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Web 2.0
Dermot A. McCormack
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[email protected]. First Printing, December 2002 10 9 8 7 6 5 4 3 2 1 Copyright 2002 by Aspatore Books, Inc. All rights reserved. Printed in the United States of America. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, except as permitted under Sections 107 or 108 of the United States Copyright Act, without prior written permission of the publisher. ISBN 1-58762-200-9 Edited by Jo Alice Hughes, Proofread by Ginger Conlon, Cover design by Kara Yates & Ian Mazie Material in this book is for educational purposes only. This book is sold with the understanding that neither any of the authors or the publisher is engaged in rendering legal, accounting, investment, or any other professional service. This book is printed on acid free paper. The views expressed by the endorsements inside this book for various technology books published by Aspatore do not necessarily reflect the views shared by the companies they are employed by. The companies referenced may not be the same company that the individual works for since the publishing of this book.
This book is dedicated to Joann and Doran and Mum. Special thanks to Fergal O’Byrne and Tim Berners-Lee.
WEB 2.0 Table of Contents
FORWARD
11
THE WORLD OF WEB 2.0
21
THE RIVER OF INFORMATION IN YOUR BUSINESS: DATA FLOW
37
THE EFFECTS OF WEB 2.0 ON CONSUMERS
77
THE SECOND TIME AROUND: HOW INVESTORS SHOULD APPROACH THE WEB 2.0 MARKET
117
CORPORATE RESPONSE: TAKING ADVANTAGE OF NEW TECHNOLOGIES IN WEB 2.0
155
ABOUT DERMOT MCCORMACK
215
Web 2.0
FORWARD
11
Web 2.0
Web 1.0 The Internet had already been around for a bit. ARPANET was a large wide-area-network created by the United States Defense Advanced Research Project Agency (ARPA). Established in 1969, ARPANET served as a test bed for new networking technologies, linking many universities and research centers. The first two nodes that formed the ARPANET were UCLA and the Stanford Research Institute, followed shortly thereafter by the University of Utah. ARPANET is generally regarded as the progenitor of the present day Internet. While it had its interesting points, it had generally remained a communications backwater, long the realm of academics, gearheads, and military types. Somewhere around the beginning of the 1990s, a British software engineer named Tim Berners-Lee and some of his cohorts at CERN, the Swiss Nuclear research lab, gave birth to most of the ideas and protocols that constitute the World Wide Web. The World Wide Web created all sorts of new possibilities for document sharing and communications, but was in dire need of robust browser software that could become the 12
Web 2.0
standard for viewing the “Web.” Enter Mosaic, browsing software created by Marc Andreessen and his fellow students at NCSA (the National Center for Supercomputing Applications), a unit of the University of Illinois at UrbanaChampaign. Mosaic, when coupled with Berners-Lee’s inventions, was the beginning of everything we do on the Web today – the birth of Web 1.0. Marc Andreessen went on to co-found Netscape with Jim Clark. It is generally held that Netscape’s IPO on July 6, 1996, was the starting bell for what would become known as the Internet craze, bubble, or revolution, depending on whom you ask. I contend that it was all three! Web 1.0 was a revolution caused by the introduction and adaptation of a new technology piggybacking off of an old one, coupled with several socio-economic factors that all just happened to intersect at the same time. For some people, Web 1.0 was a revolution that would change things forever in a blazingly short amount of time. The world would never be the same! To others it was
13
Web 2.0
irrelevant and would go away if they just ignored it long enough. The truth would wind up being somewhere in the middle. Many things would be changed forever, and quickly. Others would take a little longer, but eventually almost everything would change or be changed. New technologies have powered business revolutions since there were business revolutions to power, from the printing press to the railroads to electricity to the PC to the Internet. What made this revolution just as combustible as the previous waves, if not more so, was the high availability of venture capital. Business will always find the path of least resistance to money. In certain times, when capital is tight and making a profit is the best path to money, that’s what businesses will try to do. In times when venture capital is extremely accessible, businesses will take that path. Entrepreneurs and startups are a particularly powerful corollary of this rule. A lot of Web 1.0 companies made a business model
14
Web 2.0
out of raising capital. They didn’t look at industry structure, and they didn’t look at the viability of their product or how they fit into the particular landscape. They saw only that they could get as much money as they wanted, and maybe some day they could catch up and devise a way to make a return on their investment. This very potent mixture of new technologies, new ideas, access to large amounts of capital, a strong economy, and the mass entry of “amateur” investors in the stock market was to give us Web 1.0. The crazy valuations of the dot-coms have gone away, as have some of the associated business models and the dotcoms themselves. The concept of the World Wide Web and using a networked society to create new, streamlined consumer experiences, to make businesses more efficient, and to create new ways of communicating and exchanging data hasn’t gone away – nor will it. An amazing set of events has taken place in Web 1.0. The world has changed forever. Yes, your world, both private
15
Web 2.0
and professional. The way you order CDs has changed; the way you pay your bills, the way you communicate with friends, co-workers, business partners, the way your company orders from its suppliers, the way your children do their homework – all changed. Yet there is much more to come. I believe many companies haven’t fully learned the lessons of Web 1.0. They haven’t truly understood what happened. In this book I address these changes and how consumers, investors, technologists, and companies can best prepare for what will come. Ultimately, the explosion of Web 1.0 wasn’t really about greedy investment bankers, amateur investors, and naïve, overzealous entrepreneurs burning through huge piles of cash and believing their own hype. It was about a new technology that combined a networked world with a proliferation of cheap and powerful PCs to allow consumers and businesses to communicate and move data in different ways that produced new efficiencies and
16
Web 2.0
opportunities – and in some cases, new business models and ways of generating revenue and cutting costs. We are in the middle of a 30-year revolution, and Web 1.0 was just the first five years. As in many other revolutions, the second wave will not be as violent and disrupting as the first, but the actual changes to our global fabric will be much more sublime and far-reaching. Now we will explore what happens next, what effects it will have on the corporate landscape, and how businesses are changed forever. Right now, it seems that the big stories of the past five years were crazy valuations, dot-com millionaires, and a too-eager acceptance of what were, in effect, mere possibilities. In the end, the real story will be something quite different. The real story is how Fortune 500 companies have changed the way they operate. Was it a wake-up call? For a period of time, it looked as though two guys in a garage in Seattle
17
Web 2.0
with enough seed capital and a nifty application could topple even the biggest of businesses. Take the music business, for example. Everything was humming along quite nicely until a couple of pesky students, Shawn Fanning and Justin Frankel, showed up with innovative and disruptive software – Napster and Winamp. And they got to distribute this free on the Web, so millions of like-minded individuals could download their software and freely distribute, share, and play any music they liked without paying a dime to the record companies or artists. The result was near pandemonium in one of the world’s largest industries. The record companies scrambled to shut down Napster; Shawn Fanning made it onto the cover of Time magazine; and AOL bought Winamp and hired Justin Frankel, its creator, obviously agreeing with the adage that it is better to keep your enemies close. Ironically, both Time magazine and AOL are owned by parent AOL Time Warner, which
18
Web 2.0
in turn is one of the largest distributors in the music business. But the cat was out of the bag. Shortly after AOL hired him, Justin Frankel and his Nullsoft pals came up with Gnutella, a sort of peer-to-peer Napster for sharing all sorts of files, except that, unlike Napster, it had no central server to shut down. Gnutella gave rise to hundreds of clones
from Kazaa
to Morpheus,
and the entire
entertainment business has been changed forever, whether the industry likes or believes it or not, and the true effects may not really known for years to come. What happened and continues to happen to the music industry has made a lot of businesses and industries rethink how they will operate in Web 2.0. Chances are, industry after industry will become “Napsterized” if they don’t adapt, learn, and implement in Web 2.0. Some of them will learn, and some of them will die. Let’s talk about this brave new world. Dermot A. McCormack New York, NY
19
Web 2.0
THE WORLD OF WEB 2.0
21
Web 2.0
Web 2.0 and Fortune 500 Companies There is still a lot of talk about “old economy” and “new economy” businesses. As I will illustrate throughout this book, this is a false concept. There is no old or new economy and, by definition, there are no old or new economy companies. There are companies that understand how to integrate a new technology into their existing business practices and possibly even how to create new practices because of some new technology. More importantly, there are companies that understand this new technology and what, if any, socio-economic impact or sea change will occur by mainstream adoption of it. Many people believe Web 1.0, with the changes it wrought, was a fluke, a coincidental combination of many forces that won’t happen again for a long time. So there’s no particular need to change our philosophy or retool our thought processes.
22
Web 2.0
This is a flawed way of thinking. The companies that don’t change or retool will be left behind when the more powerful and sublime change comes with Web 2.0, and we digest and build upon the revolution of Web 1.0. The smart companies will do several things differently. If you were an executive of a large company in 1997, you would have noticed small changes in the way companies were doing business – changes brought on by the beginnings of consumer and corporate adoption of the Internet. You had some choices then. Did you sit it out? Or did you immerse your company in this revolution, assuming you thought it was as such? Some companies jumped right in, spending large amounts of money on technology, research, and consumer applications. Some sat it out, maybe too timid, too far gone – or maybe just wise: “Let us not be the first ones to crash our ships on the rocks of innovation – let the others fail, and we will learn and profit from their mistakes.” At the time, no one was sure of the right thing to do. It wasn’t obvious.
23
Web 2.0
There was truly no right answer. Some companies that plowed in have moved their business strides ahead of the competition, strides that will become evident only in Web 2.0. Others that jumped in with both feet cost their companies hundreds of millions of dollars in poorly thought out and ill-conceived Internet plays. Still others did nothing and are only now waking up to the reality of the Internet revolution. They will find the climb most difficult into Web 2.0. Many companies gorged themselves on technology in Web 1.0. IT spending in the 1990s reached record levels, powered by the Internet, Y2K, and a surging economy. We are still digesting much of this new technology. This digestion, as companies truly start to use the full power of their tech infrastructure investment, will fuel Web 2.0. The days of corporate executives being able to run their businesses with little or no understanding of the power and possible uses of these newer technologies are over. The CEO of a Web 2.0 company will have to understand these new forces and how they will shape his business.
24
Web 2.0
From the enterprise perspective, the real value of all this is improved efficiency, workflow, and dataflow from an internal operations perspective. How can information move freely in an organization? How can it add value to products and services? For Fortune 500 companies, the question of adoption has not gone away. It’s not “Should I jump in?” but how to plan, using this technology, to further the way the business runs, communicates with its customers, gathers data in the marketplace, and uses it as a competitive tool. It won’t replace your business, as people thought earlier; it’s a complement. Internet technologies are all complements to existing business. This is all about looking at the new revolution and figuring out how it complements what we already do. The big story is about efficiency, data flow, and connecting with customers on a more efficient level: ❏ How can we complement what we do? ❏ How can we communicate better and more efficiently with our customers, suppliers, and employees?
25
Web 2.0
❏ How can we move data with agility and flexibility throughout our enterprise? ❏ How can we design, implement, and control meaningful and relevant workflows? The Internet answers all these questions. The companies that successfully implement and use these powerful new tools will be the winners in Web 2.0.
Impact of New Companies In Web 1.0 it seemed all you needed to successfully fund a start-up was a business plan with the appropriate liberal sprinkling of buzzwords and the number of that venture capitalist you met at a networking party. Sadly for some, and happily for others, those days are over. Start-up and new companies will find it a much tougher struggle in Web 2.0, but for those who make it, the rewards will be real. Even a great idea with a revenue model may not take you too far in Web 2.0. There is and will continue to be a
26
Web 2.0
certain amount of backlash by the devastated venture classes from the freewheeling days of the mid- to late 1990s. That’s not to say that capital will be non-existent in Web 2.0. Money always wants to make more money and not always at bank interest rates! Entrepreneurs and startups in Web 2.0 will be held to much tougher standards, but the capital will be there. The barriers to entry will be much greater. You will have to have a much more compelling idea to get funded at the beginning – something that will make a real difference in the marketplace. An example is eBay. They are one of the few stars of the previous five years because they created something that was different and that didn’t have an analog in the real world. Several companies, such as Kozmo, Flooz, and Webvan, also had tremendous ideas you couldn’t have done before the Web, but their capital runways ran out before a valid revenue model was discovered or proved. These ideas, however, and many others from Web 1.0 days, will eventually find a home.
27
Web 2.0
You will be able to order a movie and Cherry Garcia ice cream from the Web and have it delivered at 2 a.m. You will be able to send someone currency through e-mail. And you will be able to order your groceries from your wireless handheld. Chances are, though, that these services will be brought to you by the larger, more established companies and not the energetic upstarts we saw in Web 1.0. It is important to remember that not all Web 1.0 companies were
naïve,
money-burning
flameouts.
Many
had
tremendous, revolutionary ideas and technologies that have changed, or will change, the world, even if they are not there at the end to cash in on it. The start-ups in Web 2.0 will learn from the failures of these companies. They will have to focus with laser-like intensity on proving their revenue model. They will take the ideas of the first-wave companies and make them better, producing more reliable, intelligent, and relevant products and services. They will take greater advantage of using the technology in ways that make sense. The companies that power Web 2.0 will be hybrids – either established companies that have adopted certain new ways
28
Web 2.0
of thinking, or newer companies that have adopted “established” ways of thinking – such as making profits and revenues! – or a convergence of both. This hybrid of one or two first-wave Internet companies, mixed with experience from older, more established companies, will create the second wave of Internet companies. We are guaranteed that there won’t be as many of these companies, but there will still be plenty of opportunity for entrepreneurs. That’s the whole nature of all this evolution. When I began in the Internet business, there wasn’t much business. I remember going to my first Internet convention, which consisted of a few dozen computers and banners and basically about 10 geeks and me (which, I guess you could say, made 11 geeks!). Several years later, at that same conference, it was very apparent that big business wanted in on the party, and there were a million suits everywhere. It spun out of control. Here was something fairly underground and relatively unsexy, and suddenly, every
29
Web 2.0
mover, shaker, Harvard MBA, venture capitalist, trend follower, and techie geek wanted a part of it. Now that it’s probably on more “What’s Out” than “What’s In” lists, and most of the gravy trainers have headed off to start Biotech firms, it’s time to get busy. We will see a back-to-basics approach – companies not just using technology for technology’s sake, but also actually doing something meaningful, something that can produce dollars. This couldn’t have been said for all Web 1.0 dot-coms. I also feel the moniker “dot-com” is somewhat misleading, as it allows us to dismiss the whole phenomenon as one unfortunate episode we’d rather forget, and to miss the real underlying,
seismographic
changes
that
occurred.
Dismissing the dot-com madness allows us to tie it all up in a tidy package and have it thrown on the trash heap of other money-losing fads, such as junk bonds, Beta-Max, and pyramid schemes. After the crash of the first wave, many of the refugees of Web 1.0 went back, if they could, to where they had come
30
Web 2.0
from. They returned to the banking and consulting businesses, citing it all as a bizarre mixture of a bad dream and a positive learning experience. Toward the end, “B2B” and “B2C” were more likely to mean “back to banking” and “back to consulting” than “business to business” and “business to consumers,” two buzzwords that definitely would have gotten you a million bucks or two circa 1997. As in any revolution, however, a core group of individuals believe in what has been created here and will stay the course. I believe the stand-alone new companies of the next wave will be made up of those kinds of people who have two or three dot-coms under their belts and can bring in some experience. There was enough failure to go around for everyone in Web 1.0 that there should be no shortages of real “positive learning experiences” in Web 2.0.
31
Web 2.0
Companies will have to weave offline and online in a way that was only promised in Web 1.0. In Web 1.0, companies created “online” versions of their offline businesses or migrated parts of their businesses online. In Web 2.0, we will see the online and offline components of companies morphing and converging into one entity. There will be no distinction between your online and offline business. Many retailers still struggle with different operating units, such as stores, Web sites, and catalogs, as if they were different business units. As the underpinnings of the distribution and sales channels converge under the banner of CRM (customer relationship management), so, too, will attendant corporate units. If a customer buys from your catalog one day, researches on your Web site the next day, and picks something up at your retail outlet yet another day, they shouldn’t see a different company or hear a different message. They should have one seamless, integrated brand experience. And the company should have one seamless and integrated view of the customer.
32
Web 2.0
But how often does this happen? When was the last time you called a customer service line, and they could tell you the last five purchases you made, understood how you like to be contacted, and treated you as someone who has done hundreds of transactions with their organizations? Chances are you don’t experience this very often, although there are some standouts. Companies such as J.Crew and Charles Schwab
present
a
streamlined,
branded,
integrated
customer experience across all their channels and customer touchpoints – or at least they are further ahead than most others in trying to do so. But the Internet has raised the bar, and almost all companies will be expected to act this way in Web 2.0 by their customers, their employees, Wall Street, their investors, and their shareholders. The newer types of companies will have this convergence. That word has been thrown around a lot, but in my opinion, convergence will drive many of the newer companies. In the next period of this game, we’ll see how to connect these two worlds of offline and online. And we will connect them until there is no distinction.
33
Web 2.0
Efficiencies of New Companies Look at the effects Web 1.0 has had on smaller businesses. You can hardly walk into an office today and not see a computer with an Internet connection on somebody’s desk. Today, if the Internet connection goes down, it’s like a “snow day” and nobody can work. People have mentally arrived at a place where, without connectivity, it is difficult to work. This is particularly true among younger workers who have never known work life without the Internet. If you went back 10 years and told a salesman he couldn’t use a phone, it would be difficult for him to do his work. Once you give someone a tool, it is difficult to take it away. Introducing PCs has made users more efficient. Connecting these PCs with networks and the Internet has made data flow more efficient. I think businesses will now start to go to the next level. Data capture goes on from groupware communications to the Intranet and extranets. One of the big promises of the Internet was that we could gather data and make great decisions from it. Anyone who has worked in this business knows we are not there yet. The promise is
34
Web 2.0
there, but we aren’t. That’s the opportunity: to really analyze how a business works and produce efficiencies and revenues from that analysis. The only way to do that is to control and understand your data. You have to move toward an arena where you can make products more efficiently. The main point is to increase data capture and manipulation to help businesses do what they do for a living – better.
