The Internet and business costs

The Internet has changed much about both our society and our economy. N.C. State University economist Mike Walden shares his insight into how the Internet has changed the business world.

“Well, one example, of course, is in terms of how businesses sell. And of course it used to be traditionally if you had a business and you wanted people to come and buy your products, you had to have a store. You had to have so-called bricks and mortar. And those bricks and mortar are certainly expensive. You’ve got to build a store or rent a store, et cetera.

“Now, of course, more and more sales are being conducted over the Internet. Now that’s not necessarily a perfect substitute for a  shopper going in and actually seeing, touching, and trying on a particular product if it comes to that. But many are willing to do that, and many are willing to buy products where they don’t feel like they need to see and touch it.

“And so the benefit to the business, of course, is you no longer have to necessarily have a store to sell. You simply sell electronically. And many businesses have gone this route, and so that has dramatically lowered their cost of doing business — lowered what economists call their fixed costs.

“Now there’s another way that the Internet has helped, and that is in terms of inventory management. I remember when I used to work in the furniture business, I hated every quarter. We had to go in for the weekend and actually go around and label and catalog every single item that was for sale in that furniture store.

“Now, of course, computers keep track of all that electronically. And what that’s allowed a business to be better able to do is actually keep less stock on hand — and that lowers, for example, how much they need to keep in the warehouse and, therefore, lowers their cost.

“So the Internet and information technology has had a major major impact on helping businesses keep their costs down.”