Creating Business Value with Web 2.0

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October 2006
In This Issue:

Once dismissed as a vacuous Silicon Valley buzzword, Web 2.0 is gradually becoming recognized as an important collection of technologies, business strategies, and social trends. In this issue, we will discuss the technologies and concepts that underlie Web 2.0 — and what they mean for the enterprise. Learn how to resolve vexing issues of online trust, identity, and reputation so your organization and its customers don’t fall prey to online fraud. Discover how you can use Web 2.0 techniques to enrich your enterprise BI applications, leading to increased user adoption and greater application "intelligence." And find out how you can form and sustain a vibrant product community that will improve your ability to deliver the right software at the right time. The "next new thing" is here — is your organization ready to take advantage of it?

"Whatever Web 2.0 is, IT executives and technologists need to pay attention to it, and so do the business-unit managers who look for ways to use IT strategically to improve their revenues and shareholder value."

-- Ed Yourdon, Guest Editor

Take It Slow

There’s a lot of hype associated with Web 2.0, so you’d better move slowly and cautiously. You should carefully choose pieces of the Web 2.0 potpourri of tools, technologies, and strategies -- and implement them one at a time.

Good to Go

You can’t afford to wait! Web 2.0 approaches and tools must be used -- today -- to drive revenue growth by increasing the acquisition and retention of customers. You snooze, you lose.

Opening Statement

If there was any doubt that Web 2.0 has become a mainstream technology and deserves serious attention from the business IT community, it was eliminated by Google's US $1.65 billion acquisition of YouTube, which was announced while we were putting the finishing touches on this issue of Cutter IT Journal. It's too early to tell whether this acquisition and others like it (e.g., eBay's acquisition of Skype) signal the beginning of a "bubble" reminiscent of the dot-com hysteria a decade ago. And it's not yet clear how much hype surrounds the Web 2.0 buzzword; as several of the authors in this issue observe, we can't even come up with a consensus definition of what Web 2.0 means!

But whatever Web 2.0 is, IT executives and technologists need to pay attention to it, and so do the business-unit managers who look for ways to use IT strategically to improve their revenues and shareholder value. Web 2.0 is not just about blogs, Flickr, MySpace.com, and YouTube -- but even if it were, it's such a large phenomenon that you can't ignore it. When's the last time your business did something popular enough to generate 100 million downloads a day? And how many of your customers are using YouTube to upload complaints about your products and services? Consider the customers who used the site to record their frustrations about trying to cancel an AOL account and get Comcast to fix their cable service. Their complaints have been downloaded approximately 100,000 and 850,000 times, respectively.

Aside from the "social networking" issues, many IT organizations are beginning to realize there are tools and technologies associated with Web 2.0 that, in the eyes of their customers, differentiate them from other companies offering the same kinds of products and services. Typical Internet users don't know anything about Ajax, but they'll know whether your Web site is zippier and more interactive than a competitor's. And they'll certainly recognize the advantage of the "software as a service" concept that allows them to access spreadsheets, calendars, and word processors via a platform-agnostic Web browser (which, more and more often, runs on their mobile phone or PDA) rather than a fat, expensive application on their desktop PC.

IT veterans learned a long time ago that while technological gadgets are glamorous, they're irrelevant unless they can contribute to strategic and/or tactical business objectives. So we need to ask how Web 2.0 tools, technologies, and concepts (which include such things as blogs, wikis, and the "Long Tail" concept) can help businesses find new customers, retain existing customers more effectively, and provide their products and services at a higher profit margin.

There's a lot to discuss about Web 2.0, and we've gathered five experienced authors to provide some important insights and perspectives. We begin with David Rowe and Cassian Drew, whose article on "The Impact of Web 2.0 on Enterprise Strategy" emphasizes that it is an "enterprise" issue -- not just a collection of programming techniques or a bunch of popular Web sites frequented by teenagers. Thus, the authors emphasize the importance of enterprise usage of collaboration tools like blogs and wikis. Without mentioning the details, the authors point out that executives at Sun Microsystems and General Motors have blogs. Equally impressive is a statistic I picked up at a recent Web 2.0 conference from Michael Platt, a Microsoft "architect": Microsoft employees have created approximately 3,000 "external" blogs (i.e., blogs accessible by people outside Microsoft) and 10,000 "internal" wikis (intended for dissemination within the Microsoft corporate boundary).

It's reasonable to assume that Microsoft would not encourage such a widespread use of blogs and wikis if it didn't make business sense. But Rowe and Drew emphasize that IT organizations must be careful to integrate these Web 2.0 tools and technologies with business strategies for acquiring and retaining customers. And they provide an interesting perspective on how Web 2.0 shifts some of the key critical success factors and competitive differentiators away from such traditional concepts as having a widespread "retail presence" and a strong sales team. Instead, we're beginning to see Web 2.0-supported concepts such as the creation and nourishment of "communities" that provide external support, feedback, and recommendations about a company's products and services.

Our next article, by Troy Angrignon, pursues this business-oriented analysis by asking how Web 2.0 can achieve the traditional business objective of increasing shareholder value -- specifically by using concepts, tools, and techniques to acquire more customers and retain a larger percentage of existing ones. Interestingly, he emphasizes the importance of the Long Tail concept, which I discussed in a recent Cutter Council Opinion (Vol. 7, No. 8).