35
Web 2.0
THE RIVER OF INFORMATION IN YOUR BUSINESS: DATA FLOW
37
Web 2.0
Information Wants To Be Free Many companies in Web 2.0 will be judged by how data and information flow in their organizations. For instance: ❏ How does daily sales information flow from reps in the field to upper management? Is it seamless, in real time? Or are there four-week backlogs? ❏ How does a marketing campaign’s response rates and performance flow back to the marketing group and agency? Can a campaign be optimized before it’s too late? ❏ How do product research and customer experience data flow back to the designers and manufacturing floor? It is difficult to think of an interaction inside your business that doesn’t involve an information flow of some sort. The real winners in Web 2.0 will be the companies that can master, control, and measure all the ebbs and flows of the river of information inside their organizations.
38
Web 2.0
Interactive-ness with Customers Along
with
information
flow,
CRM
(Customer
Relationship Management) cannot be underestimated in importance when it comes to surviving and succeeding in Web 2.0. It may sound like back to basics, but it’s all about the customer in Web 2.0. In Web 1.0, instead of customers just seeing a static advertisement, the promise was to move beyond passive advertising and have interactions and one-to-one dialogues with customers to garner feedback and opinions and generate sales and create better customer experiences. We haven’t seriously delivered on that. This will be an important area of growth in Web 2.0. As the balance of power shifts to the consumer in the world of Web 2.0, and the number of possible “touchpoints,” or interactions, a customer may have with your company starts to increase exponentially, we will have to make vast improvements in how we track, analyze, and master these interactions.
39
Web 2.0
Take a typical credit card company as an example. Most credit card companies belong to larger parent financial institutions. Few companies have access to more customer data than financial institutions, and few companies spend more direct-marketing dollars than credit card companies. When was the last time you picked up your mail without a credit card solicitation or two jammed in there with your bills and magazines? More to the point, how many times have you been offered a deal on a credit card you already have? It may indeed be cheaper for a credit card company to send me an extra solicitation than to bother mining and crossreferencing the data in their databases, but in the longer term, this will be seen as a losing proposition: It irritates the customer, and it’s a waste of everybody’s bandwidth, resources, and time. This is an excellent example of the tremendous inefficiencies we can hope to remove by successfully mining and analyzing customer data. Some of the early commercial promise of the Web was, in part, to provide better opportunities for market research and
40
Web 2.0
consumer behavior analysis. But this is not only about oneway traffic. Companies have never had a better opportunity to communicate, interact, and build relationships with their customers – and to measure responsiveness. I don’t know of many companies that would survive without their customers. I used to go to an ATM and “interact” with it. That was consumer interaction. Now I go to Web sites where I can truly interact, even provide feedback to the companies on which of their services are and are not working for me. The Internet really introduces the Customization revolution. Everybody has to have customized products or services. Companies can accomplish this by leveraging the one-toone effect of the Internet. Cell phone companies allow you to pick your own plan, choose the design and color of your phone, design your own logo, and download your favorite song as a ring tone. We can customize an entire financial services package just for our lifestyle and ourselves. On many credit card companies’ Web sites, you can design your own credit card
41
Web 2.0
with percentage rate, logo, and payment due date. A company customizes its offerings by taking what its customers need and giving it back to them in real time. Amazon.com is another great example. They realized early on that they were in a commodity business, so they needed to differentiate themselves from everyone else out there. They differentiated themselves through customer service and customer experience. They’ve tried to show that customer service and customer experience is a major consideration, and that when you do begin a dialogue, you have to make sure to continue it. Whether or not Amazon succeeds, and I believe they will, they should be looked on as a model for creating a superb customer experience from start to finish. The Web has a tremendous “commoditization” effect on the many businesses it touches. It flattens prices, increases competition, and has an egalitarian effect on information. As in the pure case of Amazon, customer experience becomes everything. This phenomenon will have, to a greater or lesser extent, an effect on almost every business
42
Web 2.0
in Web 2.0. Customer service and customer experience will have to play a much bigger role in how you do business. If you absorb little else in this book, absorb that. Working closely with customers to help them understand their needs allows the company to serve them better. I can reach a focus group of 20,000 people online if I want to. It would be quite difficult to do that offline – I’d have to go to a football stadium. If you accept that customers do in fact rule, then getting their feedback and data on how your product or service is performing is critical. Many Web 1.0 companies were flawed in various ways but were excellent in this aspect of communicating. Bad customer service reminds me of the old saying, “If that company opened a funeral parlor, people would stop dying.” I think you will see cherry picking of these concepts. The ability to market to and communicate efficiently with your customers is very important. It’s quite difficult to do in the offline world. Companies try, but it is arduous. If people
43
Web 2.0
feel they are part of a community, then it is easier to know what they want and market it to them. Another thing companies have to understand is that people are using technologies to communicate in different ways, from e-mail to instant messaging to wireless texting. Why would someone say the online and offline worlds are blurred? If you go to Dublin or London, you see four people sitting in the same physical room but having chats on their cell phones. In a way, you are interweaving the physical community with a non-geographical one. This is an interesting trend. The last time I was in Dublin, I was sitting in a bar with four people, each of whom was having two different conversations with two different people somewhere in the world, in addition to the conversation with me. Companies need to realize that the way in which their customers want to interact with them will probably change over time, too. If companies can start to truly understand the way that interaction is developing, then they can understand how to take advantage of it. We are using technology to evolve our
44
Web 2.0
communication abilities. Man didn’t evolve to run faster; he invented the car. He didn’t learn to fly; he invented the plane. Nor did he learn to shout over great distances; he invented the phone. Thus, we didn’t learn to link ourselves telepathically – we invented the Web. Soon we will be able to customize almost all of the information and data we receive on a daily basis. This has huge ramifications for marketers. The days of broadcasting are almost over. The next wave is customized information streams and customer relationship management. Today I see viewing a billboard as something different from calling customer support. If I buy a product because I liked it when I saw the TV commercial and something goes wrong with it and I call customer service, with many companies I don’t experience a connection in those two things. The problem here is that a customer sees this as one holistic interaction with the company or brand. The customer doesn’t carve up customer service, logistics, marketing,
45
Web 2.0
sales, and accounting into different departments. She sees (we hope) one company, one brand, and one branded experience. Unfortunately, many companies do carve their organizations into such silos, and their communications and data flow follow suit, so the only thing that’s seamless is their dysfunction. In the concept of customer relationship management, my customer’s relationship to my company, my brand, and the product experience are all linked. The goal is to make everything better for the consumer. That’s what the next wave of customer customization will be all about – using these new technologies to communicate with customers and create dialogues in ways that have not been tried before. This will create concepts that will take direct marketing to the next level.
Different Areas in Companies Acting Differently As we move through this book, I will explain the eight pillars that I believe will support Web 2.0. Customer
46
Web 2.0
relationship management, CRM, is one of those eight pillars. The companies that win in Web 2.0 will be those that excel in customer relationship management. And it’s not just about CRM, but employee, supplier, and partner relationship
management,
or
enterprise
relationship
management, as it is known in some circles. You rarely hear “employee relationship management.” Many of the concepts that apply to customers in the lexicon of CRM also apply to employees. If you are looking at data points about retaining customers, you can apply a lot of those models and concepts to your employees. If you change the way you treat your employees, then they will change the way they treat their (your) customers. The Web has hastened a free-agent mentality among employees, as documented in a book called Free Agent Nation by Daniel H. Pink (Warner Books). I believe employees are looking for a bigger bang for their effort. The concept of staying in the same company for 20 years is hardly relevant now.
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Web 2.0
How do you retain employees? You use the same principles for retaining customers. It’s amazing to me that companies spend so much time and money on marketing and retaining customers that they almost ignore their employees. They might say they have the best customer retention, but an employee walks out the door every two seconds. That’s an interesting concept. Smart companies will take advantage of the knowledge they already have and use it internally. A new way to look at communicating with employees might be marketing to them. This applies especially to bigger companies. Human resources and 2.0 will take advantage of a lot of the tools and knowledge available; you might even hear about ERM (employee relationship management) tools. Web 2.0 companies will be successful at winning and retaining customers. Creating excellent products and services has always been one of my favorite strategies for winning and retaining customers. Providing superb customer experience has always been an impressive add-on to that strategy.
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It sounds obvious, but bears repeating, that great companies create great products, provide great customer service, and efficiently generate revenue and profits from these endeavors. In essence, what we are exploring in this book is Web 2.0 and, more importantly, how Web 2.0 complements and changes our customer-focused endeavors. These ideas are not new; successful businesses have thrived for years on these principles. What is new is that these principles have gained more relevance and momentum with the advent and adoption of the Internet by consumers and corporations alike. But this is only the beginning. We are just learning what we can do with these tools and just beginning to understand the effects of our customers, suppliers, employees, and service providers having access to so much data and information. With ubiquitous competition always being only one click way, customer churn – and retention – is destined to become an area of intense focus for businesses.
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Executives will have to be on constant lookout to protect, serve, and retain their customers. Ask yourself some questions right now about your organization: ❏ Do we have a “map” of every possible touchpoint a customer may have with our organization? ❏ When was the last time we modeled the touchpoint lifecycle of our average customer? ❏ What is the average number of phone calls, e-mails, visits, conversations, and interactions a customer will have with our company on a regular basis? ❏ Do our customers make more phone calls or send more e-mails? Are we tracking this? Can we track this? ❏ What is our cheapest sales channel? An example of a typical customer touchpoint lifecycle with Company X might look like this: ❏ Customer purchases product A from the catalog. ❏ Customer calls Technical Support line for installation help.
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❏ A follow-up, post-support e-mail survey is sent to the customer. ❏ The customer opts in and receives the monthly product newsletter. ❏ A direct mailing is sent to the customer selling product add-ons and upgrades. ❏ Customer visits store to purchase add-on. ❏ Customer signs up for reward program. ❏ Customer goes to Web site to register new add-on, check reward balance, and set monthly e-mail communication preferences. This is an example of the many touchpoints a customer may have with our fictitious Company X. If Company X is a truly innovative Web 2.0 company, all these interactions will be captured in a central relationship management system accessible to marketers, CSRs (customer service representatives), product designers, and executives alike, so the company has a holistic view of the customer, and the customer gets a unified approach from the company.
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Your customer is not just a mouse click away from your competition, but also a mouse click away from online communities and user groups with opinions and ideas about your products and services. Thus, the consumer has access to thousands of “independent” opinions about you and your product. Companies in Web 2.0 should not underestimate the network effect of allowing vast numbers of users to communicate freely and without geographic boundaries. If you are buying an automobile today, you can build your own automobile on the manufacturer’s Web site. You can choose the color and the interior trim and then see a 360degree view of your creation. You can check quotes from hundreds of dealers and compare their actual invoice costs. You can get pre-approved for a loan, do a lemon check, and participate in a reverse online auction before you even set foot in the dealership. And all this has developed in only the last five years or so. With shopping comparison bots, a user can walk into a store, check out the price of a sweater, and, using their cell phone or wireless handheld, instantly compare the sticker
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price with those of scores of different competitors in real time. Imagine an automaker designing a car and getting real-time feedback on everything the driver does, from adjusting the rearview mirror to hitting the brake. Everything is transmitted back to your company and stored, so it can be analyzed and cross-referenced in real time. We already have this capability with well-designed Web infrastructures. We can track page views and visits, check direct user interactions and drop-off rates, note the time spent on the site, and perform online surveys in real time. Product designers and marketers could only have dreamt of these things several years ago – and I’m sure many of them, myself included, did.
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Measurement Systems to Manage Your Business I have heard of customer acquisition, customer retention, customer churn, and customer growth, but rarely customer satisfaction as a metric of success for a particular enterprise. Maybe it’s too intangible. It was intangible before we had access to these newer tools. When was the last time you got a call from your credit card company or telephone company just checking in with you to see how happy you were with their services, and if there was anything they could do for you – without ramming their latest revenue generator or upsell vehicle down your throat? This is the concept of customer satisfaction. I predict this will be an important metric that companies and investors will use to determine the success of their organization and investment. Instead of telemarketers calling you in the middle of dinner or when your favorite show is on, companies should set up appointment-based permission marketing: “Let us know when you would like a call and what time will work for you.” With the advances in
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database prowess and CRM tools, we now have the ability to create these one-to-one relationships. “How’s 9:45 on Tuesday morning to discuss the latest additions to our boating catalog?” B2C (business-toconsumer) companies may well adopt the practices of their B2B (business-to-business) counterparts in their customerfacing attitudes. If I am selling $10 million in software to a prospective client, I schedule a mutually agreeable time to discuss my product; I do not call the prospect at home in the middle of dinner. According to Patricia Seybold in The Customer Revolution, “It is much easier to make decisions based on customer priorities than it is to argue over product centric goals and objectives.”
Changes in Sales Sales is one of the areas that will be affected most by the lessons we learned from the previous five years and the implementation of those lessons in the next five years. The sales challenges have already changed. Almost everybody
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these days, from Citibank to Joe’s limo service, markets on the Internet. The direct channel, once the sole realm of catalogs and 800 numbers, is moving more and more, each day, to the Web. If I drive by a billboard for a certain product on the way home from work and see a TV commercial for the same product that evening, which leads me to buy that product in a store the next day, it is quite difficult for a marketer to link all these pieces together. This will begin to change in Web 2.0. Marketers will be able to tell in real time the interactions individuals are having with their creative units and identify the sales and leads associated with those interactions. Web 2.0 is not just about the PC – it’s about interactive digital TV, wireless networking, and smart handheld, location-based services. Most wireless carriers already have ways to locate you geographically through your cell phone, by methods such as triangulation.
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It is not too farfetched to imagine opting into locationbased marketing because your cellular provider gives you 10 percent off your monthly bill. And when you walk by a “smart” billboard for the Gap, it will identify you as a prospect, texting a 10 percent-off coupon to your phone with the location of the nearest Gap store. This in turn all leads back to our earlier points about data flow. The successful companies will have a much tighter integration of production, technology, sales, and marketing units and initiatives. Sales can’t be a blind stampede; it is a very direct understanding of your client. One of the values of CRM is the more you understand your client, the more effectively you can market to them. We will see a deeper understanding of the direct channel, an increase in customer knowledge, and an increase in the data we can capture about the sales process and pipeline. Instead of the mass consumer market, there will be a fragmentation into thousands of individual relationships. The data gathered from them can be sent back in real time
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to a production type of environment that depends on sales input. The sales effort in Web 2.0 will be greatly affected by the availability of data through intranets, extranets, and wireless devices. Prices will become a lot more elastic and contextual as the real-time inventory status, the customer relationship, and the market conditions are taken into account for each individual sale.
Marketing In Web 1.0 there was a big debate about whether the Internet was direct marketing or branding. At the end of the five years, we answer that question: Yes! It can be directmarketing, and it can be branding. But it can also be something else that may be a hybrid of both – and something that cannot be captured by using tired and overused marketing concepts.
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Marketing will change in the next five years. We will reexamine how we look at marketing, and maybe we will come up with a term outside of direct marketing and branding. That’s almost what we have to do – we need a newer concept. If I wrap myself in data, am I moving beyond the normal concept of branding and direct marketing? I believe we are. If I explain my relationship with a person, I don’t think of it in linear terms; I think of it as many connections – experience, history, and so on. If you said you have a relationship with a friend, you wouldn’t describe it as “direct.” I think we will delve more deeply into the human psyche and come up with a marketing concept that accurately captures the new relationships businesses will make through marketing. Having an interactive property that can market my product, sell it, provide customer service for it, and feed all this data in real time back to a central repository to cross reference, analyze, and provide a feedback loop to optimize and refine the marketing and sales processes as they happen is a new and very powerful concept – one that may need new definitions and terms added to the existing lexicon of
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marketing and sales. A well-architected Web infrastructure can do this. How will Web 2.0 affect marketing? It will make us redirect, if we use all the new data we have, and use all the new connections we will have. It will make us readdress the concept of marketing. We will come up with a new model for our relationships with consumers.
Technology Corporations have been inundated with new technologies over the last five years. It almost seems that in Web 1.0 a new technology or implementation was being invented every five seconds – Web servers, server farmers, infrastructure, CRM tools, business analysis software, ERP tools – and the list go on. It has traditionally been and still remains very difficult for enterprises to make decisions about exactly what technologies to choose and what is right for their
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businesses, and in many cases, what the business will be able to implement. Many companies acquired all sorts of technologies in Web 1.0. Very few executed perfect implementation; most are still trying to dig themselves out of the hole they made for themselves. There was a feeling for a period of time that to be competitive, your business needed every tool out there, but as we know now, this obviously wasn’t and isn’t the case. Although there are vast choices, and these choices will only become more bewildering, one of the sectors I believe all companies should pay attention to is technology that allows you to connect to, communicate with, and understand your customers and get the full picture of their behavior. These technologies allow you to feed this information back to a central database, where it can be mined and analyzed to improve the customer experience. It will also become increasingly important to invest in tools that allow you to create efficiencies in your organization from workflow and groupware processes – processes that involve everyone from your employees to vendor management to B2B
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exchanges. No matter what industry you are in, these areas will experience tremendous growth,. Couple the Internet explosion with IT spending for Y2K, and it seems that companies have gorged themselves on technology in the past few years. Now it’s time to rethink strategy and maybe even, because of market forces, cut back on spending and implementation. Obviously, you don’t need every tool. How to approach technology is how you approach your business and pick the right tools to accomplish these things. Some of those tools are most important when it comes to conducting your business. Groupware is extremely important. Companies should seriously examine how data is shared in an organization. A key to the whole technology adoption curve is how data flows in the organization: how data is captured, tracked, analyzed, and reported. This is one of the biggest issues facing companies in Web 2.0: data management and business intelligence, another of my eight pillars of Web 2.0. It’s not solely about data flow, but also workflow.
