarly articles focusing on small business and the World Wide Web oriented technologies constituted just 2.3% of all articles published on small businesses. Considering the number of small businesses, the magnitude of their impact on the economy, and the prominence of the role of technology and the World Wide Web in discussions regarding business, the dearth of scholarly work on this subject seems salient. While a modicum of research has been conducted on small businesses and specific Web technologies, such as e-commerce (Grandon & Pearson, 2004; Hashim, 2009; Kendall, Tung, Chua, Ng, & Tan, 2001; Mehta & Shah, 2001; Poon & Swatman, 1999) and internet marketing (Poon & Jevons, 1997; Schmengler & Kraus, 2010), few scholars have considered Web 2.0 as a general technology platform for small businesses. The widespread usage of the term "Web 2.0" in the business world suggests that, at a minimum, an analysis of its definition and alleged role in small business development and success is warranted. The growing buzz around the ability of so-called Web 2.0 technologies to democratize various aspects of society and culture, including politics, information, publishing, and business (Anderson, 2006; Governor, Hinchcliffe, & Nickull, 2009; Hippel, 2005; Kelly, 2005; Shuen, 2008), suggests more in depth conceptual and empirical analyses of this issue are needed to further understanding and offer guidance for small business owners and managers.

Web 2.0, a name reflecting an improved or upgraded version of the Web, is generally defined and distinguished by the presence of increased interactivity in Web applications including social media (online collaborative projects such as wikis, blogs, and social networking sites), cloud-based computing (information and software stored and run from a web server, not the user's computer), and the ability to access the Web via multiple device platforms (i.e. laptops, mobile devices, e-readers)(Governor et al., 2009; Kroski, 2006; O'Reilly, 2005; Peter, 2004; Shuen, 2008). The interactivity defining Web 2.0 is in large part a result of its underlying architecture as a technology platform, which includes an emphasis on participation-collaboration, a service orientation, and open source structured information, within the context of ubiquitous internet access. The major benefit Web 2.0 is purported to offer small businesses is the elimination of size advantages of larger corporations due to economies of scale (Anderson, 2006; Governor et al., 2009; Shuen, 2008). While evidence suggests that Web 1.0 applications such as e-commerce and informational web sites have not put small businesses on equal competitive footing with large corporations or reduced scale advantages (Hashim, 2009; Jones, 2005; Jones, Hecker, & Holland, 2003; Poon & Swatman, 1999), advocates of Web 2.0 technologies recognize this (O'Reilly, 2005; Shuen, 2008) and assert that Web 2.0 applications and technologies offer opportunities to small businesses that were imaginable but not feasible on a Web 1.0 platform (Anderson, 2006; O'Reilly, 2005).

The concept of Web 2.0 is not without controversy, as some argue it presents revolutionary opportunities for small businesses (Anderson, 2006; Governor et al., 2009; Li & Bernoff, 2008; O'Reilly, 2005; Rudman, 2010; Shuen, 2008; Wallace, 2007) while others suggest it is mere hype, representing nothing of substance (Carr, 2003; Dijck & Nieborg, 2009; Hindman, 2008; Maguire, 2007; Scholz, 2008). However, the term has grown in popularity among business practitioners and has spawned numerous workshops and consultants offering small businesses training on how to take advantage of Web 2.0 applications. Therefore, in this paper I consider the concept and meaning of "Web 2.0" and explore the potential opportunities and risks for small businesses, with an eye toward identifying fruitful future research opportunities.

Context of small businesses

Although there is no uniform and consistent definition of what constitutes a small business, definitions tend to be based on the number of employees, annual revenues, or amount of assets. The Small Business Administration (SBA) of the U.S. government considers companies with up to 500 employees, small businesses, while the U.S. Internal Revenue Service considers businesses earning less than $10 million in gross revenue to be small. Web 2.0 advocates have suggested opportunities offered by these technologies are available and exploitable by even a one-person operation. As such, the label 'small business' in this paper will primarily refer to a business that contributes over 50% of the owner's income, and has less than 20 employees. Although many researchers follow the SBA's definition of small businesses as organizations with less than 500 employees, external elements such as technology arguably have a different impact on a company with 5 employees versus a firm with 50 or 300 employees. In addition, firms with less than 20 employees represent a relevant and sizeable number of businesses in the U.S. (roughly 90% of all businesses (U.S. Census Bureau, 2006)). Finally, very little research focusing on firms with less than 20 employees has been conducted, particularly on analyzing impact of Web-based technology.

