[Senate Hearing 106-707]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 106-707


 
                      B2B: AN EMERGING E-FRONTIER 
                           FOR SMALL BUSINESS

=======================================================================

                                 FORUM

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 18, 2000

                                     

                                

                                     

              Printed for the Committee on Small Business

                                  ______

                     U.S. GOVERNMENT PRINTING OFFICE
  66-231 cc                 WASHINGTON : 2000
_______________________________________________________________________
   For sale by the Superintendent of Documents, Congressional Office
         U.S. Government Printing Office, Washington, DC 20402



                      COMMITTEE ON SMALL BUSINESS

                       ONE HUNDRED SIXTH CONGRESS

                              ----------                              
                CHRISTOPHER S. BOND, Missouri, Chairman
CONRAD BURNS, Montana                JOHN F. KERRY, Massachusetts
PAUL COVERDELL, Georgia              CARL LEVIN, Michigan
ROBERT F. BENNETT, Utah              TOM HARKIN, Iowa
OLYMPIA J. SNOWE, Maine              JOSEPH I. LIEBERMAN, Connecticut
MICHAEL ENZI, Wyoming                PAUL D. WELLSTONE, Minnesota
PETER G. FITZGERALD, Illinois        MAX CLELAND, Georgia
MIKE CRAPO, Idaho                    MARY LANDRIEU, Louisiana
GEORGE V. VOINOVICH, Ohio            JOHN EDWARDS, North Carolina
SPENCER ABRAHAM, Michigan
                     Emilia DiSanto, Staff Director
                      Paul Cooksey, Chief Counsel
    Patricia R. Forbes, Democratic Staff Director and Chief Counsel



                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Bond, The Honorable Christopher S., Chairman, Committee on Small 
  Business, and a United States Senator from Missouri............     1
Burns, The Honorable Conrad, a United States Senator from Montana    27

                            Committee Staff

Freedman, Marc, Regulatory Counsel, Majority Staff...............     *
Conlon, Paul, Research Analyst, Majority Staff...................     *
Dozier, Damon, Legislative Assistant, Minority Staff.............     *

                           Panelist Testimony

Villars, Richard, Vice President, Internet and e-Commerce, 
  International Data Corporation (IDC), Framingham, Massachusetts     2
Kim, Angie, President and Chief Customer Officer, 
  EqualFooting.com, Sterling, Virginia...........................    14
Krishnan, Krish R., President and Chief Executive Officer, 
  NetCompliance, Inc., Seattle, Washington.......................    29

      Alphabetical Listing of Senators and Panelists and Appendix 
                           Material Submitted

Bond, The Honorable Christopher S.
    Opening statement............................................     1
Burns, The Honorable Conrad
    Opening statement............................................    27
Kerry, The Honorable John F.
    Prepared statement...........................................    76
Kim, Angie
    Testimony....................................................    14
    Prepared statement...........................................    18
Krishnan, Krish R.
    Testimony....................................................    29
    Prepared statement and attachments...........................    33
Villars, Richard
    Testimony....................................................     2
    Prepared statement...........................................     6

                              Participants

Alford, Harry C., President and Chief Executive Officer, National 
  Black Chamber of Commerce, Washington, D.C.....................     *
Bahret, Mary Ellen, Manager, Legislative Affairs (Senate), 
  National Federation of Independent Business, Washington, D.C...     *
Bradley-Cain, Ruby, President, RBC International Inc., Bethesda, 
  Maryland, on behalf of the National Association of Women 
  Business Owners, Washington, D.C...............................     *
Chubb, Michael, Director of Marketing--North America, SGS Canada 
  Inc., Mississauga, Ontario, Canada.............................     *
D'Onofrio, David, Director of Government and Public Affairs, 
  National Small Business United, Washington, D.C................     *
Farrell, Thomas J., Business Development Manager, BizLand.com, 
  Pittsburgh, Pennsylvania.......................................     *
Gaibler, Floyd D., Vice President, Governmental Affairs, 
  Agricultural Retainers Association, Washington, D.C............     *
Hatcher, Jennifer, Director, Government Relations, Food Marketing 
  Institute, Washington, D.C.....................................     *
Jacques, Veronica A., Manager, Government Relations, Direct 
  Selling Association, Washington, D.C...........................     *
Koncurat, Mark, President, Host Designs, Bel Air, Maryland.......     *
Lane, Rick, Director, eCommerce & Internet Technology, U.S. 
  Chamber of Commerce, Washington, D.C...........................     *
Little, Jeanne, Director of Government Relations, Society of 
  American Florists, Alexandria, Virginia........................     *
MacDicken, Rebecca, Director of Government Affairs, Tire 
  Association of North America, Reston, Virginia.................     *
Morrison, James, Senior Policy Advisor, National Association for 
  the Self-Employed, Washington, D.C.............................     *
O'Connor, James, Deputy Associate Administrator, One Stop Capital 
  Shop Program, Small Business Administration, Washington, D.C...     *
Peyton, David, Director of Technology Policy, National 
  Association of Manufacturers, Washington, D.C..................     *
Rivera, Maritza, Vice President for Government Relations, U.S. 
  Hispanic Chamber of Commerce, Washington, D.C..................     *
Whysong, Dan, Market Analyst, Center for Global Competitiveness, 
  St. Francis College, Loretto, Pennsylvania, on behalf of the 
  Association of Small Business Development Centers, Arlington, 
  Virginia.......................................................     *
Wren, Tom, Assistant Director of Special Programs, Pennsylvania 
  SBDC, The Wharton School, University of Pennsylvania SBDC, 
  Philadelphia, Pennsylvania, on behalf of the Association of 
  Small Business Development Centers, Arlington, Virginia........     *

                         Comment for the Record

Gaibler, Floyd D., Vice President, Governmental Affairs, 
  Agricultural Retailers Association, Washington, D.C., statement 
  and attachments................................................    79

*Comments (if any) at various points between pages 29-72.



                      B2B: AN EMERGING E-FRONTIER 
                           FOR SMALL BUSINESS

                              ----------                              


                         THURSDAY, MAY 18, 2000

                                       U.S. Senate,
                               Committee on Small Business,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 9:34 a.m., in 
room SR-428A, Russell Senate Office Building, the Honorable 
Christopher S. Bond (Chairman of the Committee) presiding.
    Present: Senators Bond and Burns.

    OPENING STATEMENT OF THE HONORABLE CHRISTOPHER S. BOND, 
  CHAIRMAN, SENATE COMMITTEE ON SMALL BUSINESS, AND A UNITED 
                STATES SENATOR FROM OF MISSOURI

    Chairman Bond. Good morning and welcome to another of the 
Small Business Committee's forums. Today we have a very 
exciting, interesting, and timely subject. We have three great 
lead off witnesses that I think will be of interest to all of 
you. We are going to be exploring the exploding growth of 
Internet-based business-to-business commerce, or B2B commerce.
    We were thinking about calling this, ``B2B or Not B2B,'' 
but my staffers who create those corny jokes are not up to top 
speed. So we thought the more important questions for today 
are: How can small businesses take advantage of this trend? 
What obstacles do small businesses face in trying to take 
advantage of it? Is this trend a benefit or a problem for small 
business? These were captured better in the title of, ``An 
Emerging E-Frontier for Small Business.'' It lacks some of the 
sex appeal but probably more accurate.
    The Committee's goal in holding this forum is to help the 
small business community and us better understand the 
opportunities that are becoming available through the use of 
the Internet and the computer revolution in general. Although 
many in the high-tech industries are very familiar with the 
possibilities, many small businesses still lag behind and are 
unaware of how their businesses could benefit.
    In addition, larger businesses also have the luxury of 
hiring consultants to help them figure out what to do and how 
to do it. With small business, becoming familiar with this new 
technology often has to compete with all the other demands of 
running a business and this can sometimes be put too far on the 
back burner to allow them to take full advantage of e-commerce 
opportunity.
    The impact of the Internet on business can be extremely 
varied. In many cases, the difference may be just a question of 
thinking outside the box and using a little imagination, such 
as developing a web site to support other advertising. In other 
cases, the difference can mean a significant restructuring of 
the way small businesses do business, such as using the 
Internet to satisfy the supply needs of business as with B2B 
commerce.
    In the end, the goal is the same as it has always been: to 
do things better, faster, and less expensively. Competition 
demands constant innovation and adjustment, and the Internet 
represents the latest toolbox available to small businesses to 
help with this process.
    With us today are three very distinguished speakers who 
will help us understand the dimensions of this new trend. After 
their presentations we will have an open discussion with all 
other invited participants as well as Members of the Committee 
and staff. We hope this will be a free-flowing conversation, 
and I hope that you have lots of questions and there is a lot 
of discussion. I ask that in order to be recognized you take 
the card in front of you and stand it up on end like that so we 
will know who is waiting to be recognized. And if you would 
keep your comments short it will allow more people to get into 
the discussion.
    The record for the forum will remain open for 2 weeks, 
until June 1, for any additional comments you might want to 
submit. We also invite comments from those who are watching 
through the Internet or on television and ask that they let us 
know. We have information on how to contact the Committee 
through our web site, through fax machine, and even old-
fashioned letters. We still do take letters as well.
    Senator Kerry had to be on the floor to introduce the 
chaplain for today's session, and the way things are going we 
need all the blessings we can get. So I expect my colleague and 
Ranking Member, Senator Kerry, to be here before long. Also I 
believe Senator Burns is going to be joining us because he is a 
great champion of e-commerce and is very, very interested in 
all of this.
    So enough of the chatter, let us begin with the discussions 
today from the panelists. Let me introduce first Rick Villars, 
vice president for Internet and e-commerce, International Data 
Corporation in Framingham, Massachusetts. His team forecasts 
worldwide Internet adoption, e-business spending patterns, and 
the opportunity for e-marketplaces. They also analyze the 
evolution of e-commerce with a focus on business-to-business 
developments and identifying emerging trends and market 
dynamics that are shaping the demand for Internet and e-
commerce products and services.
    Mr. Villars.

  STATEMENT OF RICHARD VILLARS, VICE PRESIDENT, INTERNET & e-
  COMMERCE STRATEGIES, INTERNATIONAL DATA CORPORATION (IDC), 
                   FRAMINGHAM, MASSACHUSETTS

