Small businesses--alive and kicking?

I had an interesting discussion this week  over lunch with another CEO (of a very well known small business software company).  He and I were discussing the role that small businesses play in our society, and how it is changing thanks to the internet.  Homestead, of course, is dedicated to "leveling the playing field" for small businesses on the internet, and I was bemoaning the demise of local merchants thanks to the prowess of the "big box" national chains.  In response, my lunch companion made an excellent point.  For most of the twentieth century, small entrepreneurs often went into various retail operations, either manufacturing unique goods or reselling national brands.  For example, my wife's grandparents spent forty years running a children's shoe store, only to eventually be forced out of business. 

Now, thanks to the internet, and new global market dynamics (can you say China?), the local entrepreneur is starting a very different kind of business.  If they are into products, they sell on Ebay, or use a product like Homestead's Storefront to go national from day one.  Usually they are successful if they choose a niche, serve it very well, and have the passion and business sense required.  However, more and more are going into services, such as real estate, mortgage brokers, investment advisors, or even website design or internet affiliate marketing.  His point was that for every retail small business shuttered because of competition from the national chains, two more were sprouting up in this new service economy.  And the lifestyles afforded by these types of business are much better than that of the past generation small business.  Work hours are flexible, mobile communications replace face to face meetings, and thanks to the internet they can be open 24 x 7 even if they are the only employee.

An interesting theory, one which gave me hope that small businesses are in better shape than I feared.  He should know, as he has millions of them as customers. 

What do you think?  As fellow business owners, do you feel your prospects for competing are good?  Are services like Homestead fulfilling their promise of levelling the playing field?  Please join the conversation!