Since the early 1980s scholars have recognized that small businesses have certain unique characteristics that questioned the extension of existing management and business ideas to the small business domain (d'Amboise & Muldowney, 1988; Welsh & White, 1981). In particular, Welsh and White (1981) argued that small businesses experience a condition they labeled "resource poverty" resulting primarily from their small size. This condition includes the tendency for small businesses to exist in highly fragmented industries and have limited access to capital funds for growth or weathering tough economic times. Highly fragmented industries involve a multitude of competitors resulting in a tendency to move toward an industry-wide emphasis on low price competition, eroding profit margins (Porter, 1985). Shrinking profit margins and limited access to capital in the context of low price competition puts small businesses in a situation similar to an individual living "paycheck to paycheck," making it challenging to survive even short economic downturns, and restricting funds available for investors, employee training, and other operational and growth-oriented investments.

Recent data support Welsh and White's (1981) claims regarding small business resource poverty. For example, analyzing data on U.S. small businesses Shane (2008) found that most small businesses are started in industries with myriad competitors and subsequently less attractive profit margins. In addition, the IRS suggests that while the smallest businesses represent about 58% of all the small businesses in the U.S., they generate less than 15% of the profits (Quantra Strategies, LLC, 2009). Restricted access to capital also magnifies the impact that external environmental forces have on small businesses. For example, reacting to a change in regulations, tax laws, or interest rates, affects a greater percentage of total expenses for a small business than a large corporation, and small businesses tend to be less diversified and less able to achieve economies of scale or access capital markets as a means to react to changes in the external environment (Dixon, Gates, Kapur, Seabury, & Talley, 2006; Welsh & White, 1981). Data from the National Federation of Independent Business (NFIB) suggest that the most pressing problems for small businesses are the costs involved in operating their firms (i.e. health insurance, energy, and electricity), business income tax, and property taxes (Phillips & Wade, 2008). This suggests that most small companies are concerned with short term financial stability and may have less time and capital for investing in growth. Ultimately, their resource poverty the reduced possession of and access to financial, human, and knowledge resources in comparison to larger businesses--means that small businesses have less margin for error, more difficultly in surviving environmental shocks and/or internal mistakes, and arguably less ability to take advantage of opportunities (Welsh & White, 1981).

Welsh and White's (1981) notion of resource poverty is still very relevant for small businesses in today's economy. In addition, the claims of Web 2.0 advocates stress improved equality for small businesses and an elimination of the advantages of size in the business world (Anderson, 2006; Governor et al., 2009; O'Reilly, 2005; Shuen, 2008). Given that a small business' limited resources are the primary reasons for their disadvantages when compared with larger firms, opportunities in Web 2.0 should increase the value of, or access to resources for small businesses, and/or eliminate risk brought on from a lack of resources due to size. As such, Web 2.0 technologies will be considered in light of their ability to mitigate resource poverty for small businesses.

What is web 2.0?

The label "Web 2.0" mimics the naming process of software versions, in which the version number of the software increases with its development and improvement. Made popular by Tim O'Reilly in his 2005 white paper (O'Reilly, 2005), the term "Web 2.0," according to O'Reilly, describes a set of characteristics present in Web applications that collectively harness user participation and collective intelligence (O'Reilly, 2005). Leverage occurs as a result of the vast network effects found in these applications. O'Reilly argues that these network effects are not only utilized to create dynamic applications and services, but generate constant improvements in the applications as their user bases grow. Thus, this second era of the Web is characterized by the ubiquity of interactive Web applications that further reduce barriers to information and geographic connectivity. These applications include social media (online collaborative projects such as wikis, blogs, and social networking sites), cloud-based computing (information and software stored and run from a web server, not the user's computer), and the ability to access the Web via multiple device platforms (i.e. laptops, mobile devices, e-readers).

