Main Street is no longer the place to set up a retail store. The Web is.

Whichever way you look at it, the Web has become the place for commerce.

Online spending grew 18% in March compared to last year -- the eighth consecutive month of double-digit growth, according to MasterCard Advisors' SpendingPulse. The growth rate has outpaced that of traditional brick-and-mortar stores. While many chain retailers' online sales are growing, their store sales are shrinking. At 41 of the 50 biggest retail chains in 2008, e-commerce revenue grew as store sales declined, says InternetRetailer.com.

For the longest time entrepreneurs wanting to venture off on their own would open a store downtown where foot traffic abounds. But that trend, it seems, is changing. Today's equivalent of foot traffic is eyeballs. Much of that traffic flows from search engines and mega-marketplaces such as Amazon.com ( AMZN - news - people ) and eBay ( EBAY - news - people ). Today an entrepreneur contemplating a retail business no longer leases space on Main Street. She opens a Web site. Her market is no longer local.

There is much discussion today about how we will reverse this recession and why entrepreneurs are a key piece of the puzzle. The U.S. Census reports that there are 19.5 million nonemployer firms -- mom-and-pops -- and a large portion of this segment operates retail stores. Another 4.5 million firms operate with less than 10 employees, a segment that is also heavy in retail. In this recession many of them have gone out of business.

For an economic recovery, the small, specialty retail segment will need to get back to a healthy state. E-commerce may be the answer. Evidence suggests many small online retailers are doing quite well.
Take FineArtAmerica.com, an online marketplace and social networking site for painters, photographers and other visual artists. Artists can use to the site to connect with collectors and other buyers and, says founder Sean Broihier, put the business side of their career on "autopilot," leaving them more time to create art. FineArtAmerica.com (FAA) has more than 28,000 artists who upload new images to the site each day; 6,000 of them offer prints for sale.

FAA has been profitable since launch in 2007, thanks in part to its low overhead. Founder Broihier is its solo owner, and the company has no employees. Revenues were $175,000 in 2008 and $1 million in 2009, and the company projects revenues of $2.5 million for 2010. Broihier says that FineArtAmerica.com currently attracts 175,000 unique visitors a day, and traffic is growing by 10%-15% a month.

Broihier is a very good example of someone who has taken destiny in his own hands by embracing the Web rather than joining the 10% unemployment pool in America. (See my post Deal Radar 2010: FineArtAmerica.)

Another entrepreneur, Jeff Taxdahl, founded Thread Logic in 2002 to create custom-logo-embroidered apparel for businesses and organizations. Products range from polo shirts to aprons to fleece blankets. In a business that has been slow to go online, Thread Logic has focused almost exclusively on Internet sales while keeping in close touch with customers. In 2009 sales were $1.1 million, up 27% over 2008. (See my post Deal Radar 2010: ThreadLogic.)

PayPal to become a way to pay for Facebook ads

Online marketplace operator eBay Inc. reports its first-quarter results Wednesday. The following is a summary of key developments and analyst commentary related to the period.

OVERVIEW: During its first quarter, San Jose, Calif.-based eBay continued to weather the global economic downturn and acknowledged that its marketplace business - which it has been struggling to improve - has a way to go. The company also talked up its online payments business, PayPal, and predicted that business will double in size by 2011.

Speaking during a day of analyst briefings in March, Chief Executive John Donahoe and other executives laid out changes to eBay's marketplace business, including focusing more on the market for offseason or liquidation-ready items, refining onsite search capabilities and working even more on cultivating buyers' trust.

EBay also said it expects PayPal, which is its second-largest business, to process between $100 billion and $120 billion in annual payments by 2011. In 2008, the service, which has 70 million active user accounts, processed $60 billion in transactions.

BY THE NUMBERS: In January, eBay forecast first-quarter earnings of 21 cents to 23 cents per share - or 32 cents to 34 cents per share when excluding items. The company also predicted $1.80 billion to $2.05 billion in revenue.

At the time, this was well below what analysts polled by Thomson Reuters were anticipating. Now, however, they expect eBay to report first-quarter adjusted earnings of 33 cents per share on $1.94 billion in revenue.

ANALYST TAKE: In a note to clients, Jefferies & Co. analyst Youssef Squali predicted the company's results will meet "muted expectations" and that management will maintain a cautious outlook for the rest of the year due to weakened consumer demand and eBay's ongoing work to improve its marketplace.

Squali rates eBay shares "Buy" with a $20 price target.

WHAT'S AHEAD: EBay is increasingly trying to focus on its marketplace and payment businesses and shed parts of the business that don't really fit in. This month, the company agreed to pay up to $1.2 billion to buy all outstanding common shares and American Depositary Shares of South Korea's biggest online marketplace, Gmarket.

Just two days earlier, eBay had said it plans to separate Internet communications service Skype from the rest of the company through an initial public offering in 2010. EBay bought Skype for $2.6 billion in 2005, but later wrote down much of its value - essentially an acknowledgment that the company had hugely overvalued it.

