Initial Industry Analysis This industry analysis looks in depth at five main issues: 1. [Client Company]’s competitors 2. Competitor product summaries 3. Competitor strengths and weaknesses 4. Competitor strategies to achieve their objectives 5. Market outlook
[Client Company] Positioning What follows is an industry overview that gives an idea of the business atmosphere [Client Company], Inc. is entering.
Web 2.0 The Internet industry evolved through three phases since its inception. Experts now name these phases Web 1.0, Web 1.5, and Web 2.0. Web 1.0, the foundation of e-business, is characterized by Internet content that “consisted almost entirely of static Web pages that each contained hyperlinks. A typical destination Web presence was a university, institution or company with an interlinking series of pages. Web directories such as Yahoo were established to categorize and provide search functionality for these sites.”1 These pages were typically run by experts and the wider community could do little but surf the web while “computer geeks” were the ones who knew about hardware, software and exactly how to publish online. Web 1.5, the next step in Internet evolution, saw web companies like Yahoo organize web content with more dynamic programming able to customize web content for individual customers so that, for example, what was simply Yahoo then became My Yahoo. Additionally, “Web 1.5 linked bricks and mortar with the Web, leading to a major shift in the way we get our news; buy our clothing, electronic ‘toys,’ and books; and 1
Paul Bleicher, "Web 2.0 Revolution: Power to the People: From Blogs to Social Networks, the Newest Web is Redefining the Way We Use Technology." Applied Clinical Trials 15.8 (August 2006): 34(2).
obtain information.”2 This is the Internet that consumers are now used to — savvy websites, sophisticated designs and convenient services. The few companies like Yahoo and Google that controlled this phase of web evolution saw very large profits. The shift to Web 2.0 is marked by an increase in new start ups where “developers create Web sites that look and act like desktop programs and encourage collaboration and communication between users.” 3 Today, “Net start ups no longer require lots of capital, they can build cheaply on Net infrastructure that didn't exist 10 years ago, and a critical mass of consumers is now online.”4 Analysts note that “a small online magazine might've paid tens or hundreds of thousands of dollars for hardware and software as well as contractors for setup [and] maintenance. Today, novice publishers can access powerful and customized publishing systems for as little as a few hundred dollars, or boilerplate blogging tools for virtually nothing.”5 Web users are able to more easily use the existing infrastructure for online activities that were once only accessible to a few. For example, an Internet user with no technical knowledge about creating a personal website can sign up with MySpace.com and very easily create and maintain a blog for free and with little difficulty.
The Dark Side of Web 2.0 There are two points of concern to the industry about this second Internet boom:
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Web 2.0 may be repeating the errors that brought about the Internet bubble burst.
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Decreasing quality of web content due to a focus by industry giants, like Google, on generating ad revenue and using SEO techniques at the expense of useful online content.
Paul Bleicher. Paul McFedries, "The web, take two." IEEE Spectrum 43.6 (June 2006): 68(1) 4 http://www.businessweek.com/magazine/content/06_21/b3985051.htm 5 http://www.tonywright.com/contextual_advertising.html 3
Web 2.0 — Fluff or Phenomenon? This second wave of web entrepreneurship is marked by insider uncertainty. For some analysts, “if it costs 30 times less to get from idea to start up launch, that's likely to mean something like 30 times more competition,” 6 and an increased chance of individual failure. On the other hand Web 2.0 is creating excitement, not only to generate revenue, but also to “create a presence within the community (e.g., LinkedIn), which becomes a center for further interactions, collaborations, and community building.”7 Internet usage is so high that the blog search engine Technorati currently tracks 54.1 million blogs, and estimates that “there are about 75,000 new blogs a day...about 1.2 million posts daily, or about 50,000 blog updates an hour.” 8 The question is one of sustainability. With as many new users of the Internet there comes a comparative number of new start ups. While many lessons were learned from the first Internet boom and there is “relative market efficiency” 9 in today’s incarnation, the numbers involved are so large and yet there has been little fallout thus far. The consensus, therefore, is that before Web 2.0 runs its full course “there's going to be more carnage than too many folks think.”10
Google Adsense is Filling the Internet with Crap This increase in web traffic is a gold mine to advertisers who see Web 2.0 as an opportunity to reach an unprecedented audience. Search optimization software, like Google Adsense, was developed to offer advertising to Internet users based on the keyword content of individual websites. This resulted in concern for the quality of Internet contents as advertisers flooded the web with low-quality content designed solely to exploit this new opportunity. Web advertisers seized the opportunity to market to this expanding audience, causing industry insiders to express concern. Tony Wright, web entrepreneur and industry consultant, points out that the uncontrollable use of SEO tactics may cause more harm than good:
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Rob Hof, “The Real Web 2.0 Bubble.” Business Week Online. Aug 21, 2006. Paul Bleicher.
http://www.technorati.com/about/
http://www.bubblegeneration.com/2006/08/research-note-great-20-shakeout-and.cfm 10 Rob Hof.
Because the display of ads is based on automated programs on the Google servers, there is no way to tell if content is high-quality or low-quality (but keyword rich) nonsense. Unethical web publishers can create scripted programs that literally produce and publish hundreds of keyword-rich pages in an hour, plastered with contextual ads. While you can imagine that they get relatively little traffic to these sites, remember that these publishers are also often experts in search engine optimization (SEO), so their pages tend to appear higher in the search engine results than they deserve to be. With hundreds of auto-generated content pages being churned out, you can imagine that these publishers make lots of money polluting the Internet.11 Google Adsense also provides these tools for generating advertising revenue to all of those new Internet users with little difficulty — they simply sign up for the service and Google’s program does the rest. In this situation the question is not simply whether growth can be sustained, but whether quality can be sustained as well.
Web 2.0 Success Success in this new industry environment will be dependent on some core practices. Start ups should pay attention to the more popular trends of Web 2.0, cautiously watch the way in which they handle capital and interact with their market, and exploit the shortcomings of advertising practices to provide content that will encourage customer loyalty. Web start ups should continue to provide easy to use and customizable publishing systems to Internet consumers that encourage increased participation and collaboration. Shel Holtz, principal of Holtz Communication + Technology, explains: Community. Collaboration. Creativity. Passion. These are the foundations of Web 2.0 and consumer-generated media. Organizations that learn how to participate in it will be far more successful at delivering their messages than those that continue producing content and sending it to audiences. 12
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http://www.tonywright.com/contextual_advertising.html Shel Holtz, "Communicating In the World of Web 2.0." Communication World 23.3 (May-June 2006): 24(4). 12
The key is to concentrate on the Internet customer and to harness their collective intelligence and enthusiasm. This includes the continued use of wikis, the nonhierarchical organization of content, citizen marketing and other user contribution practices. Additionally, vigilant monitoring of website content and a focus of communicating the importance of user input and collaboration to customers will create a loyal base that can sustain the business. Any start up should concentrate on providing easy access, simple technology, savvy marketing, and user-centered content in order to be successful in today’s business environment.