Over the course of the last decade access to the internet has increased dramatically and has been extended to an array of personal devices. People are no longer tied to a desk, or even a laptop, to access the internet. Cell phones, tablet devices, even refrigerators(Smith, 2000) have access to the Web today. Fundamentally, Web 2.0 feeds off of the legions of users interacting with each other and the subsequent network effects generated by applications gaining critical masses of users. Therefore, this ubiquitous access is an important context for Web 2.0 technologies and their ability to leverage Web 1.0 benefits. Web 1.0 offered reduced barriers to entry for business, inexpensive access to global markets and increased access to information. While these characteristics were powerful they did not necessarily lead to a more level playing field for small businesses (Hashim, 2009; Jones, 2005; Jones et al., 2003; Poon & Swatman, 1999).

Web 2.0 is argued to be distinguished from earlier Web technologies predominantly by its underlying architecture, made possible and effective by the ubiquity of broadband internet access and characterized by three major elements; participation-collaboration, service orientation, and open source structured information. While the technological architecture of Web 2.0 has been described in great detail and as encompassing eight or nine major characteristics (Governor et al., 2009; O'Reilly, 2005), these three conceptual dimensions and their interaction with features of Web 1.0, illustrated in Figure 1, more parsimoniously account for the majority of the alleged impact of Web 2.0 technologies on small business.

The participation-collaboration element of Web 2.0 is perhaps its central theme. In general, greater numbers of internet users combined with improving capabilities of hardware and software has led to what many argue is a fundamentally new way of communicating and relating (Anderson, 2006; Governor et al., 2009; Li & Bernoff, 2008; O'Reilly, 2005; Shuen, 2008). Web users are now also producers, creating and publishing their own content, organizing vast amount of data through "folksonomies" or classification systems derived from users categorizing data based on their collective understanding and use of it, collaborating on everything from documents to software development across geographic boundaries, and connecting with each other and disseminating information widely and rapidly through online social networks (Governor et al., 2009; O'Reilly, 2005).


The service-orientation of Web 2.0 refers to an overarching framework for integrating services that are created, owned and managed independently. The integration is like an overlay that creates new, eminently more useful services while leaving the original services intact and managed as separate entities. For example, integrates information about available housing from (a popular classified ads website) and GoogleMaps (a free web mapping service application that offers street maps, route planners, and place locators for numerous countries around the world) to offer users a more expedient way to find houses for sale or rent in their specified locations. These integrations, called "mashups" (sites that aggregate or combine content from multiple sources to create something new), and software as a service (providing users with software functionality without the need to install anything on their computers, known as Software as a Service (SaaS)) represent some of the outcomes of the service-orientation aspect of Web 2.0.

If the participation-collaboration is Web 2.0's central theme, the open-source structured information element is arguably its core enabling platform. Open source generally refers to software that is developed around a production and distribution model that incorporates access to the source code of the software and gives users the ability to modify that code. These modifications can result in new features or functionality of the software. Argued benefits of open source models include higher quality software products with increased levels of reliability and flexibility at a lower cost (Open Source Initiative, 2010). The open-source model ensures that all users have access to information and services on the Web, while the structured information component basically makes that access useful. Structured information has to do with the way information is "marked up," and markup technologies such as XML (Extensible Markup Language) which differs from its Web 1.0 predecessor, HTML (hyper-text markup language), in its ability to transport and store data, allow for connectivity and data sharing across multiple sites. Metadata, as its name implies, is "data about data" (NISO, 2004) and refers to structured information that describes, explains, and locates other information, making it easier to retrieve, use, or manage. Detailed technical aspects of the structured information component are beyond the scope of this article, but they comprise the platform that makes useful interactivity among the Web's users possible and productive.

While each of these components is useful and important on its own, it is the combination of these elements that create the overall concept and alleged power of Web 2.0. A widely cited example of a Web 2.0 business is the photo sharing website, Users upload their pictures to Flickr and can immediately share them with others by sending links to their Flickr pages. Basic functionality and uploading images is free, which drives traffic to the site with little or no marketing expenses. Users can "tag" or label photos to help other users when searching for images, increasing the value of the site to users. The more users Flickr attracts the more useful the site becomes to those users and the more users want to utilize Flickr. Flickr monetizes its web traffic in three ways: Offering contextual advertisements to outside companies, sponsorship and revenue-sharing with companies that offer complementary services (i.e. digital printing, camera sales), and selling premium accounts that allow users greater functionality or the elimination of advertisements on their page. This three-fold revenue model takes advantage of the participation-collaboration structure of Web 2.0, the ubiquity of internet access, and capitalizes on the network effects created by its users.


