A checkpoint on Web 2.0 in the enterprise, Part 2

Summary:A new survey of the personal use of Web 2.0 applications by CIOs emerged late last week and provided another interesting, if high-level, datapoint about the future of Web 2.0 in the enterprise. Carried out by CIO Insight, the survey reported the usual trends like high rates of use of wikis, blogs, and RSS, as well as a few unexpected outliers, like 39% of CIOs listen to podcasts.

A new survey of the personal use of Web 2.0 applications by CIOs emerged late last week and provided another interesting, if high-level, datapoint about the future of Web 2.0 in the enterprise. Carried out by CIO Insight, the survey reported the usual trends like high rates of use of wikis, blogs, and RSS, as well as a few unexpected outliers, like 39% of CIOs listen to podcasts.

More than one large company has discovered that external customer communities provide better support to their own customers.Like most surveys, however, the questions tend to be leading and prevent unpredicted trends emerge naturally. Consequently, the numbers in this survey look somewhat different from the larger, more intention-based results from McKinsey's global Web 2.0 survey earlier this year.

In terms of current trends, Silicon Valley proper has for the most part become thoroughly bored with the Web 2.0 meme despite the largely superficial presence of the most powerful Web 2.0 concepts in many online products and services.

At the same time, mainstream business is just now getting ready for Web 2.0 adoption and are beginning to incorporate the underlying technologies, platforms, and concepts into their IT departments and lines of business, though they too are often focusing on the low hanging fruit. But pilot projects now abound in businesses large and small around the world and even some concerted large-scale Web 2.0 projects and Enterprise 2.0 rollouts are under way in leading-edge organizations. Business and IT leaders on the sidelines continue to seek early results and evidence of what works and what doesn't when it comes to applying Web 2.0 to their respective situations.

Surveys do help paint a picture of what's taking place in the large marketplace and, judiciously used, can help us make better decisions. Unfortunately, most of the current crop of Web 2.0 surveys appear to be focused on specific technologies and applications of Web 2.0 instead of the deeper and more disruptive business models and approaches.

For example, crowdsourcing is just one example of how to use the fundamental power of the global Web to change the size, scope, and even the very nature of an organization's productive output. Yet crowdsourcing hasn't made the cut in any of the Web 2.0 surveys I've come across so far despite its proven game-changing potential.

A fairly well known story, crowdsourcing in the large in its earliest form has already shown that it can disrupt an entire, established industry. I'm talking about the rise of open source software, one of the early and effective proofs that crowdsourcing could be applied to a tricky business problem -- creating competitive software cheaply by using virtually free labor capacity on the Internet -- resulted in a nearly unending stream of high-quality, innovative products in the form of application software, databases, and even entire operating systems.

Web 2.0: The Shift of Control To Peer Production

The crowdsourcing link above takes you to Wikipedia and will list many innovative examples of how organizations are taking it beyond software creation and enabling large communities of people on the Internet to generate outcomes that are often impossible in any other way. This is one of the more dramatic and powerfully business models that Web 2.0 makes possible when one tries to harness collective intelligence, one of the core ideas of Web 2.0 and probably the one most rife with long term implications for business and society. Yet only the McKinsey survey above cited this prospect in any recognizable way in its survey.

The point I'm making here is that like SOA or SaaS, the ideas represented by Web 2.0 will take years for the majority of the world to embrace and make effective use of. It's the bigger business model topics of Web 2.0 that are in fact the far-reaching ones. Many of these will require serious soul-searching in business, not to mention overcoming the Innovator's Dilemma, the latter which raises the interesting question of how do you adopt a new way of business that is at odds with your current way of doing business?

This is a useful pre-amble to Part 2 of my last post, A checkpoint on Web 2.0 in the Enterprise, since it covers some of the more interesting new ways that most organizations will have to start thinking about interacting with customers, partners, and suppliers. The remainder of this section covers the left half of the Web 2.0 concepts visualization in my last post; the external-facing aspects of Web 2.0, both social and technical.

