"Many have argued that the Internet renders strategy obsolete. In reality, the opposite is true. Because the Internet tends to weaken industry profitability without providing proprietary operational advantages, it is more important than ever for companies to distinguish themselves through strategy. The winners will be those that view the Internet as a compliment to, not a cannibal of, traditional ways of competing."

Porter, Strategy and the Internet (2001: 63)

The internet

According to DTI statistics (2000), the internet is one of the most rapidly diffused innovations of our times (Houghton and Winklhofer 2002). As the popularity of the internet has continued to grow, it has well and truly become part of our daily life (Chan and Lin 2007). This trend will continue as the internet becomes ingrained in our lives with more and more products being connected to the internet.

Michael Porters five forces model (1980) shows that internet has had the effect of dramatically increasing competitive rivalry between firms. Through using the internet, the bargaining power of consumers has increased because the ease by which they can compare services and products online. Furthermore because the barriers to entry are low for new entrepreneurs entering the market, the threat of new entrants has increased. These factors have meant that businesses have needed to adjust their marketing strategies in order to survive in the crowded online marketplace (EZlistmailer 2007).

Along with the increased competition online, the internet has created new marketing opportunities. These new online marketing tools like email marketing, social media marketing, search engine marketing and selling products on auction sites like eBay are being used to great effect by some companies, whilst other companies remain oblivious to their importance.

In a similar way that there is a broad spectrum of take-up of new online marketing tools, there is also great diversity in the type and quality of websites that exist. Companies have websites ranging from brochureware (Levy and Powell 2003) to websites supporting online payment with backend business functions integrated (Chan and Lin 2007). Businesses need to understand what tools they should be using and what sort of website they should be have.

The SME Sector

This project will be addressing the small and medium sized enterprise (SME) sector, and accepts the European Commissions definition (2003) of SMEs:

"The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding EUR 43 million."

European Commission (2003, p.5)

Within the academic literature relating to SMEs and internet technologies, there are two characteristics of SMEs which are stated throughout the literature. The first is the importance of the SME sector to both UK and US economies and on a global scale (Fisher, Craig and Bentley 2007; Levy and Powell 2005; Stockdale and Standing 2006; Wright, Ul-Haq and Oktemgil 2006) and the second is the fact that SMEs are very different to large organisations, with different operating contexts and objectives (Fisher, Craig and Bentley 2007; Wright, Ul-Haq and Oktemgil 2006).

The SME sector is of great economic importance both nationally for the UK and US and internationally (Jutla, Bodorik and Dhaliwal 2002; Stockdale and Standing 2006). According to Jutla, Bodorik and Dhaliwal (2002) small and medium sized enterprises are estimated to account for around 80 per cent of global economic growth. In the UK and US, government policy consistently acknowledges the importance of the SME sector by increasing SME access to innovation and information communication technologies (ICTs) in order to help SMEs grow (Wright, Ul-Haq and Oktemgil 2006).

SMEs typically have flat management structures and unlike large organisations do not have hierarchical chains of command. Furthermore several articles (Fisher, Craig and Bentley 2007; Stockdale and Standing 2006; Murphy, Celuch and Callaway 2007) discussed the importance and role of the SME owner in governing SME strategies. The result of this will be discussed in more depth, but essentially the owners interest and capabilities in the internet play a huge role in determining how successful SMEs are in using the internet strategically (Stockdale and Standing 2006).

One of the main strengths SMEs have over large organisations is that because of their size they tend to be relatively flexible (Murphy, Celuch and Callaway 2007) and able to adjust elastically to turbulent external environments (Chan and Lin 2007). Furthermore, Wright, Ul-Haq and Oktemgil (2006) argue that the result of the SMEs flat management structures is that the integration of business functions is easier for the entrepreneurial owners. While this can be the case, if owners of SMEs are not technically adept or SMEs do not have in-house expertise they will usually fail to utilise new technology (Levy, Powell and Yetton 2001).

The main weaknesses of SMEs are resource and management limitations. The result of these factors will be discussed in greater detail in section 3.3.3 "What factors influence the development of web strategies in SMEs" on page 14. These limitations have led to many SMEs not using the internet and not leveraging an online presence to full potential. Nevertheless, for some SMEs the internet is a key platform to implement strategic objectives (Wright, Ul-Haq and Oktemgil 2006).

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