Wednesday, May 02, 2007

Continuing Evolution of Web 2.0

In some respects the web 2.0 surge has been an amazing open market innovation incubator. It has allowed the market to innovate off in any direction and produce some very interesting products through easy access to open source tools and data offered up freely by large platform vendors through API's. Unfortunately, startups in this space are usually 'cool tools' pretending to be businesses with a revenue model that likely has little depth beyond advertising with Google ad-words.

John Hagel suggests that Web 2.0 is currently going through an evolution, and points out some important considerations for both the entrepreneurs as well as the the platform companies that are supporting these. For startups the days of having no ambition to build sustaining business models beyond a strategy of feeding off of others in hopes for a high priced buy out are quickly coming to an end.

John says that entrepreneurs in this space need to understand these shifts to combat the change in the environment:

First, you can accelerate the innovation in the services you offer so that you are constantly one or two (or more) steps ahead of those tempted to copy you. Second, you can find ways to use your service offerings to build trust-based relationships with your users, ideally with some powerful network effects that will make it very difficult for later entrants to pry these people away from your service. Ideally, these two approaches can be integrated by motivating your users to enhance your services themselves so that the more users you have the better your services become – the essence of Web 2.0.

In addition I feel its important to think about how the plethora of features can be combined, tweaked and used for real business application. Think enterprise 2.0. If there is a business application, there is revenue. Take wikis. They quickly evolved into a feasible tool across many business applications, and although you can still get them for free, there is revenue potential in not only the product but service and support. Even Twitter is in the early stages of evolving into a potential business tool.

In many cases the biggest barrier is not finding a use for these tools in business, but changing the perception of value within organizations. Consumers are more open to change and great proving grounds for concepts that can then be applied in business. The consumer landscape allows you to build and test a network before carrying it into the business world. It is interesting that business software used to drive consumer software, and now it is often the other direction.


Justin Beller said...

The last sentence of your first paragraph is probably the most important part of your post. It reminded me of the dot-com boom (and bust) of the mid to late 90's.

I only hope the "cool kids" of today have heeded the warnings of the people who walked the path before them. Without a revenue model, your Web 2.0 business will have a short lifespan.

I can see how Twitter, for example, can be used for business purposes but I'm having a hard time understanding how they'll make money. Is there something I'm missing?

Kevin Donaldson said...

No you aren't missing anything about revenue with Twitter:) First step though is business application. As for revenue I could see revenues coming from using advanced analytics to sift through live commenting and building a 'view' of participant perceptions of a product, brand etc.