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Web 2.0: Hype or Imperative?

April 2006 Corporate

With every boom in the business cycle, strategists popularize new paradigms and associated terminology. Currently, as we emerge from the bust of the early zero’s and prepare for the potentially blossoming boom to appear in the latter part of the first decade of the twenty-first century, strategists are quick to proffer the new “new paradigm” under the guise of Web 2.0. What is Web 2.0? Is Web 2.0 just hype or does it contain a grain of exploitable insight?

To be clear, Web 2.0 does not herald a new technology. There have been subtle shifts in the underlying infrastructure, and broadband has finally reached grandmothers, but neither of these fully captures the importance of social developments which affect every business.

To reveal the meaning behind Web 2.0, we examine a mosaic of subtle shifts in business prospects driven by grassroots activities. Collectively, these shifts reveal the rise of niche, community-centric behavior at the expense of broadly established, institutional offerings. Four developments reveal the pattern and justify the new, new term: Web 2.0.

Digitalized Business Models Destroyed Unexpectedly

Encyclopeadia Britannica’s business model of selling 30 or so hefty volumes of neatly bound text to new parents who are concerned with their child’s requisite intellectual development was destroyed in the first phase of the information revolution. Aware of the impending implosion of their business model that was reliant upon tangible goods, Encyclopeadia Britannica adapted to the new technology and began selling their content digitally, either through subscriptions or other arrangements.

Unfortunately, even this digitalized business model came under duress with the development of Wikipedia. Wikipedia, a user generated, free, online encyclopedia, is developed through the freely contributed wisdom of thousands of independent volunteers. A recent report in Nature magazine alleged that the error rate in Wikipedia was slightly higher, but roughly on par, with Encyclopeadia Britannica. Although Encyclopeadia Britannica has fired a retort demonstrating how their offering is superior in breadth, depth, and accuracy, and Wikipedia’s founder himself has acknowledged weakness in some areas, the damage has been done. People perceive the free Wikipedia as a somewhat acceptable substitute for the pricy Encyclopeadia Britannica.

In this battle between institutionally accredited content generators and grassroots volunteers accountable only to the community to which they freely contribute, we see that the grassroots teams have been able to displace much, but not all, of the value of the institutionally accredited authorities.

Some Disintermediation of Infomediaries Didn’t Materialize

Shortly after the development of the web as a communication tool, individuals predictably began to transact business through this medium. Between the creation of “online shopping carts” and the development of “online reverse auctions”, many feared and alternatively rejoiced at what appeared to be the end-days for the lowly salesperson.

Yet, the role of the salesperson hasn’t withered away. In fact, it is arguable that their value has increased since the digitalization of information. The corporate salesperson still reigns pre-eminent as match-maker within the realm of high-value business transactions. And, despite the development of online real-estate listings, real estate agents have not seen their business destroyed. Why has the disintermediation of these infomediaries failed to materialize?

To be clear here, many salesclerks have been displaced by the web, but an order taker is not a salesperson. In fact, the displacement of salesclerks without the displacement of salespeople points to an area where the role of salesperson continues to create differentiated value within our economic society. Salesclerks have long provided value through communicating and capturing product/service descriptions, prices, and transaction details. Each of these communication functions is easily replaced by digital representations and has therefore been migrating towards the web. However, salespeople do not simply communicate and capture facts.

Importantly, salespeople guide individuals through complex decision making processes. When it comes to making high-value decisions, a majority of people and companies still value insights from knowledgeable experts, even if that insight comes from a salesperson with potential biases. They value the insights of salespeople because their insights are perceived to clarify the importance of competing decision making criteria. The one-on-one personal hand-holding required for guiding decision making has yet to be replaced through technology.

Old-line Media Fails to Aggregate Audiences

Across all established media channels, outlets are loosing their audiences. Neither Friends nor Seinfeld achieved the same participation rate as M.A.S.H. did in the 70’s. Likewise, newspaper circulation has been declining despite rising populations, resulting in the sell-off of Knight-Ridder assets. , Increasingly, people are foregoing the pleasures of mainline media.

Many professors have begun their Marketing 101 course with the question of “What is the purpose of NBC existence?” After students flounder with propositions of: creating entertainment, reporting the news, educating society, or reinforcing social norms; someone eventually relieves the stress and reminds them that NBC exists to aggregate audiences to be sold to advertisers. As old-line media fails to accomplish this basic task, their importance and value decreases.

