Every well-known technology goes through predictable stages. In the beginning, an exciting new technology grabs people’s attention and pumps up their expectations to impossible levels. Entrepreneurs, venture capitalists, and individual investors chase the dream of massive returns, and they throw their money behind questionable business plans.
In the next stage, reality sets in, and people realize the technology won’t match their expectations. The same media that hyped the technology in the beginning now criticize it for being overhyped. Investors and VCs lose money, many entrepreneurs go out of business or sell their companies, and the market consolidates.
It’s at this point that the technology finally offers real opportunities for profit. As the technology matures and the real benefits emerge, it enters the buildout stage. The technology becomes widely adopted by users. And, the risks and costs of developing and using it drop dramatically.
The Internet was easily the most overhyped technology in history. As everyone knows, it spawned thousands of companies like eToys and Pets.com that burned through millions in cash before going bankrupt. But now the dust has settled and survivors like Google, Yahoo, eBay, and Amazon are profitable. What’s more, as the Web enters the buildout phase, it has become less risky for companies to develop new businesses and to reach consumers.
Today, according to Venture Capital Journal, more than half of U.S. Internet users have high-speed connections instead of slow dial-up modems. Startup costs for new businesses have fallen, too.
“Running a state-of-the-art e-commerce site a few years ago required 80 engineers and a fully customized system,” explains James Lussier, a venture partner at Norwest Venture Partners. Now, open source software, off-the-shelf systems, and low-cost Linux boxes allow Internet entrepreneurs to launch Web 2.0 startups quickly and cheaply.
The rapidly emerging model of the Internet, Web 2.0, is not something that is entirely new. Instead, it represents building on the Internet of the past to bring it closer to its full potential.
According to Technology Review, the term “Web 2.0” is now used daily by thousands of bloggers, entrepreneurs, and others to describe a set of characteristics that makes the Web more interactive or participatory, or that upsets the business models of the traditional software makers or entertainment companies.
Under this model, new applications are built by combining parts of other sites. Instead of simply providing access to Web pages, these businesses use their Web sites as a development platform, similar to an operating system, according to a report in ZDNet.
Today, about 21 million people publish blogs, according to Technorati, a blog search engine. According to The New York Times, 100 million people use Firefox, the open-source browser from Mozilla created by 19-year-old Blake Ross. And, according to Technology Review, about 500,000 people write and edit articles for Wikipedia, the free on-line encyclopedia that is created and revised continuously by users.
Web 2.0 businesses share at least six defining characteristics listed in an article by Tim O’Reilly on the O’Reilly Network site entitled, “What Is Web 2.0: Design Patterns and Business Models for the Next Generation of Software.”5
First, Web 2.0 businesses use the Web as a platform.For example, they deliver software as a service, not as a product. According to O’Reilly, this contrast between the first and second Internet eras can be understood by comparing DoubleClick and Overture.
In Web 1.0, DoubleClick’s strategy seemed to make perfect sense. It gave advertisers control over the ads that appeared on computer users’ screens, instead of letting the users decide which ads they wanted to receive. It focused on getting the largest Web sites to sign contracts to use its software, with the result that it is used by a few thousand advertisers.
By contrast, Overture, which is now known as Yahoo Search Marketing, is used by hundreds of thousands of advertisers. Instead of targeting the biggest advertisers, Overture made its service available to companies of all sizes. It also avoided banner ads and pop-ups that appealed to advertisers but turned off consumers; instead, Overture slips far-less-annoying text ads into Web sites.
Second, Web 2.0 companies exploit the Web’s potential to harness collective intelligence. This is made possible through hyperlinking their sites to the unlimited wealth of content found throughout the Web. The companies that survived the shakeout of Web 1.0 businesses are all skilled at forging connections between users and between Web sites. Yahoo, Google, eBay, and Amazon all built their success on building communities of users and/or enabling quick access to the galaxy of information on the Internet.
The pioneers of the new Internet take this concept to the next level. For example, the English-language version Wikipedia, started in 2001, currently lists more than 800,000 articles created by users. Each article is extensively hyperlinked so that a reader can click on a word or term and instantly jump to that topic. It is already one of the most-visited sites on the Web.
Another phenomenon that has arisen from Web 2.0 is blogging. Blogs are personal home pages that anyone can publish for anyone else to read. What gives blogs their immediacy is the technology of RSS. Short for Really Simple Syndication, RSS gives users the ability to subscribe to blogs and receive immediate updates whenever the content on the site changes.
RSS also lets people receive constant updates on other information sources, such as news headlines, stock quotes, sport scores, and weather forecasts. Some experts have called the result, in which people are constantly receiving dynamic information in real time, the “live Web” or the “incremental Web.”
Third, O’Reilly insists that data is the new source of competitive advantage, instead of applications. The new reality is that any application can be copied. What matters is who owns the database that drives the application.
For example, in 1995, when MapQuest launched its on-line mapping service, the company had no real competitors. MapQuest licensed the mapping database from NavTeq and supplied an easy-to-use interface.
Now, however, Yahoo, Microsoft, and Google have all charged into the market and splintered MapQuest’s base of users. There was nothing to stop these new companies from entering the market because all they had to do was license the same maps from NavTeq.
MapQuest would have been in a much stronger position to defend its market if it had invited its users to build on the maps in its database. For example, Amazon’s database of information about books originally came from R.R. Bowker, which provides the ISBN registry. Other on-line booksellers, including Barnesandnoble.com, accessed the same database.
