Firms overlook Web 2.0 cost-saving potential

As companies largely view Web 2.0 on an experimental level, they are likely to pass on it during the current economic downturn, say analysts.
Written by Sol E. Solomon, Contributor

Web 2.0 can help companies reduce costs, but enterprises that have not yet taken advantage of such technologies are unlikely do so in the current downturn as they view investments in such projects as an "experimental" cost, say analysts.

Steve Hodgkinson, public sector research director at Ovum, said that companies which already deploy Web 2.0 do realize its potential as a cost-saver. However, he does not see any great swing toward the use of Web 2.0 as a cost-saving strategy by firms not already using such technologies.

"In some ways, the reverse may be a more common reaction--companies cutting back on anything that seems experimental or discretionary," Hodgkinson told ZDNet Asia in an e-mail interview.

Some ways Web 2.0 cuts costs

  • Co-production: Sometimes called "Product Development 2.0", this is the art of enrolling other people to do the work for you. Web 2.0 platforms are great for getting customers to develop your product via customer-generated content, forums, feedback and discussions. This saves on the cost of paying others to do this work.
  • Lightweight IT: Using open source software and software-as-a-service for new applications can reduce costs.
  • Mashups: Rather than build customized IT systems with hard-wired integration, Web 2.0 can enable mashups of existing Web services and data to do the job at lower cost and effort.
  • Crowd sourcing: Surveying and collecting information and data via social networking can be a lot cheaper than commissioning a research.
  • Meetings and collaboration: Using internal social-networking and collaboration platforms can improve communication and reduce travel costs as well as speed up the innovation cycle by enabling better sharing of information. This is particularly true of firms with globally distributed operations.
  • Cloud computing: Platforms such as Amazon Web Services and Microsoft Azure can lower the costs of building and operating new IT systems.

Source: Ovum

Agreeing, Shivanu Shukla, industry manager at Frost & Sullivan, said that while many enterprises realize what Web 2.0 can potentially do for them, lack of successful enterprise deployments has discouraged businesses to look more seriously at Web 2.0.

According to Hodgkinson, such companies risk being caught in a Catch 22 situation--they need to cut costs so they stop taking risks and reduce the number of IT people working on innovative projects. "But you need to have innovative people who are prepared to take risks to mobilize the Web 2.0 projects which can lead to sustainable cost reductions."

That said, smaller and more innovative companies are finding ways to use Web 2.0 to grow more quickly and to achieve operational productivity way beyond the levels that would be possible using earlier technologies, he said.

For example, Shukla cited Web conferencing as a tool that has helped companies reduce travel cost and improve team productivity. "Using the Web for internal as well as customer-facing communications is becoming increasingly popular."

As e-mail and Web chat capabilities become more popular for customer interaction, some companies are also evaluating Web 2.0's video and blogging capabilities to create customer communities. "These communities help customers by resolving queries via this channel rather than calling the contact center, thus leading to reduced costs for the company," Shukla explained.

Clear returns needed
When enterprises use Web-based applications, their intention is to save costs. Companies are therefore more inclined to spend on those applications where the returns on investment (ROI) are obvious, he said.

"However, for areas where the ROI is unclear and intangible, such as customer experience, Web 2.0 applications have failed to see strong adoption," said Shukla.

Hodgkinson said there is an emerging body of best practices about how to tackle Web 2.0 projects. "Companies should make sure they go into this with their eyes open rather than just learning on the job. Web 2.0 projects are still largely experimental, so they need to be tackled the right way to avoid the risk that they end up being an additional new cost…rather than a source of cost savings."

Shukla said that successful deployment of Web 2.0 also depends on employee and customer participation. Businesses need to ensure that the applications are user-friendly and easy to access and use.

For customer-facing applications, companies need to be vigilant of the content that customers share and should therefore put relevant policies in place. Security concerns around these applications need to be addressed to ensure that customer data and confidential company information are secure from threats.

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