Meanwhile, online media companies are in the nascent stages of developing viable business models. Online advertising expenditures in 2005 are expected to have grown by 25% over 2004, and media buyers are increasingly having difficulty purchasing high-traffic space. While all this bodes well for the internet startups, it drives home the need to rethink advertising expenditures.

Online Community Is Real

Over the past few years, blogging, podcasting, videocasting, and other online-media creations by independent voices have increasingly demonstrated their power to shape perceptions. Much of this power arises from two sources. First, search engines improvements make it easier for individuals to uncover content that is relevant to their inquiries. And second, the expanding fragmentation of mass markets into multiple niches increases the importance of individual community hosts that enable niche communities to aggregate and communicate.

Lately, many bloggers, podcasters, and videocasters have been searching for explanations that legitimize their contributions; however, much of their angst can be explained as the usual tension between upstart community hosts versus established entities. Both online and offline, community hosts enjoys the ability to contribute their voice to the public debate, gain respect from their peers, and develop their own knowledge, skill, and understanding in the process. Like other markets, community hosts compete in a tournament market wherein Stars capture a majority of the financial and social rewards while the rest contribute according to their hopes and dreams or their ability to reap non-financial rewards that provide personal satisfaction in excess of the time and financial costs. In many ways, bloggers, podcasters, and videocasters are the latest embodiments of artists and intellectuals.

These new community hosts present new challenges for sales and marketing executives. Not only are they able to aggregate niche audiences, they are also able to shape audiences perceptions. Because these new community hosts are not yet bound by the institutions of academic accreditation nor market forces, there is little left to reign in their exhortations outside of their desire to maintain audiences and develop a positive reputation.

As Emil Zola and Charles Dickens would quickly agree, mobs get things terribly wrong with disastrous consequences. Not that academics and institutions are infallible, but their track record is slightly better than that of populists and mobs.

In light of recent bloggers and podcasters expressing damaging and sometimes misinformed or poorly considered critiques of well-branded products and companies, marketers have been forced to expand public relations beyond established media and industry analysts to include the new set of online community hosts.

The Bottom Line

Combined, this mosaic of developments builds the case to rethink the paradigms of the last business cycle boom. The paradigm that proclaimed every business must digitize or die was both insufficient and incorrect. Likewise, the web does not disintermediate all infomediaries. However, the web is increasingly displacing the old-line media. And, it is doing it through the contributions of millions of volunteers seeking to participate in new communities, ones where they feel more at home, ones which represent or inform their viewpoints. In the process, some of these volunteers are developing into hosts, while others remain as part-time contributors.

In short, Web 2.0 is more than pure hype. Rather, Web 2.0 heralds a needed change in thinking. For the marketer, Web 2.0 implies that media buys must be re-geared to incorporate the internet alongside old-line media and that internet advertising must move beyond the pure “call-to-action” toward the realm of building awareness, managing perceptions, and creating or preserving brand value. For the salesperson, Web 2.0 highlights an increased importance in developing skills at personally managing perceptions and guiding prospects and customers through complex decision making processes. And for all of us, Web 2.0 means a new route to developing a sense of community.

Bowling may no longer define us, but Web 2.0 just may define the next business cycle.

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References

R1. Sarah Ellison, “In a War of Words, Famed Encyclopedia Defends Its
Turf”, Wall Street Journal, March 24, 2006, pA1.
R2. “Bricks Online”, The Economist, 11 March 2006, p. 60.
R3. Joe Hagen, “Circulation Continues to Decline at Most Major
Newspapers”, Wall Street Journal, November 8, 2006, pB7.
R4. Joseph T. Hallinan, “Hey Buddy, Wanna Buy a Newspaper? How About
a Dozen?”, Wall Street Journal, March 14, 2006, pB1.
R5. Brian Steinberg, “Digital-Marketing Firm’s Chief Sees Convergence of
TV, Internet”, Wall Street Journal, January 4, 2006, pB5B.



About the author

Tim J. Smith, PhD is the Managing Principal of Wiglaf Pricing, and an Adjunct Professor at DePaul University of Marketing and Economics. His most recent book is Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures.

Tim J. Smith, PhD
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