The collaborative nature of Web 2.0 is a phenomenon business must address. IT directors will need to support new ways of working and new forms of customer interactions, in order for businesses to compete effectively in the New World.
If the first version of the web was based on the idea that people would visit HTML-based websites, Web 2.0 is all about collaboration and user-generated content. If you build it, they will come, no longer rings true. Businesses that can foster a user community will be the winners in the next phase of the web.
A generation of youngsters see MySpace, Facebook, YouTube and Bebo as places to meet friends and share ideas, favourite music and videos. Grassroot ideas can grow into overnight successes without the need for any strong organisational structure.
Don Tapscott, co-author of "Wikinomics - How Mass Collaboration Changes Everything", believes low-cost collaboration over the web, using the technologies associated with Web 2.0, will challenge the traditional approach to business.
"The cost of collaboration in an open market used to be more expensive than the cost of doing the business process internally. The web has dropped the cost of collaboration so much that people can come together at low-cost," says Tapscott.
In his book which is due to be launched in the UK in June, Tapscott presents several examples of blue chip companies that are using mass collaboration to help develop products.
Although it predates the web, the open source philosophy is very much a part of Web 2.0 collaboration. Tapscott urges IT directors to look at open source both for software projects and as an approach to web-based collaboration. "There is no class of software that cannot be written in open source," he says.
SpikeSource has been set up to document, distribute and support enterprise open source software, Tapscott says. Topcoders is another site Tapscott recommends IT directors look at. The site uses eBay-style bidding to put software developers in touch with companies looking for specific application development requirements.
Beyond software projects, the book illustrates how traditional companies such as Proctor & Gamble and the BBC are flirting with Web 2.0. Proctor & Gamble, for instance, is planning to cut its research and development budget dramatically. Instead, it will use the web to gain access to a pool of global experts.
Speaking in Wikinomics, Alan Lafley, Proctor & Gamble chief executive officer, said, "Someone outside your organisation today knows how to answer your specific question, solve your specific problem or take advantage of your current opportunity better than you do. You need to find them and find a way to work collaboratively and productively with them."
Proctor & Gamble was sitting on 27,000 patents developed on an annual budget of £750m, but less than 10% of the patents it owned were being used in its products. The company now makes all its patents available for licence using sites like yet2.com, which puts patent-holders in touch with companies willing to licence the patents to build innovative products.
This is one example of how the new web is able to link companies together far more easily, and so help new innovations come to market. Another success on yet2.com was an agreement between Kimberly-Clark and Axela Biosensors, a Toronto-based company specialising in medical diagnostics.
Using the yet2.com noticeboard, Kimberly-Clark has given Axela exclusive rights to about 150 world-wide patents and applications. As part of the agreement, Kimberly-Clark will be acquiring an equity interest in Axela.
Another tenet of Web 2.0 is user-generated content. As well as blogs, Wikipedia, MySpace and the Flickr photo-sharing site, there are plenty of innovative developments in user-generated content. In the Second Life virtual world, Tapscott points out that end-users have created 90% of the product themselves.
Similarly, on the Lego Mindstorms website end-users have uploaded their own programs to control Lego robots, creating a community for the software.
Mashups are another example. Mashups have enabled businesses to benefit from the work of hundreds of thousands of web developers. By using open programming interfaces, in-house applications can be embedded into third-party websites.
According to Tapscott, open programming interfaces are another way businesses can use Web 2.0 to boost their brand and products. Think how websites have enhanced GoogleMap to link mapping and geographical information with all manner of applications.
Another example is Amazon, says Tapscott. Rather than keeping its internal systems closed, Amazon produced the biggest application programming interface. This has enabled anyone to use the Amazon infrastructure to run an e-commerce website for just £35 per month.
What this all means for IT directors is that business models based on Web 2.0 will challenge traditional approaches. IT directors have a key role in helping the business respond to the new threat and opportunities of Web 2.0, says analyst firm Gartner.
Significantly, IT directors will need to shift the balance of their IT budget from the current situation, where 70% of the annual IT budget is spent on legacy IT maintenance, to a situation where 70% is spent on new development.
David Schehr, a research director at Gartner, says that companies that have traditionally pushed products to their customers will need to address a new style of buying. "Providers no longer define the competitive market. Businesses need to change how they deliver and market services," Schehr says.
He predicts that products will be found by end-users using a web search engine rather than being pushed by marketing. His advice to IT directors is simple enough: "Use web search to help find what people are looking for."
In other words, consumers in the Web 2.0 era will use the web as the first source of information when they are looking to buy a new product or service. To succeed, businesses will need to ensure that their products and services make the top of Google's search results.
In the financial services sector, Schehr says banks are being challenged by disruptive technologies such as the person-to-person payment model of Paypal or the UK's Zopa. "Zopa is offering an entirely new model of consumer lending by providing direct links between a small group of lenders and a small group of borrowers."
For IT departments, "You will need to trade off nice-to-have functionality with must-have functionality," Schehr says. This means that IT directors do not need to try and be at the cutting edge of IT. "Buy applications or rent rather than build, and use a service oriented architecture to reduce the software development time and increase software reuse," Schehr says.
In retail, Web 2.0 will mean consumers are able to draw on a vast array of information, pulling on blogs, wikis, and seeking real-time buying advice from online friends, allowing them to make more informed buying decisions. This means they will no longer rely on the limited expertise of in-store staff, says Gartner.
"Consumers in-store will search across the web to get the best price, then look at the latest blogs on the products they wish to purchase," Gartner managing vice-president John Davison predicts.
He says that although the actual layout of stores is unlikely to change radically, "By 2017, all the technology people use to research their purchases when at home will be available in-store."
To support this, Davison says stores will need to provide internet kiosks for buyers to research their products, and self-service tills to support the Web 2.0 approach to making purchases.
"In 2006, 9% of a retailer's turnover was from the internet. By 2011, 16% of turnover will be from the internet. This will be the single biggest shift in retail marketing."
IT will be needed to support the shift - not just to build and support the infrastructure for greater use of e-commerce, but also to improve how retailers track customers. "Retailers will need to track across multiple channels," Davison said.
The challenge for businesses and IT directors in those businesses is how to take advantage of Web 2.0.
Forrester vice-president John Rymer has noted that although Web 2.0 is obvious for consumers, its role in the enterprise is unclear. "Web 2.0 was proven in consumer applications, but to work in the enterprise it must adapt. Integration with enterprise data is a big challenge, as are applications performance and management," says Rymer.
He raises an interesting question: how can organisations benefit from external innovation and feedback while minimising risk?
Forrester Research predicts that Web 2.0 will become core to business systems within 18 months. By then IT directors will need to have a strategy to support the potentially lucrative opportunities of user-generated content and loosely coupled collaboration.
The so-called Y-generation of young people who understand this way of working will put pressure on IT to become more flexible.
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This was first published in June 2007