Web 2.0

Michael Alan Hamlin

Posted on December 26, 2007

Will be a requisite to playing

A recent global survey conducted by McKinsey & Company found that the popularity of user-driven online services such as social networking sites like MySpace, collaborative publishing services like Wikipedia, and video-sharing sites like YouTube have drawn the interest of innovative corporations. These companies are expressing that interest in the form of investments in Web 2.0 technologies.

Web 2.0 is used to refer to Web services (communication between different systems), peer-to-peer networking (data sharing; VoIP), blogs (commentary, news), podcasts (audio and video commentary, news), and online social networks (networks of friends, colleagues, like-minded individuals) that rely on user collaboration for content. In the survey, only 13 percent of respondents expressed dissatisfaction with their investments, and over half expressed satisfaction. Most intend to maintain or increase their current level of investment in Web 2.0 tools.

Of respondent executives familiar with Web 2.0 tools, 80% said they are already investing in Web services such as those used by suppliers and retailers to automatically update inventory. About half have invested in collective intelligence, which means they use collaborative technologies to gather insights from a group of individuals, probably clients in most cases. Peer-to-peer networking is also used by about half of those respondents.

Other tools that receive substantial levels of investment include social networking, RSS, Podcasts, Wikis (collaborative publishing), and blogs. Industries that intend to increase investment in these tools over the next three years include retail, high tech, telecommunications, financial services, and pharmaceuticals. Almost 70% of Asia Pacific executives participating in the survey said they would increase investment at rates that equal or are greater than investment by EU and North American executives.

In Asia Pacific and China, interest in peer-to-peer networks is high. Next, comes collective intelligence. Interestingly, China executives expressed much higher interest in social networks (36%) than Asia Pacific executives (22%), while Asia Pacific executives were significantly more interested in Blogs than their China counterparts. Asia Pacific executives, in contrast, were much more interested in Wikis (19%) than China executives (10%). RSS (online syndication) attracts significant interest among both groups.

Among executives worldwide who say they use Web 2.0 tools, 70% said they use some combination of these technologies to interface with customers, and 75% said they use them to manage collaboration internally. Fifty-one percent said they use Web 2.0 tools to interface with suppliers and partners. That’s the how. To understand why, McKinsey conducted an online discussion with respondents.

According to the report’s authors, “a key theme that emerges from the discussion is that many of these technologies start at a company’s grassroots levels. Because many of these tools are easy to implement, small groups of interested individuals can launch informal pilots to test their viability.” One respondent said that the passion of these grassroots users is a principal driver of investment.

Integrating Web 2.0 tools into corporate strategy and significant ongoing investment, however, will ultimately be determined by their measured impact on such things as customer loyalty, greater share of wallet, and the bottom line. Most respondents agreed, however, that effectively measuring their impact is not yet possible. It’s significant that without the ability to effectively measure the impact of Web 2.0 tools, executives are sustaining or increasing investment in them.

They are doing so because they are counting on Web 2.0 to increase competitive advantage, reduce costs, or make doing business easier. There was debate among participants as to whether the tools would offer long-term competitive advantage, with one executive saying, “While we have been in the forefront of most technology upheavals over the past two decades, none of our investments have provided us with any significant competitive advantage for a significant duration.

“The technologies tend to get adopted by competing financial institutions with no meaningful time gap [and] tend to get commoditized very rapidly.” For others, the usefulness of Web 2.0 is merely in facilitating business both internally and externally.

My own guess is that Web 2.0 tools will never provide sustainable competitive advantage. However, they so enhance the user/client experience that Web 2.0 is quickly becoming one of those basic attributes required to get to the starting line, or to be in business at all. Without Web 2.0, a company can’t be a player. That means late investors may never catch up.

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