Caught up in the hype of the heady days of the dot-com boom in the late 90s, venture capitalists ploughed millions of dollars into such lemons as AllAdvantage.com and Pixelon.com. The former was a disastrously flawed business model, while the latter out-and-out fraud (non-existent media-streaming technology). Both eventually folded, and took with them millions of dollars from investors' pockets, symptomatic of the larger walls crumbling around the entire industry.
Fast-forward half a decade and the new catch phrase, no longer 'dot-com boom', is Web 2.0. A bruised, battered and scarred industry has seemingly been able to largely lift itself out of the doldrums, and actually reinvigorate itself to the point of financial fitness. Or has it?
The short answer is that while completely clean bill of fiscal health is still a little way off, a combination of factors seems to be breathing new life into a once financially-dead industry.
First and foremost is that familiar behemoth Google. The dominant player in the search engine market is probably single-handedly responsible for resuscitating the early excitement of this second coming. Its 2004 IPO was possibly the most eagerly anticipated in the web's short history, and its performance to date has done nothing to dampen the initial enthusiasm. Its stock continues its giddy upward swing towards US$500, taking its market capitalisation upward of US$150 billion (from an initial US$23 billion).
Releasing a slew of new products and services that deviated from its core specialisation of search, industry watchers initially watched with bemusement as it diversified its services to include online spreadsheet and writing applications, a global satellite mapping software, video upload and sharing, net-based email, an instant messenger, desktop search and a blogging service.
Roughly concurrent to this flurry of activity, an entirely different potpourri of sites was rapidly gaining in prominence. User (or community) generated content sites such as YouTube.com, MySpace.com and Wikipedia.com built massive user bases by allowing just about anybody on the Internet to add to their site content. For myspace.com the catch is social networking, allowing users to build their profiles and invite and add friends to their pages. Youtube.com appeals to the voyeur in us all, allowing people to upload and view videos of... well, of pretty much anything. Wikipedia exploits the growing technology of wikis (a web application allowing visitors to add and edit content on a webpage), creating the world's largest collaborative online encyclopaedia.
MySpace in particular proved massively successful, gathering some 100 million members, and fast becoming the second most viewed website in the world (after Yahoo.com) with some 1 billions page views a day. The inevitable industry consolidation soon followed, with Rupert Murdoch's News Corp buying it for US$850 million, and Google acquiring YouTube for US$1.7 billion.
In the middle of the melee of these product developments and buyouts, Web 2.0 arrived. Best described as the marriage of established software functionality with the Internet, Web 2.0 has certain identifiable elements. It aims to change the Internet from a largely static single-directional flow of information to a much more dynamic and layered experience. Thus, users can experience traditional software functionality in terms of both usability and look and feel, on a service accessed via the web, anywhere and anytime. Imagine a MS Word-like document editor, allowing you to create and save a document online, or access and edit the same document from anywhere with an Internet connection. These so called Rich Internet Applications provide web interfaces for services without the need to install software, usually independent of operating system and browser specifications.
Another thrust behind Web 2.0 has been the aforementioned user and community generated content, or social web as it has come to be known. Gone are the days when users are expected to simply ingest content that others want them to see. Social web thus uses, amongst others, wikis, 'tagging,' podcasting and blogging to allow for a dynamic base of participation, turning average site visitors into active participants in the creation or classification of content.
Service Oriented Architecture (SOA) is another characteristic of Web 2.0. Put simply, SOA allows for composite applications, with features, functionalities or data from a variety of different sources coming together in one offering. A rudimentary example of this is via a "mash-up" - real estate agents merging their database of properties with a satellite mapping service to show you exactly where they are.
All this and more come together to give us the ubiquitous Web 2.0. But have the mistakes of the past been avoided? Can Web 2.0 survive financially?
Given the extent of its influence, Google once again seems to be leading the way with the business model for Web 2.0. Just as Microsoft defined the revenue streams for traditional software houses, Google's monetisation of its online services seems to be paving the way for Web 2.0. Google's model, quite simply, is to allow users access to their services for free, on the basis that users are exposed to small unobtrusive and contextual online advertisements. Clearly separating search results and other content from advertising, Google ensures that any intrusions from the ads are kept to a minimum (not to mention that contextual ads mean there is always relevance with the actual search).
This simple approach has yielded some spectacular results: some US$6 billion in revenue last year. For others such as News Corp, the road has been less certain. MySpace's revenue was, according to Fortune, less than US$200 million, and the site actually lost money (after costs related to acquisitions). Google, it would seem, has changed that scenario. A deal struck between the two companies sees Google providing search technology and text ads on MySpace (and other sites owned by Fox Interactive Media, a division of News Corp). Thus Fox Interactive Media is guaranteed a minimum of US$900 million over till 2010 for allowing Google and its advertisers access to their user base.
So will Web 2.0's revenue streams be completely advertising dominated? A New York Times article from February 2006 outlines how IBM and Salesforce.com are selling online Web services to small businesses, markets that largely get ignored by large software houses that focus on corporate customers. The online customer tracking and management service that Salesforce sells has seen that company grow to a business worth US$300 million a year. (In fact the article describes how small businesses like bellapictures.com, the Newark Nut Company and Brooklyn Breweries have purchased access to certain Web 2.0 services to transform sales and efficiency, showing large increases in customers and profits).
These new Web 2.0 automated online processes are showing tangible profits and benefits for both companies that sell them (eschewing Google's ad revenue model) and for companies consuming the services, as noted above. Subscription services as offered by IBM and Salesforce may well be the answer for companies that do not have the massive user base of Google. It remains to be seen whether these will remain fixed subscriptions, variable subscriptions (based on usage) or a combination of the two (as in the cellphone industry - a fixed base cost, and thereafter usage dependant).
The blogger Phil Wainewright believes, however, that transactional fees will eventually usurp other revenue streams in Web 2.0. These can take the form of trading fees, such as BidorBuy.co.za, or 'aggregation fees.' As Wainewright describes them, these are applicable when a company aggregates services or content, and takes a commission when users purchase the service or content, as iTunes does with music.
While already there is industry talk of Web 3.0, it is safe to assume that Web 2.0 will be here for a while yet. The direction it will take is still being worked out, the combinations and permutations almost endless. As is technology's wont, the pace of change is breathtaking. Needless to say, Web 2.0 continues to mutate in new directions, and to predict even its immediate future is a lottery at best. The question remains as to whether the mistakes of the past will be repeated, though early indications are encouraging.
To all the naysayers that hark back to the crash of 2000 - 2001, the message is clear. The web didn't die. It just quietly adapted itself to new circumstances, and evolved to a new more dynamic paradigm to survive bigger and better - just like most living organisms.
