The Impact of the Internet on Businesses

By Visibee April 22, 2016 No Comments

There is no doubt that the invention of the Internet has revolutionized the way man lives. It brought in its wake a connectedness that the world was lacking, coupled with speed and accessibility. Coincidentally, it was these three things that businesses in various industries have always been looking for.

First it would be prudent to assume that businesses exist, or enter the market, in pursuit of profits. Hence when each makes a rational decision, it is always in consideration of profits, whether in the short-run or long-run. Second, that since these businesses pursue profits, it would follow that it is their primary interest to maximize profits. It is from here that we draw our analysis of the Internet’s impact on businesses sales.

Recall that each sale happens when a producer and a consumer agree on a price at which a good is sold and bought (that is, a double coincidence of wants), and thus is affected by demand and supply. Demand-side factors, such as age, sex, season, and income, are given. No matter how advanced the Internet gets, it won’t influence decisions based on those factors. Rather, it would be more interesting to look at preferences and advertising.

Preferences and tastes play a significant role in the determination of demand, and have always been the trickiest to account for in sales. Since each individual has a unique nuance in wants, it is the main challenge of a seller to find out, then somehow aggregate each preference so that it comes up with a product that appeals to the largest segment of its market, but not so much as to alienate the individual. The power of the Internet here is the ability to not only reveal, but in special cases, induce preferences.

The sheer number of hours people spend online usually results in particular trends and fads emerging from time to time, from viral pictures, posts, and videos. Purely from the fact that such materials became so popular, it is then revealed to the firm what the people actually want. From there it can modify, or even create products that cater to such preferences.

Another aspect of demand is advertising, which, through the internet, has increased its penetration more than ever.Companies now consider online advertising as a necessity to remain competitive. Further, advertisement via the Internet gives one the illusion of exclusivity, in that one thinks the message was delivered especially for the user. Given the volume of exposure to such materials, a consumer’s preference over time may tend to favor those it is most familiar with.

Supply-side factors tell the other half of the story. Given that firms maximize profits, this means that they simultaneously maximize revenue and minimize costs. Needless to say, the Internet has drastically lowered various business costs through the years. Administrative costs of keeping files and records (paper, cabinets, storage areas) were switched for virtual memory at a much lower price.

Correspondence between businesses, which used to entail transportation and opportunity costs for lost time, has been made easy through electronic communication. Important meetings could be held online without the hassles of travel. Suppliers from different countries are not hindered by vast geographical distances anymore. Doing business has been made easier and easier.

Moving out of the business’ perspective, perhaps the most important effect that the Internet has had on sales is inclusive – it isn’t just the businesses who could sell anymore. It has created a market of its own which gives rise and facilitates transactions between the non-corporate people. Online buy-and-sell web sites, such as Amazon and eBay, reported revenues of $2.1 billion and $2.11 in 2015 respectively. These not only reflect the degree of penetration of the Internet as a means of doing business, but also indicate its users’ confidence.

To sum everything up, we answer one question. In a world without the Internet, what would happen to sales? It will retrograde: decrease, and decrease in volume, become more exclusive, yet perhaps a little more supervised.

 

Photo: Pixabay