The Internet is disruptive, again
What you need to know about Web 2.0, the next generation of the Internet
Douglas Neal Doug Neal is a Research Fellow for the Leading Edge Forum Executive Programme and is responsible for our The name ‘Web 2.0’ reflects that the Internet is changing, becoming a Consumerization research. platform for services delivery, interaction and innovation that is equally Business Process compelling for consumers and enterprises Management (BPM) remains an abiding interest Two years after a brainstorming session at which the term was coined by Tim O’Reilly for him, and he co-authored and Dale Dougherty, Google records more than 22 million references to ‘Web 2.0’. They the report Business Process cover the wide range of new uses, users, suppliers, technologies and business models that Management – Delivering are now possible. Many are already being delivered over the Internet. It is no longer just a on the Promise and the platform for consumer services – enterprise services such as sales-force automation, book The Networked recruiting, talent management, HR, supply chain and ERP are increasingly being built Supply Chain: Applying and delivered on the net. Breakthrough BPM Technology to Meet Changes in the context of demand and supply give Web 2.0 added power and Relentless Customer will drive enterprise IT to the web Demands.
The following are a series of management messages about Web 2.0, how it differs from the first generation of the Internet and what these differences mean for enterprise agility, innovation and the careers of IT directors. The future, for all of us, is living on the web. There are always business demands for agility, cost reduction and innovation. Certainly the globalization of competition is amplifying these demands. No organization believes that it will meet its numbers if it just continues to do tomorrow what it is doing today. However, what is different for Web 2.0 is that it is emerging at the same time as four other significant changes: 1) IT-savvy employees and customers are demanding higher IT performance and want to co-create value with their IT suppliers, not just receive what the suppliers decide to deliver. 2) A public infrastructure is emerging of wired and wireless broadband connections that provide ubiquitous access to new kinds of data, and massively scalable applications services to hundreds of millions of users. 3) There is widespread support for and adoption of an architecture that consists of layers built on standards that can be easily accessed and recombined without prior coordination – speeding innovation and reducing the barriers to new entrants. 4) An array of new business models that ‘variablize’ who pays, when they pay, and for what they pay are being deployed, and are forcing rapid improvements that generate real profits, not just revenues.


The architecture of Web 2.0 provides capabilities in layers that are designed to be easily recombined in new ways, but it is the new business models that make them especially attractive
Web 2.0 delivers easy interoperability via a hierarchy of integration layers such as XML, REST, SOAP and Web Services. This is demonstrated by how quickly companies like salesforce.com can utilize services from third parties, such as Google Maps or LinkedIn’s contact management, to add new features to their products. The value of this technical interoperability is massively enhanced by business models that encourage Web 2.0 firms to make it easy for others to leverage their services. Many have alternative funding sources, which means they can offer their services at no charge.


The Internet is disruptive, again
AJAX is important to understand, not because of its technology, but because it lets you liberate the desktop
AJAX is an acronym for Asynchronous Javascript And XML. Developed originally by Microsoft in the late 1990s for its Outlook Web Access client, AJAX is now being exploited effectively by companies like Google in Gmail and Google Maps, and salesforce.com in its dashboard, to bring a much-improved look and feel to browserbased applications. Instead of the painfully slow and frequent page re-draw of most browser-based applications, users enjoy a much faster and seamless experience that is comparable to existing desktop and client-server applications. For example, the new MSN web email client is expected to have spell-checking as you type. The effect of AJAX is that IT organizations can move towards using web browsers as the standard interface to most applications. Without the need for the complex and fragile configurations of client-server systems, IT can reduce its rigid control of the desktop and let employees choose and use their own computers as they prefer.

The most powerful effect of ‘software as a service’ is that the business model creates relentless pressure to improve, today – not next month or next year
The business model of software as a service, sold on demand, over the web, creates continuous pressure to improve at a much faster rate than we are used to seeing. Vendors know that users can easily switch at any time. While this has been true to some extent for a while, now Web 2.0 is providing a rich source of easily integrated components. This new infrastructure dramatically reduces the time required for integration. At last we have a business model and an architecture that align with our need for agility.

