Web 2.0 - A Strategy Guide

People who read Chris Anderson's enormously influential The Long Tail will know that Web 2.0 has revolutionised eCommerce. Companies make more money by lowering their prices; they get rich by giving things away free of charge; and they invite their competitors to share information for mutual benefit.

What is Web 2.0 exactly? And how does all this work? Well - Web 2.0 is the latest manifestation of web applications which allow its users to upload information and interact with each other, as well as downloading it, which we did with Web 1.0. And it is a technology which builds on economies of scale. If your web site makes 1% profit from 250,000 visitors a week, imagine what happens if you start giving things away and get a million visitors. The chances are your profits will increase by 400%.




Amy Shuen's new book examines this phenomenon from a business point of view. She presents a series of case studies which illustrate the novel forces at work - and you don't need to know the technical details of modern Internet technology to understand how it all operates.

Flickr, for instance, the photo-sharing service, rapidly generated a user base of two million users who uploaded 100 million photos. The setup costs for this business were very low (no shop, no physical stock) the service was free (Flickr made money from its premium services) and the customers were not only providing the inventory free of charge, but giving it added value by tagging the photos. Flickr was eventually bought by Yahoo! for $40 million, and it continues to prosper.

Shuen also draws on the strategic lessons from these entrepreneurial success stories. It doesn't matter if you are a big time Web business or just running a one-person site, she asks "Do you allow your visitors to participate in your site? Can they share their own questions and ideas there?"

She has a chapter on Google that provides an interesting example of what's called a 'tippy market'. That's when a company corners a certain percentage of the market which proves fatal for the competition. (The VHS/Betamax rivalry was a case in point). To reach this point Google paid a lot of money to AOL, but it tipped them over in active users to become the dominant search engine - a position which still holds today.

Next she looks at the social networking sites and explains how they establish their phenomenal growth rates. They all have features in common: they're free; they grow by one subscriber recommending to friends; and as soon as they reach the tipping point they can generate huge incomes from advertising and selling web services. I also noticed that they tend to identify niche markets. Facebook is largely for college graduates keeping in touch; MySpace is for bands and artists publicising their work; and LinkedIn is for business people who want to find useful contacts.

Finally, she offers a five step approach to using Web 2.0 strategic thinking on your own business. This means applying the principles, rather than spending a fortune on complex software. She reminds us that a single extra line at the end of each Hotmail message - "Get your private, free email at http://www.hotmail.com" - was enough to give them a huge success in viral marketing.

And if all that's not enough, she also provides two comprehensive bibliographies which list the key texts and resources - including papers from the Harvard Business School, where they practice Web 2.0 strategies by putting all their published research papers online at prices anybody can afford.