DoubleClick vs. Overture and AdSense
Like Google, DoubleClick is a true child of the internet era. It harnesses software as a service, has a core competency in data management, and, as noted above, was a pioneer in web services long before web services even had a name. However, DoubleClick was ultimately limited by its business model. It bought into the '90s notion that the web was about publishing, not participation; that advertisers, not consumers, ought to call the shots; that size mattered, and that the internet was increasingly being dominated by the top websites as measured by MediaMetrix and other web ad scoring companies.
As a result, DoubleClick proudly cites on its website "over 2000 successful implementations" of its software. Yahoo! Search Marketing (formerly Overture) and Google AdSense, by contrast, already serve hundreds of thousands of advertisers apiece.
Overture and Google's success came from an understanding of what Chris Anderson refers to as "the long tail," the collective power of the small sites that make up the bulk of the web's content. DoubleClick's offerings require a formal sales contract, limiting their market to the few thousand largest websites. Overture and Google figured out how to enable ad placement on virtually any web page. What's more, they eschewed publisher/ad-agency friendly advertising formats such as banner ads and popups in favor of minimally intrusive, context-sensitive, consumer-friendly text advertising.
The Web 2.0 lesson: leverage customer-self service and algorithmic data management to reach out to the entire web, to the edges and not just the center, to the long tail and not just the head.
A Platform Beats an Application Every Time
In each of its past confrontations with rivals, Microsoft has successfully played the platform card, trumping even the most dominant applications. Windows allowed Microsoft to displace Lotus 1-2-3 with Excel, WordPerfect with Word, and Netscape Navigator with Internet Explorer.
This time, though, the clash isn't between a platform and an application, but between two platforms, each with a radically different business model: On the one side, a single software provider, whose massive installed base and tightly integrated operating system and APIs give control over the programming paradigm; on the other, a system without an owner, tied together by a set of protocols, open standards and agreements for cooperation.
Windows represents the pinnacle of proprietary control via software APIs. Netscape tried to wrest control from Microsoft using the same techniques that Microsoft itself had used against other rivals, and failed. But Apache, which held to the open standards of the web, has prospered. The battle is no longer unequal, a platform versus a single application, but platform versus platform, with the question being which platform, and more profoundly, which architecture, and which business model, is better suited to the opportunity ahead.
Windows was a brilliant solution to the problems of the early PC era. It leveled the playing field for application developers, solving a host of problems that had previously bedeviled the industry. But a single monolithic approach, controlled by a single vendor, is no longer a solution, it's a problem. Communications-oriented systems, as the internet-as-platform most certainly is, require interoperability. Unless a vendor can control both ends of every interaction, the possibilities of user lock-in via software APIs are limited.
Any Web 2.0 vendor that seeks to lock in its application gains by controlling the platform will, by definition, no longer be playing to the strengths of the platform.
This is not to say that there are not opportunities for lock-in and competitive advantage, but we believe they are not to be found via control over software APIs and protocols. There is a new game afoot. The companies that succeed in the Web 2.0 era will be those that understand the rules of that game, rather than trying to go back to the rules of the PC software era.
Not surprisingly, other web 2.0 success stories demonstrate this same behavior. eBay enables occasional transactions of only a few dollars between single individuals, acting as an automated intermediary. Napster (though shut down for legal reasons) built its network not by building a centralized song database, but by architecting a system in such a way that every downloader also became a server, and thus grew the network.
Akamai vs. BitTorrent
Like DoubleClick, Akamai is optimized to do business with the head, not the tail, with the center, not the edges. While it serves the benefit of the individuals at the edge of the web by smoothing their access to the high-demand sites at the center, it collects its revenue from those central sites.
BitTorrent, like other pioneers in the P2P movement, takes a radical approach to internet decentralization. Every client is also a server; files are broken up into fragments that can be served from multiple locations, transparently harnessing the network of downloaders to provide both bandwidth and data to other users. The more popular the file, in fact, the faster it can be served, as there are more users providing bandwidth and fragments of the complete file.