STOCK PERFORMANCE: Shares declined 10 percent during the quarter to close at $12.56 on March 31. The stock has since rebounded and traded at $13.94 in afternoon trading Monday, down 45 cents.

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EBay Inc. said Wednesday it plans to pay as much as $1.2 billion to purchase a majority stake in South Korea's top online marketplace.

San Jose, Calif.-based eBay ( EBAY - news - people ) and Gmarket ( GMKT - news - people ) said that eBay will make a cash tender offer of $24 a share to purchase all outstanding common shares and American Depository shares in Gmarket Inc. If successful, eBay said it would take a stake of at least 67 percent in Gmarket.

The release said the agreement calls for eBay to combine Gmarket with eBay's existing online marketplace in South Korea, Internet Auction Company.

"This deal creates strong operational synergies between the two market leaders, offers more opportunities for sellers and enhances our ability to serve complementary consumer segments," John Donahoe, eBay's president and chief executive officer, said in the release.

EBay said in September it received preliminary conditional approval from South Korean regulators for its potential purchase of a stake in Gmarket.

The venture is the latest for eBay into the online auction market outside the United States.

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Having failed in its attempt to sell Skype, eBay is now poised to carve off the business via an initial public offering. That could be a gamble.

Market conditions allowing, the online-auction titan will float Skype next year, eBay ( EBAY - news - people ) chief executive John Donohoe said late on Tuesday. This suggests that eBay's apparent sale talks with Skype's Scandinavian founders, Niklas Zennstrom and Janus Friis, and three private equity groups, have broken down. The bidders had reportedly been offering eBay around $2.0 billion for the business, $600.0 million less than what the founders had sold it to eBay for in 2005. (See "Hype Over Skype.")

Donohoe's announcement could be a veiled attempt to find another bidder for the Skype; eBay has, of course, denied this. Trouble is the Internet telephony service is a tough sale. Skype might be a a popular communication tool, accounting for around 8.0% of the world's international calling according to Telegeography, but translating "eyeballs" into "revenue" has proved challenging.

Skype's customers only spend an average 11.3 cents a month on its service, compared with the typical spend of around $50 a month for a cellphone. Analysts have also doubted eBay's goal to double Skype's $551.0 million in revenue last year, to $1.0 billion. Taking Skype to the next level would require considerable capital investment, says Atlantic Equities analyst James Caldwell, and that could deter a buyer.

As if the cloudy revenue model weren't enough, Joltid, a firm which owns the intellectual property rights to the peer-to-peer technology that Skype uses, has been attempting to end its licensing deal with the firm. (Joltid is owned by none other than Zennstrom and Friis.) EBay has fought back in a London court, but the prospect of appeals and counter-appeals on an issue so core to Skype's success could be enough to put off investors already hesitant to open their purse strings.

With eBay struggling to find buyers in the technology and private equity spheres, the obvious question is whether ordinary investors will be convinced to buy shares. There are are plenty of tech IPO horror stories to put them off: back in 2000, 3Com's floatation of the hand-held computer maker Palm was so oversubscribed it sent the price soaring--and the stock has lost 98.0% of its value since.

Shares of some top internet companies are mixed at noon:

Akamai Technologies (nasdaq: AKAM - news - people ) rose $.11 or .7 percent, to $16.34.

Amazon fell $3.35 or 5.2 percent, to $61.42.

eBay (nasdaq: EBAY - news - people ) fell $.34 or 3.3 percent, to $10.12.

Google (nasdaq: GOOG - news - people ) fell $6.46 or 2.1 percent, to $299.18.

Yahoo (nasdaq: YHOO - news - people ) rose $.36 or 2.9 percent, to $12.89.

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The rating agency Standard & Poor's assigned an "A-" debt rating to online auctioneer eBay Inc. on Monday, citing the company's well-established Internet brand as well as strong cash flow and liquidity.

The "A-" rating is investment grade but signifies that economic conditions may affect the company's finances.

The outlook is "Positive."

In a statement, Standard & Poor's analyst Philip Schrank said, "The rating on eBay reflects its well established brands in Internet e-commerce and payment segments, coupled with strong discretionary cash flow generation and ample liquidity."

Schrank cautioned that risks remain for the San Jose, Calif.-based company on a number of fronts: its performance relies somewhat on ongoing acquisitions, it faces rising competition from traditional retailers, entry costs in its market are low and consumer spending is being pulled back amid a credit shortage.

On the positive side, he said eBay's large customer base and low working capital needs should generate stable profits and cash flow even as the economy slows.

Schrank also predicts eBay's subsidiary PayPal - which processes online payments - will grow as more financial transactions move online. He added that eBay's recent acquisition of Bill Me Later, which allows online shoppers to pay without a credit card, should dovetail well with PayPal, and start generating a profit in the "near term."

The company's stock fell with the broader market Monday, sliding 51 cents, or 3.9 percent, to $12.62.