After studying this section you should be able to do the following:
- Recognize the unexpected rise and impact of social media and peer production systems, and understand how these services differ from prior generation tools.
- List the major classifications of social media services.
Over the past few years a fundamentally different class of Internet services has attracted users, made headlines, and increasingly garnered breathtaking market valuations. Often referred to under the umbrella term “Web 2.0,” these new services are targeted at harnessing the power of the Internet to empower users to collaborate, create resources, and share information in a distinctly different way from the static Web sites and transaction-focused storefronts that characterized so many failures in the dot-com bubble. Blogs, wikis, social networks, photo and video sharing sites, and tagging systems all fall under the Web 2.0 moniker, as do a host of supporting technologies and related efforts.
The term Web 2.0 is a tricky one because like so many popular technology terms there’s not a precise definition. Coined by publisher and pundit Tim O’Reilly in 2003, techies often joust over the breadth of the Web 2.0 umbrella and over whether Web 2.0 is something new or simply an extension of technologies that have existed since the creation of the Internet. These arguments aren’t really all that important. What is significant is how quickly the Web 2.0 revolution came about, how unexpected it was, and how deeply impactful these efforts have become. Some of the sites and services that have evolved and their Web 1.0 counterparts are listed in Table 7.1 “Web 1.0 versus Web 2.0”1.
To underscore the speed with which Web 2.0 arrived on the scene, and the impact of leading Web 2.0 services, consider the following efforts:
- According to a spring 2008 report by Morgan Stanley, Web 2.0 services ranked as seven of the world’s top ten most heavily trafficked Internet sites (YouTube, Live.com, MySpace, Facebook, Hi5, Wikipedia, and Orkut); only one of these sites (MySpace) was on the list in 2005 (Stanley, 2008).
- With only seven full-time employees and an operating budget of less than $1 million, Wikipedia has become the Internet’s fifth most visited site on the Internet (Kane & Fichman, 2009). The site boasts well over fifteen million articles in over two hundred sixty different languages, all of them contributed, edited, and fact-checked by volunteers.
- Just two years after it was founded, MySpace was bought for $580 million by Rupert Murdoch’s News Corporation (the media giant that owns the Wall Street Journal and the Fox networks, among other properties). By the end of 2007, the site accounted for some 12 percent of Internet minutes and had repeatedly ranked as the most-visited Web site in the United States (Chmielewski & Guynn, 2008). But rapid rise doesn’t always mean a sustained following, and by the start of 2010, some were beginning to write the service’s obituary as it failed to keep pace with Facebook (Malik, 2010).
- The population of rival Facebook is now so large that it could be considered the third largest “nation” in the world. Half the site’s users log in at least once a day, spending an average of fifty-five minutes a day on the site2. A fall 2007 investment from Microsoft pegged the firm’s overall value at $15 billion, a number that would have made it the fifth most valuable Internet firm, despite annual revenues at the time of only $150 million (Arrington, 2007). Those revenues have been growing, with the privately held firm expected to bring in from $1.2 to $2 billion in 2010 (Vascellaro, 2010).
- Just twenty months after its founding, YouTube was purchased by Google for $1.65 billion. While Google struggles to figure out how to make profitable what is currently a money-losing resource hog (over twenty hours of video are uploaded to YouTube each minute) (Nakashima, 2008) the site has emerged as the Web’s leading destination for video, hosting everything from apologies from JetBlue’s CEO for service gaffes to questions submitted as part of the 2008 U.S. presidential debates. Fifty percent of YouTube’s roughly three hundred million users visit the site at least once a week (Stanley, 2008).
- Twitter has emerged as a major force that can break news and shape public opinion. China and Iran are among the governments so threatened by the power of Twitter-fueled data sharing that each has, at times, blocked Twitter access within their borders. At the first Twitter-focused Chirp conference in April 2010, Twitter boasted a population of over one hundred million users who have collectively posted more than ten billion tweets (Twitter messages). By this time, the service had also spawned an ecosystem of over one hundred thousand registered Twitter-supporting apps. In another nod to the service’s significance, the U.S. Library of Congress announced plans to archive every tweet ever sent (Bolton, 2010; Shaer, 2010).
- Services such as Twitter, Yelp, and the highly profitable TripAdvisor have unleashed the voice of the customer so that it is now often captured and broadcast immediately at the point of service. Reviews are now incorporated into search results and maps, making them the first thing many customers see when encountering a brand online. TripAdvisor, with just five hundred employees, contributes over $150 million in profits to parent company Expedia (at roughly 50 percent margins) (Wash, 2009; Burrows, 2010),
Millions of users, billions of dollars, huge social impact, and these efforts weren’t even on the radar of most business professionals when today’s graduating college seniors first enrolled as freshmen. The trend demonstrates that even some of the world’s preeminent thought leaders and business publications can be sideswiped by the speed of the Internet.