Amazon wisely customized the data with the help of its customers who added reviews, and publishers who provided book covers and sample chapters. This meant that competitors who simply used Bowker’s database could not match the wealth of information that customers experienced on Amazon.
Fourth, users no longer have to wait for software releases to get improvements in their Web 2.0 experience. Companies like Google have to constantly search for ways to improve their services ? not just every few years, but every few seconds. As O’Reilly points out, Google uses closely guarded automated processes not just to answer hundreds of millions of questions, but also to update every index and delete every attempt by spammers to rank high on its list of search results.
At the same time, users have to be given the opportunity to participate in improving and extending the software. This leads to a new mindset called “the perpetual Beta,” in which services like Google Maps or Flickr are never considered “finished.”
All of this appears to spell doom for Microsoft, with its legacy of releasing software upgrades on its own schedule. A ZDNet editorial argues that Microsoft can’t win against Google because “Microsoft’s business model depends on everyone upgrading their business environment every two to three years. Google’s depends on everyone exploring what’s new in their computing environment every day.”
Fifth, Web 2.0 companies rely on lightweight programming models. That is, they avoid the complex “Web services stacks” from large corporations and use simpler alternatives. For example, RSS is very simple, so it has been widely used. RSS pushes data to the user, and lets the user decide how to use it and when, instead of controlling the information flow.
Sixth, Web 2.0 does not rely solely on a single device, such as the PC. Apple’s iTunes is a clear example: an application that brings music content from the Web to a portable device, the iPod, as well as to the PC.
Based on this trend, we offer the following four forecasts:
First, the prominence of data over applications will lead to an upheaval in the balance of power on the Web. In the PC era, the machines quickly became commodities and the real value migrated to the software. Similarly, Web 2.0 profits will migrate from the applications owners to the database owners. For instance, NavTeq is well-positioned to profit from its mapping data, which is used by MapQuest and many of its competitors. We expect to see it earn a solid return on the $750 million it has invested to develop its extensive mapping database.
Second, the Trends editors expect to see a fiercely competitive battle waged to see who will control the creation of an “identity verification” database. The company that can consolidate all of the information about an individual ? combining credit statistics and biometrics into a single on-line ID ? could collect transaction fees from merchants, credit-card companies, or users. Among the possible contenders are Google, PayPal, Amazon, and a startup called Sxip. Expect a winner to emerge by 2010. Microsoft is likely to move aggressively to build and acquire database owners.
Third, companies that devise strategies to harness the collective intelligence of their users can establish dominant businesses on the new Web. While these businesses will have to give up control over the content, they will gain the advantages that come from having millions of people contributing material for others to use. For example, the Events and Venues Database, known as EVDB, aims to become a Wikipedia-style publicly shared calendar that anyone can access and edit. Users can search for business seminars, sports events, concerts, and so on. These businesses are likely to gain a clear first-mover advantage because of strong network effects; that is, the larger the network of users for such a service becomes, the harder it will be for any competitor to set up a competing service.
Fourth, huge opportunities will emerge as Web 2.0 entrepreneurs combine Web services in innovative ways. This has been made easier by the fact that much of the Web 2.0 software is being treated as “open source.” And established players are encouraging upstarts to identify and create new opportunities that build on the existing base. Entire businesses can arise from the seamless combination of one service with another into an integrated experience, known as a “mashup.” The New York Times7reports that Google has disclosed its map-generating application programming interface, or A.P.I. Now, by using that A.P.I., a programmer can create a “mash-up” by combining Google’s mapping with other data. This is enabled by a technology known as Ajax, for Asynchronous JavaScript and XML. For example, using AJAX, one service now simply overlays apartment rental and home purchase data from Craigslist.com onto maps from Google Maps. The result is an entirely new, highly useful tool called housingmaps.com.
Another mashup, called Placeopedia, uses Google Maps to pinpoint the location of places mentioned in Wikipedia. Yet another mashup is FBOweb.com, which allows users to type in a flight number as a Google search to see a map that shows where the plane is and when it is expected to arrive. FBOweb charges $9.95 for the service and also sells advertising on its site. A Web site devoted to tracking mashups googlemapsmania.blogspot.com, discovers about a dozen new mashups based on Google Maps every day.
References List : 1. Venture Capital Journal, August 1, 2005, “Internet 2.0,” by Tom Stein. ⓒ Copyright 2005 by Thomson Financial, Inc. All rights reserved. 2. TechnologyReview.com, October 7, 2005, “Web 2.0 Has Arrived,” by Wade Roush. ⓒ Copyright 2005 by Massachusetts Institute of Technology. All rights reserved. 3. To access ZDNets report on uses for advanced Web development techniques, visit their website at:www.zdnet.com.au/news/software/soa/Sydney_duo_plot_end_of_Post_it_notes/0,2000061733,39218818,00.htm 4. TechnologyReview.com, October 7, 2005, “Web 2.0 Has Arrived,” by Wade Roush. ⓒ Copyright 2005 by Massachusetts Institute of Technology. All rights reserved. 5. To access Tim OReillys article “What Is Web 2.0: Design Patterns and Business Models for the Next Generation of Software,” visit his website at: www.oreillynet.com/pub/a/oreilly/tim/news/2005/09/30/what-is-web-20.html 6. To access the article “Why Microsoft Can’t Best Google,” visit the ZDNet website at:blogs.zdnet.com/SAAS/?p=13&part=rss&tag=feed&subj=zdblog 7. New York Times, October 20, 2005, “A Journey to a Thousand Maps Begins with an Open Code,” by Damon Darlin. ⓒ Copyright 2005 by The New York Times Company. All rights reserved.