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How does the technology department in your organization interact with the marketing department? There are many unseen benefits of improving communication inside an organization. The number of issues I’ve seen that stem from poor intra-company communication is amazing. IT departments usually acquire and provision software and technology
to
solve
much
more
finite
and
less
“anthropological” problems than communication. The Internet companies are much better at capturing data, but the larger companies have so much data flowing around that it is difficult to know what the best tools are and how to approach the issue, particularly when there is a large conglomeration of legacy systems to consider. Web 2.0 companies will become very adept at capturing workflow data. One of the first things I would do is to make sure we have explored groupware technology – determining how the marketing group interacts with the technology group, and how all other groups interact with each other. Miscommunication between groups is a major cause of dysfunction in business. We can improve this by leveraging some of these new technology tools.
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Companies need to explore the way their data is stored and captured. They may need to go in and clean house. This can seem like a daunting task nobody wants to take on, but the alternative is to be held hostage by your data in Web 2.0 – not a very appealing option. Companies shouldn’t be afraid to clean out their closets. You may feel your legacy systems are a nightmare, but be brave. Go after what will be a big differentiator for your business. Being able to control data will be a big factor in determining who wins and who loses in Web 2.0. Business intelligence is another one of my eight pillars of Web 2.0. Technology doesn’t make bad companies good or good companies great, but it makes all companies that use it wisely better ones. It makes great companies even greater! Technology has changed and will continue to change the working environment. Another thing that didn’t happen with Web 1.0 is a change in how people view workspace, which ties into employee relationship management.
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Tools like instant messaging and e-mail have already revolutionized most workplaces forever. The question is what other innovations are lurking just over the horizon that will change the work environment in Web 2.0. Companies that aren’t very flexible with their view of the workplace now may have to become more flexible. Online Web sites might spend $100 to get a customer and treat that customer like royalty. Amazon spends $60 per customer and probably $400 on customer service. One of their programmers probably costs them $90,000 a year. They should take the methodologies back to the employee, who might want a customized workday with six hours from home on Mondays. Eventually, the Web companies will do this. It was over-promised in the first run. The concept of customizing the way people work will begin to take hold in Web 2.0 and it will be ushered in with all of the other forces of the Customization revolution. The tie-in between customer and employee and technology is important. Companies should use new technologies to help employees customize how they work. Use the groupware technology; it is still embryonic right now. You can’t connect with
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many tools right now in real time. But in Web 2.0, you will be able to connect with others on a document and work on it together. Companies need to be aware of these new tools and use them to improve relations with their employees. When I was with a former employer, I hired a freelance producer to develop a Web site. In real life he was a rather quiet, unassuming, bookish character. I thought he didn’t like me. On instant messaging, he was one of the funniest guys I’d ever met. Online, he was all the things he wasn’t in real life. That taught me a valuable lesson: This technology allows people to express themselves differently than they do face-to-face. You know this from e-mail. Everyone who uses e-mail can express himself or herself differently. Four years ago, not many people used IM. Now it is difficult to find a company that does not have it because it is such a valuable tool. We have convinced everyone of the value of e-mail and IM, so let’s keep it going to the palm and the wireless Internet. I believe in leveraging wireless technology. Sales engineers can check databases from cellular phones. If I constantly
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check my e-mail while I’m on a business trip, when I get back to my office, I don’t have 700 e-mails waiting in my inbox. I can touch base with what I need to and ignore others. It makes me more productive. Fortune 500 companies should seek to improve internal communication and move to browser-based functions to make people more effective. Large-scale adoption of these new wireless technologies will be one of the big stories of Web 2.0.
Financial Back-to-Basics In Web 2.0, you will see a much more back-to-basics approach regarding spending money because it won’t be as freely available. If you give a huge box of candy to a child, chances are she will eat it all. That’s what happened with Web 1.0. There was a large amount of free candy. The Web 1.0 companies weren’t always exactly thrifty or didn’t have the mechanisms in place (just like a four-year old) to say this was not good. The people giving out the candy were also irresponsible; in fact, in many cases the venture capitalists (VCs) were urging you to eat the candy faster
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than the guy beside you! If you give two guys who are 19 and live in their basement a lot of money just because they had a good idea, you shouldn’t be surprised when that money is gone quickly, but there’s a really cool foosball table left behind! This freewheeling attitude didn’t apply only to Internet startups. The irrational exuberance of the Internet explosion somehow leaked over into established corporate America. To keep up with the raging valuations of the dot-coms, many companies that should have known better were forced into less than realistic schemes for generating and recognizing revenue feats of artistic accounting that would have impressed Houdini. And many of the corporate scandals we are seeing today are a direct result of the kind of pressure the Internet economy put on otherwise normally behaving companies. With Enron as the poster child for this type of behavior, the bond of corporate trust and investor confidence began to unravel – as if investors weren’t put off enough by the dotcom flameout. This wave will force companies large and
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small, new and old, to behave more conservatively and act in much more disciplined ways in an effort to restore customer confidence. From a financial perspective, Web 2.0 will largely be about restoring investor confidence. For the reasons I just mentioned and others, financing won’t be as freely available in Web 2.0. In normal times, if I wanted to start my own business, I would have to create a business plan containing a real business model and produce something viable. When capital is free-flowing, that doesn’t necessarily happen. Back-to-basics is a valuable idea. You must ask certain questions: ❏ Can it work? ❏ What is the industry structure like? ❏ Do I have a niche? ❏ Do I have the available talent to execute? ❏ Why hasn’t this been done before?
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All these questions should be asked, but often they were not asked in Web 1.0. In many cases, the questions weren’t asked even by those handing out the money. Entrepreneurs, like kids, will always take the candy. There have always been people in their basements hatching crazy ideas that will change the world. And hopefully there always will be! There have not always been MBAs standing in line to hand out money to them. The market will self-correct. The established businesses will have to reexamine their metrics and determine what is important to them. In 1997, the buzz was all about getting members into your database. Forget about how you actually were going to make money on these members – just get them. So companies spent money on enrolling these members. At the time, Wall Street was valuating these companies on members and metrics like page views, not their inherent value. If you had 10 million members, then you could go public. They were actually valuating companies at $10 per head per database. No one cared if you made money – just so you got those members in your database. That created a false economy.
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I think we are now seeing a return to the real economy – or at least one that’s more real: Ask anyone who’s lost 50 percent of their portfolio in the last year or two how real it feels. Web 2.0 companies will decide what the metrics are that define and justify their business. Maybe their goals will be making profit, increasing revenue and customer satisfaction, and attaining recognition and market share. A redefining of goals and a proper structure will take care where money is spent. People won’t be more careful, but the market will dictate, and the ones who survive will spend it right. Will people waste money? Yes, as long as there is money, people will spend it. But there will be smarter companies. The 2.0 companies will be held to much tougher standards. Unfortunately, there won’t be a lot of room for new companies in Web 2.0. It will be the older, more established companies that have fully integrated the Internet and its philosophies into their way of doing business. It won’t be until Web 3.0 or 4.0 that new companies will have a chance to really challenge the status quo again.
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The new startups will be all about making a valuable contribution to their markets and establishing and playing by the rules of the “real” companies. But real companies are not born in two years, as people thought in the 1990s – it takes 10 or 15 years. I hope the time frames will expand and people won’t expect companies to become billiondollar enterprises in 18 months. The market pressures will ease off a bit, and the band of gravy train jumpers will be on some other sector du jour, such as biotech or nanotech. People in the Internet business will focus on building a business. The glare of the spotlight has already moved away, but it will come back. It is difficult to concentrate on the right things for the business when every 10 minutes you are invited to be a rock star. That attention eventually affects people.
Learning the Lessons Back-to-Basics. Organizations will have to incorporate certain aspects of Internet technology and, maybe just as importantly, Internet thinking, into traditional, profit-
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attaining business models. The bottom line is that the Internet or the Web doesn’t replace your current business or business practices; it complements them – a very important idea to remember and one that all technical innovation generally follows. Here’s the story. Whether they come from larger corporations or new stand-alone businesses, the lesson to be learned is to learn the lesson. Take what we already know back to basics, such as making profits. Further, take some of the new and some of the old, and create a hybrid model. Right now the difficulty is that all of the ideas are being painted with one brush – everything was bad. We have great ideas that have been overlooked. Take some of the new ideas and add them to what you already do. Add, complement, and improve. Many of the changes that were brought on by Web 1.0 and that will be proliferated by successful companies in Web 2.0 are not just the adoption of new technologies, but may more importantly be the adoption and execution of new ideas and thinking enabled by the new technologies.
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A lot of the business models of Web 1.0 centered on, even if they didn’t know or admit it at the time, raising capital, generating buzz, and cashing out before it was too late. This always reminded me of an old I saying: “May you be in heaven half an hour before the devil knows you’re dead.” Unfortunately, or fortunately, the devil caught most of us!
Nanotechnology Great
strides
have
been
made
in
the
fields
of
nanoelectronics in the last few years. Nanotechnology will have great ramifications for the computing industry and, by default, all other industries for years to come. Researchers are working on the ability to make a single molecule act like a transistor. Transistors are the building blocks of integrated circuits, which in turn are the building blocks of microprocessors and thus computers. So you can see that the promises for the types of “microcomputers” made possible by these nanotechnologies are endless. Intelligent
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computers built from molecules, for example, could be placed under your fingernail or in the fibers of your shirt. All this probably won’t happen in Web 2.0, but great strides will be made in this area, setting the stage for some revolutionary concepts and taking the idea of pervasive computing to a whole new level. Many a venture capital company, badly beaten by the collapse of their Web 1.0 investments, is betting heavily on nanotech, feeling that it represents “the next big thing” in technology to adopt – or small thing, as the case may be.
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THE EFFECTS OF WEB 2.0 ON CONSUMERS
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Learning from Web 1.0 The main revolution for consumers in Web 1.0 was the vast and unprecedented access to information and data of all shapes and sizes that they were afforded. In many industries, this has led to a shift in power to the consumer. They learned they could use that information to gain control and power over the negotiations with service providers and vendors who sell products and services. This has often led to a leveling of the playing field as businesses, long used to having the upper hand over the consumer in information, have ceded, through the Internet, much more of this vital information. One of the main lessons everyone learned is that consumers can get information out there, and that evens out the playing field. That was one of the most important developments in Web 1.0. Consumers also learned that pricing structures and supply and demand chains are much more fluid than they may have previously thought. Companies like eBay and Priceline have helped prove there is not always one price, and that there can be several different prices based on
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supply and demand and context. Consumers learned the way they were used to doing things wasn’t necessarily the only way, while business had known that for a long time. Another thing consumers learned was that competition was a mouse click away. That’s a valuable lesson consumers learned
first
and
businesses
learned
consequently.
Basically, if consumers didn’t like the goods or services a business was providing, they weren’t bound by their geographical location or their particular financial situation. They could click away and find a competing product or information – in seconds. These were valuable lessons for consumers and businesses alike.
Consumers’ Shaken Confidence in Web 2.0 Overall, the end of the market of the late 1990s, the slowing of the economy, the events of September 11, and the crises in corporate governance had a much greater effect on consumer confidence than did the dot-coms’ going out of business.
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It is important to remember that the dot-com era, or Web 1.0 as I like to call it, wasn’t all doom and gloom. There were some tremendously powerful ideas born, and ultimately it was the beginning of a much more significant revolution that will probably take 30 years to fully manifest itself. Many of these ideas came before their time or before anyone could figure out how to make money from them. I believe we will see many of these ideas resurface in Web 2.0. Take the idea of kozmo.com, which I felt was and is a great one: If you lived in a large city, you could go online and order everything from a video to ice cream to batteries and have it delivered in less than one hour by a network of bicycle messengers. And it was free! Well, maybe the free part wasn’t the smartest, but it was and is a great idea, and I can’t tell you how many times this service saved me and many people I talked to who used it. We all probably would have paid a $50-a-year membership for this if someone had asked us. “Now you tell us,” I hear someone cry! The point is, someone will do it, maybe someone with a bigger name and a bigger brand and more push behind them. I don’t
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think a lesser name with less money could do it successfully. The gates are opened for bigger players to enter and get involved where many Web 1.0 companies tried and failed. The actual concepts will survive. By the nature of Web 2.0, the people behind the concepts will be bigger, stronger, and more recognizable companies. Ultimately, if the killer app service and convenience is there, the consumer will pay for it. How many of us gladly fork over $1.50 a pop to have access to our money anytime we want, anywhere we want, via an ATM? Consumers care about whether they will pay $2.50 for ice cream delivered at nine on Sunday morning. If they like that service, then they will pay for it. They don’t look at it the same way an insider would about whether it’s a valid business model, or the confidence is shaken. They look at it from a service perspective, and successful Web 2.0 companies will share this view. If it is interesting and relevant to their lives, and the people standing behind it are trustworthy, then they will do it. I don’t think consumer confidence will be shaken by two 24-year-olds blazing through $150 million in marketing. They are more focused on the actual product
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and its relevance. But bankers and venture capitalists may be a different story!
Impact of More Consumers on the Marketplace First of all, I will address “B2B,” “B2C,” and “B2B2C.” For the purposes our discussion and understanding the shift from Web 1.0 and Web 2.0, I think these acronyms are misleading. Lumping businesses into small categories is imprecise. It’s just about “B”: Business. It’s not about alphabet games, just business. The C, of course, is the customer. There is business, and there are customers, and more importantly, there are interactions between the two. That’s what we all need to focus on – those interactions. And the Internet has created millions more of these interactions on a daily basis with you and your company. More and more people are coming online across the globe every day. The concept of the World Wide Web is just that.
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It’s not the North American Web or the French Web; it’s the “world wide” one. And the original founder of the Web, Tim Berners-Lee, saw his creation very much as a global tool. When I speak, it’s not just about North America; it’s about the world – the World Wide Web. One of the things consumers may be faced with in Web 2.0 is that they can get products, services, and information from not just U.S. Web sites, but from global Web sites. A large portion of the world is not online; some places don’t even have access to PCs or telephones. But they will start to come online. Web 2.0 ushers in a whole new wave of globalization, whether companies are ready for it or not. Even in the U.S. market, although there is a much larger population online than in many other places in the world, large portions of that population consist of people who have just come on and are only using e-mail or surfing the Web. Roughly 150 million people are online, but not all of them have completed transactions with a credit card. Not all of them have switched to online banking and bill pay. They probably still receive their auto insurance bill in the mailbox, go to an ATM to deposit their check, and do a lot
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of analog activities. The room for growth is amazing. We just have the platform set up. We’ll probably see the actual adoption rates of people getting online slow significantly with Web 2.0, but we’ll also see the incumbents start using the Internet at a much greater depth.
Big Things for Consumers from Web 2.0 Web 2.0 is about the three Cs: Communication, Customization, and Customers. The first wave was about data – ubiquitous access to amazing amounts of data. The second wave will be, in part, about customized access to this data. As the sheer tonnage of available data starts to become overwhelming, customized, personalized access to that data becomes not only relevant, but also required. Data and information are two-way streets. The more access I have to information and the more interactions I have with a company, the more data and information they will, in
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theory, have on me. Web 2.0 will see huge controversies and discussions around the issue of privacy. Data capture can be a double-edged sword. The more information a company has about me, the better they can serve me – but the less privacy I have. Some people will be comfortable with this arrangement, and some people won’t be, but it is inevitable that it will become an issue as our data profiles grow on almost a daily basis with every click we make in this networked society. Web 2.0 will see a large proliferation of privacy management and privacy protection software. According to Jim Taylor and Watts Wacker, the authors of The 500-Year Delta: What Happens After What Comes Next, it won’t be long before people have privacy managers, much as they have publicity managers today. My online profile will start to merge with my offline profile, which will allow marketers, companies, and service providers access to a much more detailed blueprint of who I am as a customer and perhaps even as a person. The first wave was for the “I” generation, getting information and having different opinions. The next one
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will be the “C” generation, the promise that the first version held, and I think we might see it realized in the second. That’s an important development of C. People will start to get customized versions of what they get now. For example, if you don’t care about the troubles in Northern Iraq but are concerned about the flood in Minnesota, then instead of getting a printed newspaper, you can receive customized news about the flood online. That will be the principal and prevailing change: customization of information, services, products, and interactions. If I interact with my credit card company, they will let me customize my payment due date, my interest rate, and how I contact customer service. Customers will dictate to organizations what they want, as opposed to the way it’s always been – the other way around. This change will happen first in the routine things people do in their daily life, like bill payment. You pay your bill, check your balance, and inquire about services. You will then start to see almost all products and services being customized.