    Mr. Villars. Thank you, Senator Bond. Let me start by 
thanking you, Senator, as well as the other Senators on the 
Committee and the staff for having me here today to discuss 
what is in many cases a critical but often overlooked issue 
with regards to the Internet and e-commerce; namely, the role 
of small businesses in making all this happen.
    When IDC was founded 36 years ago we were dedicated to the 
task of analyzing how computers and networks would change the 
lives of individuals and the practices of businesses around the 
world. Over the last decade, certainly the most important force 
changing the dynamics for businesses and individuals has been 
the Internet. We dedicated ourselves during this period to 
really understanding how companies, and how individuals are 
using this technology.
    We draw on research from fellow analysts in about 38 
countries around the world specifically to develop what we call 
the Internet commerce market model. This model is how we track 
use of the Internet by businesses--large and small--Government 
agencies, and individual users.
    In the year 2000, approximately $210 billion worth of goods 
and services were purchased by all businesses around the world. 
If you compare that to 1995 when there was none, we see a 
dramatic increase. But when we extend our forecast out to the 
year 2004 we find that total purchasing by businesses will be 
around $2.2 trillion. So we are seeing a tenfold increase in 
the use of the Internet to conduct business in the next 5 
years.
    As you look at that $2.2 trillion, you quickly realize that 
this is not something that is just for the Fortune 500. The 
Internet is not just a tool for large businesses to go out and 
buy and sell goods online. To make this kind of change in the 
overall business dynamic you have to include what we often call 
the forgotten five million; all the small businesses out there 
trying to do their job, sell to their customers locally and 
around the globe.
    I went and spoke to several of our analysts, including the 
vice president in charge of our small business research at IDC, 
Ray Boggs. We looked at the Internet commerce market model to 
see how much business was actually taking place online through 
small businesses. We can report that from the standpoint of 
being a buyer, small businesses are absolutely carrying their 
weight on the Internet. In the year 2000, small businesses 
around the globe will purchase about 30 percent of all the 
goods that are being purchased online. So they are absolutely 
playing a role as buyers, going online and purchasing goods.
    But when we look at small businesses as sellers, and 
ultimately the reason you are in business is to sell 
something--we find the issues and the responses more troubling. 
Today, small businesses are not able to compete and participate 
as sellers on the Internet in any meaningful way.
    When we go back and we look at that $210 billion, 50 
percent of that is driven by large companies who set up e-
commerce sites and then go out and tell their customers to buy 
online. For example, a law firm in Oregon may go and buy 
computers from Dell, or a manufacturing company in North 
Carolina, may go and purchase plastic from GE Plastics,' web 
site. Finally you might see a small greeting card store in my 
hometown of Wilmington, Ohio go and buy cards from American 
Greetings online.
    Another major force driving e-commerce is that these same 
large businesses are setting up procurement systems so that 
their purchasing managers can go out and buy products. In the 
case of Ford, managers can go out and buy windshields and brake 
parts and shorten their supply chain and improve the ordering 
of goods in their manufacturing processes. Combine these 
procurement systems and suppliers e-commerce systems and you 
find that about 90 percent of all e-commerce is flowing through 
those two paths.
    If you look at both, you will find that there is very 
little room for small businesses. They cannot participate in 
actively getting all the advantages of e-commerce either as 
large volume buyers or sellers.
    What we think is absolutely critical and is going to change 
this in the next 4 years is the emergence of what we call e-
marketplaces. They go under a lot of names. You hear them 
called exchanges, auction sites, marketplaces, e-markets. The 
whole point of these sites is that a third party sets up a 
system where large numbers of buyers and suppliers come 
together in a common community. They can exchange information, 
collaborate on new business activities, and ultimately, 
purchase goods, either through a catalogue, an auction system 
or some kind of exchange mechanism.
    We believe that this model is the most effective for small 
businesses to participate as sellers on the Internet and in e-
commerce. It will be an important path for small business to 
take to actually benefit from the world of e-commerce.
    I'll conclude my remarks with four questions that we think 
will be critical to really defining whether or not small 
businesses can find a place at the e-commerce table. The first 
issue has to do with, access to these services. Our research 
shows that in the United States about 60 percent of small 
businesses--and we would define these as companies with under 
100 employees--have access to the Internet.
    That actually sounds like a very large number compared to 
even large businesses. But when you look at how they are 
actually connected you find that only about 11 percent are 
connected via some kind of high-speed permanent connection. The 
rest are dialing up through modems. While dialing up to the 
Internet is a great way to buy products and surf the net, you 
cannot effectively be a seller on the Internet unless you are 
always connected to the Internet, so people can come to you to 
buy products.
    So the issue of providing better access, more cost-
effective access, and integration of this access with the back 
office accounting, and ordering systems, that small businesses 
already have in place is a major challenge that e-marketplaces 
and companies who are in the small business community are going 
to have to deal with.
    Another major issue going forward has to do with how you 
run your business once you move to the Internet. The challenge 
here is how do you deal with credit and with potential 
financing issues that come along. When I am a small business 
selling to local people, I am comfortable, I know who they are, 
I can extend them credit, I can issue a PO and they can pay me 
back in 30 days.
    Once I come online, now I am dealing with companies around 
the country or potentially around the globe and there is a 
greater risk associated with providing them services. I need 
more automated mechanisms to help finance that system, so that 
I can extend credit automatically, and I need to have a bank or 
some other financial institution backing me up.
    So we see the need for more integration of the financing 
mechanisms that are supporting small business today in these e-
marketplaces.
    The third major challenge is, if you look at e-marketplaces 
you find that one of their most important characteristics is 
that they now are collecting all of the information about the 
sales and the transactions. Not just the successful sales, but 
also the unsuccessful sales where somebody goes out and shops 
for a good and then decides to purchase it from someone else.
    All of this information is very valuable, but obviously we 
are now starting to deal with issues around privacy, around the 
sharing of corporate information. This will be one of the most 
critical issues because many e-marketplaces see the analysis of 
this information as a revenue source. They can go out and 
actively sell that information to both buyers and suppliers so 
that they can be more competitive. But where do you draw the 
line in terms of sharing an individual company's information?
    The final major issue that we see relative to e-
marketplaces has to do with the issue of women- and minority-
owned businesses. In this space, today e-marketplaces do not 
really acknowledge the existence of this community in any 
meaningful way. They can participate but they are not being 
designated specifically as a medium or small business.
    As we know, many large companies and large Government 
institutions have programs in place to purchase goods from that 
community. Today, an e-marketplace cannot accommodate that type 
of service, cannot help bring that portion of their purchasing 
activity into the world of e-commerce.
    The marketplaces themselves are not going to be able to 
cost effectively go out and verify who is a minority-owned 
business, who is a woman-owned business, and basically then 
provide that information to the buyer. Technically, it is very 
easy; administratively, a significant cost burden. Until we see 
a mechanism that makes it easier for e-market places to provide 
this function, many large companies are not going to be able to 
purchase from small businesses in any meaningful fashion.
    With that I conclude my remarks and thank the Committee 
once again.
    [The prepared statement of Mr. Villars follows:]

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    Chairman Bond. Thank you very much, Mr. Villars. You really 
set me up. I was trying to figure out how to put in a plug for 
the conference we are having in Kansas City on June 4 and 5, 
co-sponsored by Senator Kerry and four of my other colleagues, 
Senator Snowe, Senator Feinstein, Senator Landrieu, and Senator 
Hutchison. We are going to be looking at precisely those kinds 
of questions and want to enlist our panelists and others 
today--there is information again on our web site for those of 
you who might be interested in it. Kansas City is beautiful in 
June. The best barbecue in the world. But anyhow, the 
information I think will be very useful and it should be a very 
exciting and worthwhile event.
    Now back to this very important hearing. Next we will hear 
from Angie Kim, the president and chief customer officer of 
EqualFooting.com from Sterling, Virginia. That is a web site 
that specializes in helping small businesses meet their 
industrial supplies and equipment needs. Ms. Kim is directly 
responsible for developing and managing all customer 
touchpoints for EqualFooting.com such as marketing, public 
relations, customer service, and budgets. She is the voice of 
the customer in all business decisions.
    Her previous experience includes a lengthy list of very 
distinguished academic and professional activities culminating 
in being a member of the Global Leadership Group at McKinsey & 
Company and launching an online business-to-business program 
that targets small business. Ms. Kim, welcome.

 STATEMENT OF ANGIE KIM, PRESIDENT AND CHIEF CUSTOMER OFFICER, 
              EQUALFOOTING.COM, STERLING, VIRGINIA

    Ms. Kim. Thank you so much, Mr. Chairman, and other Members 
of the Committee. First of all, please allow me to thank you 
for the opportunity to testify before you today. It is truly an 
honor for me to be here testifying before you, talking to you 
about the issue that has really intrigued me throughout all of 
my life, both personal and professional. That is, the emerging 
frontier of business-to-business e-commerce for small 
businesses.
    My name is Angie Kim. I am co-founder, president and chief 
customer officer of EqualFooting.com. EqualFooting is a 
Virginia-based B2B e-marketplace for small businesses, and we 
are simply dedicated to leveling the playing field for small 
businesses in the areas of purchasing, financing, and shipping 
as well as selling.
    EqualFooting.com, I started this company less than a year 
ago, last summer, in my basement in Fairfax County with two of 
my partners, Aaron Martin and Jim Fox. It was just three of us 
at that time working out of my basement, and now less than a 
year from that date of starting this business we are a company 
of over 150 full-time employees. We do nothing but think about 
the problems that small business owners face in all areas of 
their business operations, and we think about how a marketplace 
can actually help to solve some of those problems.
    What I would like to do today is share with you a little 
bit about my background and why I came to really focus on and 
be interested in this problem of small business e-commerce and 
the oppor- tunities therein. I also want to share with you what 
exactly EqualFooting.com is doing in the areas of purchasing, 
shipping, and financing, and hope that we can serve as a case 
study of how e-commerce can truly benefit all small business 
owners.
    Many people ask me how I came to care about small 
businesses. My own business background began at a very, very 
young age, at the age of 13 when I actually immigrated here 
from South Korea with my parents. We came to Baltimore, and as 
is probably the typical immigrant story, we actually started 
with a small business. We set up a grocery store.
    Being an only child, and as a child having picked up 
English a bit quicker than my parents, I became very involved 
in the day-to-day operations of starting and growing this 
business which was, as I said, first a grocery store. It 
developed into yet another grocery store, then a mini-mart, and 
some commercial real estate, and finally into now what is a 
successful group of small businesses that I helped my parents 
with.
    During this time I truly became appreciative of the 
disadvantages that small businesses face in all of the areas of 
their operations. So for example, in the area of purchasing, 
unlike the large companies that have dedicated staff and 
purchasing departments that go out, try to find the best deals, 
use the large volumes that the large corporations actually 
purchase to get volume discounts, and actually have the time 
and resources to figure out what supplier carries the best 
prices and terms for particular products, small business 
owners, as you all can appreciate, simply do not have the time, 
the resources, or the clout to go out to the marketplace and 
really try to find the best prices and terms.
    As a result, some of the statistics that we looked at and 
some of the anecdotes that we have gathered from small business 
owners actually tell us that small business owners end up 
paying, particularly in the areas of industrial supplies which 
is something that EqualFooting focuses on, about 10 to 30 
percent more than their large corporate counterparts in the 
area of purchasing.
    Financing is another great example. Actually having done 
many, many applications, application after application, all of 
which required the same amount of information and all of which 
require about 2 to 3 hours to actually fill out by hand, going 
to bank after bank, sitting down with all of the different 
people who are responsible for the decisions on loans, I can 
truly appreciate that it takes a lot of time to get loans as a 
small business, and to be able to finance, start, and grow your 
business. This goes on and on.
    Now, after I went to school and moved away from Baltimore, 
one of the things that I found myself doing in the last couple 
of years is being a management consultant to large companies, 
to Fortune 100 companies. It was my job there to help large 
companies figure out their e-commerce solutions. I was involved 
in both B2C and B2B e-commerce.
    What I realized there and what struck me there is that this 
digital divide that we talk about in the socioeconomic sense 
truly exists in the corporate world as well. Particularly, 
about a year ago when not that many people were thinking about 
small business 
e-commerce, what struck me is that there really exists a 
corporate digital divide between the small businesses on the 
one hand that were not getting, and still probably are not 
getting, as much attention from the e-commerce companies that 
are setting up these marketplaces that provide efficiency in 
markets and purchasing and selling. The digital divide 
obviously is between those small businesses and the large 
companies that are getting a lot of attention in the B2B space.
    We made it our mission, my partners and I, to say we are 
going to form our company, EqualFooting.com, to help put small 
businesses on equal footing with large companies and make it 
our sole dedication to overcome and to bridge this corporate 
digital divide that exists. So let me go into a little bit of 
exactly how we do that.
    First let me start with purchasing. In the area of 
purchasing, I brought with me this big, thick catalogue. This 
is one of many, many big, thick catalogues that go into 
purchasing, if you are a small business today, purchasing 
industrial supplies. By industrial supplies I mean the $75 
billion market out there that consists of things like 
fasteners, things like hand tools, generators, safety supplies 
and equipment. Things that businesses use to maintain and 
operate and repair their machinery and keep their business 
going forward.
    These types of catalogues are illustrative of what small 
business owners have to go through. They typically have to leaf 
about 10 of these in order to find exactly the item that they 
are looking for. And in order to do any sort of meaningful 
comparison of prices or terms they have to spend a lot of time 
on the phone calling suppliers and asking, ``Do you have this 
item in stock? If so, how much is it? Can you mail it to me 
today? Can I come pick it up today?'' Whatever the case may be, 
whatever they are interested in.
    So what we have done is set up this marketplace, and I 
think you can see a very simple illustration there with the 
selling, the supplier on the one side and buyer on the other 
side, and EqualFooting being the marketplace that brings these 
two forces together. What we have done is we have actually gone 
to all of these different suppliers and taken all of the data 
that exists here and put it into an electronic format into one 
integrated, virtual catalogue, if you will, that exists on 
EqualFooting with negotiated favorable pricing for small 
businesses.
    What this allows is, for example, I will use AA batteries, 
something we can probably all relate to. If you come to 
EqualFooting and type in ``AA batteries'' then all of a 
sudden--we have on the next slide an example of how you can 
actually see immediately a list with some pictures of all the 
AA batteries that we have. Some of these items are exactly the 
same. They are Energizer AA batteries. No doubt about it, 
exactly the same item.
    But because we carry them from lots of different suppliers 
and this is, in essence, the same as going through lots of 
these different catalogues, you can see right there that the 
prices range from something like 32 cents for one of these 
batteries to over 80 cents per battery, even for exactly the 
same brand. That just shows you what kind of price disparities 
exist and how a system like this can really help small business 
owners who do not have the time to make a lot of calls to find 
out this comparison price list, with our web site they can 
actually do that very quickly.
    Let me also say something about the selling side of this. 
As a seller as well, you can participate in e-commerce by 
participating in these marketplaces as well as setting up your 
own shop. So as a small seller you can actually come to 
EqualFooting and you can actually list your prices. In fact the 
lowest price on there is from a very small company called 
Batteries, Inc. that does nothing but sell batteries, which is 
probably why they have the best prices on AA batteries and the 
best delivery mechanism for that.
    So I hope that e-marketplaces like EqualFooting will 
certainly help all small businesses both on the buy side and on 
the sell side find each other in efficient ways, and basically 
make each other's businesses work.
    Thanks.
    [The prepared statement of Ms. Kim follows:]

