Finally, The Internet As Intended.

Companies at Risk

Who is at risk to having their existing business threatened by Web 2.0 companies? They share these characteristics:

• Unable or unwilling to syndicate their content openly (not necessarily freely)
• Unable or unwilling to trust their user-base as valueable partners
• Unable or unwilling to canabalize their existing installed software base with software as a service versions

Organizations that rely upon the Web 1.0 model for controlling access to their information.  This includes the traditional print media, online news media, and the recording industry.  The nature of the internet makes information openness a competitive advantage. It is increasingly difficult for content organizations to dictate the channels through which their information is consumed.  Businesses whose model require that their consumers “come through my front door” to consume their information will end up as losers in the Web 2.0 economy. 

In contrast, Companies with simple open API’s to their content will see their information distributed through innovative mashups and other 3^rd party channels – offering them opportunities to explore new revenue streams.  Consumers, of course, will not make their decision to abandon a service based on API availability, but that will be the net effect.  They will switch their attention to services that enable them to consume information on their own terms.

Organizations that do not recognize their user-base as a valuable network will be left behind by Web 2.0 companies that do.  Users of today’s Web 2.0 companies are essentially co-developers of the products they use.  The Web 2.0  products have a built-in positive feedback loop that is powered by the network effect.  Purveyors of traditional ‘stand-alone software’ that cannot take advantage of the network effect will be at a competitive disadvantage in the years to come.

Even traditional software markets like ERP and CRM, that would appear insulated from the Web 2.0 threat because of their complexity and heavy per-instance configuration and customization are not safe over the long haul.  Companies like Seibel, if they do not move to embrace the Web 2.0 concepts will continue to loose market share to innovators like SalesForce.com who have fully embraced the web as-a-platform and software-as-a-service principles.  The SalesForce’s of the world will have the advantage of profitably servicing the Long Tail as an ever growing revenue stream, while chipping away at the enterprise market dominated by the likes of Seibel (in CRM).

Companies Poised to Capitalize

What organizations are poised to capitalize on the Web 2.0 concepts and technologies? They share these characteristics:

• Existing participatory user base – Yahoo, Microsoft (MSN), AOL, Google, eBay. Companies with a large number of existing registered users have a built in advantage in leveraging the network effect. They can jump start their Web 2.0 services by tapping into an existing set of users, enabling them to reach critical mass quicker.
• Mash Up Innovators and Mash Up Content Providers – innovators: Trulia.com, Rollyo.com, GroupHop, diggdot.us, Flock, etc; providers: BBC, Flickr (Yahoo!), Google, Del.icio.us, directory services, traditional media (if willing to relinquish some control). There will undoubtedly be a shake out in this space, but those who are able to add significant value to consumers by integrating 3^rd party content in innovative ways will become Web 2.0 winners. Interestingly, the winners in this space tend to become acquisition targets by the companies in bullet one, above, as opposed to companies looking to build their own organization.
• Desktop Application Replacements and Software as Service leaders– Zimbra.com, SalesForce.com, Writely, JotSpot, SocialText, etc. Organizations that are already delivering their software as a service over the web are blazing the early adopter trail. Large companies with traditional installed software business models should be watching closely – Microsoft, Quicken, and Adobe, are good examples. These companies can either learn quickly from the trailblazers, or loose out to them, depending upon their reaction to the disruption they will pose to their market share.
• Network Effect Leveragers – NetFlix, Technorati, Del.icio.us, Digg.com, Wikipedia, SugarCRM, Salesforce.com, ESPN.com (fantasy sports).  These companies already enjoy the exponential growth in usage generated by the network effect embedded in their services.