The idea that the Internet would be the great equalizer in business, "leveling the playing field" for the "the little guy" has been part of the conventional wisdom surrounding Web technologies since e-commerce became part of the lexicon. Early alleged benefits of the Web for small businesses included increased access to information with little to no additional resources required, low cost access to global markets, and overall lower barriers to entry (Forster, 2000; Lituchy & Rail, 2000; Mehta & Shah, 2001). However, advocates of Web 2.0 technologies and scholars alike recognize that these benefits did not translate into real advantages for small businesses (Hashim, 2009; Jones, 2005; Jones et al., 2003; O'Reilly, 2005; Poon & Swatman, 1999; Shuen, 2008). One rationale given for this is that while Web 1.0 technologies did make information more accessible and cheaper, lower barriers to entry (for establishing a Web-based business), and offer access to a global market, they did not reduce the necessity for economies of scale as a key to competition. For example, Behan (1998) noted that in 1998 the best ecommerce web sites needed to generate 200 visitors to their site to produce one purchasing customer. Even if the infrastructure for establishing an e-commerce site was equally accessible to both small and large companies, the resources to generate large numbers of users to the company website were not equally accessible. Traditional promotion and marketing channels were still the primary means for generating traffic to a website in Web 1.0, and large companies could leverage those resources and their already larger customer bases to create an advantage over small companies with respect to generating website traffic. Small businesses lacked the resources needed to produce large amounts of visitors to their websites in a timely enough fashion to generate positive cash flow early on.

Web 2.0 advocates not only recognize the challenges for small businesses in Web 1.0 and the factors leading up to the dotcom bubble burst, but suggest that Web 2.0 applications and technologies represent the actualization of opportunities inherent in the World Wide Web, which were only imaginable during the Web 1.0 era (Anderson, 2006; O'Reilly, 2005). In particular, Web 2.0 is argued to offer opportunities that are impervious to company size and scale, and are accessible to the single individual as well as the large corporation. These opportunities generally fall in two distinct categories: new opportunities in digital product and service industries and drastic cost reductions for small businesses across all industries.

Digital products and services

Small businesses in industries where products and services have become digitized (i.e. music, books, Web-based services) should be able to compete more effectively with large corporations based on new business models and cost structures made possible by Web 2.0. These business models offer quick monetization of website traffic, large scale reductions in major cost centers of production (digital) and distribution, and the ability to connect niche demand with niche supply profitably (Anderson, 2006; O'Reilly, 2005; Shuen, 2008).

Web 2.0's participation-collaboration pattern of usage and service oriented architecture magnify the lower barriers to entry and access to information and global markets offered by Web 1.0. The ultimate effect of this is argued to be an ability for companies to quickly acquire customers that immediately contribute to positive cash flows (Anderson, 2006; Shuen, 2008). Shuen (2008) suggests that Web 2.0 allows businesses to generate positive cash flows more quickly than brick and mortar businesses, and eliminates the investment payoff time present for Web 1.0 business. One example of a business model alleged to accomplish this is commonly referred to as the "freemium" model (Anderson, 2009; Shuen, 2008; Wilson, 2006). The freemium business model offers a service (i.e. storing and sharing photographs) for free and then charges users for more sophisticated features (i.e. licensing photos to other users), or incorporates contextual advertising into the site. As technology has continued to develop, Web 2.0 advocates argue that the costs of developing and maintaining the free digital service have declined to the point that resource requirements to do this are minimal. The free service attracts users at a rapid rate through a viral, word of mouth process generated through the social network and user participation architecture of Web 2.0. Thus, large scale web traffic is generated quickly and inexpensively and the small percentage of users that click on an advertisement or convert to paid users generate revenues sufficient to support the development cost of the free service and create profit for the business (Anderson, 2006, 2009; Shuen, 2008; Wilson, 2006). This not only reduces customer acquisition costs, but eliminates a major cost element in ongoing marketing and customer relations management (Anderson, 2006; Shuen, 2008). Due to the low development and marketing costs involved, Web 2.0 advocates suggest this model can be carried out effectively by a one person operation or a large corporation.