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    Chairman Bond. Thank you very much, Ms. Kim. It is really 
exciting to know what you are doing and I will remember that 
when I am looking for AA batteries. That is something I can 
understand. I am technologically challenged, but even I 
understand AA batteries.
    Now for one of our technological experts I now turn for 
comments and the introduction to my good friend, a fellow 
Missourian and the Senator from Montana, the chairman of the 
Communications Subcommittee of the Committee on Commerce, 
Science, and Transportation, Senator Conrad Burns. I will ask 
Senator Burns to moderate as long as he can and then we are 
going to ask Marc Freedman from my staff and Damon Dozier from 
Senator Kerry's staff to serve as moderators.
    But I will return after a few meetings and a few of the 
other things that I have to do today. But now it is a 
pleasure--with fear and trepidation I turn it over to Senator 
Burns.
    [Laughter.]
    Chairman Bond. Strap on your seatbelts, we are----
    Senator Burns. The only reason I came is, I just wanted to 
counter the good Senator from Missouri's statement on how nice 
Kansas City is in June.
    Chairman Bond. Actually there are 2 weeks in June when 
Montana is nice, or is it a week in June and a week in 
September?
    Senator Burns. If summer comes on Sunday, we go fishing.
    [Laughter.]

   OPENING STATEMENT OF THE HONORABLE CONRAD BURNS, A UNITED 
                  STATES SENATOR FROM MONTANA

    Senator Burns. Thank you, Senator Bond, and thank you for 
these--this is the second of this series that I have been on a 
forum discussion as far as e-commerce is concerned. We have 
seen this industry grow since the first day I walked into the 
Senate back in 1989.
    I want to just make a couple of comments as I have a bill 
on the Floor that I am managing. I am setting a new record for 
military construction. Usually we pass military construction 
appropriations in about 1\1/2\ hour. Now we have been on it for 
4 days, for some strange reason that I will not iterate here.
    I was interested in both the comments of Mr. Villars and 
Ms. Kim with regard to the Internet and the challenges that we 
see. We have seen a virtual explosion in communications--the 
digital divide, Ms. Kim, is not only corporate. We talk about 
the digital divide between small and large communities, the 
trunks, and finally the fiber and the amount of broadband and 
high-speed services that are available in not-so-densely 
populated areas of our country.
    The only reason I became interested in this situation is 
being from Montana, we had to find a way to build an 
infrastructure in which we could compete on a national and 
international basis. We can do that with a modem.
    But also we have a digital divide between our ears. In this 
Congress we do not have a lot of folks that are actual members 
that are even computer literate. I do not go anywhere without a 
computer. I was very fortunate because I have a couple of very 
bright kids and, of course, they taught me how to use my 
computer. I used to think if you hit the wrong key, the darned 
thing would blow up. That is not the case. I found out a 
computer is more like a mule, you cannot make it do what it 
does not want to do.
    But I want to bring up some challenges that we have before 
we can really see the Internet really hit its full potential as 
a marketing and as a purchasing tool. Right now, we have in 
conference the e-signature bill. Mr. Villars, you touched on 
that issue, privacy. We have privacy now and we have our bill 
ready to go we think, but we still have some challenges ahead 
in how people look at the privacy area.
    Also in safety and security. Whenever we start talking 
about financial, and we are doing business that deals with some 
very sensitive information, questions arise. Do I have the 
encryption? Is my conduit or my message encrypted to a way 
where when I receive a message from you it is as I have written 
it? Has it not been read by anybody else, nor altered by 
anybody else? Then when you respond to me I can have the same 
assurance.
    What I am saying here is safety, security, and privacy are 
still areas of great challenge and until we have full 
confidence that these areas have been properly dealt with, we 
will continue to see a reluctance from quite a few people to 
use this tool.
    You are right, Mr. Villars, I am an old peddler. I am an 
auctioneer. I have been a salesman all my life. I dearly love 
it. I have people come into my office and apply for a job and 
they say, we just do not want to sell. And I say, if you do not 
want to sell, you are not going to work here because you are 
not selling yourself very good either.
    We are all salesmen in this great country where our economy 
and our actual economic freedoms are based on the knowledge 
that nothing happens until a sale is made. That is wonderful. 
The United States is the only country in the world where that 
really applies. Of course, economic security and political 
security all go hand in hand.
    But there is a relationship with the customer. You and I, 
have been doing business a long time. I am always reminded of a 
story of a good friend of mine that lived in Little Rock, 
Arkansas. This man had a very bad speech impediment. He 
stuttered terribly, but he was still one of the top salesmen 
for the 3M Company. He would try to sell me stuff and he would 
say, ``Conrad, you do what you do best and that is buy. And I 
do what I do best and that is sell.''
    Now in the area of women- and minority-owned businesses, of 
which this Small Business Committee is very aware, we have 
played a part in the development to make sure that we had equal 
footing for everyone. The Internet tells us that these days are 
over and if you had the product and the imagination it would 
not make any difference whether those differences go away. We 
do not know that yet. But until then, until we find that out, 
we are very, very aware and very sensitive to minority- and 
women-owned businesses. So there are still a lot of challenges.
    We want to welcome NetCompliance, John Dominic from 
Bozeman, Montana. I have known John ever since the Dead Sea was 
just sick.
    [Laughter.]
    Mr. Dominic. And that is because we were trying to get a 
couple of boats from Methusaleh and his dad.
    Senator Burns. That is exactly right. What we have seen 
through this whole evolution--and it has been marvelous as far 
as I am concerned--is that if we do not tax and if we let it 
run free, imagination, entrepreneurialship, and the American 
imagination becomes the most wonderful, powerful machine in 
America. We have seen that happen right before our own eyes. 
That is the reason we lead the rest of the world. We are very 
competitive at home, which makes us very competitive in the 
international market. I believe that with all my soul. I really 
do. We have seen just marvelous advances being made.
    Now I am going to turn it over to this man right here, 
Marc, because I have to go to manage a bill on the Floor. We 
have to talk about Kosovo, but I would rather talk about 
America and American entrepreneurialship. But just remember, 
the digital divide is between our ears, and it is right here. 
This is not the center of the universe. I mean, America is 
doing wonderful without us. Just get out of the way, turn it 
loose, and it will happen.
    We want to welcome all of you here today. I will be 
listening to what all of you have to say. Good to see you, 
Floyd. Everything is all right in St. Louis, I assume.
    Mr. Gaibler. No. They are all moving to Washington, D.C.
    Senator Burns. That is just terrible. There are several 
friends around the table that we have a relationship with, so I 
thank you all for coming.
    Mr. Krishnan, I guess I am cutting right into your time and 
I am sorry about that. John, good to see you. I will go and 
manage my bill, if I can. It is all yours.
    Mr. Freedman. Thank you, Senator Burns. I would just like 
to introduce Krish Krishnan, our last speaker. He is the 
president and CEO of NetCompliance, Inc., a Seattle, 
Washington-based Internet information commerce company. 
NetCompliance allows businesses to be in compliance with the 
myriad State, and Federal regulations via the Internet. Its e-
comply technology helps companies keep track of regulatory 
details and provides web-based training by employee, location, 
and hazardous condition.
    Mr. Krishnan's experiences in environmental, regulatory 
compliance, and information technology are well suited to 
NetCompliance's mission. Mr. Krishnan, nice to have you today. 
Please proceed.