The aspects of Web 2.0 in the enterprise as of mid-2007, Part 2

Classifying this next section as the external social aspects of Web 2.0 is a little bit of a misnomer since the non-technical aspects of Web 2.0 certain range beyond the social. I debated about calling it the business aspects of Web 2.0, but in the end, the social aspect fit best with what the rest of the industry is tracking and I was able to separate out the pure business models into the center of the diagram.

External Social Aspects

Social networks: One clear trend in the Web 2.0 era is the rise of the social network. These are usually Web-based applications whose core function is to help a person establish and maintain social relationships on a network (Web or intranet). The exact nature of the social relationship is entirely up to the social networking application or platform being used. MySpace and Facebook are among the most popular consumer social networks with tens of millions of users while LinkedIn is held up to be one of the more typical business examples. Visible Path is another innovative way to use social networks for businesses.

It's safe to say that the ultimate value of social networking to businesses is still emerging but at the very least from an external facing side, can allow a business to provide a strong fabric for the pioneering customer communities (see below) that are starting to supplant the traditional 1-to-1 customer/company relationship. Customer communities can form the foundation for everything from customer-provided customer service to Product Development 2.0 (see below.)

Network effects: Like many of the items on this list, this topic applies to both the inside and outside of an organization's online assets. Put simply, a network effect is when a good or service has more value the more that other people have it to. This is in fact the Wikipedia definition of a network effect and it's not an understatement to say that the network effects is one of the key aspects of Web 2.0. In fact, the shortest formal definition of Web 20 is "networked applications that explicitly leverage network effects."

There are many ways to leverage network effects, most of which are responsible for the attaining and maintaining of industry dominance by the industry leaders which clearly understand them and have core competence in it. But the essential ideas is that the more value that a network application has, the more people use it, which gives it more value, which means even more people use it (contribute to it, consume it), and so on.

I've done more detailed analysis of the raw power of network effects elsewhere but anyone that studies them must also delve into Reed's Law, which states that the potential network effect of networks used in a social manner is much higher than previously understood. This could explain a lot about the motive force behind many of the fast risers on the Web today and is actually at the root of why many of the other items on this Web 2.0 in the enterprise list are so potent.

Push vs. Pull (DIY): One of the classic attributes of most organizations is still the fact that the organization has central control of all the resources and employs top-down control to "push" down decisions on how those resources are to be used accomplish business objectives. This has been the model for business for ages despite recent trends to "empower" workers to use their own initiative to achieve goals on their own, within certain prescribed boundaries. But on large networks like the Internet, the majority of resources is actually under the control of individuals and ad hoc communities. And a vast majority it is, with over 1 billion users online today. In the Web 2.0 era, individuals now have platforms and skill help themselves to this audience, contribute their own ideas and creative resources to the worldwide community, and son. Done well, this can produce results as big as a large corporation. This disproportionate effect is quite pronounced and has been leveraged by many a startup, with YouTube and Wikipedia as two well-known examples of the pull model used by very small teams for very large results.

Consequently, it's now common for self-organizing Web communities to be larger than Fortune 500 companies and the value of their outputs are more beginning to compete with them as well. In the end, the pull model is related to free market economics in that a large number of individual entitites can efficiently pull to them the ideas, content, functionality, etc. that they want to use. In the same way, the superabundant individual resources on the Web can pull audiences to them without waiting for them to be pushed to do so by some larger entity in charge. For more information on this influential business trend made possible and potent by the Web, read John Hagel's writings on the subject.

Business Blogging: The primary use of blogs is for individual consumers on the Web to participate in conversations with the rest of the Web. But many businesses have already realized that they can't be left out of this conversation, which is often comprised of influencers in more audiences and industries that can be listed here. Do most businesses need a blog? If they have to ask, they probably aren't ready to have one. The jury is also still out on a formal ROI of business blogging, if it ever comes in. But it's clear that definable ROI is low on the list of concerns if even the short term benefits are mapped to the actual cost (which is usually very low).