Angrignon reminds us that in order to generate more revenue from the marketplace, companies have traditionally focused on high-value/high-potential customers. In today's Web 2.0 world, however, companies like Amazon.com and Apple iTunes have emphasized the importance of supporting the Long Tail of customers who buy only a few items but who aggregate into a substantial amount of revenue. Amazon and Apple iTunes each have several million products in their inventory, and while they derive roughly 80% of their revenues from 20% of their product offerings, they've also discovered that virtually every single item in their vast inventory sells at least one unit each quarter. Angrignon also suggests that the Long Tail concept should be used to rethink pricing decisions about a company's products and services.

Like Rowe and Drew, Angrignon recommends corporate blogs, but in particular, he emphasizes their use as a marketing/sales tool, because that's what the marketplace pays attention to today. He also emphasizes the need for companies to use lightweight Web services to attract small retail partners who can leverage the company's products and services; again, Amazon is an excellent example of this practice. Finally, Angrignon suggests that companies can increase their retention of existing customers by having more frequent online interactions with them. This makes it possible (through metrics and statistics) to anticipate a customer defection before it occurs, so that the relationship can potentially be salvaged.

Next, Langdon White discusses how Web 2.0 can be used to help companies develop better business intelligence, which he defines as "the process of collecting information and combining it in an 'intelligent way' to help people make better business decisions." He focuses first on Web services APIs, of which arguably the best known is the Google Maps mashup API. As consumers, many of us have seen publicly available mashups, such as the combination of Google Maps and the craigslist database of apartment rentals. But White reminds us that the same concept can be used internally, for marketing organizations and executives to gain a deeper understanding of, and make better decisions about, their customers and sales.

White also recommends the use of Really Simple Syndication (RSS), not because it provides charts, graphs, or quantitative data, but because it provides a stream of potentially relevant data from the external marketplace. Such an information stream can be enhanced with custom search agents and other "novel" RSS feeds.

Changing topics and perspectives, Bruce Taylor focuses on the formation of product communities in the Web 2.0 environment. He reminds us that we've long been aware of user groups in the IT world, but the term "product communities" is a good way of reminding ourselves that significant changes are underway. Customers, for example, have grown increasingly sophisticated in their use of technology -- not just in passive ways like Google searches, but also with active usage of blogs, wikis, and critical YouTube video uploads.

This phenomenon of increasingly sophisticated customers does not operate in a vacuum; companies today are operating in an environment of increasingly intense global competition. In addition, both customers and suppliers are living in a world of architectural change: monolithic applications are fading away, and open APIs (such as the Google Maps API) are flourishing. One of the consequences is that user groups are no longer created by, managed by, hosted by, and controlled by the producers of products and services. Today they are more likely to be created and hosted autonomously, and, as Taylor notes, they are no longer under the vendor's control.

Drawing on the field of community psychology, Taylor explores the mechanisms by which product communities form. This is valuable information for IT professionals, because most of us have little or no training or experience in how this occurs. But it's also important to study how this formation process has been affected by such new mechanisms as wikis, RSS, pervasive data indexing (e.g., Google searches), and tagging. Taylor concludes by laying out some of the benefits of product communities for both producers (vendors) and consumers.

Finally, Brian Pontarelli discusses an issue that underlies much of our activity on the Internet: trust (and its close cousins, identity and reputation). A simple, but widely discussed, example of this issue is Wikipedia. In a short five years, Wikipedia has grown much larger than the Encyclopedia Britannica (with 1.3 million articles, compared to roughly 100,000 for Britannica) and more popular (largely because it's free), but skeptics continue to ask why we should trust the information we find on Wikipedia. After all, anyone can create a new article or change an existing entry, so how can we be sure that a Wikipedia article, which we'd like to rely upon as a trusted source, wasn't created by an uneducated child or someone with a conflict of interest? Presumably, we don't have to worry about such extreme problems of trust and reputation with Britannica articles, but the same fundamental question arises: how do we know we can trust the accuracy of the Britannica article we're reading?

Trusting the accuracy of an encyclopedia article is unlikely to be a matter of life and death, but Pontarelli reminds us that identity, trust, and reputation are "core concepts that structure a society and the interactions between the members of that society." In simple, practical terms, e-commerce and nontrivial, meaningful interactions on the Internet cannot take place unless we have a reasonable degree of confidence that we've identified the individual or merchant with whom we're communicating and a sufficient level of reputation and trust has been established. As Pontarelli observes, "trust" is almost synonymous with "reputation," which is closely related to issues of identity and security.

The notions of online identity and reputation are certainly not new, but Pontarelli observes that even with the availability of new technologies, there is still no complete solution to the weaknesses and vulnerabilities that enable scamming, spoofing, phishing, and other forms of fraud. He argues that as the Internet/Web continues to mature, we will need improvements in three areas: more identification of the identity of real persons in the real world; open standards for identifying people, not just applications; and a more consistent application of consequences (e.g., fines or imprisonment) for people who violate the mechanisms of trust and identity.

Taken together, these five articles provide a number of interesting perspectives on the exciting new world of Web 2.0. I hope these articles will persuade even the most skeptical reader that Web 2.0 is more than merely social networking sites like MySpace and will provide some important insights that will enable IT managers to begin planning how best to take advantage of this new collection of tools, technologies, and business concepts.

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