 STATEMENT OF KRISH R. KRISHNAN, PRESIDENT AND CHIEF EXECUTIVE 
       OFFICER, NETCOMPLIANCE, INC., SEATTLE, WASHINGTON

    Mr. Krishnan. Thank you. Mr. Chairman, Senator Burns, and 
Members of the Committee, I first wanted to thank you all for 
inviting me here to testify before the Small Business 
Committee. It is indeed a great honor. I am, again, Krish R. 
Krishnan, president and CEO of NetCompliance, Inc., a Seattle, 
Washington-based Internet information commerce company. We have 
other offices in the State of Washington, in Vancouver, 
Washington, Kennewick, Washington, and satellite offices in 
Houston, Texas, in Washington, D.C., and a couple of offices in 
Canada, and a presence on the Indian subcontinent as well.
    Using the Internet, NetCompliance's e-comply technology 
provides the platform for businesses, both large and small, to 
be in compliance with a variety of State and Federal and local 
regulations and standards. Later on in the presentation I will 
talk about how we use the web in an innovative manner to 
deliver appropriate knowledge and information to small 
businesses, large businesses, in a manner which is clearly 
faster, cheaper, and better.
    Mr. Chairman, the Internet now has a profound impact on all 
our lives. Today new companies and technologies have emerged 
helping to create e-marketplaces, business-to-business 
functions of various types which indeed, in comparison to the 
old economy companies, are faster, cheaper and better. We 
believe in particular at NetCompliance that businesses both 
large and small are seeking to use the Internet to manage other 
complex needs of the business, and in effect trying to extend 
the e-frontier to functions such as compliance management.
    This business potential is huge as business to business 
electronic commerce is clearly spreading rapidly from larger 
businesses to small businesses today. With all this explosion 
in the Internet-related growth areas I think one area where new 
technology is desperately needed is in the area of compliance. 
Compliance with Federal regulations, compliance with State 
regulations, local regulations, and standards.
    I must just point out here that the impact of regulatory 
compliance on businesses, particularly small businesses is 
staggering. The annual cost to American businesses for 
complying with a variety of regulations has been estimated by 
Hambrecht & Quist in 1999 to be an astounding $45 billion, and 
319 million manhours. In particular, just for EPA-mandated 
business alone, businesses spend a total of 116 million 
manhours. As another example, the General Accounting Office 
estimated that the business burden for complying with lead and 
asbestos regulation alone is $1 billion.
    We were talking about the industry survey conducted by 
Deloitte and Touche where they surveyed Fortune 500 CEOs. I am 
sure, had Deloitte and Touche approached small businesses, 
compliance management as an issue would have ranked as high if 
not a higher priority among small businesses.
    I think the future of Federal and State regulatory activity 
promises to present more challenges to businesses. We would 
like to submit for the record here, and I hold in my hand--I 
probably need both my hands for this--the Unified Agenda of 
Federal Regulatory and Deregulatory Actions. A copy of this was 
published in April of this year. This calendar, which is 
published twice yearly, describes 4,441 rules that the 
Government is right now considering. Incidentally, this is a 
biannual report for 6 months.
    I find in particular very sobering the fact that the agenda 
on what this is about starts at page 22,483 and ends over 1,600 
pages later. I think if this document is going to be an 
indicator of future regulatory challenges, I think definitely 
there is a crying need for bringing some efficiencies to the 
table to address such issues, and NetCompliance's primary 
mission is to try to utilize the Internet to address such 
efficiencies.
    We certainly believe that this all-important area can be 
addressed, and small businesses can address it better, cheaper, 
and faster by appropriately using the efficiencies of the 
Internet as a delivery platform. Indeed, we consider ourselves, 
NetCompliance, to be an information commerce company. We 
believe giving customized, relevant, topical, and timely 
information across the Internet is in many ways as relevant, if 
not a more relevant use, of the Internet where we can send this 
knowledge and information via the wires.
    To be sure, the regulatory impact differs for various types 
of business. Fortune 1,000 businesses certainly are cognizant 
of this problem. They happen to have large in-house staffs. 
They end up having the budget to go out and hire consultants 
and attorneys to help meet such needs. For smaller businesses 
however, it is more of a desperate need where clearly small 
businesses either do not have the information access to realize 
what regulatory burdens they are facing, or quite clearly 
cannot afford to pay for high-priced consultants and attorneys.
    I think the Internet right now offers us unique 
opportunities to comply with regulations in a different way and 
at NetCompliance, I am proud to say, we have created an 
innovative method to deliver education, training, compliance, 
and information to American businesses. Simply put, 
NetCompliance through our e-comply engine offers companies the 
ability to meet the regulations using this integrated 
information commerce suite.
    Let me move on and actually give you an example, a tangible 
example of how we use the Internet to help solve problems for 
small businesses in particular. In our main web site you will 
have noticed there are a lot of different compliance sites we 
have. I would like to take some time and talk about one 
particular example, GasStationCompliance.com. I would like to 
submit for the record here the Seattle Times business story of 
Thursday, April 6, 2000 entitled, ``It's Still Red Tape, But It 
Comes By PC.''
    The story highlights Frank Rosendale, an owner of gasoline 
stations in suburban Seattle. Frank is a client of the 
GasStationCompliance.com which helps convenience store and gas 
station owners with EPA and OSHA compliance. This is a very 
important area of compliance, particularly among small 
businesses.
    There are a lot of gas stations, in fact there are over 
180,000 gas stations in the United States alone and many of 
them, in fact the overwhelming majority of them, tend to be 
small businesses. They have to comply with costly health and 
safety rules and offer their workers training and education, 
not just to do with hazardous materials and EPA and OSHA rules, 
but also in the areas such as not to sell tobacco or alcohol to 
minors.
    The Seattle Times reported, that every month 
GasStationCompliance.com sorts through newly-passed 
regulations, new rules on how to store toxic cleansers, for 
example, and sends the ones that apply to Rosendale's gas 
stations to his online account. The regulations are also stored 
on his online account so should an agency ever inspect his 
workplace Rosendale has all the necessary paperwork filed 
online.
    Before it was a monster to get responses, Rosendale said. 
It took him forever to do all the stuff. Instead of scheduling 
offsite training sessions that cost about $100 an employee his 
workers can do it on the gas station's PC using the 
NetCompliance site. The total bill, $39 a month.
    Small businesses through some of our other sites such as 
MSDSCompliance.com have the ability to find and organize 
material safety data sheets, or MSDS's, from among the over 16 
million that are required by State and Federal laws. Our 
proprietary system allows clients to search their data bases, 
create and build a customized file folder of only those MSDS's 
of interest to a particular client.
    The pages are in text format which makes for quick 
retrieval and there is no need to download any special programs 
or conversion devices. And the folder resides on our main 
server, NetCompliance's main server, which means literally this 
can be accessed from anywhere, anyplace.
    Mr. Chairman, the power of the Internet is bringing small 
businesses the opportunities to reduce costs and remain 
competitive in the global marketplace. Certainly we feel 
another area where it is very relevant is in the training area. 
Our TrainingCompliance.com site has about 100 online training 
courses which help train business owners without them needing 
consultants or offsite training sessions.
    Mr. Chairman, to make B2B commerce an emerging e-frontier 
for small businesses, NetCompliance believes that Congress must 
give businesses the option of complying with the regulatory 
requirements via the Internet. Legislation which would allow 
the option of switching from filing paper copies to using the 
web to file virtual compliance solutions would be extremely 
helpful to small businesses seeking a better, cheaper, and 
faster compliance method. Small businesses in America need 
every benefit of the doubt from the regulators if they are to 
compete fairly in the global economy alongside businesses from 
foreign countries which do not impose the same regulatory 
burdens like we do.
    In closing, Mr. Chairman, let me point out to the Committee 
that an anniversary recently passed with little notice. The 
Occupational Safety and Health Administration opened their 
doors 29 years ago on April 28. When these operations began 
little did regulators envision that in the new economy 
companies would want to comply with the Federal laws via the 
Internet.
    Mr. Chairman, Members of the Committee, NetCompliance is 
poised to contribute to this regulatory compliance revolution. 
And on a personal note I would like to thank Senator Burns from 
Montana for inviting us to be part of the advisory committee of 
the Congressional Internet Caucus. We certainly look forward to 
working with the advisory committee and with this Committee to 
help promote the Internet's use in this all important area.
    That concludes my remarks. Thank you.
    [The prepared statement of Mr. Krishnan follows:]