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“Online community” was a buzzword bandied about by more than one Web 1.0 startup. Although a much abused and overused concept, online communities will play a big part in Web 2.0 for consumers and corporations alike. Some of my work with iVillage (www.ivillage.com), one of the pioneers in online communities, made it very clear to me from the outset that the Web would be a very powerful medium, indeed. We saw firsthand the subtle beginnings of changes in people’s behavior with this new medium. Humans have a basic need to communicate, and through message boards and chat we saw the emergence of a “virtual kitchen table,” as one of iVillage’s founders, Robert Levitan, called it. In fact, people started to use the tools provided to them in ways the developers and designers never thought about. This is a key point for Web 2.0. The first wave of the Web put technology designed by engineers in front of consumers. I believe in the second wave, we’ll see consumers using these tools, particularly in
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the arena of online communities, in ways the designers, engineers, and programmers never imagined, much as we witnessed in the early days of iVillage. So online communities become stronger as more and more people come online. These people have access to more tools and faster and faster connections to play with these tools. They have access to unprecedented amounts of data, and this data is personalized and customized to meet their needs. The communities will also be liberated from the desktop as more data-enabled cell phones, smart handhelds, and wireless networks proliferate. What we will eventually have is an overlay of our “real” communities with our “virtual” communities, and the interplay of the real and the virtual may well become the basis for Web 3.0. Wireless technology will explode. It is already starting to in Europe and Japan. It may take 10 years, but over the next few, wireless will become very important. It will play a large part in Web 2.0. I can get my balance statements
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every hour from Citibank via my cell phone. I can choose whether to pay a bill from my cell phone. I can purchase a Coke from a vending machine via my cell phone. You will see people taking the Web and moving it to a mobile platform. The technology I see is wireless, and the concept is customization. For example, I am sitting at a traffic light in my car when my cell phone beeps. The message says, “Your credit card bill for $150.89 is now due. Would you like to pay? Yes or No.” In Dublin there is a company called It’s Mobile (www.itsmobile.com) that allows you to pay your parking meter with your cell phone. Similar applications can’t be far away. Think of buying a soda from a vending machine, paying for your groceries at the supermarket checkout, unlocking your car, paying your check in a restaurant – the list goes on – all with your cell phone. If you walk the streets of Tokyo or Brussels, I challenge you to spot a teenager without a cell phone. It is a nearly
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impossible task. And these teenagers are using their “mobiles” in ways that engineers of Nokia and Eriksson never dreamed of. Sure, they take advantage of these ideas now in their product design and marketing, but when the first phones were text-enabled or SMS-enabled, nobody envisioned the cultural and communications revolution that would grip a generation of teenagers from Hong Kong to Helsinki and back. Moving the Web from a desktop-based, fixed connection to a pervasive, roaming, wireless connection with myriad devices is one of the basic tenets of Web 2.0. Wireless is another of my eight pillars of Web 2.0.
Add-ons to Existing Technologies Faster. Cheaper. Smaller. Easier to use. More accessible.
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More relevant. That is technology in Web 2.0. We will not see an amazing spurt of new technologies in Web 2.0. We will see a defining and redefining of existing technologies and the abandonment of those that were not relevant. For example, I don’t think the Web browser will change. Web pages might be more dynamic as broadband is introduced and PDAs and cell phones abound. The basic functions of technology will not change, but will be redefined a bit. People will become braver in their adoption of them. Will people be afraid of these new services because the Web 1.0 companies went out of business? I think the opposite will happen. The people who reposition the technologies will be the more established companies, such as the Fortune 500 companies that people already trust. You will see them position new technologies in ways that are more appealing to consumers, as well as learn lessons from Web 1.0 and reapply them. You will see add-ons.
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Take the example of telephone. Originally we had a rotary dial; then we added a touchtone pad – a simple little adjustment that makes using it easier – then came threeway calling and conference calling and VOIP (voiceoperated Internet protocol) and so on and so forth. That’s what will happen with the Internet. Web 2.0 will simply be faster, cheaper, and easier to use. It won’t take four hours to download a picture. Web 2.0 will improve what exists. If I were writing a book about automobiles in 1940 called Cars 2.0, it would basically be the same idea: Faster, cheaper, more efficient, doesn’t break down as much, starts every time, takes you more places on better highways, and it’s a smoother ride. But the core frame and engine are basically the same. The changes with Web 2.0 are analogous to those in our auto illustration. Although we talk about the infrastructure being well developed, it is not. For the consumer with a dial-up connection, it’s still pretty choppy. Two major add-ons will be speed and efficiency. The presentation tools, such as monitors, will get better. You will see convergence with
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television and the Internet. This convergence concept has been threatening for a while, but we will see it actually take place in Web 2.0. Entertainment will change with further adaptation of Internet technology. You’ve already seen it happening in the music business with such companies as Napster, Kazaa, and Morpheus. They are changing the way people access, listen to, and distribute music. You will see large entertainment companies adopting this technology. Again, they won’t change it much; they will just adapt it, package it, and market it in ways that make it consumer friendly and trustworthy for mass consumption. A lot of the “freeness” of the Web has already fallen by the wayside. Many content sites have moved to premium subscription services. Everyone from the New York Times to Ireland.com has adopted this model. The portals, such as Yahoo and MSN, now charge for many of the features and services – online storage and e-mail forwarding, for instance – that once were free. With the advent of mass consumer adoption of broadband, which we will see in Web 2.0, the Internet as we know it
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will begin its ascent into Primetime, in more ways than one! Seeing the world through a 56K modem, which is how most people to date have experienced the Web, is analogous to showering under a single-drip faucet. If that’s all you have, it might seem sufficient, but once you experience a full, hot, steaming shower it’s impossible to go back! In Web 1.0 we showered with raindrops. That will change; the real power of plumbing and electricity became worldchanging and effective only when there was ubiquity through mass adoption of pipes and circuits and high availability of reservoirs and the power to pump water and power through these pipes and circuits. The Internet will follow the model that any manmade network – whether it is the water system, the electrical grid, the railroads, or our highways – has followed: initial concept,
more
infrastructure,
mass
acceptance, and eventual obsolescence.
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and
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Expense of Services and Products in Web 2.0 You could say Web 1.0 was really one large free trial for the consumer. And as with everything “free,” there is a price. The price people pay is lack of service, untrustworthy
companies,
lack
of
technology,
and
immaturity of product. It did make a difference. There is no doubt in my mind that a lot of the freeness will go away with the association of Internet-based products. That’s not a bad thing, because I think many times people associate “free” with “poor quality.” The products and services will become better and more expensive. People won’t mind paying for them. You probably wouldn’t mind paying $50 a year for delivery service if you know it’s reliable and guaranteed. People will pay for what they want. Enough new technologies and possibilities have begun to embed themselves in people’s lives that they will be relevant, and people will be willing to pay for them. Other situations may arise where large companies use new avenues so efficiently that they will subsidize the adoption of products and services that may otherwise have had
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higher price points, though you will usually be charged for these types of services. Whereas today you might get free alerts on your cell phone from people and businesses, eventually you will have to pay for them. Companies like New York-based LocalAlert (www.localalert.com) have already launched a subscription-based alert service. You know how companies normally act: Every time they have a new service or product, they charge you for it. That’s the basis of business. Remember when using any ATM was free? The concept of “free” is very similar in a lot of businesses until they become mature. Businesses are in business to make money, and they do this by adding new products and services. I think the consumer doesn’t mind, as long as value is perceived. But as we said earlier, I will continue to use an ATM because I consider the ability to get cash at any time of the day, anywhere in the world, worth $1.50.
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Important Aspects for Consumers Ease of use will be will be a very important driving force in Web 2.0. Many
designers
and
engineers
who
have
created
technology products over the years haven’t always fully understood the concept of usability. It never seemed to have dawned on some of them that one day someone without a degree in astrophysics might actually use one of their products. We’ve put a man on the moon, developed penicillin, created the microchip, and are still having difficulty making a VCR that a normal adult can actually program. The problem has been around forever. In the late 1980s and 1990s, people who designed technology products forgot about it; there still are horrendous stories of adults not being able to program VCRs. Today you can go to Web sites and try to figure out who designed them. Marketers? Software engineers? Artists?
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You might talk to people at conferences who claim to know a lot about e-commerce, but today 90 of the top 100 ecommerce sites require difficult processes at checkout. Imagine a similar process in a store: You walk in and pick an item off a shelf and proceed to checkout. But before you’re allowed to purchase it, a large bouncer will stop you and ask for the secret password. We need to make things easier and get away from the “VCR model.” The important thing that will emerge is ease of use. What’s the price? Does this product actually do something useful? If we had asked that question more often of Web 1.0 companies, 75 percent of the business plans wouldn’t have been funded. The product, whatever it was, didn’t do something useful for the consumer. Another important characteristic is whether the product complements something the person already has or does. I already pay my bills. Does your product complement that, or just get in the way? Not replace – Web 2.0 isn’t about replacing, but complementing. Web 1.0 was about introduction and testing. Web 2.0 is about complementing
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how you get information, communicate with individuals, and purchase things. If you have Internet access, it’s almost unthinkable these days to make a large purchase, such as a home or automobile, without first performing research online. In Web 2.0 people will not just research these purchases, but will move to actually buying them online, too. Is it easy to use? Is it cheap? Does it do something useful? Does it complement something I already do? All of these will be important questions in Web 2.0.
Consumer Reliance on Services in Web 2.0 People will become very dependent on some of the new services. The most telling examples in Web 1.0 were e-mail and instant messaging. Everybody has email; it’s the answering machine of our century. I wouldn’t buy stock tomorrow in an answering machine company. If you take email away from people now, they wouldn’t know what to
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do. When the connection goes down and people can’t access e-mail, it’s as if time has stopped. E-mail is an evolution in the way people communicate. It is similar to writing a letter – but faster and more real-time. It is a whole new concept. But probably half of the people who have a free e-mail address may see that change. Companies may start to charge for e-mail services. And people will pay because they are so dependent on it now. Instant messaging has also made an impact and is an important means of communication for Web 2.0. E-mail will grow and improve, becoming more embedded in what people do. Instant messaging is another way people communicate. It has adapted at a very fast rate, and it will continue to do so. People will start to depend on it, as I am dependent on my car, telephone, and television. If you took those three things away from people, the loss would be unnerving. including
E-mail instant
and
communication
messaging
and
all
capabilities, your
other
communication tools, are becoming as important. Soon email, instant messaging, and text messaging will merge into
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one pervasive, always-on, always-accessible, real-time communication continuum.
Broadband Broadband is one of my eight pillars of Web 2.0. Web 2.0 depends on broadband as one of its infrastructures. I expect to see an extensive adoption of broadband, either DSL or cable. More than 10 million homes in the U.S. now have broadband Internet access. I expect to see this number reach 50 million in the next five years. In the same way that color TV made black-and-white TV irrelevant, broadband will make dial-up connections irrelevant. Nobody actually uses “color TV” anymore as a distinction – it’s just “TV.” So when nobody actually says “broadband” anymore when referring to how you connect to the Internet, we will know we have reached critical mass in Internet connectivity.
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Wireless Wireless fits into the category of an add-on to existing platforms – and is a great complement to Web 2.0 Wireless technology had, in many ways, almost a false start at the end of the 1990s boom, as many saw this sector as the next logical “big thing” or bandwagon to jump on as the Internet’s star began to fade, to put it mildly. Unfortunately, and much to the chagrin of certain venture capitalists, investors, and telecommunications companies, wireless wasn’t ready to fill the void of the Internet explosion and keep the breakneck momentum alive. Some argue it is still not ready. But don’t let the false start fool you. Wireless technology is here to stay. From Bluetooth to 3G to WiFi to text messaging, wireless technology will revolutionize almost everything we do. People will be removed from their desktops and will be able to access information on the go. They won’t be constrained by location. The U.S. has been slow in
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adopting this technology, but we will catch up and eventually lead the way in certain areas.
Instant Messaging/SMS One of the many exciting things that will happen will be the convergence of IM and wireless. IM is a very powerful tool and the natural successor to e-mail. Wireless is a natural platform for IM. People won’t just use a clunky desktop to send real-time messages to one another; they will send messages from anywhere. If you go to Europe these days, you see people sitting in cafes and bars talking with one another as you do anywhere else. But you also notice them furiously fiddling with their cell phones, having separate IM conversations or “virtual chats” with other people in different locations. The experience is quite interesting from the perspective of how we are evolving culturally and how the technology is evolving – virtual communities overlaying physical communities.
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In fact, the only way a typical teenager in Europe or certain parts of Asia is likely to talk to you these days is if you “text” them!
Personal Digital Assistants When I think of PDAs and handhelds, I see the same space of pervasive computing and people being free through wireless technology from their desktop. I don’t see PDAs and cell phones as different things. They have different functions and designs, much the same way as automobiles are made, but will merge into the same unit. You can buy one with a sunroof or a CD player. I see handhelds merging into one type of pervasive computing device that accesses wireless technology and allows people to access the greater network of information. I lump that with the proliferation of wireless devices in Web 2.0. Design will get better, as will usability, and we’ll see a combining of features.
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Using Media with Web 2.0 The entertainment industry will be one of the first industries to be totally revolutionized by Web 2.0. You won’t just watch The Matrix in future Webs; you will be in The Matrix. I predict several of Hollywood’s top directors in Web 2.0 will be former game designers. Some of the plots and the narrative of the latest video games are in many ways superior to and more complex than your average Hollywood summer blockbuster! Expect this trend to continue as an audience reared on interactive video games since they were age three starts to come of age and demand more and more from their entertainment dollars. And, sacrilege of sacrileges, as Web 2.0 and future webs move through their ascendancy, the need for a Hollywood itself will actually disappear, to be replaced by a virtual, global, connected “Hollywood.”
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You will see vast changes in entertainment media. You have already heard the rumblings of change, especially in the music business. Web 1.0 had its most pronounced effect on how music content was created, distributed, bought, sold, and viewed. With 2.0 we will start to see interesting uses of the technology. Web 1.0 involved tests. Some worked; some didn’t. E-books and spoken-word formats will begin to revolutionize the publishing business in Web 2.0. Napster itself may have failed, but the concept of free content distributed on peer-to-peer networks lives on and in fact is thriving, a situation that should make everyone who makes their living through royalties and revenues on content to sit up and take notice. MP3 players will combine with cell phones. Downloadable music will definitely replace CD music. Will that happen with Web 2.0? I am not sure; I just think you will see the next logical step. You will see entertainment media start to change, particularly movies and television. We have seen this revolution beginning in music, publishing, and content distribution; next will be television and cinema.
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We will start to see the adoption of new technologies in the visual entertainment arena, a convergence of interactive video games and movies. We will start to see newer technologies making a difference. Changes in music and publishing will be continuations of what has already happened.
Smart Appliances What do I mean by smart appliances? Smart appliances have “brains,” or microprocessors. In fact, many appliances today already have “brains.” In Web 2.0, almost every device we interact with will have some kind of processing power. The key leap forward will come when this processing power is coupled with connectivity, so not only will the device be able to “think,” but it will also be able to “talk” – talk to other devices, to a central computer – the list is endless. Some examples:
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❏ Italian coffee machine maker Lavazza currently has state-of-the-art machines in production that can “talk” to the Internet autonomously and order new supplies when they run low, detect system faults and failures, notify a central server, and schedule a maintenance appointment. ❏ Certain GE jet engines have the ability to self-diagnose issues in mid-flight and relay that information to a ground crew via satellite, so they can have a head start on the problem when the plane lands or take corrective action if necessary while the plane is in flight. ❏ Europe’s third largest appliance maker, Merloni Elettrodomestici, has adopted the concept of smart, connected devices with vigor. In 2001, more than 20 percent of its appliances had data-communications circuitry built
in.
Each
circuit
board
employs
technology called WRAP – for Web-Ready Appliance Protocol – which was developed in-house at Merloni and which they hope will become a standard. Expect to see many variations on this theme.
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Don’t be surprised to see Microsoft bringing out a proprietary start and OS for toasters and microwaves! It seems though, that Merloni is just beginning. They have already rolled out a free washing machine into the market. Well, it’s almost free: The unit tallies your usage – that is, how many washes you have done – and dials out to a central server to log this usage, and you are in turn billed for the number of wash loads. Who knows whether such a model will work? But it gives us an insight into how adding brains and connectivity to devices can revolutionize everything from 200-year-old revenue models to how you wash your socks. If you are lucky enough to own an automobile equipped with the OnStar system, an onboard information and communication system, you can do everything from making a restaurant reservation to checking the stock market to finding out where the nearest Holiday Inn is, even as you drive.
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In Web 2.0, expect virtually everything from your TV to your coffeemaker to your CD player to have processing power and to be capable of connecting to the Web. It is quite likely you’ll be able to check your e-mail or order orange juice from your local grocery store via a Wal-Mart sponsored LCD panel on your refrigerator door. On second thought, it’s just as likely that your refrigerator already knows you’re out of OJ and orders it for you! Several grocery chains, manufacturers, and technology vendors, such as Wal-Mart, Coca-Cola, Proctor & Gamble, and NCR, are already experimenting with “smart tags,” or tiny radio-frequency transmitters that broadcast digital identification numbers with the intent of eventually replacing standard bar codes. One of the many applications of these smart tags will be inventory control, like the example with our refrigerator or on a larger scale – in a supermarket, for instance. Let’s say every cereal box has a smart tag embedded in the packaging. Transponders in the shelving can determine when a particular brand of cereal is
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running low and notify a central inventory management system. The possibilities of such smart tags are endless. And not only will all these smart appliances be able to talk to the Internet, but they will also be able to talk to each other! Imagine your personal video recorder (PVR) checking with your palm pilot and, noticing you don’t have any appointments, books you in for Thursday night’s Must See TV. It also notices from your refrigerator that you are running low on snacks and tells your phone to order a pizza with extra cheese! This scenario may seem far-fetched, in the realm of StarTrek or HAL from 2001: A Space Odyssey, but with technologies such as home networking, voice recognition, Bluetooth, and WiFi, most of the building blocks of the scenario are already here. Smart appliances have huge potential. If you’re working with the right appliance – making a remote control smarter,
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for example – then your efforts could be groundbreaking. I would like a fridge that talks to me and does something different in my life. It has to hit all the bullet points we talked about before – easy to use, cheap, useful, and complementary. The products that are successfully adopted will fit those criteria. I would like to walk into my house and have voice recognition for what I want. It’s already happened with automobiles, and you will see continuation with that: “Computer, turn the lights on, search for the most recent episode of “The Simpsons,” download my email, and order dinner.” I see a huge growth for smart appliances, and advances in voice recognition and connectivity will play a larger part in that growth. These appliances will be able to talk to each other and share information. The full adoption curve will probably take place with Web 3.0, but 2.0 will see more and more of these devices entering the home and the office.