While letting every employee blog is not yet on the radar of most businesses today, partially because of the risks seemingly high with examples such as the notorious Dell Hell, the reality is that it's one of the least inexpensive, most trusted ways to communicate with customers, particularly loyal and engaged customers. In my opinion, most businesses should be actively exploring the use of blogs to communicate (two-way) with their customers, starting small, expecting little, and looking for opportunity. They will almost certainly be surprised at the results -- both positive and negative -- of being directly connected to their customers.

Product Development 2.0: This is a term of my own making which I've described in detail elsewhere. The essential point is that organizations are increasingly handing over control of their innovation and even the productive inputs to their product development directly to their customers. Everyone from XM Radio to General Motors to USA Today is experimenting with transferring various levels of control over their products to their customers. Call it commercial crowdsourcing, but the techniques of Product Development 2.0 allows companies to build financially viable "products" built by their customers while retaining essential ownership and control of the result. MySpace and YouTube are good examples of this in the large as well as the new trial features in Google Maps that lets customers add value continuously.

Customer Communities: While it's often a good idea for companies to create their own online customer communities, that don't certainly won't stop customers from doing it themselves if they choose. Particularly for products or services that consumers are passionate about -- as in either love or hate -- if there is no existing community, someone is sure to create one. Customer communities at their best allow users to come together to exchange ideas, review and recommend new products, accessories, upsells, and even support each other. More than one large company has discovered that external customer communities provide better support to their customers than dedicated tier-II and tier-III customer service representatives. While fostering company controlled customer communities is still in its infancy -- and is hard to do with mediocre product or products that are hard to be passionate about -- their long term future is bright for the same reason that many of these other recommendations are so powerful: the lure of direct and sustained customer interaction over the Web.

Architectures of Participation: In addition to the relatively static Web experiences that still predominate businesses sites even today, the rise of direct end-user participation is giving rise to a design pattern known as an Architecture of Participation. The idea is that by directly leveraging the productive output customers willing to contribute, we can create designs that we can identify as best enabling peer production and other forms of collective intelligence and optimize for them.

A typical example of this is the peer production news system on Netscape.com, which lets their users generated and govern 100% of the news content on the site insead of using professional editors and copyrighters. The result is far more news volume much better suited to the site's audience than a traditional news site could create on their own. Each step of Netscape.com's Architecture of Participation include ways for users to review other user's contributions, comment on news stories (which makes up the vast bulk of the content), and to govern and rate all contributions including comments to make sure they meet community standards. While still in its infancy, the technique for making an Architecture of Participation successfully generate and manage the bulk of the business value for an online product or service is becoming a vital aspect of product design.

External Technical Aspects

Mashable Products: These days, being a single, individual site on the Internet is a tough proposition for garnering traffic in an attention scarce world. Not so for online products that are designed to plug into the large, pre-existing ecosystems of attention that already have legions of users ready to consume content and functionality that can be "mashed" up within them. Everything from the blogosphere to roaming desktop widget platforms such as Netvibes to the vast audiences on YouTube and MySpace, there is plenty of attention available if you build your products to be distributed and consumed from within them. And mashable products are usually very amenable to viral user distribution, syndication, and network propogation with very little effort by virtue of being designed to ride within other products. A large number of new Web products are now created this way and are ready to be mashed up into other products and ecosystems. See Google Gadgets and WidgetBox to get a sense of how large this phenomenon is.

Read about the DIY phenomenon with widgets and badgets and how millions of users will help broaden an online product's distribution 24x7.

Open APIs and Feeds: This is another aspect of being mashable but particularly on the API side tends to be more formal and possibly even more strategic. An open API, or application programming interface, is a way of opening up the data and functionality of a site so that it can be used by anyone else in their own online product, live. Amazon.com's Web Services Division is famous for raising this up to an art form and just as importantly, for generating a tremendous amount of additional net revenue for the business each year. In fact, open APIs and syndication are how a networked application becomes a platform. And a key mantra of the Web era is that a platform will invariably beat an application in head-to-head competition. Especially for those that have extremely high value data sources or hard-to-recreate functionality, the business upside is as limitless as the Web itself. By metering, or charging, for use of the API (whose underlying data is often built by millions of users 24 hours a day via peer production) potent business results can be achieved and maintained. These days, most new online products come complete with an API that turns each one into a full-blown platform play.

