Is eCommerce bad for the economy? by Jon Hansen

Posted on October 2, 2014



The other day I received an interesting phone call from Daniel Blaise who, after reading my coverage of the emerging eCommerce world, wondered if I had ever considered the possible downside of this “new” global reality.

Downside? How could there be a downside?

Blaise is the founder of, which was established as a means of connecting the buying public with the local bricks and mortar businesses within their own neighborhood.

Listening to Blaise, I was instantly reminded of the movie You’ve Got Mail, in which Meg Ryan’s “little shop around the corner” neighborhood bookstore’s survival, was being threatened by the opening of a Fox Books mega-store a couple blocks away.

While everyone seemed to support Ryan’s little shop in warding off the egregious encroachment of a heartless corporate giant, with public protests and expansive media coverage, their wallets ultimately got behind the Fox store. The little shop sadly ended up closing it’s doors despite being a neighborhood fixture for several decades.

While the movie ended on a high note with Ryan’s character ultimately falling in love and walking off into the sunset with the head of Fox Books’ Tom Hanks, there is according to Blaise, no such happy ending on the horizon for the majority of neighborhood businesses who have seen their street traffic continue to drop year-after-year.

The only difference in Blaise’s script is that instead of a big box store a couple blocks away, they are fighting a virtual and somewhat faceless giant being eCommerce.

Make no mistake, Blaise is not the incarnation of a noble yet sad Don Quixote, determinedly yet fruitlessly flailing at windmills. Quite the opposite!

I found him to be cool, well-informed and level headed in explaining his position that eCommerce threatens the economy as much as it stimulates it. Specifically, as people increasingly choose the convenience of shopping on line over visiting a local store, an increasing number of jobs are ultimately lost when storefront retailers are forced to close their doors. Particularly hard hit in the job department are students who rely upon these small businesses for part-time employment.

While his focus was on the negative impact that eCommerce has and is continuing to have on local retailers, according to a June 12th, 2013 MIT Technology Review article, Blaise is not alone in his assertion that technological advancement costs jobs.

In his article How Technology Is Destroying Jobs, David Rotman talked about IT Sloan School of Management professor Erik Brynjolfsson’s contention that “impressive advances in computer technology—from improved industrial robotics to automated translation services—are largely behind the sluggish employment growth of the last 10 to 15 years.” Along with his collaborator and coauthor Andrew McAfee, Brynjolfsson foresees what he referred to as being “dismal prospects for many types of jobs,” as the increasing adoption of “these powerful new technologies” will negatively impact manufacturing, clerical and retail work.”

But is this really a bad thing as it relates to a nation’s economy?

After all, and referencing the Clark and Fourastie “three-sector hypothesis of industry” (which has been extended to four with the advent of knowledge-based industries), technological advancement – including eCommerce – is essential to the continuing progression of a wealthy nation’s economy.

Developed by Colin Clark and Jean Fourastie, the hypothesis includes the extraction of raw materials (Primary), manufacturing (Secondary), services (Tertiary) and knowledge-based (Quaternary) sectors.

Under a “general pattern of development,” a wealthy nation progresses through each phase. Effectively managing this progression is critical to what Fourastie referenced in his 1949 publication “The Great Hope of the Twentieth Century” as “the increase in quality of life, social security, blossoming of education and culture, higher level of qualifications, humanization of work, and avoidance of unemployment.”

In short, eCommerce is simply one – albeit a big one – element of an evolutionary process that both expands and strengthens a nation’s economic base. This position is supported by the economic growth in countries such as India, which came about as the result of the development of its technological capabilities.

With India, the indigenous software engineering talent has made that country the off shoring destination of American high-tech firms, each of which have in previous years committed to investing $1 billion into its economy. The result of this boom is that India had seen double-digit wage growth for much of the 2000s.

Of course as you continue to read the Rotman article, you also recognize the fact that while the technological advancement feast is a famine for some established sectors, it can also create new opportunities for growth through increased efficiency. Refer to the Kiva robot story regarding this latter point.

Despite the apparent benefits, Rotman stresses that it is hard to ignore Brynjolfsson and McAfee’s warning that technology is “widening the income gap between the tech-savvy and everyone else.” Even if, as some contend, “the economy is only going through a transition similar to those it’s endured before, it is an extremely painful one for many workers, and that will have to be addressed somehow.”

The pain to which Rotman refers is also the pain that Blaise talks about in terms of his small neighborhood businesses, and the negative impact that eCommerce is having on their collective livelihood.

In this regard, I found Nilesh Gopali’s July 4th, 2014 article in Broker’s Forum Magazine interesting in that he provides an answer relative to how Blaise’s pain can be addressed.

In Connecting The Dots Between eCommerce And A Robust Economy, Gopali wrote that eCommerce drives the economy by “empowering small business growth!”

In referencing one of many reports on what he calls “the importance of small business to a nation’s economy,” Gopali explained that “50% of the United States’ gross domestic product (GDP) is generated by the nearly twenty-seven million small enterprises in that country.” The “advent of eCommerce” he goes on to say “has played a significant role in stimulating small enterprise or non-employer business development and growth as reported in a 2013 Forbes article The Rise Of The Million Dollar, One-Person Business.”

The article in question is by Elaine Pofeldt who points to the “increasing number of non-employer or sole proprietorship enterprises that had for the first time broken the $1 million mark in sales.”

In explaining the breakthrough Pofeldt indicated that “technology is probably helping some entrepreneurs break sales records that they might not have been able to achieve before the internet era by expanding their reach.”

Gopali then underscores the important role that eCommerce has played in helping small businesses achieve such lofty heights of success, when he talks about the fact that “total revenues from these microbusinesses rose to $989.6 billion, up 4.1% from 2010.”

However, and not being oblivious to the challenges some in the retail sector are facing in this new virtual economy, Gopali provides what can perhaps be used as a guideline for smaller retail players to make a successful transition to the eCommerce world.

In his reference to a recent Houston Chronicle article by Stacy Zeiger, Gopali shares the writer’s perspective on the products and services that are best suited to being sold through a physical storefront. These include “high-value” items such as “designer clothing, antiques, jewelry, furniture and cars.” Besides offering a more appealing customer experience, these products represent a “higher profit margin” for local or neighborhood retailers.

Still referencing the Zeiger article, Gopali then goes on to say that while “A retail storefront will perform better for a business that sells a select amount of products, an online store may work better for a business that carries an extensive selection.” The obvious reason cited by Gopali is that “on-line businesses are generally cheaper to open and run than their physical storefront counterparts.”

He then concludes by suggesting that if each business model “plays to its strengths,” it is clear that everyone benefits.” This position as it turns out is not all that different from what Blaise had indicated when he said that neighborhood businesses must also be willing to innovate and adapt to changing consumer needs.

In the end, and similar to the main characters in the little shop around the corner movie, perhaps traditional bricks and mortar businesses can walk hand-in-hand with eCommerce towards a shared happy ending.

A happy ending for bricks and mortar retail & eCommerce?

A happy ending for bricks and mortar retail & eCommerce?


Posted in: B2B, Commentary