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Other Areas Vital to Consumers Generally, what Web 2.0 will mean to consumers is that they will have more information, which will mean more control, which will mean a stronger bargaining hand in their interactions with corporations. I see the consumer becoming a much more powerful entity when they deal with corporations and companies, buying and selling goods. Look at what has happened in the world of automobiles. In the days before Web 1.0, if I was interested in buying a new car, I would have performed some offline research (not much), gone to my local dealer, haggled with the guy for a little bit, and chosen a vehicle. Today, I can get on the Internet and find the exact price the dealer paid for the car and the exact margin he is making, so I can bargain with him. It’s not just getting quotes from four guys in my neighborhood – I can get quotes from other geographical areas, too. I can create my exact model in 3D, check the VIN of the car, compare it in detail to five other models with the click of a mouse, and even bid on that model at an
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auction site. The amount of information available to – and thus the power of – the consumer has dramatically increased. In Britain several years ago, people began ordering cars from Sweden through the Internet, as it was cheaper than buying through their local dealers. The local dealers eventually wised up and began offering competitive prices, but not before they almost saw their entire business going up in smoke in a way they could never even have imaged five or 10 years previously.
International SMS (Text Messaging) The adoption of text-based services will be a big thing. Right now, that’s happening outside the U.S. and not happening inside. One of the things we’ll see in Web 2.0 is different types of companies coming into different markets, offering the same products and services. It might not be unreasonable in 2.0 to see telecom from Italy offering longdistance service in your neighborhood. This may or may
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not bubble up to the consumer, but we will definitely see more global brands. From a technology perspective, we will see the creation of a mobile society, such as there already exists in Finland, Japan, and London. You will see growth in wireless, and possibly a much more global outlook concerning goods and services. You might negotiate a sale to someone in Korea. You might buy a monitor from Norway because they have a better deal. Consumers will see a much more global picture.
Smart Money I believe one of the killer apps in 2.0 is the concept of value and currency. With all the technical innovation that has happened in the past few years, the payment tools we use as consumers have not changed. A dollar hasn’t changed since it was invented, nor has a credit card.
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This new killer app is the concept of smart money that does something different. In the credit card industry, the biggest technological advance on the consumer side that they could come up with in the last 20 years was putting your picture on the front of the card! If you took a cell phone and a credit card back 15 years, the cell phone would be twice the size of your living room, but the credit card would be unchanged. I believe the killer app will address how people spend, use, collect, and exchange their goods and services. Someone who creates added value will be important – currency, for instance, that knows who I am and can give me a discount because it knows I am a member of American Express or Discover. My dollar would know the cheapest price of something and would get me that price. Taking 1.0 concepts and adding them to a financial tool would be fantastic.
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THE SECOND TIME AROUND: HOW INVESTORS SHOULD APPROACH THE WEB 2.0 MARKET
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Back to the Fundamentals Right now we have a very challenging environment for investors, but that doesn’t mean we should stuff our money under the mattress and hide. I think investors should use more tools. Instead of just going on gut and following what uncle Phil is buying, they need to take a more balanced approach to what they do with their money from an investment perspective. In Web 1.0, many people tended to put more thought into choosing a new shirt than did they did in choosing a stock. Regardless of what will happen in 2.0, you must apply the Warren Buffet principles to investing: ❏ Understand what you are buying. If you don’t understand the company and what it does, don’t buy its stock. ❏ Buy companies, not stocks. ❏ Hold on to a stock for a while. ❏ Invest in an area you believe in and have knowledge in. ❏ Don’t go on just gut and vision, but also don’t discard those things. 118
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Investing in good stocks is, in part, predicting the future. A lot of vision is involved in investing. Another thing many individual investors might want to take heed of is not making all their decisions themselves. Let the professionals take over. I would not attempt to fix the carburetor in my car; I would ask a mechanic for help. Why would I trust myself with $100,000 of my own money? My number one piece of advice to individual investors pondering their next move in Web 2.0 is to move to a more professional, hired-help approach to investing. Ask yourself, “What are my short-, mid-, and longer-term investment goals? Why am I investing? Is it Junior’s college fund? My retirement? My next boat? To pay my rent (probably the wrong answer)?” If you want to double your money in a day, I suggest you go to the racetrack. You may find better odds there than on the stock market. The simple truth is that for most people, investing in the stock market is not a get-rich-quick scheme, even though for a period of time in the 1990s, it
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may have seemed this way. We need to move away from this detrimental way of thinking and move to a much more planned approach to investing. You can still take risks, but not with your entire portfolio. Understand what you want to achieve. Do you want to have X percent growth? How much risk do you want to take? None of these ideas are new or revolutionary. We are still suffering from the adrenaline rush and the resulting hangover from the exhilarating rise of the Web 1.0-fueled stock market and the resounding crash. Go back to the fundamentals. People who got a huge rush from the highs of 1.0 want them back. Based on that, you will see some high fliers. Will they be up there for long? That’s questionable. There is such a need to seek some of the high fliers, I think that will fuel a couple of them – not many, but some. A few people made so much money that the leftover hangover from the party will continue. There will be a hair-of-the-dog-that-bit-you repeat with high-flier stocks in 2.0 for people who want another rush. With capitalistic markets, greed does not go away. Nobody will
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turn into a philanthropist overnight. People still want amazing gains. It may take a while to recover from the boom hangover!
Hot Areas for Companies in 2.0 Convergence will be very important. Convergence as a term has been bandied around a lot, and in many ways, Web 1.0 was only the starting bell. A kind of digital Darwinism will follow as the devices such as TVs, PCs, phones, VCRs, PDAs, and who know what else all start to share one another’s attributes until there becomes little distinction, and data and content become the glue that ties them all together. As in any evolution, in the beginning you will see many odd-looking strains and species as this convergence is enabled. Toaster-oven phones with built-in MP3 players and GPS-enabled VCRs and myriad other devices may well litter the landscape as manufacturers try to sort through this silicon primordial soup to get to the killer app device. Darwinistic principles will prevail, and ultimately we will be left with a handful of devices that do
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everything we need and more. This weeding out probably won’t be finished for another 10 years, but expect to see some interesting gadgets pop up in Web 2.0 on the way to the uber-convergent killer app device. The convergence won’t be just about devices and technologies; it will be about the paradigm shift in synergies among industries and companies brought on by this convergence. If I can play my music on my cell phone or access the Internet from my refrigerator or buy stocks through my TV, it means the companies that make these devices and the companies that supply the content and data will be working together in ways they may never have expected. When it comes down to it, I guess you could say that content and distribution themselves actually merge. There is a feeling in some quarters that the companies that sat out the first round are the ones that are in the best positions to gain ascendancy in Web 2.0. I don’t buy that; I believe the companies that got their hands dirty in the first round have learned some lessons and are in great shape to use their understanding of interactivity and online expertise
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to tool up their businesses for the oncoming convergent world of Web 2.0. Companies such as Microsoft should be well positioned for this paradigm and have probably been planning for 10 years for such a shift. Other companies, such as AOL Time Warner, whose merger was built on the premise of convergence and the synergies it brings, seem to have floundered. But make no mistake: The synergies will be there, and if AOL Time Warner or other media conglomerates don’t make it work, someone else will, and that someone will come to the fore in Webs 2.0 and 3.0. And the winners in the convergence battle may well come from the sectors we least expect! Companies that have the ability to converge – to join the new with the old – are what Web 2.0 is all about. What are the buzzwords you should watch for? The big story of 2.0 is when the actual technology becomes prime time – for instance, when you can download a movie in real time from your computer or get CD-quality steaming music
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from your cell phone. In Web 2.0 we will witness the mass migration of Internet users to broadband. Broadband allows us to pass information in a manner and at a speed that we are used to – fast and effective. And when we couple broadband with wireless, we take the first steps toward pervasion computing, or the Evernet, the always-on, always-connected,
always-accessible,
and
pervasive
Internet. Ubiquitous access to information will be woven into the fabric of our lives.
Where Opportunity Lies Legendary investor Warren Buffett says there are two keys to investing: thought and understanding. “It's simple, but it’s not easy,” says Buffett, the world's second-richest man. You will see a more balanced, mixed approach. I don’t think people will move their entire portfolios to one company. I would invest in blue-chip companies that I believe have a very good chance of excelling and making success happen in Web 2.0, as well as high-tech companies.
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It’s not golden right now to be a blue chip company, and not all will excel in 2.0. The question comes back to principles, especially of balance. In 2001, people definitely ran back into the safe arms of big multinationals that made money and lost their will to gamble. And after the slew of accounting scandals that rocked many of the large companies in 2001 and 2002, even the blue chips were no place to hide. That market will come back, but not to the highs of the late 1990s and with some lessons learned. Investors (hopefully) will still gamble a bit, but also put money in more comfortable locations. I think investors will definitely become more educated. If you can become more educated, then you learn how to balance your portfolio. You know how to look at key metrics that make companies interesting and find out information that can be indicators of what the future will look like. Investors will become more educated – that is part of the reason so many new investors have come into the market: The technology allows them to. People didn’t have to call their brokers; they could just log on to Ameritrade and do it right there. As information flow
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increases, investors will have access to more knowledge. All in all, I think investors will become more intelligent and gain more tools to make their investments. This, coupled with a return to a more balanced approach to investing and increased usage of professional financial advisors, will bring back stability to the consumer side of the investment community.
Identifying Long-Term Growth Stocks To identify companies with long-term growth potential, I would ask a few questions. What companies really fueled the initial growth of the Internet? What companies are irremovable from the process? Cisco, Microsoft, Sun? The next question is more difficult: Which companies that made such a mark will be difficult to remove from the next phase? Something that is rarely mentioned these days is that adoption of the Web and its related philosophies has continued largely unabated, despite the stock crashes and devaluation of its hype index. The next phase will come, and there will be more growth. Which companies are
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nimble and flexible enough to continue to innovate? The innovation will not stop; in fact, it will probably increase because there are more resources, money, and thought going on. If Microsoft and Cisco are already embedded in the infrastructure, and if they continue to innovate, they will be companies you can bet on. Some summary points to consider: ❏ Does a company so embedded in the infrastructure of 1.0 that they can’t be removed have an automatic entry pass into 2.0? ❏ Can the company create new technologies? ❏ Can they be flexible? ❏ Can they take some of the great ideas from 1.0 and incorporate them, moving forward? List certain technology companies that you don’t think are going away that have great potential. Then list other companies that can move into their space. That’s how I would approach this identification issue.
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Identifying Potential High Fliers If we assume that technology doesn’t go away and the Web and other Internet-related technologies will continue to increase in relevance, then we will continue to see huge growth. The craziness may have stopped, but the growth has not. Someone has to be a winner from all this growth. Companies that have staying power, companies that are already embedded in the fabric of Web 1.0, will find themselves in excellent positions as we come to the end of Web 2.0. It is the investor’s challenge to identify these companies. Look for an interestingly unique take on a new product or a development from 1.0. Whether it’s a corporate or a consumer play, it doesn’t really matter. We saw in 1.0 a lot of interesting uses of technology, but none of them hit the nail on the head. People who were successful in 1.0 will come together with people who have relevant experience in the new world to create the sought-after high fliers.
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Balanced Focus on Profits The pressure to achieve profitability is one of the more important outside effects of the dot-com implosion for large and small companies alike. In the early days, companies demanded ultimate vision, and it wasn’t necessary to make profits. Now, after that bubble has burst, the pressure is to have ultimate profit and zero vision. Again, that’s not an optimum scenario, but rather over-compensation for the previous extreme. The correct way to approach a business is to look for a good balance of vision and reasonable financial metrics and time frames. I’m hopeful that after 2002, which is what I call the timeout year between the two waves, companies will have a little more vision so they aren’t so backed into the corner by Wall Street’s demands for quarterly numbers that all forward thinking and risk taking go out the window. It takes time to build a valuable business. How many of today’s great companies would ever have succeeded if right from the beginning they had a bunch of overpaid analysts critiquing and second-guessing their every move? Success
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is not just about making a profit; it’s a mixture of many things. I hope 2.0 will have a much more responsible approach to business than 1.0 had. I’m encouraged that it won’t be purely about making profits from day one because that makes it difficult to grow and innovate. I think we’ll see a hybrid of both approaches: a more structured way of generating financial return coupled with a reasonable outlook and a five-year vision for the company. Everything moves in phases. Moving forward from now, profits – and not just profits but correctly accounted for profits – will be a main center of attention for investors. They are on everyone’s radar now. If a company shows up making gazillion dollars a year, they get attention now more than ever because now there is a distinct lack of profits. There will be a run on profits stock, but it will be short-term. Companies that make huge profits will never have any troubles with their stock price, but you will see an artificial run on companies that come out with a lot of cash. In the short to medium term, companies that show up with a large ability to generate revenue will be well regarded. In
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the longer term, it will be companies that have a good take on profitability and a solid vision.
What to Look at in Investing Stock One of the assumptions of 1.0 that proved incorrect was that first-mover advantage gets you everything. I think people are realizing what this does give you is the opportunity to make a lot of mistakes that people can learn from. One or two players have first-mover advantage and are still in the lead, but a lot of people just sat back and let them make the mistakes. In the entrepreneurial world the art of success is to fail fast. The concept of first-mover advantage won’t be relevant in 2.0. Market leadership will be relevant. Whoever has the ability to obtain and retain market advantage will be in the lead. First-mover advantage is a 1.0 concept that won’t make it to the next level.
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Management Team Again, much of Web 2.0 will be all about going back to basics. A solid management team is a basic building block of any successful company. Management teams will become one of the main components of 2.0 companies. A lot of venture capitalists have lost a lot of money in the past five years. To regain their confidence and to put their faith in people who have done things successfully, they will again pay attention to management teams that have been successful. People who lived through Web 1.0 have learned many valuable lessons. Management may become one of the most relevant aspects of a Web 2.0 company. Companies and investors should take this into account – gauge the strength of the management team, see what their skill sets are, and determine how well they can navigate through new territory.
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Burn Rate It may sound obvious, but what goes out the door should always be monitored and compared with what is coming in. That’s always a good thing to watch. It’s another metric that people might not have wanted to look into previously. Again, we’re back to basic principles. Regardless of what happens, you can always return to them. If you lend someone $50 because you believe in him or her and you know he or she is spending $4,000 a week in a favorite bar, that’s a big burn rate. Burn rate is a valuable metric. It tends to hide under the covers, but I think 1.0’s famous stories of crazy burn rates brought it to the forefront. What a company spends and makes is a very valid first-principle thing to look at. It can give you an indication of how efficiently and flexibly they are running their business. Microsoft’s burn rate and cash on hand put them in a strong position. They can lose money for 15 years and still be around. These are very important metrics. People tend to forget them when they encounter the mystique that
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surrounds investing in companies. It really takes you back to basics: Would you lend someone $50 who doesn’t have a job and spends $4,000 a week? Probably not. Why should you do the same for a company?
Identifying Valuable Technology Take basic, first-principles steps to discern the value of the technology being offered. If it is a consumer-oriented product, ask yourself if you would use it, and if it is relevant to you or to your friends and relatives. It sounds so simple, but it’s something a lot of people didn’t do in Web 1.0 – they didn’t ask themselves those questions. Would I pay $50 to get a CD delivered? No. That’s how I would ascertain how valuable a technology is. From another perspective, I would look at the ability of the company to deliver on their promises. If the product makes sense, looks good, and is priced right, then definitely go with it.
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Ask some questions: ❏ Can the company deliver? ❏ Who are their competitors? ❏ Is Microsoft one of their competitors? ❏ Do they have a stand-alone product? ❏ Do they have a great management team? ❏ Who are their investors? ❏ Is the product usable? ❏ Does the market need it? ❏ Does the company have the ability to make it happen? It is very difficult to be a technology visionary when the world moves so quickly, but people need to step back and make sure the products are usable. People need to ask themselves those questions. If a concept doesn’t sound viable, then people shouldn’t bet on it. It’s a return to logic and asking simple questions. If you are investing thousands of dollars, you should be able to ask these questions. If you need to delve even further, you can do that, too.
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Make sure you use the tools and resources available to you. Don’t try to make all the decisions yourself; you may not be an expert on, say, the wireless components sector. There is a big difference between speculating and investing. Understand the difference. A lot of what passed for investing in Web 1.0 was speculating, not investing. Holding a stock for 23 minutes and then selling is not investing. We’ve already covered the abundance of information that will be available in Web 2.0. This wealth of information applies as much to investing as to anything else. In fact, the data that initially empowered the individual investor will eventually drown that investor if the right tools and the right counsel are not sought. Information is a simple concept that is very much at the core of Web 2.0. There is so much information out there – almost too much. Approach investing the way you would approach the most important things in your life. Take it to the level where you feel comfortable with the information
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you have, and when you move past that level, choose professionals. Take advantage of the information and tools available to become a more educated investor. There will be excellent opportunities in 2.0. Will they be the same as before? No, and that’s probably a good thing. There will be some high fliers, but there will also be winners. Technology keeps multiplying in sales, growth, and effect on our lives. The companies that benefit from this growth will be rewarded in the stock market of the next five years.
Undervalued and Overvalued Stocks A lot of companies’ stock values have been pulled down unfairly by the general decline of the stock market brought on by the bust in Web 1.0. Many of these companies, including some of the struggling dot-coms, will see an upward correction as the bridge year 2002 passes, and we can begin Web 2.0 in earnest.
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Let’s consider Company A for a moment. It has a strong management team and a healthy balance sheet, but its stock is undervalued and languishing because of mismanagement or scandals relating to other companies in its sector or general investor apathy or trepidation. This scenario is quite common right now – and it’s a major opportunity for a wily investor. All the “new-economy” companies were overvalued in the last five years. It’s quite simple, especially now, to spot an overvalued stock. Look at how much money they have raised, their multiple, and the viability of their sector. If there are no earnings, that should be called into question. Which companies can quickly replicate what they do? The quick spot finds are companies that have high valuations based not on real-world situations, but on hype, vision, and concepts. Spotting overvalued stocks should be relatively easy at this point. The key is spotting the undervalued stocks. Look for a strong management team. A healthy balance sheet is key. And look for a strong product or service that is not likely to
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be disenfranchised anytime soon and a valuation less than the sum of the business’s parts or the cash on the books. There are a lot of good companies out their right now that are undervalued and likely to be strong performers in the next five years.