Web 2.0 firms have big appetites and deep capabilities – they want you to become invested in their success
Web 2.0 firms mix hardware, software, partnerships and business model expertise that scale. Google is reported to have more than a quarter of a million servers. To achieve its goal to “Organize the world’s information and make it universally useful and accessible” it needs your help. That’s why Google makes it easy for you to fold its services into your applications – as salesforce.com did with Google Maps and contact management from LinkedIn. Similarly, salesforce.com supports extensive personalization by end users, and wants IT organizations to use the time that is freed up from supporting end-user change requests to contribute or sell new applications through its AppExchange online market. Web 2.0 suppliers provide services and platforms that make it easy and attractive for you and your users to help them succeed.

Advertising is the new currency and innovation driver, not software sales
The advertising model is a powerful source of revenue and is funding an increasingly extensive set of services. At the end of 2005, global advertising expenditure was about $600 billion. Look at what Google has achieved with ad revenues that are just 1 percent of that. The cost of ads varies according to how well they are targeted and documented. Do not be surprised if a web vendor offers to provide you with a wide array of enterprise capabilities in exchange for data about your employees that lets it target ads and charge a premium for them. Google and Microsoft are already offering to host email with your enterprise domain name. The increasing availability of video over IP is accelerating the move of advertising to the web – and the speed and quality of service needed to provide a good consumer experience of video over the web also creates a very capable infrastructure for business applications.

Web 2.0 does not mean less secure – just ask the US Department of Defense Information Security Agency
In January 2005, Webex, a provider of on-demand web conferencing, won the contract to provide secure web conferencing to the US Department of Defense (DoD). Webex’s


software as a service will be used to improve the DoD’s communications and coordination worldwide. In winning this contract, Webex competed against and beat solutions that would have been run on government computers and government networks.

Web 2.0 is an important enabler in the shift to co-creating unique value with employees and customers
Web 2.0 takes personalization and system interoperability from the realm of specialist IT staff and puts them in the hands of employees and customers. This increases employee and customer satisfaction and frees IT staff to deal with other issues, such as data quality. It also sets the stage for a transition in how IT organizations and businesses create value. Historically, value was thought to be created solely inside the five activities of the Porter value chain model. However, as Prahalad and Ramaswamy have shown, value will increasingly be created jointly and uniquely by the IT organization with employees and by the firm as a whole with its customers. IT organizations that can understand and execute this shift can lead the business by example.

Web 2.0 is also a platform for letting go of some activities and taking better advantage of suppliers
Web 2.0 strikes directly at the issue of the marginal costs of doing activities either inside or outside the organization. By providing a layered set of interface services, Web 2.0 changes the ‘build versus buy’ assessment. When properly orchestrated, Web 2.0 not only drives down cost, but also stimulates innovation through what Hagel and Brown call “productive friction”. As Web 2.0 becomes dominant, your primary criterion for vendor choice will be not cost, but the extent to which potential partners can accelerate your learning.

The equipment your users have at home is as good as or better than what they have at work – you need to leverage their investments and expertise
The IT organization is no longer the sole repository of technical understanding and innovation in the firm, nor is it the sole internal source of IT solutions. A recent LEF-Financial Times study of US and UK subscribers to the FT found that two thirds of respondents had equipment at home that was as good as or better than the equipment they had at work. These employees will invoke Web 2.0 technologies (such as P2P) as needed to do what they want to do. They have resources and expertise you should actively leverage, support and enhance, not ignore or oppose. Recent developments in hardware and software virtualization make it easier for you to do this.

It is your legacy culture, not your legacy technology, that will be the biggest barrier to gaining from Web 2.0
Taking full advantage of Web 2.0 requires that you act on the lessons of consumerization, especially those about treating users and customers as adults and working with them to co-create value. You will increase the value you get from Web 2.0 by increasing the trust and responsibility you give to your employees, especially for innovation. However, this will require changing your management style. Top-down, command and control measures are appropriate for fewer and fewer situations in your business. Here again, changing to a new management style is an opportunity for you to provide leadership to the rest of the firm.

Whether you find Web 2.0 disruptive will depend on whether you become an informed consumer and broker of these services
We are at an inflexion point where public infrastructure is starting to accelerate. Many trends are converging to amplify the effect. Agility and innovation will increasingly be required by the business. So, you can either learn to make use of Web 2.0 and expand your contribution to the business; or you can continue to act like a supplier, and suffer the familiar fate of old line suppliers facing a disrupted market.