The internet has undoubtedly changed how small businesses reach customers and sell goods. No longer limited to the immediate area around a physical storefront, e-commerce has enabled small sellers to serve customers regionally and globally cheaper and easier than ever before. Our recent research documents that brick-and-mortar and traditional wholesale are still, on average, the most popular sales methods for small sellers overall, but for rural small businesses, online sales methods are disproportionately crucial -- and the most popular. This should be meaningful to economic development officials promoting local businesses and Members of Congress considering digital economy legislation.
The new study, commissioned by the Connected Commerce Council (3C), reveals that online marketplaces (used by 57% of rural small sellers) and web stores (57%) are the most popular selling methods for rural sellers, followed by brick-and-mortar stores (53%) and offline marketplaces like farmer's markets and other in-person gatherings (47%). All online sales, including sales through apps and social media, account for 56% of rural small sellers' revenue. This contrasts significantly with small sellers generally, which prioritize brick and mortar and wholesale sales higher in their sales mix.
Rural sellers' heavier reliance on online sales makes sense. Many rural areas don't have enough foot traffic to support businesses that are only brick-and-mortar, so local shops are increasingly growing their e-commerce activity. Additionally, long distances between rural communities' retail centers make it costly and time-consuming for entrepreneurs to travel traditional wholesale routes, which can be incredibly frustrating when trying to launch a new product by persuading small retailers to share their limited shelf space.
Despite the clear benefits rural sellers enjoy through online sales enabled by digital tools and platforms from tech companies such as Amazon, Google, and Facebook, some Members of Congress are trying to punish these "Big Tech" companies for being too big, not recognizing that the proposed laws would disproportionately hurt rural sellers.
The American Innovation and Choice Online Act (S.2992/AICOA), sponsored by Sen. Klobuchar (D-MN), would prohibit large technology platforms from integrating digital tools and services in ways that significantly benefit all small online businesses and especially small rural sellers. These senators may believe they're leveling the playing field for small businesses, but all they're doing is helping large companies like Yelp! and FedEx better compete against Google and Amazon. They fail to understand that integrating services save rural small businesses money and time while producing higher revenue and stronger businesses. The 3C study shows that rural sellers get more revenue (23%) from online marketplaces compared to all small sellers nationally (17.5%).
New research from Dartmouth economist John T. Scott estimates that breaking apart tools like Google Search + Google Business Profile and Amazon Prime + Fulfillment by Amazon would hurt small businesses' retail sales by more than $500 billion over five years. This amounts to a 5.2% "digital economy tax" that will cost millions of small businesses more than $100,000 each over that period. Rural sellers, who rely on online sales more than sellers in general, will suffer disproportionately.
There is strong, healthy digital platform competition in the small business market. Facebook and Google compete fiercely for small businesses' advertising dollars. Amazon, Walmart, eBay, and Etsy compete to draw small sellers to their online marketplaces -- where small rural sellers are deriving nearly a quarter of their revenue. More competition is always better, but Congress should not promote competition for competition's sake among big companies when the results will devastate small rural businesses that are the heartbeat of America's economy.
Many sellers, particularly rural sellers, are "online first" because online sales methods are the best option available today and likely for years to come. The last thing small businesses need, as inflation runs rampant and we stare down a possible recession, is new laws that make selling online harder and more expensive.