External Factors Play a Role It is important to remember that the stock market does not exist in a vacuum. Granted, in a strong bull market such as the one we experienced in the 1990s, it may seem that the stock market is controlling everything else. But the stock market is not impervious to – and is often subject to – the global forces that rule our planet. One of the big external factors, regardless of concepts of 2.0 from technology to investment, is how the global economy acts. Think of all the great technologies in the world – but if there is a major embargo, and the world comes to a standstill, it will affect what happens with 2.0
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developments and the stock market. There was period of time when we thought Federal Reserve Board Chairman Alan Greenspan had his hand on the world’s steering wheel and could affect everything. People are beginning to recover from that notion. While the Fed does make decisions that shift the market in certain ways, it can’t change the momentum. There are bigger effects than just the U.S. economy on how the global economy performs. They are linked to other situations, such as economic tensions and problems with China and the Middle East and events such as September 11 and the War on Terrorism. Other external factors are trickle-down effects, such as consumer behavior. How will consumers act? How will corporations act, based on these external factors? If anything, the external factors largely run a successful market. How successful all the other indicators are is a good basis for judging how the market should perform – hence, the past eight years. There is a lot of growth in every sector, which in turn generates more consumer money, and
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more venture capital. We have a potent mix the world hasn’t seen before. If certain economic factors had occurred several years ago, we would never have seen the explosion. Any future development will be based on how the world markets react and how global economic conditions behave. External forces will play a big part in the future; we are already seeing that. People sometimes tend to assume the market takes on a life of its own and is recession proof. That’s not the case.
Stock Turn-offs and Turn-ons If a company has a product or service for which I no longer see relevance, their stock turns me off. Maybe there was relevance, but it’s gone. Take a serious look at what the companies you’re interested in do for a living. If my instinct is that a product or service will not become relevant anytime soon, it is a turn-off. Because I am a technologist, companies that don’t have an understanding of technology or how to use it turn me off.
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And if I have a bad experience with a product, I get turned off that company’s stock. I’m a strong believer that customer experience will be everything – and the only true differentiator in our commoditized, convergent future. On the other hand, if I think the product is extremely relevant – that it’s innovative, that it does something no one has done before, and that people want it – then I’m sold on the company. I need to think the company has great vision and that they have shown it consistently. They need to produce or provide something relevant and have to show smart strategy, clear vision, and good uses of technology. Strong management is a turn-on, too. One of the most exciting factors in investing today is that many companies are undervalued. A lot of fliers were dragged down by the downturn but don’t deserve it. They have great potential for growth, particularly the companies involved in the components I mentioned earlier. I would take a strong look at who is well-positioned in broadband, either cable or telephone companies, because there will be a second wave. You have to think about the company’s role
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in 2.0 to decide whether or not you want to invest in it. The trick is to look for companies that have been undervalued because of external forces, such as the economy and the general Internet downturn.
General Differences in Technology for Web 2.0 One of the important takeaways here is that the underlying technologies will not be very different for Web 2.0; what will be different is their level of maturity. Many of the great ideas that spawned the innovation of the past five years are still immature, still in the beta stage. The difference in 2.0 will be the maturity of these technologies. It is still difficult to use Internet technology. It is still slow, for the most part. My computer still crashes an average of twice a week. People still get disconnected regularly from their ISPs. Using the Web and its attendant technologies is not nearly so simple as turning on your TV or radio, nor nearly so reliable as your car (assuming you have a decent car). The differences in technology most noticeable to the
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consumer will be in usability and reliability. We will start to see better features, greater ease of use, and more “productization” of the technology.
Specific Industries Affected Most The areas that will be most affected by the changes brought by Web 2.0 will be those that were slower to adapt to the sea change that occurred in 1.0. If you were involved in an Internet company in Web 1.0, you figured out what this sea change meant pretty quickly. Some larger organizations figured it out, while others didn’t. Many corporations were and still are dealing with systems they adopted in the mid1980s; they had neither the ability nor the inclination to proceed with full-scale adoption of Internet technology, such as B2B exchanges and wireless networking. Maybe they felt these technologies or ideas weren’t ready for primetime. As I will say again and again, Web 2.0 and further Webs are just as much about philosophy as technology – and ultimately maybe more about philosophy!
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You will see the Web 2.0 adoption coming from businesses that sat out the first round. Even with all the hype and exposure the Internet has gotten over the last few years, you would be amazed at the number of larger companies that are only now coming to the party and beginning to adopt these new “philosophies.” Companies that have legacy technology will eventually have to bite the bullet; they’ll see the efficiencies and synergies that Internet-based technology will bring. They are the ones on which we’ll see the greatest impact on how they do business with clients, customers, and employees.
Ease of Using Technology The consumer experience and usability of products, services, and technologies will greatly improve. It has to. It is part of the evolution of technology. If it remains complex, it will die. If it gets simpler – and remember, simplicity is a proviso for mass adaptation – then it will thrive.
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Users will be able to figure out that they don’t need a degree in electrical engineering to use these products. You will see a slowing down of the development process. Instead of creating something new, you will see a redefining of what is already created.
Simplicity for Users Let’s look at the automobile industry. Cars started out as clunky machines that were expensive and unreliable, and they wouldn’t travel very far. They were also very dangerous, known to spontaneously combust, taking their owners with them. But from an inauspicious beginning, they are still with us, more useful and relevant than ever. Today’s typical automobile has a microprocessor onboard, starts every time, goes hundreds of miles on one tank of gas, tells you when it needs oil, and in some situations will even attempt to fix itself. Automobiles have grown extremely efficient compared to the overbearing clunkers they once were. But they didn’t improve overnight. It took
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many
years
of
engineering
design,
bad
customer
experience, and the odd charred motorist to get them where they are today. If they hadn’t gone through this constantly improving, iterative process and gotten better, faster, and cheaper, they wouldn’t have succeeded. The Web has to and will go through the same iterative process. Web 2.0 will largely be about the transition of the Internet from cult status, through an insider mixture of technology and philosophy, to a mass-market product. The Web is now a global network of computers connecting to each other and sharing documents and data over the Internet. The sharing of documents and data is just the beginning. I don’t believe we have seen a tenth of the power of this revolution. We are five years into a 30-year revolution. Web 2.0 is the next five years. Even today, despite all our advances, it is still difficult in many cases for an unsophisticated user to connect to the Internet, wait 10 minutes for a page to download, and then perform some other task.
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How many of our mothers can connect to the Web and pay their phone bill? Not many, I would guess (apologies to my own mother!). Contrary to what many people may tell you, I believe the Web is not out of the woods yet on its way to becoming a universally adopted uber-medium. Its “user-friendliness” needs to improve. While the initial concept seems wonderful, people get disillusioned when it takes 25 minutes to open a piece of e-mail. The hassles of installation and use take away from the promise of functionality. So many of the concepts, products, and services in 2.0 have to improve on the technology interface for the user, or they will die. I fully believe better user interface design and technologies such as broadband, wireless, voice recognition, and interactive television will continue to make it increasingly easier to connect to and use the World Wide Web. If that doesn’t improve, it may well be replaced by something else. It’s not too late for that to happen.
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When the wireless craze began in parallel to the decline of the first Internet wave, there was much hype surrounding WAP (wireless application protocol), data, and the shopping and marketing capabilities of cell phones. I remember thinking back then that all this jargon about buying patio furniture from my cell phone was bunk – not because I wouldn’t do that, but because often in large metropolitan areas, I couldn’t, and still can’t, get a signal to make a call – never mind e-mail a spreadsheet! This improvement will happen, but not until the usability and customer experience, not to mention the actual network issues, have been worked out. If it is easier for me to walk down the street and buy something from a store than go through the hassle of purchasing it online, then I probably won’t use the Internet. If it is easier for businesses to exchange information via traditional means than to use immature systems, then they’ll stick with what works. Across the board, the technology, particularly the interfaces, will have to improve. This is not the sole responsibility of one party; many are involved, from
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software developers, graphic designers, and hardware manufacturers, to network providers. They all must play a part. Everyone has to make a giant effort to move the ball forward. I believe this is what we will see in 2.0 – a general movement in the right direction. The networks will get faster, PCs will be better designed, and you will be able to access the Internet in ways that make more sense. Broadband will be more pervasive. Connections will be fast and always on. It will happen. While there is a slight chance it won’t, I’ll still bet my Mum will be able to pay her phone bill online in Web 2.0.
Effects of 2.0 on Businesses I envision a leapfrog situation with businesses that were slow to adopt the technology advances of the first wave of the Web. They won’t have to catch up with the companies that have already adapted; they will leapfrog to the current best technology. Some underdeveloped countries, such as Nigeria and places in Eastern Europe, never had fax; they jumped right into e-mail and Web systems. You will see a
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similar phenomenon with the technologies of 2.0, which will be based on the first wave, but which will be more robust, well-defined, and mature products. Companies will be more inclined now to adapt some of these technologies because they are more business-ready, ready to help Fortune 500 companies show efficiencies in their business. Some organizations will wait too long to adopt and adapt, and for them it will be too little, too late. They will be disenfranchised from their markets, from their customers, and even from their employees by their failure to adapt and adopt, not just to these new technologies and processes, but to the sea change in thinking and business philosophies brought on by these new technologies and processes. If you reach the midpoint of Web 2.0 and your company has not adopted the Internet and the associated Web technologies in ways that enable producing efficiencies, connecting with and keeping customers, and generating revenue, it will be curtains for you and your business. At best, you will be easy prey for your competition. At worst, you will be irrelevant.
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Out of the massive hype of Web 1.0, this was one the truths that emerged: Vast efficiencies and opportunities can be created from a connected and networked economy. This idea wasn’t lost on the smarter companies in Web 1.0. If everyone agrees these great efficiencies can be created, the only part that people disagree on is the implementation and quality of the actual technologies being used. Several years ago, very few corporations would have used Linux. Everyone agreed it was a good technology, but no one had faith in it. It wasn’t IBM; it wasn’t a Ford. It was good in theory, but people didn’t want to risk their jobs over it. “What happens when my mission-critical app breaks? I go onto a message board?” This changed as small companies (Red Hat) and large companies (IBM) began supporting these once renegade technologies. (Maybe all technologies are renegade at some point in their lives – at least, the good ones.) In 2.0, you will see the adoption of these technologies. People will become more comfortable with open-source technologies, such as Linux and Apache. Two of the
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biggest properties on the Web, Yahoo and Google, both have huge clusters of Linux servers. They are examples of adopters of new technologies that might have been immature on the first wave, but will be taken on and used by the larger enterprises now. Web 2.0 will change businesses more than the first wave because, while there won’t be the huge hype and astronomical IPOs and frenzies on Wall Street, the true “webification” of the corporate and consumer landscape will occur, often quietly and in the background. The technologies and ideas are now mature and are almost ready for primetime. We have seen how e-mail and cell phones alone have greatly changed most of our lives. Think of that change as just an appetizer as access to the Internet gets faster: processors gain power, the wireless Internet becomes ubiquitous, and all devices become “smart” and connected to the ubiquitous wireless Internet – and everybody has access.
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CORPORATE RESPONSE: TAKING ADVANTAGE OF NEW TECHNOLOGIES IN WEB 2.0
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CRM: Power to the People One of the great opportunities and pitfalls of Web 2.0 will be an organization’s understanding of and relationship with the customer. I believe customer relationship management (CRM) was one of the most over-hyped concepts of Web 1.0 and, paradoxically, one of the most important concepts of Web 2.0. CRM, or eCRM, is the ability to recognize customer interactions with your business and manage, analyze, and optimize those interactions. Only recently has the technology advanced enough to support these interactions adequately through any channel with any relationship – customer, employee, supplier, or vendor. The abbreviation may be CRM today or ERM tomorrow or something else in a month, but the hugely important thing to remember here is the relationship businesses have with their customers has been changed forever by the networked society.
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Customers are now more powerful than they ever were. Many a competitive stronghold or elevated position in society has grown up around privileged access to data. Stockbrokers have long held the advantage over the regular punter because of the “privileged access” to information. If you lived in a small village in Ireland in the 1920s, one of the most powerful men in town was usually the priest. The reason for this power, among other things, was that he, unlike most of the townsfolk, could read and had access to knowledge
and
information.
And
much
like
our
stockbroker friends, he used this access to information to his advantage, leaving his “clients” and parishioners at a disadvantage. Information is power. Knowledge is king. So what happens when there is a democratization of information? What happens when everybody has access to the same information? What happens is a leveling of the playing field, a shifting of power in any relationship that trades on information and even some that don’t. The Web and our networked society have ushered in this Age of Information. The balance of
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power has shifted to the consumer, whose access to information is unparalleled in history. Another important point is that because of the global, always-connected, always-on nature of Web 2.0, your business is always open, always ready for customer interaction. Because of the potential exponential rise in customer touchpoints with your organization in Web 2.0, you will need systems in place to respond to, understand, analyze, and optimize these touchpoints. In short, no matter what acronym or abbreviation you subscribe to, you will need to manage your customer relationships. Because of the huge amounts of data available, we may see a backlash of a kind taking place toward the end of Web 2.0. As consumers and corporations become more and more overwhelmed with data, they will need more and more help with managing and understanding this data and making valid decisions based on it. We can almost see this happening in the stock market right now. The initial burst of information that became available
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to the individual investor in Web 1.0 almost looked as if it would remove an entire class of stockbrokers and financial advisers as intermediaries. I remember a commercial for an online trading company that had a rather unimpressive chap stumbling out of bed and schlepping to work on the subway with the tagline, “If your broker is so smart, why does he have to work?” But now, shaken by the downturns and overwhelmed by the rivers of real-time, streaming data, investors have come to realize they need professional advice to decipher all this information. Corporations will feel the same: Much as the migration from mainframe to client server to desktop model revolutionized business today as we know it, we are about to enter another revolution. That revolution will be CRM. The Internet blends computing and communications into a platform-independent, globally accessible, and universally accepted medium. – Craig A. Conway, CEO and president of PeopleSoft Web 2.0 is about new channels, new marketing models, new
collaborative
business
processes
and
supplier
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If you accept that this is something your organization has to embrace, the next and probably more difficult step is developing a strategy and then, even more difficult, implementing that strategy. Many of they companies I’ve worked or consulted with have made strides on the first two steps – i.e., buying in and deciding on a strategy – but have fallen down on the implementation stage. They bit off more than they could chew, seduced by the overzealous promises and visions of myriad software salespeople. There is a huge buffet of wonderful (and in some cases not so wonderful) options to choose from. For a successful implementation of the new customerfacing strategy, there needs to be consensus at the top of the management chain and true dialogue between IT managers and business executives on the needs of the business, both now and moving forward. Most of the time you don’t get that discussion between the IT managers and the business executives, but it needs to happen internally. Once all the managers understand where they are going, they have to make important selections from this fantastic
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buffet. Making the right choices has always been critical, but even more so right now because there are so many choices we have to make, starting from the best PCs, Internet providers, and storage banks to use. The volume of choices is one of the most bewildering challenges managers will face. Which technology and standards do you pick? How do you support what your company wants to accomplish? Organizations should avoid at all costs biting off more than they can chew. I suggest a phased approach in any large project that involves so many moving parts, such as implementing a true customer-centric vision. Ask yourself some questions: ❏ What are the priorities for your business, immediately, in the next 12 months, and for the next five years? ❏ How can you use the Internet to support these priorities? ❏ How has the Internet changed your relationship with your customers, employees, and partners? ❏ What needs to change in those relationships? ❏ How well do you communicate with your customers?
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❏ What information do your customers, employees, partners, and competitors now have access to that changes your relationship? ❏ What are your competitors doing? ❏ In Web 1.0, what technologies did you invest in? ❏ Are you using these technologies optimally? ❏ What were your last three major IT projects? ❏ How successful were these projects, and why? Just by answering these questions you will be taking a positive step toward defining a strategy. One of the key points here is that not many smart business managers or owners would argue about these CRM or eCRM principles. Everyone wants to have a satisfied customer base. Everyone wants to have cheap, efficient, productive communications with their customers. Everyone wants to understand and serve their customers’ needs. A difficulty arises – and will continue to arise – in the application and the execution of these principles, technologies, and strategies. The bigger and more diverse an organization is, the more difficult it is to implement a unified CRM division. In most companies now, a telephone 162
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is the dominant tool of customer interaction. I predict the Web will replace the telephone for this distinction at the end of Web 2.0. Ironically, more technology and increased consumer touchpoints have actually made it more difficult to implement a successful CRM strategy because of customers’ increased awareness of other products, pricing, and service, as well as their rising expectations about the immediacy or perceived immediacy of delivery of these products and services or customer interactions. Customers have gotten used to what I call the “Amazonification” of services. (I am referring not to the South American river, but
to the online retailer
Amazon.com.) While many established companies were busy erecting brochure-ware Web sites, companies like Amazon.com realized from the beginning that they were in a commodity business and that the true customer service and experience would be the differentiator. So they spent billions of dollars of venture capital (remember in the early days that, buoyed by this capital, they didn’t have the pressure of actually having to make a profit) on researching 163
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and improving their customer service personalization and CRM tools to the point where they are almost the gold standard for online service and interactions with their customer base. “So?” you might ask. “I don’t compete with Amazon. Why should I care?” While your company may not sell books or music on the Web, there is a good chance your customers do buy books and music on the Web – and therefore a good chance they have been exposed to such a company as Amazon.com. The problem here is that customers have gotten used to this level of service and have come to expect it from your company and any other company they interact with online. I don’t know how many times I’ve heard, from business partners and clients alike, “Why isn’t this more like Amazon?” The oldest form of competitive business advantage is location. Internet distance is measured by mouse clicks. So location was one of the first “old economy” business advantages to be eroded by the Internet. It could also be 164
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argued that the next biggest advantage was size – and this, too, has been and is being challenged by the Internet. Web 2.0 is largely about fulfilling the many promises of Web 1.0, and while many of these promises seem hopelessly stuck in a mire of dashed dreams, slumping stock markets, and exuberant dot-com greed, they will resurface in Web 2.0 as the true legacy of the amazing revolution that occurred over the last seven years.
