While the Internet is full of useful information that can help in doing basic research about the market feasibility of a new business idea, it is still important to gather information the old fashioned way -- observing and talking.
Get out and observe the market. Experience those businesses that will be your direct competitors the way customers do. Don't just look for what they do poorly, but also learn what they do well.
Observe similar businesses that may not be a direct competitor -- typically a business in a different, but similar market. Bob Bernstein, founder of Bongo Java Coffee, told our grad students that his prospective investors made him go sit out in front of a coffee shop and do a physical count of customers going into the shop to help validate his revenue forecasts. Although it may have been boring, it was very good advice!
Talk to potential customers. Learn how they think, how they make decisions, what they like about competitors, and what needs are not being met by those already in the market. Don't seek information to rationalize your desire to start the new business. Use their insights to help understand the challenges you will face and the keys to attracting them to you rather than to those they already are doing business with right now.
Talk to people already in the market. Talk to suppliers. Talk to people who work in the industry. Talk to people who operate the same business in different markets. In many cases, even competitors in your market will be willing to talk. Seek their advice and opinion; never shift into the sales mode. You have nothing to sell yet, and they will not be as open and honest if they sense you are just trying to "sell" them.
Google and other search engines are great tools to get started in your research, but nothing beats getting out and getting first hand data from your potential marketplace.
