BOSTON (IDG) – As the Internet becomes a standard business tool, small U.S. businesses are connecting to it in increasing numbers and getting a chance to compete against large businesses, according to a study released this week by International Data Corp.

An IDC survey of 1,011 firms with fewer than 100 employees found that while just 19.7 percent used the Internet in 1996, 41.2 percent connected to the Internet in 1998. Based on this research IDC projects that 4.27 million small firms will use the Internet by 2001.

Putting up a Web presence allows small businesses to compete on the same level as large companies, said Warren Childs, research manager for IDC's small business market program. According to the study, 36 percent of small businesses that plan to go online expect to use the Internet to sell products.

There appears to be a payoff for small companies that use the Internet, with their revenues averaging $3.79 million compared to $2.72 million for companies that do not use the Internet, IDC said.

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Sixty-three percent of businesses in the professional services sector such as law and accounting firms and insurance agencies use the Internet, the study said. However, the small retail and health care sector lag behind in Internet use.

Even companies with fewer than five employees are jumping onto the Internet, with access rates climbing from 17.2 percent in 1996 to 36.3 percent in 1997, according to the study.

One trouble spot for very small businesses is the reluctance to add network products to their Internet access setup, according to Childs. Currently less than 5 percent of small businesses have Internet access through any type of shared server. Their setup consists of dialing up through a PC via a modem for access to America Online, CompuServe or Prodigy. These firms spend less than $50 per month for total Internet access.

"As contention in a small office increases, there will be a real need for shared Internet appliances," he said. Companies don't want to take the time to implement network products and maintain them because they don't have onsite maintenance, Childs said.

IDC also said that 20.1 percent of small businesses will have their own web sites by 2001, a jump from 9 percent in 1997.