Businesses That Don’t Embrace New Technologies I believe it will be much more dangerous for a business to miss out on the second wave than to have missed the first. We have seen several companies sit out a large portion of the last five years, and for a while they seemed to be the smart ones. A lot of them stood on the sidelines because they were scared, not smart. Those that didn’t have Web sites and Internet infrastructure looked clever at the end of Web 1.0, but they won’t look smart for long. It will become much more dangerous for a company not to adapt these technologies in 2.0. The cost of missing out will be much 165
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higher. If you have the opportunity to make your business more efficient, to communicate better to users and clients, and to streamline procurement, then this is the time to do it. The window will close. The companies that don’t take advantage will have much more of a fall. Lessons learned from not getting involved in the first phase may cause people to sit out again in Web 2.0. You don’t get the chance to sit out too many things; otherwise, the games pass you by. My advice is to move cautiously, choose wisely, but don’t sit out.
Technologies That Emerge From 2.0 I believe certain technologies and concepts will shape Web 2.0, just as others shaped Web 1.0. These are my eight pillars of Web 2.0, many of which we’ve already touched on: 1. Wireless technologies 2. Broadband Internet access
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3. Voice recognition 4. Customer relationship management 5. Business intelligence 6. Interactive television 7. Grid computing 8. Pervasive computing Companies will do many things differently, but mainly they will do things better. The great claim of 1.0 was that it would create one-to-one relationships, direct marketing, customization, and personalization. We have seen some advances in that, but not the Holy Grail that was promised by many people. In 2.0 you will start to see actual movement in the direction toward that Holy Grail of customized, real, direct communication between a company and its customers. Is that something new we have never been able to do before? In one way, it is. No company has the ability to talk solely to one person. They can talk to tiers of people, but they still don’t have the ability to connect one-on-one. This will happen in Web 2.0. We will build on something we had
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before, but accomplish something we have never really been able to do before. As Web 2.0, the Information Age, the Age of Access, and the Networked Society all converge, this will signal the beginning of the end for the mass market. There will be an infinite number of fractured realities, separate one-to-one marketing relationships, an individualistic society, and a splintered marketplace. The companies that don’t see this coming will be removed from the equation by a mouse click or maybe more aptly put, by a voice-activated command. Take the example of geographical location-based instant messaging. I am walking down a city street with my cell, and I see a billboard for a Ford Explorer. That billboard calls my cell phone number for a little marketing conversation. That is something no one has been able to do before, using several technologies we will see start to come into play. It may not be mainstream fast, but it will definitely come into play. We will see things from communications and marketing that will represent huge
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change. Businesses will be able to analyze their data much better than they could in the past. Business intelligence is the buzzword. It used to be data mining, and maybe it will be something else by the time you read or listen to this. One thing almost everybody seems to agree on, though, is that there will be tremendous growth in the volume of data captured from every direction – from customers’ personalized profiles to CRM databases to sales workflow and automation tools. Let’s use an example of a large consumer bank. About 20 years ago, a customer could visit a branch, deposit, withdraw, apply for a loan, and generally interact with a clerk between the hours of 9 a.m. and 5 p.m., Monday through Friday. These interactions would be recorded in some crude manner: Mr. Smith withdrew $100 on Tuesday, May 12. Mr. Smith wrote a check for $34 on Wednesday, May 13.
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Then maybe they added an automated telephone system. Now Mr. Smith could check his balance and order new checks 24 hours a day and speak to an operator during business hours. Then came ATMs. Then ATMs were connected, and Mr. Smith could use any bank’s ATM, not just his own bank’s. Now the Web is here, with online banking and wireless alerts going to Mr. Smith’s cell phone, and Mr. Smith is paying his gas bill through his broadband, wirelessly enabled handheld as he sips a coffee in Starbucks. Mr. Smith has come a long way. In the old days, Mr. Smith’s interaction with the bank involved one visit, about the same time once a week. Now he has an almost infinite variety of ways to connect with his banking institution, any hour of the day, anywhere in the world, from – some day soon – any connected device. This poses immense challenges for the bank, not only to capture all these interactions, or touchpoints, but more importantly to analyze and understand these interactions, so they can better manage their business and better serve Mr. Smith’s needs. Otherwise, Mr. Smith might well change his
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banking institution while he sips his cappuccino. It will be that easy! Business intelligence, which at times seems like an oxymoron in many companies, will be a huge challenge in Web 2.0. What is the correlation between going to the supermarket and buying a banana and iced tea? Or in the bank’s case, what’s the correlation between Mr. Smith checking his bank balance from the ATM at 54th and Lexington on Tuesdays and ordering checkbooks with a lighthouse on them from the Web the next day? I don’t know that correlation. Some large computer might be able to figure it out. If there was a correlation and we could understand it, this knowledge could help the biggest supermarket chain with their product positioning and sales and their bargaining power with their suppliers and so on. It could help the bank position better offers and more customized service to Mr. Smith, making him a more loyal customer and one less likely to be lured by a competitor who also has reams of data on Mr. Smith, bought from a third party and
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based on the numerous other interactions he performs that are captured daily. The companies that learn to control and harvest their data will be the ones that can accomplish things that they have never been able to accomplish before: In short, it was a major triumph of old-style business technology to corral all the business information in one place and organize it, and the entire human enterprise was then built around that edifice. The Internet suddenly adds an entirely new spin: The information can still be centralized and organized on a server, but suddenly a much broader range of folk can have access to it, and it can be sliced, diced, and distributed in a thousand various fashions previously quite impossible. Add to this the fact that so many current businesses are built on adding value to information – rather than simply turning out physical widgets – and suddenly the corporate information system becomes not just a storage and communications device, but the means of production, as well. – Paul Greenberg in CRM at the Speed of Light: Capturing and Keeping Customers in Internet Real Time
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Web 2.0’s Effects on Consumers Will the gap widen between those who use technology and those who don’t? I don’t think so. What will happen is that technology, as we mentioned earlier, will get simpler, cheaper, and easier to use. That is what mass markets are all about. The gap will probably decrease. When we take the concepts from 1.0 and give them mass appeal for 2.0, there will still be stuff out there that divides reality. As far as I am concerned, the notion of techno-elitism, or “digital divide,” is a concept that is off the mark. With the introduction of television, I am sure many people claimed television would create an elitist society. People with televisions would be better, or at least better informed. Now 99 percent of America has televisions, and TV has become an equalizer. There is no reason for people to see the PC or the Internet as creating a particularly elitist society, as some people suggested in Web 1.0. In fact, these technologies and devices will become cheaper and easier to use and sometimes even free. It will become so necessary for corporations to connect and communicate with their
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“constituents” that they will even subsidize access devices. Do you think the disposable McDonald’s or Coke or Nike Internet device is too far away? As far as businesses will be concerned, the more people they can connect with, the better. A key concept in an enterprise’s adoption of technology on Web 2.0 will be flexibility: ❏ The flexibility not to be held hostage by your technology decisions in this ever-changing landscape with new products, services, and ideas arriving almost daily on the average IT manager’s doorstep ❏ The flexibility not to be locked into a single architecture,
a
single
centralized
or
distributed
computing strategy, a single platform, or a single vendor.
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Pervasive Computing If you look at the microprocessor as the brains of the computer, these “brains” already surround us. Obviously, our PCs have these brains, and so do our cable boxes, our TVs, our microwaves, our cell phones, pagers, and cars. These microprocessors are becoming ubiquitous in our daily lives, constantly around, always on, processing millions of transactions and instructions every second. Web 2.0 will usher in the next wave of computing, which will be to start connecting all these brains together and have them communicate with each other. This is really where the idea of pervasive computing leads us – the idea that we are constantly surrounded by, and have access to, computing power. As you make a cup of coffee in the morning, watch the morning news, download the day’s agenda onto your handheld device, get into your car, and compose an e-mail on the onboard computer as you drive to work, all the while, your handheld computer talks and syncs with your onboard computer, which is connected to your office computer, retrieving information
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from it and updating it. Some call this the roaming Internet; some call it pervasive computing. Whatever the label, it is always on, always connected, always computing.
Grid Computing The business version of the pervasive computing concept may well be grid computing. Grid computing is really the next logical evolution for the Internet. The Internet began with TCP/IP and networking; then came communication with e-mail, followed by informationsharing with the World Wide Web. Next will be the advent of grid computing, the sharing of actual computer resources, such as memory, storage, and processing power. In Web 1.0, we hooked up the computers with wires, using a common protocol. Then with Tim Berners-Lee and the World Wide Web, we began hooking in all the online documents. Now with grid computing we’ll bring in everything else.
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The actual brains of the computers will be connected, not just the arteries. This means that users will begin to experience the Internet as a seamless computational universe. Software applications, database sessions, and video and audio streams will be reborn as services that live in cyberspace. Once plugged into the grid, a desktop machine will draw computational power from all the other machines in the grid. The Internet itself will become a computing platform. Grid computing is the next logical step for the Internet to take. Imagine the Web as a high-speed IO bus for large-scale distributed computers. The processing power could be in one facility, the memory in another, and the storage in yet another, all connected by gigabit pipes. In 2002, the National Science Foundation will begin to install the hardware for the TeraGrid, a transcontinental supercomputer that should do for computing power what the Internet did for documents. First, clusters of high-end
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microcomputers will be set up at four sites: the National Center for Supercomputing Applications at the University of Illinois at Urbana-Champaign; the U.S. Department of Energy’s Argonne National Laboratory outside Chicago; Caltech in Pasadena, California; and the San Diego Supercomputer Center at the University of California, San Diego. Then, by early 2003, those four clusters will be networked together so tightly that they will behave as a single entity. This virtual computer will rip through problems at up to 13.6 trillion floating-point operations per second, or teraflops – eight times faster than the most powerful academic supercomputer available today. Such speed will enable
scientists
to
tackle
some
of
the
most
computationally intensive tasks on the research docket – from problems in protein folding that will form the basis for new drug designs to climate modeling to deducing the content and behavior of the cosmos from astronomical data. Computing grid power will be like the electrical grid: Just as you plug in a hairdryer, you will plug in your computing
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device and pay for the megahertz and megabits you use. This gives rise to the concept of computing as a utility. Irving Wladawsky-Berger, vice president, Technology and Strategy, IBM Server Group, calls grid computing the “key to advancing e-business into the future and the next step in the evolution of the Internet toward a true computing platform.”
He
predicts
that
grid
computing,
like
supercomputing before it, will find its way into the commercial world and provide a vast infrastructure for ebusiness. A recent advertisement from IBM illustrates how some of the infrastructure players see grid computing developing: “E-business on demand™ is The Next Utility™.” Thirsty? Turn on the water tap. In the dark? Flick on the light switch. Looking for e-business solutions? E-business on demand makes them just about as easy as working with any other utility.
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Grid computing is data storage, Web hosting, eprocurement, and more – a wide range of e-business services managed, hosted, serviced, upgraded, and delivered to your door – and you don’t have to worry over the details. With e-business on demand, end-to-end ebusiness can be as accessible, affordable, and easy to use as water, gas, telephone, or electricity. By giving up the burden of IT ownership, your company can vastly increase its access to computing power, expertise, and innovation. Subscribe to what you need today. Turn it up when you need more. For large companies, grid computing will save millions in up-front investments in hardware, software, integration, and hiring. For growing companies, grid computing gives them the sophisticated network of a larger competitor at a fraction of the cost. With e-business on demand, we focus on your technology; you focus on your business. Together, we focus on your success.”
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It seems to be working. American Express has signed a seven-year contract with IBM Global Services to outsource its entire IT infrastructure, buying IT capacity and capabilities from IBM on a utility basis. The $4 billion deal is the largest ever for IBM’s utility computing concept, which charges companies according to how much computing power or other IT they use, according to IBM Global Services financial services general manager Paul Sweeny. He says American Express foresees “hundreds of millions of dollars” in savings through the contract, and that the utility-based model was even more attractive, given the current recession. One of the keys for moving grid computing forward will be the creation and acceptance of a set of standards and protocols. The Internet and Web would never have gotten off the ground if we hadn’t agreed to and accepted protocols, such as TCP/IP, HTTP, and HTML. Many of the Internet protocols we use today came from the research community – the same people who are pushing for grid computing standards.
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While the full ramifications of grid computing, or utility computing, may not be realized for a long time yet, we will see the first commercial applications of this type of computing in Web 2.0. Think about our friend Mr. Smith checking his savings account balance on the refrigerator door as he reaches in and grabs the orange juice carton. The refrigerator, sensing that the carton is empty, connects to the online grocery service and orders a new supply. What once seemed only within the realm of dreamers and science fiction writers is now a reality. Think of our examples earlier from Lavazza and Merloni as everything from washing machines to coffee makers starts to develop brains and connect to the “Evernet.” Who knows whether these models will work? But they are indicators of things to come. Regardless of the reason, it is almost impossible for me to imagine a world where every electronic device has a “brain” and is somehow connected to the pervasive roaming Internet.
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What Technology Will Enable Consumers to Do Moore’s Law claims that processing power will double every 18 months. Current techniques for integrated circuit fabrication are starting to hit the wall. Luckily for Web 2.0, new techniques, such as nanotechnology, will allow Moore’s Law to continue to hold true. If we can continue to augment and prove the law correct, then the amount of power that consumers’ devices will have will just keep increasing. I currently have a RIM Blackberry to access my e-mail. It has an Intel 386 processor. That was a very impressive PC several years ago. Now it is basically just processing my email and keeping my calendar. Nothing keeps me from believing that in 2.0 I will have a wireless device with a 1GHZ processor capable of doing so much more. Pervasive computing and presence technologies, like IM everywhere, will become very important. You already see this in Europe, where text messaging, or SMS, has taken over communications. Billions of messages are being sent
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every month. If you have ever used instant messaging – and chances are if you are reading this book, you probably have – you know it’s one of the true killer apps of the first wave. Real communication revolutions, such as e-mail and IM, have changed forever how customers and corporations behave. Adding pervasive broadband wireless to this mix gives us the beginnings of the next phase of this communications revolution. Smart marketers and truly Web
2.0-enabled
enterprises
will
take
tremendous
advantage of the opportunities brought on by wireless IM as a way for companies to interact with their customers. I recently read that a church service in Spain took place over text messaging because the young people weren’t going to church anymore, and the priest wanted to communicate with them. If a priest in Spain can use this as a way to contact young people, Nike and Reebok can’t be too far behind. Presence technologies can be viewed as a subset of pervasive computing. Right now when I log on via my cell phone or cable, you don’t know I am on the Internet. If I
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log on in my IM, then you know, because I pop up on your buddy list. It’s difficult to place phone calls via the Internet if the person I’m calling is not online, and I don’t know that. Microsoft, with their .Net strategy, is pushing registration, so that people are logged on and registered in a directory. That is presence technology. If we couple that with wireless and then splice in GPS (global positioning system), then we have something very powerful. You are always connected to this worldwide network; people know you are connected to it; and you are mobile. That has huge ramifications for personal communication, use, sales, and direct marketing. Presence technologies are like taking the K-mart Blue Light Specials and making them mobile and global. Here’s an example: You walk by the Gap, and if you are registered, the Gap can beep you and give you 15 percent off the cost of the green shirts. The world is one big Blue Light Special. I also see the concept of money changing. The actual usage will change. If I have bunches of plastic cards and dollars in my wallet, there is no reason I couldn’t put them on a
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chip in my PDA. You will be able to pay for a soda by transmitting your credit card number with your cell phone. At the core of these technologies is the Internet moving to a mobile environment. You aren’t tethered to the desktop anymore. You aren’t connected only through your computer, but also through a device you can carry in your hand or purse. There can be a different protocol, which can talk to other devices, such as stores, cars, or billboards. The next phase starts to be about the interconnection of such devices as gaming, stereo, TV, and PDA. That will make the most profound difference for consumers. We have seen the pieces of the jigsaw puzzles together, but Web 2.0 will connect them to this broadband wireless network. Then it’ll really start getting interesting. Nokia doesn’t look at their phone as a phone, but a lifestyle device – a remote control for your life. In the U.S., people who are tech savvy tend to be wary of wireless because with the downturn of the Internet economy, everyone rushed to adopt wireless when it wasn’t ready. They needed something to fill the void of 1.0, and they wanted wireless
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to save the day. It didn’t because it can’t be adopted overnight. It will come when it’s ready, allowing people to do things they could never do before.
Effects of Web 2.0 on Investors Companies will still have high valuations in Web 2.0. As we have discussed already, we are in a 30-year revolution, having just moved into the second five years, and if we agree that the bulk of this revolution has still to play out, then we have to assume there are greater breakthroughs and technology coming, even if they are just a continuation of previous ideas. Alexander Graham Bell didn’t invent the cell phone, but it is directly linked to what he came up with. Edison didn’t create the TV, but he definitely played a part in making it what it is today. In Web 1.0, even bad companies with bad products had crazy valuations based on a general upsurge of the market. One of my pillars holding up Web 2.0 is ubiquitous broadband Internet access. One of the major obstacles to
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that is optical network switches. Fiber optics and networks can process data at amazing speeds, but the actual switches can’t process the technology as quickly. Whoever solves that problem will have a valid technology. Whoever comes up with a solution to change the way we do integrated circuit fabrication to continue to improve processing power will have a valid technology. The companies that solve some of the problems that are holding back the Internet revolution, or Web 2.0, will be generously rewarded – and so will their investors. There is tremendous opportunity, as we are only in the early innings, with a long way to go and a lot of problems to solve. It is important to keep in mind that the rewards and opportunities in Web 2.0 will be different from those we saw in Web 1.0. We will have to take a longer view. The effect of the Internet bubble on the stock market is one of those rare occurrences that are unlikely to happen again in any of our lifetimes. We all need to understand that. Unfortunately, a lot of investors in the mid- to late 1990s had experienced only that kind of bull market.
