twopointouch

The signs of Web 2.0 are clear. Look for some aspect of com­munity col­lab­or­a­tion, of user-​​generated content, of the ability to cus­tomise the content, of a desktop-​​like applic­a­tion exper­i­ence. But why exactly should we care? In the words of a BusinessWeek headline on June 5, 2006, why is that “Web 2.0 Has Corporate America Spinning”?

Users benefit in multiple ways. They are empowered, with an internet that they choose and have, in part, created. The content they read and write is about what interests them rather than what a pub­lisher thinks might interest them. They get cheaper access to applic­a­tions. They are able to par­ti­cipate in and create a social network with like-​​minded people that may not exist in their day-​​to-​​day lives.

Businesses can benefit in similar ways. Many Web 2.0 services have specific business purposes. Startup 37Signals sells online col­lab­or­a­tion services spe­cific­ally designed to allow geo­graph­ic­ally remote teams to manage projects and agendas. Business doc­u­ments and hand­books are recre­ated as Wiki’s (the inform­a­tion struc­ture program used by Wikipedia). BusinessWeek reports that “Dresdner Kleinwort Wasserstein uses a Socialtext wiki instead of e-​​mail to create meeting agendas and post training videos for new hires. Six months after launching it, traffic on the 2,000-page wiki, used by a quarter of the bank’s work­force, already has sur­passed that of the company’s intranet”.

Maintaining and devel­oping contacts can be achieved through services like LinkedIn (www.linkedin.com, a ‘grown-​​up’ version of MySpace). Businesses can also add to or replace some of their PR activity with cor­porate blogs. Erstwhile Microsoft blogger, the gracious and disin­genuous Robert Scoble has arguably done more to soften its image than any of their PR activity over the last few years (http://scobleizer.wordpress.com).

For pub­lishers, the Web 2.0 approach clearly makes for an attractive business model. Having created a platform like digg.com, ongoing costs are fairly minimal for a news site, with no reporters, no editors, and no pro­duc­tion people. They have to pay for the band­width and some pro­gram­mers to tinker with the platform to keep it working sat­is­fact­orily. Their revenue comes from targeted avdertising such as Google AdWords (more of which anon) and since we, the users, decide what appears on the front page, these advert­ise­ments will be very accur­ately targeted to what the digg com­munity is inter­ested in.

It is not sur­prising, then, that the promise of a suc­cessful Web 2.0 site has the business com­munity excited and that VC funding and angel invest­ment is coming back to the internet. News International’s acquis­i­tion of social net­working site MySpace for $580mn in July 2005 has been the largest deal so far, but it is one of hundreds of deals.In most cases, the amounts aren’t astounding. Luckily for investors, with the low-​​cost business models these startups have adopted and users driven as much by word-​​of-​​mouth as tra­di­tional advert­ising, there isn’t actually a need for vast amounts of capital in many cases. There’s cer­tainly no return to the frenzy of 2000 when, for example, pets.com, which sold pet food online, raised $82.5mn in an IPO before col­lapsing nine months later. But they are inter­esting nonetheless.

Communal video sharing site youtube attracted $5mn from Sequoia Capital in October 2005, while digg got $2.8mn. Online calendar service trumba attracted $8mn in November 2005 from three invest­ment com­panies. Zimbra, an online equi­valent to Microsoft Outlook, raised $16mn. Facebook, a college net­working site, raised $12.2mn. The list goes on, most amounts are undis­closed, but a glance at the port­folio pages of VC com­panies like Union Square Ventures, the Omidyar Network and Selby Venture Partners confirms that con­fid­ence is high.