Will's Web Watch: At the heart of web 2.0

In Silicon Valley it's like the web never lost its sheen...

Is web 2.0 more than just the latest buzzword? Will Sturgeon takes a trip to foggy California to find out.

If you really want to take the pulse of the IT industry there really is still only one place to go - San Francisco.

So, last month I spent two weeks in Silicon Valley, meeting people at the very beating heart of the internet economy. And the feeling you get speaking to people there is that the web has never been so exciting.

There is a huge buzz about the city regarding the technologies billed broadly as web 2.0 - the generation of apps which are pushing the internet to a new level of usability and innovation in one almighty web services 'mash-up'.

And perhaps most important is the fact this enthusiasm and innovation isn't a closed-shop for consumers - it is spilling over into the business world. Large companies are looking at the innovation all around them and adopting much of what they see.

It's no coincidence that a company such as Salesforce.com, founded during the last internet boom in 1998, is this time around so willing to take its lead from the hype around applications such as Flickr, iTunes and YouTube, and trends such as podcasting. I caught up with Marc Benioff, the founder and CEO of the company, and he told me that it boils down to one simple fact. "People want to share and manage their information," he said - whether it's enterprise data or personal media files.

He added: "All of the action is in services. Web 2.0 is where the action is."

But is it a bubble, with all the inherent 'burstability' that term infers?

Morgan McLintic, a PR exec who works with many start-ups in the Bay Area, admits there is a lot of talk about bubbles but much of the most worthwhile innovation will survive and become concrete functionality of the web's most compelling services, he believes. Largely because the good stuff will be bought and incorporated into large companies (such as Flickr's incorporation into Yahoo!).

McLintic said: "There's definitely going to be a shake-out. More companies are being formed to get acquired. That is the business model."

And certainly this "built to flip" approach works in fostering the kind of serial entrepreneur culture that always signals a period of rapid innovation. Rekindled interest from venture capital firms also helps.

San Francisco regularly hosts events that teach entrepreneurs how to sell off their companies, such is the intention to keep moving and innovating while web 2.0 is the hottest of red-hot watch words.

At the top of the tree is Google, which will most likely account for more of these web 2.0 start-ups than anybody else. Most notable among its start-up purchases is Writely, the on-demand word processor. It marks the point where small, community-based start-up meets enterprise software.

Benioff tells me he currently uses it to collaborate with his architect on a house renovation he's working on. He says he wouldn't have considered using Microsoft Word for the same purpose and believes Writely is an example of a web 2.0 service that could really hit the big time.

One reason for this - in the opinion of Zach Nelson, CEO of CRM vendor NetSuite, who believes web 2.0 developments are also enriching his own company's offering - is because "great software is written by small teams".

And then great software will be bought by big companies.

At least that ecosystem sounds a little more ordered than the previous dot-com bubble. The larger companies can set their price and with many of them publicly listed their spend will be tempered - you'd hope - by a degree of reality.

The greatest clamour and fiercest competition therefore will be among those developing the services - to be the best of the Class of Web 2.0.

Which can only be a good thing for the rate of innovation.