The weapon that makes you a giant killer

The really visible internet successes, such as Ebay the auctioneer, Amazon the retailer and Google the search engine are already giants.

But to what extent can technology level the playing field, giving the very small and little known a hope of joining the big league? What can they use in their technological sling shots to take on the giants?

SHG is an electronics hardware retailer (e-tailer) based in the small Danish town of Højbjerg. Some 35 people strong, it expects to turn over about $50m this year. It was started nine years ago by Michael Nielsen, a baker indulging his hobby of modifying and maintaining small computer systems.

For years, according to Thomas Falborg, an ex-Deloitte accountant and now chief executive and part owner, nothing really happened. Then it started to sell hardware through the internet and business blossomed.

And that, according to internet mythology, is what is supposed to happen.

“The first and biggest advantage is global reach,” argues Clive Longbottom of the IT consultancy Quocirca, itself a small company which promotes its reach by clever use of the web.

Mr Longbottom says: “The internet gives you the capability of being in front of anybody’s eyes anywhere. If you tried to do that through advertising, it would be prohibitively expensive for a small player.”

But even if you put up your signboard on the internet, there is no guarantee the world will beat a path to your virtual door.

“It doesn’t often happen like that but the capability is there so long as you follow through with the right sort of marketing and a little advertising,” he says.

For SHG, a form of viral marketing, spread among the gaming community, paid off. The company initially catered for computer game players: “If you need something for your computer you probably ask your nephew,” 33-year-old Mr Falborg says. “We focused on the gamers. We knew people would ask them ‘Where should I buy? What should I buy?’. If the gamers liked you, they recommended you.”

The gamers, however, cannot help with SHG’s planned move into corporate sales: Falborg is refreshingly honest about an e-tailer’s inability to distinguish itself from the competition. His claims of special expertise are met with: “Oh, everybody else says that.”

And that is why his staff are now Microsoft certified partners: “I don’t have a lot of money to advertise – margins are thin in this market – but I can use Microsoft as a way through the door.”

Microsoft is investing heavily to make it easier for small businesses to acquire and use information technology.

Orlando Ayala, chief operating officer for Microsoft Business Solutions, points out that there are 40m companies in this category worldwide, spending $400bn annually on IT, a market well worth a vendor’s attention.

Microsoft’s offerings include a software package called Small Business Server which can run on a computer costing less than $1,000 and which essentially automates an entire business, including a presence on the web.

The SHG story illustrates two important strategic issues for companies planning to use the internet to take on larger competitors.

First, the need to find low-cost ways of bringing prospective customers to their website; and second, the need for a respected partner to give the on-line venture credibility, especially where payment is concerned.

Anil Malhotra, co-founder of Bango, a UK-based services company that facilitates selling and billing for all kinds of content over mobile phones, points to the importance of a trusted payment mechanism: “The role of companies like WorldPay is to say ‘You may never have heard of this company before but you are actually paying WorldPay’.” WorldPay is part of the Royal Bank of Scotland group.

Mr Malhotra made the point with a personal anecdote: “I bought my wife an iPod accessory over the web from a tiny company based in a village in Suffolk. Its argument was: ‘It’s all right to give us your payment details because WorldPay, of whom you must have heard, will manage the transaction.”

Some internet businesses, Mr Malhotra says, have managed to establish such a stable brand that customers are willing to pay them directly, citing the Jersey-based e-tailer of books, music and games Play.com.

It combines the advantages of the reach of the internet coupled with a favourable value added tax regime which enables it to sell goods at a discount and still offer free delivery worldwide.

It sells, for example, the first album from the latest pop singing sensation Sandi Thom for £7.99 to UK buyers, compared with a recommended retail price of £11.99.

Are there “rules of the game” that a small business should follow if it is to make the most of the internet?

The big consultancies don’t have a lot to say on the topic. Used to dealing with large organisations which can afford their fees, they do not seem to have spent too much intellectual capital on devising game plans for the minnows. Stylus Inc, however, based in Bangalore, India, has set out some fundamental ideas.

First, it says, a website is only as good as the promotion plan that accompanies it, suggesting that submission to search engines, directories and lists is vital.

This is a view which finds resonance with Mr Longbottom of Quocirca: “Our focus is the UK, where we are based but a lot of our revenues come from the US. We make sure we spend a lot of time talking to the media in the US to get our name into magazines and news websites. We want potential US customers to say: ‘This Quocirca mob. Who are they?’ before hitting Google.”

Second, Stylus says, too many sites look as if they have been created to satisfy the owner’s ego and little else: “If a site is to become truly credible, it needs to have credible content,” it argues. The more keywords, the more opportunities for web search engines to give the site visibility.

Third, really effective sites use the interactive nature of the internet to get customers, for example, to fill in a registration form in return for some reward – free software for example.

Free software, furthermore, can establish the credibility of a site with customers, who then feel prepared to pay for other products and services – think of Real Networks’ audio player, for example.

Fifth, the site must make customers feel valued: “Amazon.com has done an exceptional job of managing this relationship,” Stylus says, praising the way it tracks and exploits customer preferences. “This ensures a lower drop-out rate and increases sales.”

Finally, alliances between sites raise the prospect of commission-based sales through what are called affiliate programs – the reciprocal selling of goods on two or more sites.

The conjunction of the internet and the mobile phone is creating a new spread of possibilities says Dean Bubley of the consultancy Disruptive Analysis, pointing to the new “smart” phones – essentially computers on which you can make a voice call.

Advanced software called session initiation protocol (SIP) will make it easier to develop applications such as instant messaging and voice over internet protocol (VoIP), which will be of value to staff in small companies.

Scott Horn, Microsoft’s general manager for mobile embedded devices, makes the point that, in small companies, individuals do many jobs and travel extensively: “Being productive when mobile as well as when they are in the office is critical.

“Taking on bigger companies means being more agile than your competitors in interactions with customers. When staff are off-site they have to have access to information and they have to be able to stay in touch with their colleagues.”

The food chain for companies punching above their weight can be complex.

Ubiquity Software, for example, a comparatively small Cardiff-based company develops software to simplify the creation of voice, video and data services over internet technology based networks.

In a spectacular coup, it has been chosen to supply its software to BT, the telecom giant, for inclusion in the UK operator’s ground-breaking 21st Century network. But it also supplies smaller telecoms operators with the same software, enabling them to take on the telecoms behemoths.

Last year, for example, it enabled United Online, a Los Angeles-based internet service provider, to add a VoIP service to its network in a mere four months.

Ian McLaren, Ubiquity’s chief executive, says it used to take two years or more to develop a service. Now a prototype can be in place in a few months: “I have not seen this disruptive a change in 25 years,” Mr McLaren says.

“It is not lost on the large telecommunications carriers that, today, smaller companies can move very fast.”