Small Israeli Firms Are Shunning the Internet - at Their Peril

Many are simply waiting for customers to show up at their stores rather than actively selling their wares online.

Most small businesses in Israel appreciate the importance of a Web presence, but few have learned how to translate that presence into a significant revenue stream.

That’s what a survey of over 2,000 small businesses by the Wix website-development firm and TheMarker revealed. Many of the businesses were Wix clients, however, so the 2,000 firms don’t necessarily relfect a representative sample. Not only have small businesses not understood how to develop a strong online presence, they’ve been unwilling to make the necessary investments.

According to a study by the McKinsey consulting firm released by Google Israel, only about half of Israeli small businesses had an online marketing and sales presence in 2010.

The McKinsey study used data from the Geocartography business-data firm on about 400 small businesses. It showed that that fewer than 2% of them let their customers place orders and pay online, compared with about 20% of small businesses surveyed in Britain.

Results of an American Express survey released about a month ago found that 85% of Israeli small businesses had a Web presence, but the website alone was not enough.

More than half of those businesses said their websites generated less than 5% of their revenues, and more than 70% said that less than 10% of their revenues came via their websites. Most of these firms said they won few customers via their Web presence.

“A lack of awareness and limited ability to make the initial investment are the main barriers to enabling small and medium-sized businesses to grow,” said Ran Kiviti, the head of the small business authority at the Economy Ministry.

”They are also the main barriers when it comes to everything associated with the use of digital media by small business. We’re looking for ways to help small businesses take advantage of the potential of the Internet and make it possible for them not only to duplicate their existing business models but to create new models and reach new audiences.”

Omer Shai, Wix’s vice president for marketing, said small businesses in Israel understand the importance of creating a website and of Internet marketing, but creating and maintaining a Web presence is often a challenge.

“Internet marketing requires professionalism, time and money, in addition to an investment in ongoing management of the business. And a lot of small business owners are put off by that,” Shai said.

“Small businesses have a lot of problems such as brand creation and management and online marketing. It used to be that a pizzeria owner would distribute fliers. Everything was so simple. Now it’s a lot less simple. There’s Facebook and Twitter and text messages, and you need to understand the numbers and analyze them to be successful. Many small businesses don’t have this know-how.”

‘Contact us’ isn’t enough

To understand how small businesses are using websites, the respondents were asked to describe how they use their Internet presence to cultivate customer relations.

It’s striking how many of them use the Internet to showcase their products but not as a medium for commerce.  Despite the availability of relatively simple sales platforms, many small businesses simply wait for customers to show up at the store.

Of course, in the process, they’re losing out on a potential revenue source. Most of the websites feature contact information and details on products and services, but only 9% provide the option of carrying out transactions online.

The Wix survey also found that most small businesses with websites don’t exploit their Internet presence to reach potential customers abroad.

More than 55% of the respondents said they only target the Israeli market, and more than half said their website is only in Hebrew. Only about 2% featured languages other than English and Hebrew. Nearly 60% said none of their income was from overseas customers.

And most small-business websites neglect online advertising. Fully 90% of respondents said any advertisement of their websites comes at an investment of less than 5,000 shekels ($1,400) a year.

More than half, however, said they had promoted themselves on social networking sites like Facebook, which doesn’t necessarily involve an advertising fee. About 20% said they had produced e-mail newsletters or other e-mailed advertising. And despite the firms’ limited use of the Internet, fewer than 30% said the Web had no effect at all on their business model.

The government’s efforts at giving small businesses the knowledge and skills they need to exploit online marketing have failed, for the most part.

In February 2012, Google and the Economy Ministry unveiled an ambitious effort to get an additional 20,000 small businesses onto the Internet within a year. Google offered businesses a range of services including the creation of a website, the obtaining of a domain name and a year’s support.

Google said it would invest around 40 million shekels in the effort. The Economy Ministry, then known as the Industry, Trade and Labor Ministery, endorsed the project with a press conference by the minister at the time, Shalom Simhon.

Businesses were provided with a website and a year’s support services for free, but after that, Google charged 65 shekels a month to host the site and 80 shekels a year for the domain name. But Google’s aspirations went beyond that, since a good chunk of its revenues come from small businesses that advertise on the Web.

“In Israel, just 50% of businesses are active on the Internet, and those are the ones that have created 80% of the jobs in the past three years,” the chief executive of Google Israel, Meir Brand, said at the news conference launching the small-business project. “Millions of Israelis search for businesses on the Internet, and the businesses aren’t there.”

Sticking with co.il

According to Google, as of May 2013 about 17,500 businesses had taken advantage of the company’s offer to create a website for them, and 78% were businesses employing only one or two people. These websites had attracted 3.7 million unique visitors, an average of about 200 per website and almost 1,000 page views per site.

Other figures reveal the new websites’ local focus, as 81% of them opted for the Israeli suffix co.il rather than .com,  and most of the sites are in Hebrew.

“We view this is an ongoing project in which the creation of business websites is just the first step in the process,” said Yehuda Kogan, the director of business marketing at Google Israel. “Over a year, we got about 18,000 businesses to create an Internet presence with their own website, and about 55% of them were from outlying areas of the country.”

Kiviti from the Economy Ministry noted that his small-business authority is subsidizing courses on Internet commerce and giving advice on the subject. It will soon launch a project emphasizing international marketing through the Internet.

Moti Milrod
Emil Salman