78/10    7 July 2010

The OFT is today seeking the views of businesses on the barriers faced by small and medium-sized firms online.

Small businesses increasingly rely on services such as search engines, online market places and payment service providers as essential gateways to trading over the internet. Some firms have complained to the OFT that certain practices of these large players can lead to barriers to entry or expansion.

In order to help build our understanding of the way these interdependencies work in the online environment, the OFT commissioned a short piece of independent research. This makes a basic assessment of the scale and nature of barriers faced by small or medium-sized businesses. The overall findings are positive about online markets, in particular:

• Innovation, often by large players, has led to significant decreases in cost barriers to small businesses setting up online.
  
• Reputational barriers have also decreased due to the ability of small firms to shelter under the brand of larger players.
  
• However, the report recognizes some of the difficulties that small businesses can encounter online.

For instance:

• Some small businesses depend on particular providers and are sensitive to system changes or loss of service.
  
• The way that a platform responds to consumer complaints about a business can sometimes be disruptive to the business in question.
  
• The levels of innovation and cost reductions that have taken place online, have not always been matched in those aspects of the valued chain that remain offline (such as supply of goods and delivery).

Though none of the initial findings suggests any immediate need for intervention, the OFT recognizes that online commerce is hugely diverse and that experiences will differ widely across sectors. The OFT wants to hear from small businesses about whether these findings fit with their experience of trading online, and whether they face additional obstacles to trading online that they think the OFT should be aware of. 

Responses should be sent to onlinemarkets@oft.gsi.gov.uk.

The feedback that we receive on this report will form part of the intelligence we use when assessing potential problems in these markets. 

OFT Chief Executive, John Fingleton, said:

'The open and competitive nature of the internet has yielded a staggering pace of innovation, and the growth of online commerce has brought with it new business models, new firms, and whole new markets.  Online markets are an important driver of greater customer choice and higher economic growth, and the OFT has a key role to play in ensuring that they work well. 

Much OFT work, such as our enforcement of consumer law online, and our ongoing e-Protection strategy, aims to ensure that consumers have reason to feel safe online, and confident about using the internet as a commercial channel.

The OFT also has an important role to play in ensuring that online markets remain competitive. As we continue to look at these markets we are keen to ensure the right balance is struck between letting markets resolve problems through innovation, and intervening where necessary.'

NOTES

1. Recent OFT work, such as its Internet Shopping market study, enforcement of consumer protection laws online, and ongoing e-Protection strategy, has aimed to ensure that consumers have reason to feel safe online, and confident about using the internet as a commercial channel.
   
2. The research was undertaken by Plum Consulting and Keplar and makes a basic assessment of the scale and nature of barriers to entry and expansion faced by small businesses. The focus of the research is on SMEs and findings are based on a literature review and on interviews with key industry participants and a small number of SMEs. See the full research report here (pdf 767kb). For further information on the report go to www.oft.gov.uk/OFTwork/markets-work/othermarketswork/onlinemarkets.
   
3. The majority of SMEs have internet access and web presence and online sales approached £50billion in 2008 [ONS E-Commerce and ICT activity; 2008 e-commerce Survey of Business datasets].