Tiny Digital Businesses Play Key Role in Local Economies, Study Says
In the vast ocean of modern online commerce, Candis Jones, who designs and makes women’s jewelry, is a minnow.
No venture capitalist will ever come knocking on her door in Westerville, Ohio. But with skill and hard work, digitally amplified by her website, online store and Instagram account, Ms. Jones has transformed a basement craft project into a healthy little business.
All that is in doubt now as the economic fallout from the coronavirus outbreak worsens. Her business has not fallen off a cliff yet, down about 20 percent so far but slowing further in the last couple of weeks.
Every sale, Ms. Jones said, is cause for “celebration” and “a vote for us to make it through this.”
There are millions of small, digitally enabled ventures like hers across America. New research, based on data from 20 million websites, found that these small-scale entrepreneurs generate significant spillover benefits to their communities.
The analysis also concluded that counties with more of these ventures experienced stronger recoveries from the last recession than elsewhere, suggesting that “these small web businesses can be an important buffer for individuals and local communities facing economic challenges,” said Marcela Escobari, an economic development expert and a senior fellow at the Brookings Institution, who was not involved in the new study.
The new analysis, conducted by researchers at Arizona State University and the University of Iowa, is based on a data set assembled and provided by GoDaddy, a large retailer of internet domain names and a website-hosting service.
The company is making the data publicly available on a website with quarterly and later monthly updates. So while the analysis predates the coronavirus outbreak, the regularly refreshed data should help track how a little-studied sector of the economy weathers the downturn.
The new data, the researchers said, adds an important dimension to understanding the digital economy. It is, they said, a counterpoint to recent studies that show the clustering of leading-edge technology, investment and employment in a relative handful of superstar cities.
“While that’s true, there is also this digitally enabled economic activity at the grass-roots level that we haven’t really been able to see clearly before,” said Karen Mossberger, a professor of public policy at Arizona State.
The data set from GoDaddy includes information on its customers combined with third-party data and surveys, all stripped of personally identifying information. It includes estimates of website activity like traffic and links, location by county and ZIP code, and the purpose — a commercial site, a nonprofit or for personal or family use.
Each active website, in GoDaddy’s labeling, is a “venture.” An estimated three-quarters are business-related.
Its intent, GoDaddy said, is that researchers and lawmakers will use the data to inform public policy to nurture small web-enabled entrepreneurs. The company said the initiative is mainly an “educational research project,” though GoDaddy stands to gain if the ranks of web entrepreneurs grow.
The company shared the data set initially with Ms. Mossberger and Caroline Tolbert, a professor at the University of Iowa, who are scholars of “digital participation” in economic, political and civic activity.
GoDaddy did provide modest grants to the universities for support costs like compensating graduate students working on the study. The company, the academics said, had no say in their research. The study is now a working paper, written with a third co-author, Scott LaCombe, a doctoral graduate student at Iowa. They plan to publish their research in scholarly journals and present it at conferences.
Their analysis sought to tease out the effect on communities of web ventures. For example, they found that each highly active venture — like Candis Jones’s site — per 100 people added $331 to the growth in the median household income in a county over a two-year period. The effect, the researchers said, holds up even after stripping out factors like household income, education level, ethnicity, geography and the local mix of industries.
Digital participation research, Ms. Tolbert said, has often focused on access to broadband technology and its impact on communities. The new data, she said, affords a deeper look. “It’s a measure of community human capital,” Ms. Tolbert said. “Having the technology is one thing, but can they use it? This gives us a powerful new window into local economies.”
For economic development, the data may offer a fresh perspective on where technology fits in. Trying to lure a big tech company with tax breaks to make an investment may be misguided, Ms. Mossberger said.
A better option for most communities, she said, could well be programs geared to helping tiny ventures and skills development.
In recent years, academic, government and corporate researchers have experimented with anonymized data from bank and credit card accounts, credit-rating agencies and other sources to try to get a more detailed picture of the small-scale entrepreneurial activity.
Some of that recent research suggests a sharp increase in female and minority entrepreneurs in a trend that cannot be captured by standard government surveys alone. “Traditional sources are not accurately reflecting who the new entrepreneurs are,” said Claire Kramer Mills, director of community development analysis at the Federal Reserve Bank of New York.
A study, sponsored by American Express, estimated that the number of businesses owned by African-American women increased nearly 50 percent from 2014 to 2019.
A Maryland cheesecake business, founded last year by two sisters, is one of them. Nikki Howard and Jaqi Wright were federal workers on furlough during the 35-day government shutdown that ended in late January 2019.
During the budget standoff, Ms. Howard baked cheesecakes for a church social. Her mother tried a piece and told her it tasted good enough to sell. The out-of-work sisters decided to give it a try, and they named their fledgling venture the Furlough Cheesecake.
They bought the domain name, built the website using simplified templates and set up online billing and payment accounts by themselves.
Ms. Howard’s daughters, both in their 20s, created the company logo and handled the Facebook, Instagram and Twitter outreach. It got noticed, and appearances on local television and The Ellen DeGeneres Show followed.
Last year, the sisters, who quit their government jobs, sold nearly 6,000 cheesecakes. The most popular lines sell for $35 each plus $5 for packed-in-dry-ice shipping.
So far, their baking has been done in church kitchens and at a commercial bakery that allowed them to use its ovens on nights and weekends. Their family and friends have all pitched in, mainly as volunteers, to help with baking and packing.
Before the coronavirus outbreak, Ms. Howard and Ms. Wright were looking for a permanent space to combine baking, freezing and packing, with room for a retail shop as well.
But those plans are on hold now. Sales have fallen 50 percent. They have taken inventory out of their freezers and donated cheesecakes to a home for older people and to a local police station.
The sisters have looked at government loan programs for businesses affected by the pandemic. But theirs is a new company without full-time employees. They don’t yet own buildings or equipment — assets to serve as collateral for loans.
“We don’t seem to quite qualify yet,” Ms. Howard said.
Most small online ventures, according to the GoDaddy data, remain side hustles. About one-fifth of the entrepreneurs surveyed said their web businesses were their main source of income. But more than half said their web ventures generated some household income.
For Ms. Jones in Ohio, her necklaces have found a market with women like her, mothers who wanted something attractive yet sturdy enough to withstand a toddler’s tug. Her business is a pillar of income, along with her husband’s salary as a high school art teacher, to support their household with two young children. Total sales last year were more than $100,000. She supports a full-time contractor to help make the jewelry.
Her offerings, mostly priced from $17 to $35, could be pitched as inexpensive pick-me-up purchases in bad times. But she has cut back her online promotions as the pandemic has spread, not wanting to strike an insensitive note.
“The health and success of my business is so important to my family and our livelihood, but this virus is taking people’s lives,” Ms. Jones said