Chris Nuttall's Comment and Analysis in the Financial Times on November 17, 2005 titled, "Way of the Web: Start-ups Map the Route as Big Rivals Get Microsoft in Their Sights” does a great job of summarizing the challenge that's facing Microsoft and other established industry leaders by Web 2.0. Chris describes the challenge this way:
"A new wave of Internet development is drawing on established software tools to offer a more dynamic online experience at low cost." He describes the new wave of startups enabled and empowered by Web 2.0 technologies and principles.
(We refer you to Tim O’Reilly’s seminal think piece: What is Web 2.0? Design Patterns and Business Models for the Next Generation of Software for a Current Definition of Web 2.0’s Patterns and Principles.)
Chris Nuttall cites Bill Gates' October 30th memo to Microsoft employees in which Bill said “This next generation of the internet is being shaped by its grassroots adoption and popularisation model.” He cited the Ray Ozzie memo from October 28th in which Ray described the "tremendous software-and-services activity (that) is occurring within start-ups and at the grassroots level." Chris cites a raft of now-famous companies as examples of this Web 2.0 phenomenon—companies like Flickr, Rollyo, Jotspot Live, Wikipedia, Writely.com, and Flock as examples of Web 2.0 companies. He refers to the enabling influence of Google's AdSense in fueling an advertising-supported business model that enables these startups to get off the ground in an earn-as-you-go fashion. He talks about the fact that we're back to the two guys in a garage model of business startups. Instead of raising millions of dollars and spending a year or two on product development, this new wave of entrepreneurs invests tens of thousands of dollars, roll out quickly-built software tools (many of them developed on top of open source piece parts), and rely on grass roots innovation and iterative development to add functionality and gain traction. He offers a great little Web 2.0 Glossary with terms like "mash-ups"—"Services created by mashing together two or more Web applications," and cites all the Google Map-based applications as a great example of the genre—and Ajax (asynchronous Java Script and XML), RSS, and tagging.
Here’s what I see. Watching the buzz over the Web 2.0 phenomenon reminds me of the Web/Internet/ecommerce/ebusiness buzz in 1998. Then, as now, there was a huge amount of hype. Then, as now, people were combining a group of intersecting trends into a single exciting bucket. Many companies had their first or second generation Web sites. Consumer ecommerce was the big new thing. Disintermediation was all the rage. "Get big fast" was the prescription for early Web-based businesses. Everyone was confused about the differences between ecommerce and ebusiness. Upstart Netscape was all the rage. Microsoft was just waking up to the threat and possibilities of the Internet. That was when I published Customers.com. The timing was perfect. That book became a lightning rod. It cut through the hype and offered one simple prescription: Use the Web to "make it easy for your customers to do business with you."
Now, with a sense of deja vu, I'm looking at this current next generation of rich Internet client tools, granular plug-in-and-use services, end-user tagging, blogging, Wikis, social networking, and massively multiplayer gaming, and what do I see? I see customers co-designing their own products and services. I see customers contributing and building upon each others' content, designs, solutions, and knowledge. I see customers rolling up their sleeves and redesigning our business processes and business models. In this new "Design It Yourself" world, end customers have become the innovators. They're the designers of applications, the contributors of content, the customizers of products and services, the promoters of ideas, the inventors of new business models, the builders of entire ecosystems and the change agents for industries. What's the real business driver in Web 2.0? Use Web tools to unleash customer innovation to let your customers co-design your business.
By the way, this DIY phenomenon isn't a Web-only phenomenon. It's much broader than that. Customers all over the world are customizing their own cars (Scion), toys (Build-a-Bear), apparel (Lands' End), backpacks (Timbuk2, L. L. Bean). Customers are selecting and selling products (Karmaloop). They're co designing their own products (GE Labs, 3M, St. Gobain, National Semiconductor). Our clients' customers are co-designing business processes to support their ideal scenarios (Symantec, Toro, Amazon, Sprint, Expedia). Customers are challenging business models (music, publishing, entertainment) and reshaping industries (customized drugs, do-it-yourself group travel, etc.). The pattern that I see is an amazing combination of “having it my way” and sharing my designs and innovations with others. Customers build on each others’ inventions and ideas. Customers start by solving their problems, then share those solutions with others. They create something that works for them—a playlist, a Podcast, a photo album, an itinerary, a restaurant review—and offer it back to the community to build upon. As they do, they feel good about making life better for everyone. Customer innovation is at the heart of the Web 2.0 phenomenon.
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