While detailed industry data on small businesses is not readily available, national data from the US Small Business Association suggests that for the period 2003 -2006 small businesses in the Internet related industries (including e-Commerce retail sales, Internet publishing, Software publishing, Data processing and Web hosting, and Other information services) account for less that 1% of all small business (with less than 20 employees), and this percentage has remained relatively static over the three year period. While this figure is similar for businesses with more than 500 employees (less than 2% of all businesses), based on the argument that size advantages no longer matter in these industries, one might expect to see an upward trend developing in terms of numbers of small businesses in these industries. More recent data may offer a better look given the growth of Web 2.0 applications since 2005.

However, there are conceptual arguments that suggest this trend may not appear in more recent data. Recent research has shown that even while access to the Internet and information may be growing, possession of the knowledge and skills needed to use the Web varies widely and appears to be based on an individual's status group (Dijk, 2005; DiMaggio, Hargittai, Celeste, & Shafer, 2004; Hargittai, 2003; Hargittai & Walejko, 2008) and that small businesses may not have the skills to capitalize on the opportunities present in Web 2.0 technologies (Jones, 2005). Web 2.0 may have increased access to information, however this access does not translate into knowledge, which is a key resource for developing and maintaining a successful business, in particular a business in a "knowledge-based" industry. Information, argues Prusak (2006), comes in the form of a finite message that can be distributed to anyone while knowledge is the integration of information, primarily through experience, that leads to the ability to do something. Web 2.0 may increase the ability for anyone to be able to find and download information, however this does not translate to knowledge or the ability to utilize the information (Prusak, 2006; Rogers, 1995) to realize an opportunity.

In addition, research regarding small businesses' general lack of adoption of e-commerce technologies (Jones et al., 2003; Mehta & Shah, 2001; Zwass, 1996) and recent empirical data on issues of concern for small businesses (Phillips & Wade, 2008) suggests that small businesses primarily serve local markets. Moreover, existing data indicate that very few new small businesses are innovative, and that most are replications of existing businesses (Aldrich & Kenworthy, 1999; Reynolds, 2005). The replicative nature of most small businesses implies that few owners possess the ability to capitalize on an untapped or technically complex opportunity (Aldrich & Kenworthy, 1999). Thus, for the typical small business, neither the business nor the founder is likely to be positioned to take advantage of the opportunities created by Web 2.0 in digital industries. The reduced cost of technological development argument seems to depend on having a technically skilled member of the business that can not only recognize opportunities in digital industries but also build the technological infrastructure necessary to carry out the opportunity. This is not to say that such opportunities do not exist. What it does suggest is that small firms need access to extensive technical and knowledge resources in order to take advantage of opportunities in digital industries created by Web 2.0 technologies. Arguably, in and of itself Web 2.0 does little to mitigate challenges arising from the lack of such resources for small businesses.

Dramatic cost reductions with concomitant improved returns

Another proffered advantage of Web 2.0 is argued to go beyond the pure Web-based businesses in digital industries and extend to a wider range of small companies including those that offer more traditional goods and services. This advantage stems from alleged drastic cost reductions in marketing, sales, and distribution made possible by Web 2.0. These cost advantages are primarily accomplished through the network effects and the open and collective architecture of Web 2.0.

The combination of network effects and the open and collective architecture allows for the harnessing of collective intelligence, a key characteristic of the Web 2.0 era. One way small businesses can supposedly benefit from this is through the use of crowdsourcing to accomplish more complex business tasks less expensively--thereby potentially mitigating some resource poverty. Crowdsourcing is a concept built on Surowecki's (2005) ideas suggesting the masses are generally smarter than the single expert, and is similar to outsourcing. However instead of farming out a service of the business to a firm that specializes in it as occurs with outsourcing, the service need is broadcast out to an unknown mass of users that compete for the job, through crowdsourcing websites. Crowd members are paid based on submitting a winning design or project, or based on the frequency and quality of their participation in a given project. Consider the experience of the founder and only full-time staff member of Trek Light Gear, a camping gear company that needed help in product development, branding and market research. The founder turned to a crowdsourcing company and was advised by the crowd to expand his business beyond his signature light-weight camping hammock. In addition, the founder also received specific information about the product areas customers were most interested in, which served as market research to guide the expansion (Rich, 2010).