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    Mr. Freedman. Thanks so much, Mr. Krishnan. We appreciate 
you being here. On a personal note, I spend a lot of time 
dealing with regulations, and particularly with OSHA, so I have 
firsthand knowledge of what you are wrestling with and what 
your clients are wrestling with, so I can appreciate the value 
of your service.
    The next part of the program is going to be our open 
discussion with the other participants here. Before we do that 
I would like to have everybody introduce themselves, since 
there are a lot of people who do not know each other yet. I 
think for convenience purposes we will just start at that end 
of the table with Mr. Alford. If you would just tell us who you 
are and who you are with that would be very helpful.
    Mr. Alford. I am Harry C. Alford. I am president and CEO of 
the National Black Chamber of Commerce based here in 
Washington, D.C.
    Mr. Koncurat. I am Mark Koncurat. I am president of Host 
Designs, a web hosting and web design company.
    Mr. Lane. I am Rick Lane. I am with the U.S. Chamber of 
Commerce. I am the director of e-commerce and Internet 
technology.
    Ms. MacDicken. Becky MacDicken with the Tire Association of 
North America.
    Mr. Morrison. James Morrison with the National Association 
for the Self-Employed.
    Mr. O'Connor. Good morning, I am Jim O'Connor. I am with 
the U.S. Small Business Administration.
    Mr. Peyton. David Peyton, technology issues manager with 
the National Association of Manufacturers.
    Ms. Rivera. Maritza Rivera. I am vice president for 
Government relations over at the U.S. Hispanic Chamber of 
Commerce.
    Mr. Whysong. Dan Whysong, market analyst, St. Francis 
College SBDC.
    Mr. Wren. Tom Wren, The Wharton School of the University of 
Pennsylvania Small Business Development Center.
    Mr. Conlon. Paul Conlon, Senate Committee on Small 
Business.
    Mr. Freedman. I am Marc Freedman. I am also with the staff 
of the Committee.
    Mr. Dozier. Damon Dozier, Senate Committee on Small 
Business, minority staff.
    Ms. Bahret. Mary Ellen Bahret with the National Federation 
of Independent Business.
    Ms. Bradley-Cain. Ruby Bradley-Cain, president and CEO of 
RBC International. I am here on behalf of the National 
Association of Women Business Owners, NAWBO.
    Mr. D'Onofrio. David D'Onofrio, National Small Business 
United.
    Mr. Farrell. Tom Farrell, senior business development 
relations manager for BizLand.com.
    Mr. Gaibler. My name is Floyd Gaibler. I am vice president, 
governmental affairs for the Agricultural Retailers Association 
based here in Washington.
    Ms. Hatcher. Jennifer Hatcher, and I am with the Food 
Marketing Institute, a trade association representing the 
supermarket industry here in Washington.
    Ms. Jacques. I am Veronica Jacques with the Direct Selling 
Association.
    Mr. Chubb. Michael Chubb with SGS On Site on behalf of the 
Forum for Trust in Online Trade, director of marketing North 
America for SGS.
    Mr. Freedman. Michael, let me just ask you to indicate 
where you are from because I think you represent a really 
interesting angle to this question.
    Mr. Chubb. I am actually a Canadian but I represent an 
entity that is Swiss based with operations in 140 countries 
including right here in the good, old USA.
    Mr. Freedman. So right here we have a demonstration of the 
internationality of the Internet which is something that I 
think is really going to become a major factor of this whole 
discussion as this industry takes off.
    Thank you very much. We are happy to have all of you here 
and I think that we are going to have a very interesting 
discussion.
    We have some questions worked out to get us going, so with 
your permission I will just start off. The format basically 
consists of posing questions to the speakers, but if you would 
like to respond, please put your name tent on end so we can see 
you, and then we will be happy to call on you.
    Just to start off, Mr. Villars, a couple of things emerged 
out of your statement. One of the things that I was struck by 
is that you talk about an explosion of companies offering these 
services for small businesses in terms of purchasing options 
and exchanges and other formats like that. Is there any 
experience with things like exclusivity contracts out there? 
And if so, what does that do for small businesses who might get 
locked into one type of exchange that may not last long? Or is 
there a way small businesses can screen which exchanges they 
get involved with and know what their chances are?
    Mr. Villars. The question of exclusivity is a challenge in 
a lot of ways. In fact exclusivity or resistance to exclusivity 
is one of the things that has driven e-marketplaces to begin 
with. One of the examples that is brought up a lot is the 
automotive exchange which was announced a few months ago. In 
reality, each of those large automotive manufacturers had 
developed their own e-procurement systems and were quickly 
moving to get their suppliers online, or trying to anyway.
    A lot of the suppliers, the large and the small basically 
resisted that and said, we are not going to spend our time 
linking to 100 different systems, or in their case 4, but 
ultimately 100 different systems. We need to have a more open 
mechanism to bring us in.
    For small businesses, they obviously have less ability to 
say, ``No'' sometimes when a large customer asks. On the other 
hand, no small business is likely to be around very long if 
they are solely dependent on one or two companies. So it is 
absolutely critical from their standpoint to look for a more 
open model.
    From what we have seen to date, e-marketplaces are judged 
to a great extent on just how open they are. We believe that 
the more independent they are perceived, the more effective 
they will be in the long term. We do believe that there will 
emerge an evolving link between these procurement systems and 
marketplaces, and that even someone who is building a large 
procurement system is going to want to have the ability to go 
out into an open market for selective products and goods as 
well as for other parts, or controlling their supply chain.
    What is going to be challenging for the small businesses is 
even with marketplaces, and I think the example by 
EqualFooting's Angie Kim was perfect, batteries are something 
that are needed in many different industries. It is not a 
vertically specific activity. A small business really doesn't 
want to be on one marketplace; they want to be on all 
marketplaces. We have seen the rise now of hosting companies, 
of software products that are going to make it more possible 
for small businesses to be linked to multiple marketplaces 
simultaneously.
    So we do see the ability to prevent excessive exclusivity 
in these deals. We would definitely say that just from an 
overall organizational standpoint, the more exclusivity, the 
less efficiency you will find.
    Mr. Freedman. Good. I am sorry, I did not see in what order 
you all put your tents up. We will go to Mr. Alford and then 
Mr. Farrell.
    Mr. Alford. I concur with Mr. Villars. Exclusivity just 
does not have a role in the Internet marketplace, especially 
since many of these exchanges have their own specialties or 
their own niches; two specialties right there that are very 
important. Some of these exchanges will approach our members 
and say, ``We want exclusivity; we are going to pigeonhole 
you.'' And I think the fact that many of these exchanges, I 
know one big one started 2 years ago at a value of $320 a 
share, yesterday was at $46. Another exchange was valued in 
March at $152, today is at $24. Many of these exchanges are 
going to fall out. When the shake-out occurs and as they fall 
out, if you are linked with some of these companies, these 
exchanges, you are going to be dead, out of business for a few 
months until you recoup and recover.
    Mr. Freedman. Thank you. One quick note, whoever is 
speaking should make a point of grabbing a microphone because 
this is being recorded and we will need that for those 
purposes.
    Mr. Farrell.
    Mr. Farrell. Addressing Mr. Villars. I also chair a large 
small business association in Pittsburgh, SMC Business Council, 
and your comment was that smaller businesses can get into 
selling their products via the auction sites. What we are 
finding is when some of our smaller manufacturers who have been 
selling, buyers from bigger companies are saying, ``Listen, my 
job now, even though we have been purchasing from you for 10 
years, is to get the best price possible. We are going to an 
auction site. We want you to register and be part of that 
site.''
    To participate in that we are finding that our 
manufacturers are lowering their margins so much that if they 
do take the job they might be starting at 21 percent, they 
might take the job at 5 percent, then if there is a technical 
glitch or they have to send salespeople or staff out to the job 
site, they cannot afford to do it. They are running at a loss. 
What we are experiencing is, people are not jumping in to 
selling their product via auction sites because it is coming 
back to haunt them. They just cannot compete aggressively, you 
know, their margins, just take into consideration their 
overhead. I was wondering what your research shows or how you 
feel about that, because it is really scaring a lot of our 
smaller businesses away from competing in that marketplace.
    Mr. Villars. We struggle with this as we have looked at it. 
The theory behind the marketplaces, or in general behind the 
B2B commerce is, the idea is it is supposed to create a more 
perfect market. Better information, the ability to go out and 
find the optimal price. We have found that for large 
businesses--and this will be an ongoing challenge--that they do 
tend to have this mind-set that this is purely about reducing 
my cost and basically pushing the cost back in the supply chain 
to ultimately smaller businesses.
    What we have found is--at some level there is not going to 
be an easy answer. In reality, a lot of small businesses are 
going to have to deal with this world where geographic 
distribution and information are not going to protect them as 
much in some of the bidding.
    On the other hand, we do think the marketplaces can 
compensate for that by bringing you not just to the large 
businesses but to other small businesses, and that you can have 
some ability now to go out and more actively participate in 
situations where you can do joint bidding, or in a situation 
where you can take advantage of variations in the market. If 
there is a shortfall and someone has a rush need to do things, 
if you can target and build yourself so that you can be the 
best responder for that; you can affect margins.
    It is not a perfect world in that sense. Small businesses, 
like large, are going to face pressures from this change. We 
just want to make sure that they get the benefits as well as 
learning the negative implications for the auction sites.
    Mr. Freedman. That is a very interesting question. When we 
were setting up this forum we were thinking: we want to get 
into the problems that will face small businesses by doing 
this. Not everything is going to be all rosy. So we want to 
highlight that and look at those closely.
    Michael Chubb, you are next and then Damon Dozier is going 
to present a question after that.
    Mr. Chubb. Thank you. I just wanted to address the issue of 
exclusivity. Let us remember that we are not just playing with 
American players here. We have suppliers of goods, whether it 
is from Missouri or from Mexico or from the backside of China, 
that will be providing goods.
    The question of leveling the playing field, the question of 
exclusivity, either to a net marketplace or to a procurement 
hub, is one which I think the advice is correct. Your advice is 
correct, sir. No exclusivity. And that goes if you are either a 
supplier of goods or a supplier of services, as SGS On Site is.
    This base has very little opportunity for these cozy little 
relationships, so little transparency is there. That is part of 
making greater efficiencies. But something that SGS is doing is 
developing a set of ratings whereby each participant in a 
potential transaction can be rated, whether they are Bob and 
Fred in their backyard in Missouri making the best product 
possible, or a very large entity somewhere else in the world. 
This will allow you to understand the value and capability of 
somebody in Missouri to go through with the selling of a good 
through a dot com, whether it is a procurement hub or whether 
it is a marketplace.
    So we are working with marketplaces and procurement hubs to 
help level this playing field. If you want to show yourself to 
be the best, you can do that. We can help you identify yourself 
as being different from the others. But let us recall that it 
is not just Americans that are playing this game. We have got 
people all over the world that are asking, ``Please rate us,'' 
whether it is in southern India or southern Indiana. You have 
challenges here.
    Mr. Freedman. Thank you.
    Mr. Dozier. We have two individuals here who have 
established strong presence on the Internet. I was interested, 
Marc stole my thunder a little bit, how does one actually get 
involved? How do you get started? Is there any sort of tutoring 
that you all went through? We know that the Small Business 
Administration has a lot of programs. And in reading your 
testimony, Ms. Kim, I found out that you were actually working 
with the Service Corps of Retired Executives, a group that we 
are very fond of here.
    How difficult was it actually to set up shop? And what sort 
of barriers were set up out there that you can let everyone 
know here, so that they do not sort of fall into those traps 
again?
    Ms. Kim. I will get started on that. One of the big things 
that we did when we got started was we had the advantage of 
having gone through training, if you will, by virtue of having 
been management consultants at McKinsey. We had helped our 
large companies, the large clients, go through the challenges 
of setting up the dot com versions of themselves and so had 
gotten the training by actually having gone through with 
clients hand-in-hand, the challenges of building an e-commerce 
business.
    So we went through some of those advantages ourselves, but 
we certainly recognize that not all small businesses, certainly 
ones that are starting up, are going to have those advantages.
    I would like to address a couple of issues, No. 1, 
training. One of the things that EqualFooting is doing with the 
SBA actually is we are setting up online classrooms and also, 
with SCORE, we are setting up paper pamphlet versions of those 
online classrooms that help to train small businesses on how 
they can actually use the powers of the Internet to finance 
their businesses, get it started, grow their business, as well 
as how they can purchase, how they can sell, all of these types 
of things.
    We are launching those, I think, in the next month or so. 
We are very excited certainly about working with such great 
organizations--that obviously care about small businesses--to 
help provide some of that training. I think that if you go to 
certainly the SBA site or SCORE or anything like that, and 
certainly the associations that are represented here today, I 
think everybody has those types of resources, and we should all 
work together to make sure that we make more of those resources 
available to small businesses.
    On the funding side, as a dot com we did not go through the 
traditional bank debt route. We went through venture capital 
sources. I have actually been talking a lot recently with many 
different people about the opportunities in venture capital for 
small businesses who maybe are not the MBAs from Harvard and 
come from consulting backgrounds and things like that--
especially women, especially in B2B, and especially minorities 
as well. We have been talking, a group of venture capitalists 
and some entrepreneurs, we have been talking about how do we 
make sure that minority and traditionally small business types 
of entrepreneurs can get to this equity venture capital 
funding. I think this is going to be one of the big issues that 
drive how small businesses can competitively compete, 
effectively compete in this new economy.
    How do they actually get to not only the bank loans, which 
certainly EqualFooting is working to try to make more 
efficient, but also, how do you get to the venture capital 
sources that are going to provide you with the millions of 
dollars that you need to build a brand rather than just doing 
little sales here and there on the Internet. So I think that is 
another big issue that we should probably continue to discuss.
    Mr. Krishnan. I guess in my case the motivation was 
slightly different, I should say. When I first started my 
professional career in this country, I started working for a 
