This is the post-print version of the final paper published in Research Policy. The published article is available from the link below. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. Copyright @ 2008 Elsevier B.V.Using data from the third UK Community Innovation Survey we model the usage of e-business across and within firms in the UK in the year 2000 as a single observation upon an integrated process of inter- and intra-firm diffusion. The intra-firm dimension is a significant extension to standard analysis. The model estimates indicate that the pattern of e-business usage reflects the heterogeneity of firms in terms of size, other innovative activity and labour force skills (generating differences in the payoffs to use) as well as market and non-market intermediated externalities. The policy implications of the findings are discussed.