In addition to so-called wisdom of the crowds, Web 2.0 applications, including social networks and peer-to-peer sharing, create an "amplified word-of-mouth" effect (Anderson, 2006) that replaces traditional marketing channels and can dramatically reduce advertising costs (Shuen, 2008). Web 2.0 advocates argue these social links, including crowdsourcing, user generated data, and mashups all drastically lower barriers to production.

While such significant cost reductions may exist, they exist universally and are accessible to all businesses, leaving small businesses in the same relative position of resource poverty compared to large companies. The cost reductions occur because Web 2.0 is essentially an "infrastructure technology," which according to Carr (2003) means it is not a source of a competitive advantage for any individual company, but is a basis for competition and thus, a source of risk for businesses that do not utilize it. In this sense, Web 2.0 not only fails to alleviate resource poverty for small businesses but may actually increase risk for small businesses not participating in and utilizing these technologies. Additionally, recent data suggesting that the major cost problems faced by small businesses in 2008 were primarily operational (Phillips & Wade, 2008). This combined with the limited numbers of small businesses believed to be using Web 2.0 technologies for marketing and sales (Citigroup, 2009; The State of Small Business, 2010), suggests that the costs savings suggested here are not likely to be mitigating any resource poverty for small businesses. Moreover, even if small businesses engage in Web 2.0 sales and marketing channels, it is unclear that this will generate a stronger ROI than traditional channels. This is due to two primary factors; the sophisticated but not well understood "back-end" of Web 2.0 and to the difficulty of identifying and measuring returns generated from Web 2.0 participation.

The back-end of Web 2.0 refers to the algorithms and site ranking programs that are critical in determining what content users actually see. Metadata and link structures drive visibility in Web 2.0, and Hindman (2008) argues that the this infrastructure creates inequality with respect to web site visibility in search results. He notes that some sites rise consistently to the top of the results while some never even get indexed by search engines. Carr (Maguire, 2007) argues further that the control that Google has acquired over online search (Google currently controls approximately 70% of the online search market (McIntyre, 2010)) gives it great power in determining what users see on the Web. He suggests Google's algorithms ultimately drive Web traffic to a smaller and smaller range of sites, which include its own content areas (news, video, etc.). Hindman (2008) adds that part of Google's page rank algorithm is link structure, and the more links to a site from other sites the more traffic it will receive. This, he argues, is a social process that impacts visibility on the Web and echoes Carr's suggestion that more and more traffic is being driven to a smaller and smaller group of sites (Maguire, 2007). The risk here for small businesses is two-fold. First, small businesses typically lack the technologically savvy human resources to understand the "back-end" aspects of Web 2.0, and as the critics above suggest, success in Web 2.0 may be driven by organization size after all.

The second major challenge to verifying the ROI of engaging in Web 2.0 technologies is the difficulty of identifying and measuring appropriate indicators of success. With the hype surrounding Web 2.0 many small businesses may have begun to participate without understanding the goals and expected benefits of such participation. As small businesses realize the significant time commitment involved in these applications, the concern over verifying the returns has grown. A recent survey of small businesses indicates that most small business owner/managers using Web 2.0 applications (primarily social media sites such as Facebook and Twitter, and writing or contributing to blogs) believe that it is paying for itself, although the numbers of those that think it has lost money almost equal those that think it has made money (The State of Small Business, 2010). Although it is unclear from the data how the participation is paying for itself, owners and managers express that they expect these efforts to identify and attract new customers, build brand awareness, and keep them engaged with customers. Given the challenges small businesses face due to their resource poverty, it is crucial that clear measures of ROI for Web 2.0 applications are developed. Costs of participation are not well understood but include a significant time commitment. In addition, expected returns are ambiguous and difficult to accurately conceptualize much less measure. Until such measures are identified it remains unclear whether Web 2.0 offers significant cost advantages that help small businesses overcome their size disadvantage in the marketplace.