consulting organization and I was surprised--actually the right 
word is shocked--to find the way the consulting profession 
works, particularly in the area of regulatory compliance.
    I found that they tend to be pretty motivated by their 
billing systems, which are obviously time and materials based. 
Not great incentives there for trying to get a job fast. 
Suddenly, I found that they are masters, shall we say, of the 
fine art of cut and paste. That bothered me.
    All along, maybe partly because I was a little bit naive, I 
just came from a good technology school, I felt there was an 
obvious fit for applying technology judiciously to handle some 
of these routine repetitive needs that regulatory compliance is 
all about, and about information management.
    So in our case, what we ended up doing is we ended up, 
rather than sitting back in our ivory tower of technology and 
assuming that one-size-fits-all, technology can address all 
these problems, we started working with, for example, Mr. 
Rosendale in Seattle. We took simple small vertical sectors and 
tried to put together all of their compliance needs and tried 
to address it by a simple solution which is Internet-based. So 
we really got started in simple verticals, addressing small 
business needs, and then moving on to larger businesses.
    I guess as far as the lessons that can be learned from what 
we are bringing to the table, I suddenly think that it is 
possible to take on the system and the establishment. I 
discovered that, particularly in the Washington, D.C. area, 
rather appropriately called Beltway bandits associated with a 
certain profession. But suddenly, in spite of the might and the 
strength of certain established traditions, the beauty and the 
opportunity of the Internet allows us to think in new 
paradigms. Basically, I would encourage any small business 
looking to get in the frontier that we can certainly change the 
world and the Internet is indeed a great equalizer to do so.
    Mr. Freedman. I think with the Internet, we will now see 
the breakdown of that Beltway geographic distinction and we 
will have more opportunity for bandits all over the country.
    I saw Mr. O'Connor's name tent up and then Mr. Koncurat.
    Mr. O'Connor. Thank you. I just want to say that at the 
SBA, we look at the Internet as the most powerful change agent 
that is affecting all of us right now. We look at knowledge as 
the most important asset that small businesses are going to 
compete with in the new millennium.
    Having said that, one of the things that we are trying to 
do is to develop more online courses that can help small 
businesses that are available anytime and anywhere.
    I want to also mention that we are very pleased that 
EqualFooting is a co-sponsor of a course that the SBA will have 
online within 30 days. That course is specifically about e-
commerce or how to do business online, called Online 
Purchasing, I believe.
    We are dealing with a number of co-sponsors now to help us 
develop course materials that will help small business in the 
new marketplace. We think that this is extremely important 
because the Government really does not have the knowledge to 
develop some of the content that businesses need in today's 
fast moving environment.
    We are looking at working with a number of private 
companies. We are working with Cisco Systems. We are working 
with IBM. We are working with Apple and a number of other large 
entities that are helping us develop courses that will help 
small businesses. We think that this will be beneficial and 
would like to do more of that.
    But I would also like, today, to hear more from other folks 
about what the SBA could do in today's environment to better 
serve small business clients today? That is something that is 
very important to us.
    Mr. Koncurat. I am happy to hear what the SBA is doing. My 
company, Host Designs, meets with several small businesses that 
want to get out and get their web presence started. A lot of 
them do not have the technical skill or the knowledge to 
actually get out there and get the job done. They may have the 
financing. They may have all of those things taken care of. 
They get to the stage of, ``OK, now how do I get my business on 
the web?'' And then the bigger picture of, ``Now how are people 
going to know that I actually exist?'' And, ``Where am I going 
to get the marketing revenue to actually spend those dollars 
and get people to know about me?''
    A lot of challenges that we find from small businesses that 
come to us are based on that, and especially based on not being 
able to actually have things done in-house. A small business 
cannot afford to manage their own web server, manage their own 
equipment. A lot of times they outsource that. There are 
several competing hosting companies that I deal with that make 
that challenging for a small business owner to say, ``This is 
exactly what I need to get started.''
    So I think more information needs to be presented to small 
business owners of how they can actually startup their 
business. That is something that we try to do to help small 
businesses get out onto the web and be able to start their 
business.
    Mr. Freedman. Good.
    Mr. Villars. Just one quick comment I think that can be 
looked at, in some ways, is small businesses helping small 
businesses. One group that we think will be critical here are 
the accounting and existing support businesses that provide a 
lot of the underlying financial services and accounting to 
existing small businesses. They are in a position, in many 
cases, of recommending the software, building the 
infrastructure, or actively being involved in the 
infrastructure. That really is the part that needs to be tied 
to these marketplaces to participate in e-commerce.
    I think an active effort to educate them so that they can 
be more effective change agents to their customers would be an 
important strategy to really make this move a little faster.
    Mr. Farrell. At BizLand.com we have over 500,000 small 
businesses on our site, we are signing up 2,500 small 
businesses a day. We offer everything that a small business 
needs to get their business up and running on the Internet, 
free hosting, free web site, free e-mail, free storefronts. 
Everything that a small business needs to get started on the 
Internet, that is exactly what we do at BizLand.com, offer all 
those services to the starting entrepreneur to work his way 
onto the Internet and do his business over the Internet.
    Mr. Freedman. So basically the short answer to how does a 
small business get involved in the Internet is to come to you?
    Mr. Farrell. Yes.
    Mr. Wren. My question, Mr. Krishnan, I could not agree more 
with you when you were talking about compliance management and 
some of the issues that you face. And I can sympathize with 
some of the problems that go along with that.
    At the SBDCs, specifically in Pennsylvania, we have been 
working with compliance assistance and compliance management. 
Right now we have been working with the silkscreen industry, 
the dry cleaner industry, very small businesses where we are 
talking usually less than five employees. Some of the issues 
that arise with them, are similar to the gas stations with the 
underground storage tanks issues, that were major problems.
    I guess a combination of questions for you, Mr. Krishnan 
and also for Mr. Villars. A lot of the small businesses that we 
are dealing with, because of their size, one or two employees, 
less than five employees, when it came time to get out to them 
they already had so many issues, as you had shown, that they 
had to comply with--only to throw on the environmental impact 
issues of, for example, the dry cleaner emissions evaporations.
    They really are struggling with time and you have got the 
issue of do I take the time out of my day to start worrying 
about getting on the Internet as a survival method? Or do I 
spend the 12 to 14 hours a day worrying about all these other 
issues? And oh, by the way, I have got a business to run.
    What is your advice? What is your recommendation? Or what 
have you done to get with the small gas station owners, dry 
cleaners, silkscreen printers, to figure out an effective, 
efficient method of juggling 32 hats at one time?
    Mr. Krishnan. That is a very important question, you are 
right. Whether it is a laundromat dealing with the recently 
publicized issues of perchloroethylene emissions. Or whether 
there is a gas station dealing with leaking underground storage 
tanks.
    I think there is a lot of periodic media scrutiny and 
regulatory scrutiny which comes and goes in waves for various 
small business owners. I guess with us fundamentally, our 
premise is that yes, there can be a lot of information offered 
across the Internet, but certainly the Internet as an 
information dissemination vehicle has changed and transitioned 
from being a neat information tool to too much information.
    So really the key is, whether it is a gas station owner or 
whether it is a laundromat, we have to make sure the regulatory 
guidance we provide them has three fundamental characteristics. 
No. 1, it is timely. And does it match the latest changes in 
the Federal Register? Or in the case of the Commonwealth of 
Pennsylvania, the Pennsylvania Department of Environmental 
Protection.
    No. 2, are the regulatory issues and the solution we 
provide customized for this particular segment? The same 
regulatory text can be interpreted 18 different ways. That is 
why consultants are extremely happy with new regulations.
    No. 3, it has to be localized. In the case of a laundromat 
in Harrisburg, Pennsylvania, we have to worry about potentially 
the city of Harrisburg code, the PA DEP code, and then the 
Federal code. What we essentially try to do is again use our 
screening technology, in this case called the e-comply 
technology, which is based on a lot of expertise in the patent 
recognition and the AI, artificial intelligence, area to 
essentially screen and customize the specific needs of a 
particular client who comes onsite and provides that 
information to them.
    I think fundamentally, in terms of such small businesses, 
one to five employees, the good news is certainly they are also 
getting onto the Internet. And in terms of their ability to pay 
and be involved in such regulatory solutions, I think the key 
is for agencies such as some of the Governmental agencies, for 
groups like the SBA, for potentially the Pennsylvania Chamber 
of Commerce, other institutions like that, to encourage them to 
come on board and potentially offer this information for free 
for them.
    We certainly are interested in working with such groups to 
get the small businesses more used to using this new ``gizmo'' 
as a very comfortable channel for solving their regulatory 
burdens.
    Mr. Freedman. Thank you, Mr. Krishnan.
    Mr. Dozier. I have a question. I want to concentrate a 
little bit more on how your businesses on the Internet have 
continued to stay viable. We know that a lot of them end up 
failing for one reason or another. Mr. Alford was talking about 
that.
    In particular, how much of your business depends on 
traditional marketing, traditional advertising? I hear a lot of 
frustrations, people calling our office saying well, I set up a 
web site and now people are just supposed to find it. They 
register with various search engines and what have you.
    I liken it to a Chinese proverb, if you have a web site and 
no one sees it, does it really exist?
    [Laughter.]
    Mr. Freedman. Is that Chinese?
    Mr. Dozier. No, that is actually Damon.
    So I am interested in how much activity your businesses 
have in the traditional ways of marketing and advertising?
    Mr. Freedman. Actually, if I could just jump in on that, I 
have also been wondering what you all see in terms of the 
relationship between a company going to the Internet approach 
and also maintaining its brick-and-mortar approach. I do not 
believe that the Internet is ever going to replace the brick-
and-mortar approach, but I am curious what you see as the 
interplay and how someone should balance those two approaches?
    Mr. Krishnan. Let me go ahead. First, in our case, the 
value proposition we bring to the table, to the clients, which 
are fundamentally the reasons, whether it is a small business 
or a larger business they come to us, is very simple. We say 
anything a consultant can do for you, we can do it faster, we 
can do it better, we can do it for a dime on the dollar. So it 
is not that difficult for us, with that kind of strong value 
proposition, to go in and get clients to try our service out.
    Here really the challenge is yes, we are an interim 
business. But fundamentally, our sales and marketing program 
has to be based on a relationship building process. All said 
and done, for plant managers in a large paper and pulp mill 
down to a laundromat owner, the Internet is still a new tool. 
It is still more of a toy, more for e-mail, more for chat 
rooms. It is not necessarily something they would look to for 
taking care of a serious aspect of business such as regulatory 
compliance.
    So what we tend to do is hold their hands, show them that 
this is a simple point and click. You can look at the 
regulatory needs. You can do multimedia training, streaming 
across. Here comes the video that says, ``Joe, put out the 
cigar before you fill gas or else.''
    It is very simple the way our message is put across. And 
fundamentally to us, that is part of the relationship building 
process.
    In terms of our relationship with brick-and-mortar 
companies, certainly what we are about is we work with brick-
and-mortar companies and basically show them how to eliminate 
one of the middlemen and the whole process of disseminating 
information, namely the consulting profession.
    Ms. Kim. From EqualFooting.com's perspective, one of the 
big things that we first did when we started our business was 
obviously sign up partnerships with our brick-and-mortar 
suppliers, both large companies as well as small suppliers that 
are more regional or niche, like the Batteries, Inc. one that 
you saw in the example.
    When we actually got the site up and we had this data base, 
I think we opened with a quarter of a million sku's of items.
    Mr. Freedman. I am sorry, sku's?
    Ms. Kim. S-k-u, of items, of product.
    Mr. Freedman. That is the digital label of an item?
    Ms. Kim. Exactly.
    So what we did when our web site was actually up was we 
certainly did not say, ``OK, now that we have built it we 
expect people to come.'' We had to do a lot of things actively. 
And we did some traditional and we did some new things. I will 
go into a little bit of each.
    The traditional things, things like direct marketing. 
Things like telesales. Things like actually doing a little bit 
of advertising, not anything like Super Bowl ads or anything 
like that, but going after the trade journals that really 
matter to our small businesses, especially our small businesses 
in construction and manufacturing, which is our core focus.
    We certainly started doing those and we have seen a lot of 
good things come our way, as far as people registering to 
become members of EqualFooting. In fact, within the first 30 
days of our actually starting that type of marketing effort 
more than 10,000 small business members joined us, which was a 
great thing for us.
    But one of the big things that we realized very quickly, 
and I think we have probably known this all along, is that as a 
new dot com, and I think all small businesses who are moving to 
the Internet will have this challenge, and there are a lot of 
companies out there, you have to do things that are 
distinctive.
    You also have to make the small businesses, that might hear 
about you through direct mail methods or whatever, trust that 
you are not just another dot com that is going to go out of 
business tomorrow. Why would they give you credit card 
information over the Internet, or even through the phone, if 
they think that you might just go out of business?
    So one of the things that we have been doing is working 
with very reliable brick-and-mortar companies that have very 
strong brands in small business services. Companies like 
American Express. Companies like ADP, BancOne and First USA. 
These types of companies that have been known to small 
businesses and already have half a million to a million small 
business customers each, to actually do co-promotions with each 
other.
    We actively promote their products and services to our 
customer base and vice versa. To have somebody like American 
Express be telling our story and our value proposition to our 
small business customers has been a tremendous, tremendous 
brand building and credibility building exercise for us.
    We are also working with associations like the ones that I 
mentioned before to build a brand, and also with other 
associations and small business advocacy groups like NFIB to 
actually reach their membership base. One of the big things 
