Online shopping is redefining the modern retail industry. In 2017, according to Small Business Trends, over half of Americans prefer to shop online and 80% of Americans shop online at least monthly. As of the second quarter of 2019, as estimated by the Census Bureau, e-commerce spending in the United States totaled $146.2 billion and has been steadily rising over the past decade. As reported by Forbes, the largest 18 e-commerce marketplaces account for more than $1 trillion in global sales annually, with business-to-business (B2B) commerce sales expected to reach $6.6 trillion by 2020. The expansion of e-commerce is hardly surprising: buyers often enjoy a vast selection of offerings and free shipping without ever having to leave their chairs.
Not only has e-commerce revolutionized buying, but it has also democratized selling. With an internet connection and a computer, a small business has exponential access to large markets that so far have eluded small businesses. According to a 2018 U.S. Chamber of Commerce study, 84% of small businesses surveyed are using at least one digital platform to provide information to customers, 79% to communicate with customers and suppliers, and 75% for sales. In addition to helping small businesses sell more, some online marketplaces also provide small businesses with tools to improve their businesses. Amazon Business, for example, offers several tools including: self-certifications under national diversity and small business categories, order fulfillment tools, inventory management tools, business reports and analytics, and pricing tools. E-commerce platforms and technologies enable small businesses to sell and scale, from marketing to order fulfillment.
Online platforms also increase market access for many underserved small businesses. Businesses that are rural, minority-owned, or women-owned often face resource or capital constraints, or transportation challenges. Online tools and technology empower these small businesses to sell their products and services to a broader customer base without storefronts, mall space, or other conventional retail infrastructure. In the same 2018 Chamber of Commerce study, over a third of the surveyed minority-owned small businesses reported that they built their businesses on Facebook, 18 to 26% reported increased sales due to use of Facebook, and over a quarter reported using Facebook to trade with other cities, states or counties. Veteran-owned small businesses have also reported similar trends. In rural areas, nearly 20% of small businesses rely on e-commerce to generate at least 80% of their revenues. About 40% of these rural small businesses surveyed indicated that digital technology has enabled them to sell out of state.
The internet levels the playing field for small businesses and open doors—including to the largest buyer in the world, the federal government. In fiscal 2018 alone, the federal government awarded 25.05% of contract dollars to small businesses totaling $120.8 billion. While the federal government has maintained a policy of buying as much from small businesses as possible, federal contracting is highly regulated and complex. For commercial small businesses, federal contracting requirements are often burdensome, government-unique, and counter-intuitive: reporting and certifications to the government, compliance with size standards and government small business program requirements, appropriations, and Buy American preferences. Becoming a full-fledged government contractor requires heavy investments in bidding, compliance, and marketing for which most small businesses lack the necessary resources. This is a loss for the government and small businesses.
Online marketplaces can remedy this shortcoming by connecting government buyers with small businesses. Currently, numerous federal buyers buy online with government purchase cards for transactions under the micro-purchase threshold ($10,000). Because micro-purchases have very few government-unique requirements, they provide a better avenue for small businesses to test the federal market. In fact, e-commerce can help small businesses sell to the federal government on manageable terms without sacrificing volume. Despite the low dollar limit, purchase-card spend (the most common form of micro-purchases) totaled about $6 billion in fiscal 2018. Once small businesses master micro-purchases, they better position themselves for larger contracts with the federal government.
Additionally, e-commerce has helped to further socioeconomic goals that the government has historically promoted. Look at the millions of small and medium-sized businesses on marketplaces such as Wal-Mart and Amazon: more small businesses mean more competition, more options, and lower prices for government buyers. Compared to the 4000 small business buyers currently on the GSA schedules, the government has exposure to millions of small businesses across the country through an online marketplace. This benefit furthers many federal procurement policies. For example, the government’s increased exposure to small businesses helps to build up local economies, broaden the supplier base for federal customers, and introduces non-traditional government contractors to the federal marketplace. Ultimately, by increasing the pool of small businesses through online marketplaces, the federal government can increase opportunities for small businesses that have never pursued federal work before. Without question, e-commerce is changing federal procurement and providing countless opportunities and benefits for small businesses.
Robert A. Burton is a partner in the Government Contracts Group at Crowell & Moring LLP in Washington, DC. He is the former Acting and Deputy Administrator of the Office of Federal Procurement Policy in the Executive Office of the President.