Through the Looking Glass

Not that PCs will solve large companies' software problems if and when they finally do take over from mainframes. Forrester found that the ancillary costs of running PCs -- that is, the nonhardware and software costs associated with management, support, downtime, training, coworker assistance, and recovery from crashes -- increase dramatically per PC with the number of PCs linked together in an application. For a 5,000-PC application, for example, those other costs come out to $9,000 per PC, or 75% of the $12,000 total cost of operating each PC. The study goes so far as to conclude that reliable, mission-critical PC-based applications are simply cost-prohibitive in large companies.

Forrester also found that only 5% of Fortune 1,000 executives expected the move to PC-based information systems to improve customer satisfaction. In contrast, two-thirds of Inc. Technology readers polled last year indicated that improved customer service was an expected benefit of their information-technology investments.

Large and small companies don't seem far apart in how much they spend on technology as a percentage of revenues -- 3% to 5%, according to a recent study by the GartnerGroup, in Stamford, Conn. The difference seems to be that most of a large company's investment pays for programming and administrative overhead, while the small company's computing dollar usually buys high-performance software.

Of course, there are plenty of exceptions. Some large companies have managed to develop relatively flexible systems aimed at improving customer satisfaction. Citibank, for example, has long been a leader in the financial-services industry, providing consumers with better access to services and information through such innovations as automated teller machines, PC-based home banking, and automated phone credit-card management.

That's not necessarily bad news for small companies. In fact, it holds out hope that smart small companies can continue to find ways -- even in the face of rapid growth that promises to convert them into larger companies -- to avoid outmoded legacy systems and rigid work structures.

Who Wins on the World Wide Web?
If computers have helped smaller companies cut many large-company advantages down to size, the World Wide Web may well decimate those advantages. In television advertising, for example, a giant company can afford a lavish commercial during the Super Bowl, while a small company is more likely to have to settle for a spot between late-night Godzilla movies on a local cable station. Similar disparities apply to print advertising and, to a lesser extent, to direct-marketing efforts.

But in the world of the Web, an ingeniously applied $20,000 from a three-person business can permanently stake out a jazzy, captivating site that can compete on an equal footing with a Fortune 50 company's $3-million effort. Indeed, to judge by Web offerings so far, small companies are setting the standards for sites that keep on-line viewers clicking. Check out the site of chocolate big gun Godiva Chocolatier (http://www.godiva. com). Compare it to the $1,500 site of up-and-coming Esther Price Candies (http://www.covesoft.com/esther).

What we see happening on the Web shouldn't surprise us. The Web's nascent culture prizes the new, the fast-changing, the creative, and the original -- all qualities we'd expect from smaller rather than larger companies. But never has small business had such an opportunity to capitalize on those qualities. The effect of the Web is analogous to a local, independent hardware dealer's suddenly being able to open a giant store alongside every Sears in the world.

In the looking-glass war smaller businesses clearly have the advantage. But will that advantage last? It's hard to say. Right now there are no hot technologies in sight that favor big, slow-moving companies, as mainframe computing once did. Perhaps one of the biggest competitive threats facing small companies is large companies that downsize so aggressively -- spurred on by the advantages of smaller-scale technology -- that they literally become small companies, the way dying giant stars shrink to long-lived nuggets of glowing gas. It remains to be seen if those "white dwarf" companies retain too much of their big-company baggage to use technology as effectively as smaller companies do. For now, at least, small companies need only press their advantage.

David H. Freedman (david_freedman @incmag.com) is editor of Inc. Technology and Inc. Online. Research assistance for this article was provided by Sarah Schafer.

WHO'S WINNING THE LOOKING-GLASS WAR?