that we have been trying to do is really buildup credibility 
among this group of corporations and organizations that really 
care about small businesses, and convince them ``Hey, we are in 
it for the long run and we are going to be here to do nothing 
but think about and serve the interests of our constituents.''
    Mr. Freedman. Great. I have Mr. Villars and Mr. Lane and 
then Mr. Farrell and Mr. Chubb.
    Mr. Villars. We are in the position of probably--and I 
actually have been actively involved in the e-commerce base 
directly managing the group for only 5 months, and I can 
already State that I have met maybe 200 startup companies 
focusing on B2B. So we have some visions here, and we have 
developed a little bit of a checklist of how we tend to judge 
these and what their issues are.
    The No. 1 priority in how we judge these companies and 
their long-term success is: Are they good at community 
building? This is a rule of the Internet in general when you 
look at dot coms, regardless of whether it is consumer or 
business, are they building a community of people who want to 
live in their space? Who when they go into work today, this is 
where they go and they do things there? Whether it is to buy 
things or to collect information or do other activities.
    So you do not have to be Yahoo on day one, but you have to 
be aggressive in the development of your product, in terms of 
how you communicate yourself on the Internet and in the direct 
marketing things. Are you successfully building a community 
where people want to actively participate in that community?
    So that is how we tend to judge what is going on. We will 
look at sites, and I think both of the other panelists have 
spoken actively about how they do that. But that is the No. 1 
rule for looking at long-term success, are companies--do they 
offer the services of a community? And then do they start 
adding additional services to that?
    So you start with commerce. You add financing. You add more 
information on training. You add other things that are of 
interest to that community. And I think one thing you will find 
is the marketplaces will emerge as each other's best friends. A 
marketplace that focuses on providing education services will 
link with a marketplace focusing on equipment, linking to a 
marketplace that is focusing on supporting gas station owners 
as their particular vertical.
    You begin to offer a single, bundled service of functions 
for that community. That will really determine who is going to 
be successful in this space.
    Mr. Lane. The Chamber comes at this problem from a unique 
position. No. 1, 80 percent or 90 percent of our members are 
small businesses. And No. 2, we are a minority owner of an 
entity called ChamberBiz, which is a small business portal that 
has over 200 of its local and State chambers that are members 
of it, where we work with their members to get them online and 
doing some of the things that you guys are doing, but also 
providing some information on legislation and other things.
    One of the issues that you were talking about was 
advertising and marketing on the Internet and how do you get 
that message out? One of our big concerns, and it was brought 
up by Senator Burns, is the issue of privacy and some of the 
legislation that is moving that could possibly hinder the 
ability of small businesses to target their audience because of 
limitations placed on how information can be used.
    So we are working diligently on a self-regulatory method 
and through the Online Privacy Alliance and other business 
associations, the Direct Marketing Association and other 
advertisers, to ensure that privacy is protected but not, at 
the same time, hindering the ability of small businesses to get 
their message out to a very targeted audience in this very, 
very competitive world.
    But on the flip side of that, those people who are nervous 
about privacy, the market again is working where there are over 
700 products that have been introduced in the past 2 years to 
protect an individual's privacy. There are also business models 
out there that protect individual's privacy such as Incognito. 
It is an online advertising firm. So there are a variety of 
things going on right now in that area.
    The other thing that is very critically important to B2B is 
obviously the e-sign bill that was brought up by Senator Burns 
in his leadership role on a lot of these issues. We are 
confident that this legislation will again open the market to 
new dynamics for contracts to be done online, for records to be 
done online, in a way that results in even more efficiencies 
for this economy and continues to grow.
    Also a critical issue for small businesses is the issue of 
trade and is the reason we are working on PNTR (Permanent 
Normal Trade Relations with China), to open these markets to 
small businesses. It is worldwide and small businesses can 
access that market in a way again that is open and free.
    So all the issues are related in terms of trying to find a 
common ground for small businesses to enter in this new dynamic 
marketplace, and at the same time building that consumer trust 
so we do get more customers involved in this new economy.
    Mr. Freedman. Thank you. I have got Mr. Farrell and then 
Mr. Chubb.
    Mr. Farrell. What we found at BizLand, as we were trying to 
move the brick-and-mortar small businesses and entrepreneurs 
into this space, is they have a certain fear of having their 
competition one click away from them. To get them over that 
hurdle, to get them into the Internet space, is really a very 
big challenge.
    A gentleman that has a flower shop on the corner, who has 
no competition within 4 or 5 miles, all of a sudden someone 
does a search and he comes up, but there are 100 competitors 
there. We found that is really keeping small businesses from 
jumping into this space at a much quicker rate.
    Mr. Freedman. How do you counter that? I guess one thought 
would be your competitor is there and if you are not there you 
will not get anything out of it. But on the other hand, I can 
appreciate the fear.
    Mr. Farrell. Tell that to the person who has had the floral 
shop for 30 years on the corner of First and Main, that they 
need to be in that space. It is a very hard sell for them to 
make that jump.
    Mr. Freedman. A psychological type of area.
    Mr. Chubb. I just wanted to address the issue of trust. Ms. 
Kim, you brought up the concept of trust and you brought up the 
concept of security. Yes, there are issues in relation to 
digital security, encryption, e-sign, and so forth. Senator 
Burns is pushing hard and we appreciate his efforts because 
that is going to lead to efficiencies.
    One of my other hats that I am wearing, that you do not see 
on this copious hairless skull, is the Forum for Trust in 
Online Trade. It is an organization that exists to address its 
title, trust in online trade, in all its myriad of issues, 
whether it is security or identity or how do you, as Mr. 
Villars pointed out, pay for actual goods between businesses?
    We are not talking a CD for $20. We are talking $50,000 to 
$100,000 to $2 million. There are large quantities. There are 
large issues there.
    I think Ms. Kim also brought up a valid point, that you 
can, as a small business, assess a dot com by the nature of its 
partnerships that it has present on its site. We have one of 
the Forum founders members in the audience here today, Rebound. 
They are a dot com that is international, and has domestic 
activity as well.
    If you go to their site, you will note that they have 
partnerships with SGS, but also with a major freight forwarding 
entity. They are discussing major relationships with the 
largest insurance company in America, I think, as well as other 
key service providers. So the issue for the people here 
representing associations, when you talk to your small to 
medium enterprises, and they are being approached, part of 
their due diligence is to assess their checklist of suppliers, 
in terms of other key service providers.
    If it is blank, worry. If they have got major alliances 
with major names and you can search them, then you are starting 
to lead the way toward a more trusted environment.
    Mr. Freedman. Thank you. Before we go to Mr. Peyton, Paul 
Conlon has a history with some of these issues.
    Mr. Conlon. We did a forum, which many of you guys were at, 
a couple of months ago on computer security. Since that time, 
we have had a number of meetings with some folks over at the 
FBI. They have put together a new center called the Internet 
Fraud Center, which they just launched I think in early May. I 
would encourage everyone to pay attention to the efforts that 
the Bureau is doing in that. I think it is a worthwhile effort.
    Mr. Peyton. Thank you. We have been aware for a long time 
of the challenges faced by smaller- and medium-sized 
manufacturers in applying any kind of technology. We have done 
a series of three studies over the last decade called 
``Technology and the Factory Floor,'' which showed repeatedly 
that smaller plants trail larger plants in applications in any 
of 15 different categories, mostly related but not entirely 
related to information technology.
    We also did a survey in the past year with the McGladrin 
auditing and consulting firm because we were seeing numbers 
regarding how many businesses are putting up web sites, which 
is encouraging. But what we found was that when you look hard, 
there are somewhere between 100 and 200 really good web sites 
put out by small- and medium-sized businesses. We singled out 
Smucker's Jams and Jellies, Samuel Adams Beer, and 
interestingly Rayovac Batteries. They compare their own with 
all the other manufacturers and they have the best comparison 
chart for all the models and numbers that I have ever seen, at 
their own site.
    With all these thoughts in mind, we put up our own e-
business portal this year, ManufacturingCentral.com. I have not 
been to BizLand but it looks like we have some overlap of 
functions with what you offer there at BizLand.
    We agree with what Mr. Villars has been saying, that it is 
really not just a vertical chain that would be most useful to 
smaller businesses, but a much fuller suite of capabilities. So 
we offer everything from web site hosting to bid offering. We 
feel that there have to be many more horizontal offerings to be 
truly useful to small businesses to get up and going. So we 
certainly agree with that perspective.
    On the policy agenda, we have been working with the Chamber 
on the e-signature bill. That is probably the single most 
useful thing Congress could do quickly, is to get that to the 
President so that businesses can do deals, which are above a 
credit card level, entirely without paper.
    Mr. Freedman. Thank you. Mr. Alford.
    Mr. Alford. In regards to the florist, it is the same 
concept as the Yellow Pages. I think if you are in business, 
you better be able to compete. In business, Darwin does apply.
    In regards to the security issue, fear of using your credit 
card on the Internet, I think with practice we will overcome 
that issue. We all go to a restaurant and will give our credit 
card to an 18-year-old waiter from who knows what background, 
who will go into the back room with it for 10 minutes. We have 
comfort with that.
    Finally, in case it does not come up again, in the private 
sector, we really are wondering if it is right to label a 
business a minority business, a woman business in the private 
sector. There is not a Fortune 500 company that does more than 
2 percent with African-American businesses. Not one.
    I have faxed too many CEOs about a buyer out in Kokomo, 
Indiana, who prefers to spend $40,000 more of his company's 
money because he likes the guy who is selling him some goods 
versus one of our members. So I think perhaps we may level the 
field a little if the person does not know the ethnicity or the 
gender of the business owner but focuses on quality and price. 
If we are to be competitive, I believe we will increase the 
amount of business we do in the private sector.
    Mr. Freedman. Thank you.
    Ms. Hatcher. Jennifer Hatcher with the Food Marketing 
Institute.
    I think we have really hit on some of the most important 
topics, in terms of getting folks motivated to get online, and 
in talking about the value proposition and community, certainly 
our small business members see purchasing as a big issue. They 
definitely see compliance as a big issue.
    The other issue that we are really facing right now is 
labor in our industry. We have just launched an Internet 
venture, in terms of SuperJobMarket.com linking employees and 
employers and really giving small businesses the opportunity to 
go after those critical employees in the industry. I think, in 
terms of talking about community and the value proposition, to 
get folks motivated to get online, they are going to stay 
online once they realize the power of a PC. In a lot of 
instances, a small business is in better shape than a large 
business who has got an older computer system, where a small 
business can take one PC.
    We have a single store operator in the New York City area 
who sells specifically Latin products and has found that he can 
now go across the country to sell to a lot of communities that 
do not have products designated for Latino families, just with 
the power of his single personal computer.
    Mr. Freedman. That is very encouraging. I was interested in 
some of the comments from some of the industry-specific groups 
about what their members may be doing in this area. We have 
been hearing a lot about people who are involved in the 
Internet specifically, but I am also interested in the tire 
group and how your members are getting into the Internet.
    Ms. Kim. A quick note on the issue of security. Certainly, 
I think digital security is very important. I think we, as well 
as other marketplaces, are complying with all of the 
regulations that we need and getting all of the certifications.
    But I think one thing that has been really important when 
we have talked to our small business customers, we actually 
have an advisory board of about 80 small business owners that 
we sort of run everything by. This was something that we 
started last summer.
    One of the big things that they told us about security is 
it is less the online security that they care about and more 
the fact that they might be able to pick up the phone, if they 
do have a problem, and be able to reach a live person. A lot of 
net market makers and exchanges have not provided that kind of 
basic customer service function.
    One of the big things that we push to do is somewhat become 
a brick-and-mortar company ourselves by building out our own 
call center that serves 24-7 with a toll-free number. Even 
people who do not have PCs can actually call, not only with 
customer service questions but also actually access all of the 
same functions that online customers can.
    I think this has actually provided our customers with a lot 
of confidence that hey, this is not just a phantom web site 
that nobody looks at or anything like that. I think this is 
something that we entrepreneurs and all net market makers 
should really strive to provide, is that kind of real phone, 
live service.
    Mr. Freedman. In the end, you just want to hear a voice.
    Ms. Kim. Exactly. For some reason, they do not mind 
actually giving out their credit card number, as long as it is 
to a person. I am not sure why, but they do not.
    Mr. Freedman. Mr. Lane and then Mr. O'Connor, Mr. Gaibler 
and Mr. Wren.
    Mr. Lane. I think one of the ways to get more small 
businesses online are these types of events. I want to commend 
Senator Bond, Senator Kerry and Senator Burns for putting on 
this forum, because it allows for education. I am sure this is 
going to be on the web and businesses can access that.
    One of the things that we are trying to do at the U.S. 
Chamber, and what we have initiated, is a massive educational 
process on the issue of network security, on the issue of how 
to get online. We are partnering with State and local chambers 
to put on events in those areas. We have one coming up in the 
State of Oklahoma. We are going into Missouri and a few other 
states, trying to get into markets.
    We are not going into Silicon Valley and telling John 
Chambers how to do e-commerce. But we are going to the places 
that have not been effected that much by the e-commerce bug. 
That is probably a bad term to use.
    Education is key. I think the more you buildup that comfort 
level--just as we talk about customer trust, I think we also 
have to get business trust up there.
    So I just wanted to commend you and your bosses for putting 
this forum on, because it is critical to get this type of 
information out.
    Mr. Freedman. Thank you. We should all recognize that this 
is being broadcast live over the Internet right now through the 
Small Business Committee web site, and it will be archived on 