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But that does not mean there will not be growth. There will be tremendous growth as the true impact and changes of the connected world we’ve entered in the last couple of years will begin to shape our society. This growth will be slower and more predictable, which I believe is good news for all of us. Hopefully, people have learned our investments should last longer that our average dinner party! In Web 1.0, companies gorged themselves on all sorts of hardware and software, and they will spend a lot of Web 2.0 digesting and figuring out the best uses for the new tools they’ve acquired. Because of this, service-related companies whose job is to teach big companies how to implement and use these new technologies will enjoy stock growth and should be interesting to watch. For example, the actual implementation of CRM will be one of the big stories of Web 2.0. (Remember, just buying the software is not the endpoint.) Companies that understand the true implementation of products like Siebel and PeopleSoft will benefit greatly.
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There are a lot of stumbling blocks on the way to erecting all the pillars of Web 2.0 and beyond. Companies that invent ways around these stumbling blocks and work on these improvements will be rewarded by valid stock growth. We need to take some of the earlier ideas and make them better. As anyone who signed up for a DSL line in 1998 knows, we have a long way to go to get true broadband to the consumer. Will someone solve that problem? Yes, definitely. Another area to look at is voice recognition. People are used to voice as a mechanism, and this area needs to be explored. I would like to walk into my house and tell my computer to turn on my lights and read me my e-mail. Voice recognition, broadband, and processing power are all areas that have to improve – and will. Companies will create interesting ways to solve these problems that have been around for years. Computers don’t interact with us the way we would like them to – they don’t understand how we feel – yet. Companies that can help other companies understand and analyze all of the data they are collecting will be of huge value and in great demand in Web 2.0. The proliferation of
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data makes it clear we need this. So look at the companies that have unique and profitable ways of solving the problems we encountered in Web 1.0 and that are working on the same pillars we need for the successful completion of Web 2.0: broadband, wireless, voice recognition, interactive television, grid computing, processing power, business intelligence, and true CRM. There will be stars and great investment opportunities, but you won’t see the returns and valuations you saw before. And that’s probably a good thing!
Recognizing Companies with Staying Power Recognizing companies with staying power is quite difficult. If I could truly do this, I would have put all my life savings into Microsoft 20 years ago. Staying power requires a lot of vision. And this vision has to reside at the management level.
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One of the problems with the current U.S. corporate environment is that because of the pressure brought on quarterly earnings statements and over-eager Wall Street analysts, it is difficult for any management team to look beyond three months in any direction. In some companies, vision is almost a dirty word, a euphemism for not being focused on the present. Investors have to look for this vision, or lack thereof, to identify companies with true staying power. They can find it in product releases, CEO speeches, and strategic decisions. A company can be judged just as accurately on the things they decide not to do as on the things they decide to do. I always start this judgment process with questions: ❏ Does their product make sense? That is the first question that must be asked. It’s easy to look back and say the products of the past five years didn’t make much sense, but the technology sure was cool, and the CEO gave good press interviews. Does it make sense? Common sense is important.
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❏ Can they make money from it? Some things make sense, but you can’t make money on them. ❏ Do they have the management team to do all this? ❏ Then you need some magic. Is this an area for longterm growth? Is there a clear, true vision at the decision-making levels of the company? If you answer some of those questions, then you can start thinking seriously about whether the company will have the kind of staying power necessary to sustain healthy growth.
Industries That Could Produce New Technologies My eight pillars of Web 2.0 (broadband, wireless, voice recognition,
interactive
television,
grid
computing,
pervasive computing, business intelligence, and true CRM) should give you hints as to the areas where the innovations may come from. Broadband is the first and most basic building block of our infrastructure for Web 2.0. Without it we will just see Web
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1.0b. We need broadband. Broadband Internet access is to dial-up as color TV was to black-and-white TV. There is no comparison, and the true Internet revolution will not begin until we have mass adoption of broadband. Again, we will know this is here when people don’t call it “broadband” anymore, just as people don’t say “color TV” anymore. Look to the cable industry to produce a lot of the growth and adopt a lot of the innovation in broadband. About 10 percent of the U.S. population has broadband access; cable owns an impressive 70 percent of that market, according to Jupiter Online. You will see a lot of growth in speech recognition and voice applications. Look at such companies as Tellme Networks
or
OnStar,
which
provide
services
for
automobiles. As I mentioned earlier, we want to interact with electronics the way we interact with people. Even on the Internet itself, we began with crude command line interfaces, then moved HTML documents with images and graphics, and now there are 3-D GUIs and voice portals, and that it just the beginning. If you think about
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convergence of different types of platforms and products, voice integration becomes more important. Interactive TV was being touted even before the Internet. It has tried to make a comeback about every 10 years to become “the next big thing.” ITV saw its first real steps up the adoption curve in Web 1.0, perhaps spurred on by the adoption of its interactive cousins, the Web and video games. ITV will flourish in Web 2.0. While its adoption will not be on the same scale as the first five years of the Web, we will start to see some important paradigm shifts in the land of TV, particularly when it comes to certain viewer habits and the notion of broadcast TV. Will there be convergence between computer and TV? I’m not sure convergence is the right word. I see it more as a morphing into a larger, more powerful organism greater than the sum of its parts. This morphing will result in an uber-device that will be part TV, part PC, part home appliance controller, part personal video recorder (PVR), part wireless network hub, part gaming console, part telephone, part…well you get the point. And a broadband wireless home network will pull all this together.
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Will all these items morph into one in the next five years? Unlikely. But it is exciting that all the ingredients of this soup are already here. To echo earlier statements, it will be more a case of connecting the dots in Web 2.0. Will there be a convergence of sorts between movies and video games? Yes. The technology to watch for is one that combines the concept of video games and movies into digital entertainment. Electronic Arts is one of my favorite companies for the effect they may well have on the new digital entertainment frontier. I have been involved in many arguments and discussions concerning the “lean-back” and “lean-forward” activities associated with the PC and the TV: “People won’t pay their bills on their TVs.” And “People won’t watch a movie on their PCs.” I believe many of these arguments are moot, as there are some important factors to consider. The first is generational. If you have been playing 3-D interactive video games since you were 10 years old, then by the time you are 21, the traditional lean-back Hollywood movie experience of today will not be enough. This
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generation will require something more in-depth. They will want to be a character in the movie, influence the story line, and even direct some scenes! When the teenage gamer of today comes of age in Web 2.0 and 3.0, the ramifications for the entertainment business, in particular the movie business, will be enormous, or “off the hook,” as one of these gamers might put it. Movies may well have an infinite number of beginnings and endings with organic story lines, much like today’s video games. Movies of the future will closely resemble the video games of today. It will be a quaint idea in future “Webs” to think that long ago, people actually sat down and watched a movie without interacting with it, just as it may be quaint to some teenagers of today to imagine a world where your favorite song didn’t have a video to go along with it. Ultimately there will be no distinction between the PC and the TV. Homes will have a selection of identical digital flat screens dispersed throughout the house, linked to a central server, or “black box,” which in turn will be connected to
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the “fat pipe,” or broadband connection, through which all voice, data, and informational services will be delivered. Each screen, given the appropriate command, will be capable of performing any task, from watching a movie to paying bills to ordering a Video-on-Demand recipe to placing a video call to your aunt in Hawaii. The distinction of device-dependant activity, such as the VCR for movies, the telephone for calls, and the PC for word processing, will slowly disappear. I can already get my Internet, cable, and telephone services through my local cable company. And that’s just the beginning. Anyone working on the interfaces to electronic devices, such as speech, touch, or handwriting, will be in an important position in Web 2.0 if they can get it right. Companies working on very interesting types of wireless applications have great potential, as well. Because the processing power and network infrastructure are not there, companies now seem to have business models that don’t make sense. If all those things clicked into place, these
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companies would be in great shape. One of the pieces of advice I give is to try to figure out the industries that are converging. That’s how Microsoft and Cisco did what they did. They paid attention not just to what they were doing, but what was happening around them in their environment. It helps to know how far you can throw an arrow, but it helps more to know how forcefully and in what direction the wind is blowing!
The Killer App for 2.0 When I envision the perfect product for Web 2.0, I see a device on which I can access the Internet, listen to music, play games, watch TV, make phone calls, pay bills, get insurance quotes, and order groceries. I can do anything from it. I just tell it to turn on, and it does. It doesn’t have to boot up or connect. It is always on and always connected. It can understand me, and I can talk to it. It has instant recognition of voice and handwriting and easy usability. And it’s cheap.
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This is not such a far-off prospect. Combining a lot of what is starting to happen with an amazing processing power in one device will produce the killer app.
Technology as the Pivot Point The technological needs and desires of people have been around for a while. The desire to send a message to someone 1,000 miles away in two seconds has probably always been there. The desire to pay bills in four seconds without dealing with stamps and envelopes has always been there (at least as long as we have had bills!). These desires have been with us for ages, but the ability to satisfy them hasn’t. Now we have the ability. Before the horse and carriage came along, did people wish they didn’t have to walk places? Yes. After that, did they wish they could get places faster? Yes, and the automobile provided that solution. Much more depends on technology because we are much more advanced and dependent on technology.
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It has given us ability, and we are dependent on it – a virtual circle. One of the things that separate humans from other beasts is that humans have the ability to evolve outside of themselves. Technology is a stage where we evolve. Instead of growing legs to run really fast, we built a car. We didn’t learn to project our voices hundreds or thousands of miles; we invented the telephone. Man has learned how to evolve outside himself, and technology is a main tool of this evolution. Maybe in Web 7.0, we will have chips embedded in us to do all of the things we ever wanted to do. Technology in itself is the bond that brings everything together. That’s why it seems so pervasive. It is the outside evolution of man. That’s why it is at the center of all these needs and desires.
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Predictions for Web 2.0 Here are 10 predictions for Web 2.0: 1. You will send and read e-mail from your refrigerator door. 2. You will pay your bills from your cell phone. 3. PCs will be overtaken as the dominant device connecting to the Web. 4. The Web will replace the telephone as the dominant communications device in the enterprise. 5. You will
subscribe to some type of privacy
management service. 6. You will interact with your TV. 7. Companies will outsource much of their eBusiness infrastructure. 8. You will connect to the Web via a broadband connection. 9. Almost all of your electronic devices will be connected to the Web and to each other. 10. Whole new computing paradigms will be born from distributed grid computing.
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Sample Books (Also Available Individually At Your Local Bookstore)
MANAGEMENT/CONSULTING Empower Profits –The Secrets to Cutting Costs & Making Money in ANY Economy Building an Empire-The 10 Most Important Concepts to Focus a Business on the Way to Dominating the Business World Leading CEOs-CEOs Reveal the Secrets to Leadership & Profiting in Any Economy Leading Consultants - Industry Leaders Share Their Knowledge on the Art of Consulting Recession Profiteers- How to Profit in a Recession & Wipe Out the Competition Managing & Profiting in a Down Economy – Leading CEOs Reveal the Secrets to Increased Profits and Success in a Turbulent Economy Leading Women-What It Takes to Succeed & Have It All in the 21st Century Management & Leadership-How to Get There, Stay There, and Empower Others Human Resources & Building a Winning Team-Retaining Employees & Leadership Become a CEO-The Golden Rules to Rising the Ranks of Leadership Leading Deal Makers-Leveraging Your Position and the Art of Deal Making The Art of Deal Making-The Secrets to the Deal Making Process Management Consulting Brainstormers – Question Blocks & Idea Worksheets
TECHNOLOGY Leading CTOs-Leading CTOs Reveal the Secrets to the Art, Science & Future of Technology Software Product Management-Managing Software Development from Idea to Development to Marketing to Sales The Wireless Industry-Leading CEOs Share Their Knowledge on The Future of the Wireless Revolution Know What the CTO Knows - The Tricks of the Trade and Ways for Anyone to Understand the Language of the Techies Web 2.0 – The Future of the Internet and Technology Economy The Semiconductor Industry-Leading CEOs Share Their Knowledge on the Future of Semiconductors Techie Talk- The Tricks of the Trade and Ways to Develop, Implement and Capitalize on the Best Technologies in the World Technology Brainstormers – Question Blocks & Idea Development Worksheets
VENTURE CAPITAL/ENTREPRENEURIAL Term Sheets & Valuations-A Detailed Look at the Intricacies of Term Sheets & Valuations Deal Terms- The Finer Points of Deal Structures, Valuations, Term Sheets, Stock Options and Getting Deals Done Leading Deal Makers-Leveraging Your Position and the Art of Deal Making The Art of Deal Making-The Secrets to the Deal Making Process Hunting Venture Capital-Understanding the VC Process and Capturing an Investment The Golden Rules of Venture Capitalists –Valuing Companies, Identifying Opportunities, Detecting Trends, Term Sheets and Valuations Entrepreneurial Momentum- Gaining Traction for Businesses of All Sizes to Take the Step to the Next Level The Entrepreneurial Problem Solver- Entrepreneurial Strategies for Identifying Opportunities in the Marketplace Entrepreneurial Brainstormers – Question Blocks & Idea Development Worksheets
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LEGAL
Privacy Matters – Leading Privacy Visionaries Share Their Knowledge on How Privacy on the Internet Will Affect Everyone Leading Lawyers – Legal Visionaries Share Their Knowledge on the Future Legal Issues That Will Shape Our World Leading Labor Lawyers-Labor Chairs Reveal the Secrets to the Art & Science of Labor Law Leading Litigators-Litigation Chairs Revel the Secrets to the Art & Science of Litigation Leading IP Lawyers-IP Chairs Reveal the Secrets to the Art & Science of IP Law Leading Patent Lawyers –The & Science of Patent Law Internet Lawyers-Important Answers to Issues For Every Entrepreneur, Lawyer & Anyone With a Web Site Legal Brainstormers – Question Blocks & Idea Development Worksheets
FINANCIAL Textbook Finance - The Fundamentals We Should All Know (And Remember) About Finance Know What the CFO Knows - Leading CFOs Reveal What the Rest of Us Should Know About the Financial Side of Companies Leading Accountants-The Golden Rules of Accounting & the Future of the Accounting Industry and Profession Leading Investment Bankers-Leading I-Bankers Reveal the Secrets to the Art & Science of Investment Banking The Financial Services Industry-The Future of the Financial Services Industry & Professions
MARKETING/ADVERTISING/PR Leading Marketers-Leading Chief Marketing Officers Reveal the Secrets to Building a Billion Dollar Brand Emphatic Marketing-Getting the World to Notice and Use Your Company Leading Advertisers-Advertising CEOs Reveal the Tricks of the Advertising Profession The Art of PR-Leading PR CEOs Reveal the Secrets to the Public Relations Profession The Art of Building a Brand –The Secrets to Building Brands The Golden Rules of Marketing – Leading Marketers Reveal the Secrets to Marketing, Advertising and Building Successful Brands PR Visionaries-The Golden Rules of PR Textbook Marketing - The Fundamentals We Should All Know (And Remember) About Marketing Know What the VP of Marketing Knows –What Everyone Should Know About Marketing, For the Rest of Us Not in Marketing Marketing Brainstormers – Question Blocks & Idea Development Worksheets Guerrilla Marketing-The Best of Guerrilla Marketing-Big Marketing Ideas For a Small Budget The Art of Sales - The Secrets for Anyone to Become a Rainmaker and Why Everyone in a Company Should be a Salesperson The Art of Customer Service –The Secrets to Lifetime Customers, Clients and Employees Through Impeccable Customer Service
REFERENCE
ExecRecs- Executive Recommendations For The Best Products, Services & Intelligence Executives Use to Excel The Business Translator-Business Words, Phrases & Customs in Over 90 Languages Well Read-The Reference for Must Read Business Books & More... Business Travel Bible (BTB) – Must Have Information for Business Travelers Business Grammar, Style & Usage-Rules for Articulate and Polished Business Writing and Speaking
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ABOUT DERMOT MCCORMACK
Dermot McCormack is a seasoned technologist and visionary who has been involved in launching more than 200 Internet sites since 1993 and has been heavily involved in the strategic implementation of technology for both new and established companies over the past 12 years, specializing particularly in online applications. In that period, McCormack has been involved in raising more than $53 million in venture capital. Mr. McCormack was co-founder and chief technology officer of Flooz.com, an online gift currency. Flooz.com was the number 22 e-commerce site on the World Wide Web in December 2000. Before founding Flooz.com, Mr. McCormack was one of the early members of iVillage. He also has developed large-scale Web projects for clients that include Sony, Microsoft, and Intel. Before iVillage, he was the chief technology officer and cofounder of Inw@re Technologies, a pioneering Web company that developed Internet and intranet solutions. And before that, he worked in the software and automation industries. Mr. McCormack has also worked professionally in France and his native Ireland. He is a co-founder of the Technology Circle, a networking group with a mission to foster cooperation and business between leading entrepreneurs all over the world. In 2000, Mr. McCormack was named to Irish America Magazine’s
Business 100, a list celebrating achievements by Irish Americans in business. Articles by Mr. McCormack have appeared in Business Week, Internet World, Business and Finance, Internet Week, and PC World. He has recently contributed to Inside the Minds: Leading CTOs, published by Aspatore Books. Mr. McCormack received degrees in electronic engineering from Dublin Institute of Technology and Trinity College Dublin. He first came to the United States in 1989 and decided to reside here permanently in 1991. He currently lives in New York City with his wife Jo Ann and son Doran and develops Interactive strategy for a large U.S. media company.