Ajax/Flash/Silverlight: I wrote a detailed overview last summer of the coming rich Internet Application (RIA) wars, which are now just about upon us. Ajax has mindshare because it's based on the pure open standards of the Web but Adobe's Flash and Microsoft's Silverlight are here to stay, not the least because Achille's Heel of Ajax is its inability to support rich media such as audio and video, which the latter two are now taking into the hidef world.

But all three of these technologies enable Web pages to deliver experiences just as good as, if not better than, native installed PC software. While seemingly orthogonal to many of the key aspects of Web 2.0 in terms of its shift in control and focus on network effects and ecosystems, the RIA is actually important for networked applications to be able to deliver the most value to users. Network effects are in fact made stronger because products such as Joost can spread virally even more aggressively because of the sheer immersiveness of its video experience. Disclaimer: Joost user its own rich media Web technology, not one of these three.

Lightweight Platforms: There is a return to simplicity and an emphasis on productivity-orientation and pragmatism in online products today. The Semantic Web is out and RSS is in. Ruby on Rails has currency and Java is struggling to stay on top. Widgets and Javascript snippets are making it easy to recombine and remix the Web into new products. The bottom line: It's easier and cheaper to innovate with these new lightweight platforms than the previous generation of technologies. Keeping up with the Perpetual Beta-style competition on the open Web is also vital as well as these platforms were designed for this era.

On-Demand Scaling: I call this challenge "riding the hockey stick" and in a world where the Internet can throw tens of millions of new visitors today at your hot online product and this makes operations becomes strategic and a major discipline in itself.

Shadow Apps: Part of Web Development 2.0, the act of managing Web 2.0 applications becomes as big a part of product development as the public part of the site itself and there have been surveys about what the Web 2.0 startups are doing in this space as part of standard practice.

Office 2.0: This is SaaS software that is based on many of the techniques of Web 2.0 including real-time, instant collaboration, RIA interfaces, collective intelligence, etc. Coined by Ismael Ghalimi and now a major software conference. Office 2.0 is now a new software category that describes a new flurry of innovation and entreprenurial activity that is reminiscent of the early PC industry. There are many opportunities for traditional companies to offer capabilities in this mold before the coming market shakeout in several years.

Mobile: Last but not least, the Web is moving out as a full-blown presence in the mobile space. While this might have seemed true with previous generations of mobile devices from WAP to Windows Mobile, you can can see the potential with the iPhone: A zero-compromise Web experience on a device that will fit in your pocket and run most Web 2.0 apps with aplomb. Designing your online products to be usable from the hundreds of mobile devices to deliver and capture value from your customers anywhere they are, 24 hours a day is now a key driver for sustainable competitive advantage.

Conclusion

The challenge of the term Web 2.0 remains much the same: A word and a version number which conveys a large number of important interrelated trends. A lot to understand and a great deal of business potential for those that do. The bad news: Traditional businesses are mostly behind the power curve on embracing Web 2.0 both internally and externally. And while it still remains to be seen how disruptive failure to embrace Web 2.0 will be long term, it's clear that the online world is being remade with most of the traditional rules of business hold true while all new models emerge online and requiring our in-depth study.

I will cover the pure business models of Web 2.0 -- those at the center of the visualization in the diagram -- in a future post. In the meantime, I'm going to move this discussion to future of SOA and how Web 2.0 is in the process of teaching us how to do it right.

Are you applying Web 2.0 in the enterprise? Tell me your story or put it in TalkBack below.

Topics: Browser, Amazon, Networking

About

Dion Hinchcliffe is an expert in information technology, business strategy, and next-generation enterprises. He is currently Chief Strategy Officer at the digital business transformation firm Adjuvi. A veteran of enterprise IT, Dion has been working for two decades with leading-edge methods to bridge the widening gap between business and... Full Bio

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