the web site. So if you all want to go back and see how the 
forum looked, you can click on it and bring it up on your 
RealPlayer software and take a look at it. The archives are 
maintained for one year.
    The Internet moves fast, but it is not too late to get into 
it. That is a great message.
    Mr. O'Connor. I think everybody in this room agrees that 
small businesses need to understand and engage in e-commerce 
right now. But it is still about the customer. No matter how 
high tech a company gets today, basic business tenets still 
apply.
    We are getting a lot of requests now from small businesses, 
and one of the things that we are looking at is, even though 
everybody wants a web site, there is more to it. The basic 
business tenets still need to be understood by the small 
business community, and we are still trying to help them in 
that area.
    Mr. Freedman. Thank you. Mr. Gaibler.
    Mr. Gaibler. Thank you very much. Our members are primarily 
retail farm suppliers and the products that they handle are 
primarily agricultural chemicals and fertilizers. So not only 
do we have to comply with the regulations of running a 
business, we have to comply with the EPA, the DOT, the material 
safety data sheets, all of those requirements. It has been a 
real struggle for us to try and get our hands around all of 
that aspect.
    What we see happening, at least in terms of agribusiness, 
is we see a lot of business-to-consumer web sites popping up 
where there are more auction sites or brokering of these 
products. We have been concerned about the stewardship of that. 
Once those products are purchased and change hands, are they 
actually being legally able to use where they have been bought? 
And are those products still in their same containers, do they 
meet EPA requirements, et cetera?
    One of the ways that we are trying to deal with this as an 
industry is a group of manufacturers, distributors, and our 
retailer members, trying to put--an organization has been put 
together where we are trying to build data bases, we are trying 
to get to the point where we can bar code these products, where 
we can have electronic data interchange, electronic funds 
transfer, those sorts of things.
    Just an example: The agricultural chemicals that exist in 
excess inventory is over $1 billion every year. So you can see 
that the savings and the product efficiency that we could get 
out of that is tremendous. So we are struggling with that as 
both a threat because some of our members see this brokering 
going on as a threat and as an opportunity. I think the 
entrepreneurial part of it is saying, we will take advantage of 
that and get on that brokering exchange and buy and sell 
chemicals and other products as well. But this is a big 
challenge for agribusiness.
    Mr. Freedman. I am not surprised.
    Mr. Wren. I wanted to go back to Mr. Lane's comment about 
how to get more small businesses involved with the use of the 
Internet. That posed quite a challenge for us at the SBDCs, 
Small Business Development Centers, dealing with a lot of very 
small businesses with under 10 employees. Being from Missouri, 
one of the philosophies I have always had is ``show me.''
    So with that in mind, since in Pennsylvania, I will use the 
example that where we are located there are 16 colleges and 
universities throughout the State. We decided that one of the 
best ways to do this is instead of having them come to us or 
start talking about it, let us take this on a road show. So by 
doing a series of seminars--and actually beyond the seminar 
stage, taking laptops, going into a business where we are 
sitting down talking to them about it. I ask, ``Do you have an 
open phone line?'' Let us plug it in. Here, play with this 
thing. As Senator Burns said, the only way you are really going 
to mess a computer up is if you enter a soda through the 
keyboard. It is not going to hurt you. So let them play with 
it.
    My colleague Dan Whysong from St. Francis College was 
meeting with a very interesting company last night. It is a 
very small business. The owners are in their seventies. They 
have an agricultural type business. They were of the mind-set, 
this thing is too scary for me. I think Dan did a very good job 
last night. He has made progress. They said, ``OK, we can get 
you to post a web site, but we do not want e-mail.'' So we have 
got them to the point they have bought the automobile. Now we 
have just got to convince them to put an engine in it.
    I think you have to actually get down to the grass roots of 
small businesses. One of the major outreach efforts that can be 
used for that is colleges and universities with all of the 
resources and assets that they have to give back to the 
communities, in partnering with organizations like that it will 
help to expand those small businesses, such as the one with the 
70-year-old business owner.
    We tend to have a gap that we look at--I come home from 
work in the evening and my 17-year-old daughter will show me 
another new thing she learned how to use on the computer, which 
is probably 10 steps above where I am. And if you go to the 14-
year-olds, they are showing the 18-year-olds how to do things.
    Then we have got this group of middle-sized businesses--
small- and medium-sized businesses that are good at using the 
Internet but there is that gap from about age 20 to 25, 30-
years-old who are business owners that have so many other 
issues and they really did not get the training, whether it be 
in a formal setting such as a college or a university, or went 
out and struck out on their own. They are trying to start their 
businesses, and I think that is a lot of the target market 
where we need to grow this technology; growing those businesses 
has got to be a focus.
    I think through using organizations that are represented at 
this table, the Small Business Development Centers, the 
colleges and universities, can be a great resource for that. I 
think this is pretty common what a lot of us are seeing with 
small businesses.
    Mr. Freedman. Can I just interrupt you? We are running out 
of time and we have got one question that we need to present to 
the group that we really want to hear a response on. I am going 
to direct it to Becky MacDicken and David D'Onofrio right now 
since their name tents are up, and I think it applies to them 
very closely.
    In terms of what the Small Business Committee can do for 
this issue, what kind of legislation do you think we might be 
able to generate? We have heard about the e-sign bill already, 
but we want to talk about incentives in terms of what do you 
think would help small businesses? What would pull them in? 
What kinds of things can Congress do to pull them into this 
market? Is there some question of tax relief or something? I am 
just throwing that out because I know that it is always one of 
the top subjects that people go after.
    David, do you want to start and then Becky?
    Mr. D'Onofrio. I think the first thing you guys can do is 
do no harm. We try tax incentives, we try tax credits, we do 
all of these things and they are nice----
    Mr. Freedman. Is there a bill that says, do no harm?
    Mr. D'Onofrio. I think your boss should introduce one. Tax 
credits are good. They help in a lot of different areas. I am 
not sure this is necessarily one of them that will help.
    The quick point that I was going to make is at these 
forums, these kinds of opportunities to educate people that is 
really what we need. We do a survey every year with Arthur 
Andersen's enterprise group. The results are going to be 
released at the end of June. It is shocking to see how many 
folks do not think they need to get into e-commerce. How many 
people who just, it is not for their business. You see the 
challenges that are out there and we ask them, what are they? 
And it is all spread out pretty equally. It is the time. It is 
the cost. It is the fear. It is the technology moving faster 
than they can keep up with.
    I am not sure that is something that necessarily Congress 
can do too much about. I think it is what the folks on the 
panel and the folks around this table who really have to do the 
most to help small businesses.
    Ms. MacDicken. I would agree obviously with what David just 
said. Just to give you a quick anecdote as to what our 
membership's mentality is: We got a call last week from a 
member who went online and was searching around for a small 
tire dealer or for tire dealerships in his area of New Jersey 
and found one of his main competitors was online. He was livid 
when he found out he did not have to pay taxes nor were there 
sales taxes on any sales that that gentleman made.
    He said, that is not fair to me. Anybody I deal with in my 
shop has to pay sales taxes. So he said, we want to make sure 
you press legislation advocating taxes. We said, no, no, no, we 
cannot do that, obviously. But we also pointed out to him that 
the shipping and handling costs alone would probably more than 
make up for those taxes.
    We would say at this point we approve of the moratorium 
that has been passed keeping Internet sales taxes status quo. 
But as far as other incentives, I do not know. They are scared 
and they are not sure what to do, and they do not trust people, 
and I do not know how you are going to get over trusting--I 
mean, the Government coming in and saying, we are here to help, 
will not help. So I am not quite sure what else to say other 
than e-signatures and what we have heard this morning.
    Mr. Freedman. I want to give our panelists probably, I 
guess it is going to come down to our last word here on this. 
So we will start with Mr. Krishnan and then move across.
    Mr. Krishnan. Thanks. I think a very obvious area where we 
see that Congress can help in passing legislation is to mandate 
that small business owners, as well as larger businesses, can 
comply and take care of their paperwork filing online. To me, 
this is such a no-brainer. It is a win-win situation.
    By doing so, because all of us are familiar with the 
Paperwork Reduction Act, we see the small print at the end of 
every form, but the people we have talked to on the 
governmental side, the State governmental side we are in dialog 
with a couple of State governments they just, based on their 
analysis, were astounded to find that by doing so their costs 
of disseminating information about new changes, about the 
outreaches, instead of just relying on traditional toll-free 
hotlines, and seminars and so on and so forth alone, and their 
cost of processing the paperwork is reduced dramatically.
    So not only do small businesses save a lot of money with 
electronic filing, but, the Government on the side of 
processing the form and the data and related enforcement 
actually end up spending a lot of time and a lot of money that 
could be reduced with electronic filing. So hope again this 
logic and common sense--acknowledging the Internet's existence 
and its viability for being the delivery platform will help the 
Congress take that step.
    Mr. Freedman. Do you see the forms being changed to be 
filed online or is it the same form which happens to be online?
    Mr. Krishnan. Right now fundamentally you have a couple of 
Federal agencies, in particular the IRS and SEC, which have 
taken some steps in that regard. If you take EPA, OSHA, if you 
take a variety of State governments you find they are still--
have not really begun to think about it.
    Mr. Freedman. It is the same form it just may be available 
online.
    Mr. Krishnan. And particularly I think for a small business 
owner, or for a larger business owner, every day is like an IRS 
April 15 deadline. To be able to deal with all of those 
seamlessly, efficiently using technology is going to be a great 
boon.
    Mr. Freedman. Sure. Thank you.
    Ms. Kim. I think I would wholeheartedly agree with the 
recommendation of do no harm. One of the big things that I 
think where Members of Congress can really help with respect to 
small business awareness is rather than legislation, going back 
home to the small business constituents and having forums like 
this that are educational, with people like us who care about 
small business e-commerce issues, and inviting their small 
business constituents. I think that is going to be one of the 
most effective ways of actually affecting change in this area.
    I know I have participated in such forums held by a Member 
of Congress before. One particular one was in Michigan with 
something like 600 to 700 small manufacturers who were there. 
It was a fabulous dialog that we had with all of the different 
people, and it was a great way to actually change behavior 
because the Congressman was there and talked about all of the 
different opportunities.
    I am definitely looking forward to the Kansas City event, 
and I think opportunities like that where Members of Congress 
actually show that they want to communicate directly to their 
small business constituents and invite people like us who are 
actually doing some of that, I think that would be a great way 
and the right step.
    Mr. Villars. I would close with one point. IDC is not 
typically in the business of suggesting legislation, but I 
think as we look at the future of these marketplaces and if 
they do reach their potential in terms of the number of users 
and the activities going on there, there are going to arise 
issues very similar to what the securities and commodities 
businesses face. Where there is going to have to be a certain 
amount of trust or a guarantee of trust in the system so that 
the participants all feel that this is an open market and that 
there are no potential shenanigans going on, as you would say, 
which always are a risk.
    So we do think that that is the thing to be aware of as 
this goes forward, because while business is very good overall, 
you always are going to have the risk of somebody trying to 
take advantage of the system. That is going to cause--if that 
becomes public and very visible, you are going to lose a lot of 
trust from the people who actually are getting the most benefit 
from that.
    So we would say that a vigilance and watching to see when 
you reach a certain scope that you begin to think about those 
issues will be something that Congress should keep its eye on.
    Chairman Bond. Thank you very much. Our special thanks to 
the panelists and to the participants around the table. I was 
watching the forums on the Internet as I was meeting with 
groups in Missouri. It is interesting that you should mention 
that question of trust because among the groups I met with were 
realtors from Missouri and they were concerned about 
maintaining the security of the information that they receive 
there, and I suggested that this was an important role for 
technology to develop because we much prefer to solve these 
problems by technology rather than legislation. But as you 
indicated, there may well be some technology needs that are 
not--some technology gaps that must be filled with legislation.
    So we ask that all of you continue to advise us and work 
with us, and as we see how this develops we will be listening 
for the voices of small business, and those of you who serve 
small business, to see if there are needs that we must address 
by legislation. As you indicated, our preference is to do it 
with technology, but if we find that that is not adequate then 
certainly we would be in a position to consider the 
legislation.
    I am convinced that in the next few years the Internet-
based B2B transactions will be commonplace, and a major 
component in the small business community's ability and 
approach to doing business. Obviously we have identified some 
tremendous--I would prefer to refer to them as opportunities 
rather than challenges, but I think you have laid out for us 
what those ``opportunities'' are.
    As always in our forums, the record will remain open until 
June 1 for additional comments or statements from anyone who 
wishes to submit further ideas or expound upon discussions that 
have already occurred today. We will be publishing a transcript 
of this forum for future use, and I would reiterate what I 
believe Marc Freedman has already told you, that in keeping 
with the high-tech nature of this subject, the Internet 
streaming of the forum is archived on the Small Business 
Committee's web site at http://www.sbc.senate.gov. You click on 
the hearings icon and you can hear all of this again.
    Also we ask that you continue to share with us through the 
Internet or any other more mundane means of communication you 
wish to use on your ideas in this exciting and very important 
area. Thanks to all of you for attending and for participating. 
It has been a very fruitful discussion and we are delighted to 
have so many people who have participated here with us in this 
room and also via the Internet.
    Thank you very much for your time.
    [Whereupon, at 11:35 a.m., the Committee was adjourned.]

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