Web 2.0 business models

Web 2.0 is a hot topic, is this and that and all together as one. A technological and social shift defined by a manifesto that was published by Tim O’Reily that offers examples on how web technologies enable the change and makes a prediction on the obsolescence of traditional software development. Google is currently working on a Web based OS, it’ll come and probably the web will be called web 3.0 by the time applications will all run on the network rather than on PC, showing user created content and being improved by users and developers together rather than software companies. For some related thinking read my “Web 2.0 for rookies” article.

Web 2.0 has siblings, like “Enterprise 2.0”. "We're using Enterprise 2.0 as short hand for blogs and wikis behind the firewall. But that's entirely too limiting," said Andrew McAfee, associate professor of Harvard Business School, "We have not yet seen all the neat things that will go on inside enterprises.". Jobster CEO Jason Goldberg concludes that "Web 1.0 was all about getting things online. Web 2.0 is going the next step and making it work," with sites, he said, that are "created by the people, for the people every day.". Web 2.0 and it’s implications for enterprises is still on debate.

The truth is that if you need information while you study at some university, you’ll find it on the university site. And yet the student community events are on somebody’s blog or a student community site or even on MySpace and you need to visit that. Add healthcare questions and math club meetings or student discount store and you end up having a dozen sites to visit before you are ready to start the day knowing enough to be efficient about it. Now just imagine what a ”community site” would do in this situation where users add the required content if it’s missing, along with a story on how to go about the subject. A forum is good but the business model is not forum like, it’s integrating a variety of services that meet community needs. That triggers a Web 2.0 business model.

The new web companies move on a totally different path than the dotcom business model. The model is to capitalize on user-generated content. Digg, Facebook, Photobucket, Zillow, PickPal and YouTube, to name a few, are open houses that facilitate work from anywhere and are basically cheap to start-up compared to the dotcom million dollar launch model that provides closed portals (providing a huge amount of information but incapable to grow with each visitor).

"Web 2.0 is really the acceleration of transformation," Andrew McAfee said "It's not that users got smarter or more social. It's that technologists figured out what consumers wanted."

Social networking: Bringing it all together is one of the Web 2.0 business models generating a cascading effect based on user generated content and user interaction. Metcalfe's law comes into play here: “the total value of the service is roughly proportional to the square of the number of customers' utilizing the service”. If a user using Freewebs cannot connect to another using Facebook, it will switch. But what users can do, is syndicate their content. And for the users that can syndicate their content (MySpace users can not), tightly integrated API’s are available enabling marsh-ups.

Pay per use: Developing the compelling value innovative solution is another business model that applies to this wave of web companies. The service is free but for the killer feature you need to pay. It’s the software as a service model and the revenue comes from a critical mass of users willing to pay a reasonable price that supports it all. It also pays itself from partnerships. Those services are also publicised by users on social networking sites and the technology provided is reusable and expandable with users help. Flickr is a perfect example for this category.

In both these models, the product the company brings to the web is technology and this is used to generate the business value. In both cases the user generates its content (photos on Flickr, articles on Blogspot …) and they all interact. None of these companies have a “product” per-se, they don’t sell a CD or a book or a car, and yet they act like hubs and the revenue comes from partnerships, advertising, content … and the list can go on, I just leave it up to you to add to it.