Web 2.0 – Meme or Bubble redux? March 6, 2006

meme: an idea, behavior, style, or usage that spreads from person to person within a culture

redux: brought back — used postpositively

Is this the year 2000 all over again? Web 2.0 has emerged as the Internet catch phrase of the year and has the promise to deliver a new wave of innovative applications that leverage the web. But, is this just hype or are consumers really benefiting from these developments? Web 2.0 applications definitely have the cool factor, but do they also have an intrinsic value factor. Are they just neat and tidy utilities or can they fundamentally make consumers lives better?

There are a number of good definitions of what Web 2.0 is all about, starting with Tim O’Reilly’s detailed explanation and subsequent concise definition. The common themes that emerge about Web 2.0 applications are:

• Foster a framework of user participation – the wisdom of the crowd adds to the value
• Harness the network as a platform – mash up and be mashed up
• Present a rich user interface – interactive, simple and intuitive
• Create unique value in the data – that’s what keeps users coming back

Dion Hinchcliffe has an excellent year-end review that rolls up the definitions and discussions related to Web 2.0.

The Internet bubble of 2000 was characterized by the Pets.com syndrome – you can start and build a new business by selling anything online. There was a whole bubble infrastructure that arose to support this premise, until it all came crashing down. The irony of the original premise is that existing brick and mortar businesses as well as niche businesses did deliver on the promise by building better businesses online. Google’s explosive growth occurred only after the bubble economy burst and benefited from these more efficient business models.

This brings us now to 2006 and the question of what can we learn from Internet 2000. A number of startups are developing Web 2.0 applications on the premise that revenues will come from advertising. The problem is that the numbers just don’t add up and this may just lead to a redux of the Internet bubble. Yes, it is easy to partner with Google, Yahoo or an advertising network but other than a small number of heavy traffic sites, the click through rates are not going to generate sufficient revenues to make it a viable business.

The businesses that survived the Internet bubble and benefited from the subsequent Internet economy all had unique business models: eBay, Google, Skype, performance based advertising networks, shopping comparison sites etc. The first wave of social networking companies (circa 2001-2003) started with a lot of hype but then got stuck without a business model. The second wave (circa 2004-2006), like MySpace and LinkedIn seem to be doing better because they have a revenue model that is not solely based on advertising.

Web 2.0 has the potential to deliver cool and useful applications that help consumers communicate, share, research, shop and play on the Internet. But the companies building these applications also need to focus on what makes their business model different and viable. Companies should look at co-operative business models not just mash ups. For the Web 2.0 meme to expand, we need something more than just disruptive applications, we need disruptive and co-operative business models. Only then we will have hundreds of mini-Googles driving innovation and creativity.