Consider that when management guru Michael Porter wrote a piece titled “Strategy and the Internet” at the end of the dot-com bubble, he lamented the high cost of building brand online, questioned the power of network effects, and cast a skeptical eye on ad-supported revenue models. Well, it turns out Web 2.0 efforts challenged all of these concerns. Among the efforts above, all built brand on the cheap with little conventional advertising, and each owes their hypergrowth and high valuation to their ability to harness the network effect.
While the Web 2.0 moniker is a murky one, we’ll add some precision to our discussion of these efforts by focusing on peer production, perhaps Web 2.0’s most powerful feature, where users work, often collaboratively, to create content and provide services online. Web-based efforts that foster peer production are often referred to as social media or user-generated content sites. These sites include blogs; wikis; social networks like Facebook and MySpace; communal bookmarking and tagging sites like Del.icio.us; media sharing sites like YouTube and Flickr; and a host of supporting technologies. And it’s not just about media. Peer-produced services like Skype and BitTorrent leverage users’ computers instead of a central IT resource to forward phone calls and video. This ability saves their sponsors the substantial cost of servers, storage, and bandwidth. Peer production is also leveraged to create much of the open source software that supports many of the Web 2.0 efforts described above. Techniques such as crowdsourcing, where initially undefined groups of users band together to solve problems, create code, and develop services, are also a type of peer production. These efforts often seek to leverage the so-called wisdom of crowds, the idea that a large, diverse group often has more collective insight than a single or small group of trained professionals. These efforts will be expanded on below, along with several examples of their use and impact.
- A new generation of Internet applications is enabling consumers to participate in creating content and services online. Examples include Web 2.0 efforts such as social networks, blogs, and wikis, as well as efforts such as Skype and BitTorrent, which leverage the collective hardware of their user communities to provide a service.
- These efforts have grown rapidly, most with remarkably little investment in promotion. Nearly all of these new efforts leverage network effects to add value and establish their dominance and viral marketing to build awareness and attract users.
- Experts often argue whether Web 2.0 is something new or merely an extension of existing technologies. The bottom line is the magnitude of the impact of the current generation of services.
- Peer production and social media fall under the Web 2.0 umbrella. These services often leverage the wisdom of crowds to provide insight or production that can be far more accurate or valuable than that provided by a smaller group of professionals.
- Network effects play a leading role in enabling Web 2.0 firms. Many of these services also rely on ad-supported revenue models.
Questions and Exercises
- What distinguishes Web 2.0 technologies and services from the prior generation of Internet sites?
- Several examples of rapidly rising Web 2.0 efforts are listed in this section. Can you think of other dramatic examples? Are there cautionary tales of efforts that may not have lived up to their initial hype or promise? Why do you suppose they failed?
- Make your own list of Web 1.0 and Web 2.0 services and technologies. Would you invest in them? Why or why not?
- In what ways do Web 2.0 efforts challenge the assumptions that Michael Porter made regarding Strategy and the Internet?
1Adapted from T. O’Reilly, “What Is Web 2.0?” O’Reilly, September 30, 2005.
2“Facebook Facts and Figures (History and Statistics),” Website Monitoring Blog, March 17, 2010.
Arrington, M., “Perspective: Facebook Is Now Fifth Most Valuable U.S. Internet Company,” TechCrunch, October 25, 2007.
Bolton, N., “Chirp, Twitter’s First Developer Conference, Opens Its Doors,” New York Times, April 14, 2010.
Burrows, P., “Hot Tech Companies Like Yelp Are Bypassing IPOs,” BusinessWeek, February 4, 2010.
Chmielewski D. and J. Guynn, “MySpace Ready to Prove Itself in Faceoff,” Chicago Tribune, June 8, 2008.
Kane G. and R. Fichman, “The Shoemaker’s Children: Using Wikis for Information Systems Teaching, Research, and Publication,” MIS Quarterly, March 2009.
Malik, O., “MySpace, R.I.P.,” GigaOM, February 10, 2010.
Nakashima, E., “YouTube Ordered to Release User Data,” Washington Post, July 4, 2008.
Shaer, M., “Google Launches Archive Search for Twitter,” Christian Science Monitor, April 15, 2010.
Stanley, M., Internet Trends Report, March 2008.
Vascellaro, J., “Facebook CEO in No Rush to ‘Friend’ Wall Street,” Wall Street Journal, March 3, 2010.
Wash, B., “Double Duty,” Colby Magazine, Winter 2009. while Yelp has reportedly turned down acquisition offers valuing it at $700 million.