Given the ubiquity of Web access and the permeation of the Web across numerous product and service categories, understanding and participating in the Web will only grow in importance for small businesses. Currently, only a small percentage of small businesses appear to be utilizing Web 2.0 applications (Citigroup, 2009; Jones et al., 2003; The State of Small Business, 2010), although it is still unclear as to whether this results from a lack of knowledge resources necessary to capitalize on the opportunities present, or is due to a lack of usefulness perceived in Web 2.0 for the average replicative small business and its typical local market. A recent consulting client with a small custom gift card business expressed that she was aware "she had to be involved in social media and other Web 2.0 things" to be successful. However, the existing data and evidence do not yet make that argument convincing. Thus, small businesses need to balance the potential risk of not participating in the infrastructure technology offered by Web 2.0 with the lack of understanding regarding the ROI in participating. The most direct way to address this challenge is for small businesses to be clear about their own reasons and goals for participating in Web 2.0 and develop their own measures for success to evaluate the returns on that participation.

In addition, though opportunities in digital products and services do arguably exist, they require human resources with significant technological knowledge and expertise. Cost advantages present in Web 2.0 business models, such as the freemium model, appear to be based on an assumption of having human resources capable of in-house technological infrastructure development to realize the opportunity. Given the typical condition of resource poverty, it is unlikely that the average small business has access to this kind of technological expertise on staff, and outsourcing the process arguably erodes the alleged cost savings as well as risks losing a proprietary and competitive advantage. Ultimately, in light of the lack of evidence supporting the idea that small businesses can compete on equal footing with large corporations via Web 2.0, small companies should develop their own company-specific understanding about when, how, and why to utilize these technologies.

The mere dearth of analytical research on Web 2.0 and small businesses presents myriad opportunities and directions for future research on this subject. The concepts and claims regarding Web 2.0 explored in this paper suggest a few specific avenues which may be relevant and useful for guiding small businesses and developing our understanding of how web-based technologies impact the small business community.

First, conceptual arguments have been presented here that suggest there are potential opportunities for small businesses but question the claim that Web 2.0 eliminates advantages due to economies of scale. Therefore, an empirical investigation of the validity of this latter claim would not only help small businesses better understand the challenges they face in the digital economy but also answer questions regarding democratization of business raised by Web 2.0 advocates. In addition, a best-practice analysis of small businesses that have been able to capitalize on opportunities created by Web 2.0 could also help develop basic resource and operational guidelines for small businesses interested in pursuing such opportunities.

Perhaps the most obvious and practical avenue for future research is the development of a core set of metrics to evaluate the ROI of utilizing Web 2.0 applications and services. Costs of participation as well as expected returns are ambiguous and difficult to accurately conceptualize. An empirically based articulation of the costs and benefits for small businesses would enhance both the academic understanding of the usefulness of Web 2.0 as well, as offer a framework for small businesses to evaluate their success in utilizing these technologies without taxing their limited human resources.

In addition, the debated usefulness of Web 2.0 is arguably impacted by the type of product, service, and business involved. Therefore, studies analyzing the role of industry in the success of utilizing Web 2.0 for small businesses would offer some theoretical basis for the variations with regard to the usefulness of Web technologies as well as practical guidance for small businesses.

What appears to be increasingly certain is that the Web and its rapidly evolving technologies and applications are only growing in their importance to business, and may figure more prominently in the success or failure of small businesses in the future. Moreover, since its widespread adoption by the business world, the Internet has been seen as a force for equality across many domains. Recent speculation that large companies such as Google and Verizon are attempting to remove open access and offer greater speed and access to those that can pay for it (Miller & Helft, 2010), contribute to the need for small businesses and small business researchers to better understand the lay of the Internet land for small businesses. The numbers of small businesses fully engaged in Internet and Web 2.0 applications may still be relatively small, but appears to be growing (The State of Small Business, 2010). Thus, the academic community could serve these businesses well by addressing the questions surrounding small business and evolving Web technologies.


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Trish Boyles, Muhlenberg College
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