BitTorrent thus demonstrates a key Web 2.0 principle: the service automatically gets better the more people use it. While Akamai must add servers to improve service, every BitTorrent consumer brings his own resources to the party. There's an implicit "architecture of participation", a built-in ethic of cooperation, in which the service acts primarily as an intelligent broker, connecting the edges to each other and harnessing the power of the users themselves.
2. Harnessing Collective Intelligence
The central principle behind the success of the giants born in the Web 1.0 era who have survived to lead the Web 2.0 era appears to be this, that they have embraced the power of the web to harness collective intelligence:
- Hyperlinking is the foundation of the web. As users add new content, and new sites, it is bound in to the structure of the web by other users discovering the content and linking to it. Much as synapses form in the brain, with associations becoming stronger through repetition or intensity, the web of connections grows organically as an output of the collective activity of all web users.
- Yahoo!, the first great internet success story, was born as a catalog, or directory of links, an aggregation of the best work of thousands, then millions of web users. While Yahoo! has since moved into the business of creating many types of content, its role as a portal to the collective work of the net's users remains the core of its value.
- Google's breakthrough in search, which quickly made it the undisputed search market leader, was PageRank, a method of using the link structure of the web rather than just the characteristics of documents to provide better search results.
- eBay's product is the collective activity of all its users; like the web itself, eBay grows organically in response to user activity, and the company's role is as an enabler of a context in which that user activity can happen. What's more, eBay's competitive advantage comes almost entirely from the critical mass of buyers and sellers, which makes any new entrant offering similar services significantly less attractive.
- Amazon sells the same products as competitors such as Barnesandnoble.com, and they receive the same product descriptions, cover images, and editorial content from their vendors. But Amazon has made a science of user engagement. They have an order of magnitude more user reviews, invitations to participate in varied ways on virtually every page--and even more importantly, they use user activity to produce better search results. While a Barnesandnoble.com search is likely to lead with the company's own products, or sponsored results, Amazon always leads with "most popular", a real-time computation based not only on sales but other factors that Amazon insiders call the "flow" around products. With an order of magnitude more user participation, it's no surprise that Amazon's sales also outpace competitors.
Now, innovative companies that pick up on this insight and perhaps extend it even further, are making their mark on the web:
- Wikipedia, an online encyclopedia based on the unlikely notion that an entry can be added by any web user, and edited by any other, is a radical experiment in trust, applying Eric Raymond's dictum (originally coined in the context of open source software) that "with enough eyeballs, all bugs are shallow," to content creation. Wikipedia is already in the top 100 websites, and many think it will be in the top ten before long. This is a profound change in the dynamics of content creation!
- Sites like del.icio.us and Flickr, two companies that have received a great deal of attention of late, have pioneered a concept that some people call "folksonomy" (in contrast to taxonomy), a style of collaborative categorization of sites using freely chosen keywords, often referred to as tags. Tagging allows for the kind of multiple, overlapping associations that the brain itself uses, rather than rigid categories. In the canonical example, a Flickr photo of a puppy might be tagged both "puppy" and "cute"--allowing for retrieval along natural axes generated user activity.
- Collaborative spam filtering products like Cloudmark aggregate the individual decisions of email users about what is and is not spam, outperforming systems that rely on analysis of the messages themselves.
- It is a truism that the greatest internet success stories don't advertise their products. Their adoption is driven by "viral marketing"--that is, recommendations propagating directly from one user to another. You can almost make the case that if a site or product relies on advertising to get the word out, it isn't Web 2.0.
- Even much of the infrastructure of the web--including the Linux, Apache, MySQL, and Perl, PHP, or Python code involved in most web servers--relies on the peer-production methods of open source, in themselves an instance of collective, net-enabled intelligence. There are more than 100,000 open source software projects listed on SourceForge.net. Anyone can add a project, anyone can download and use the code, and new projects migrate from the edges to the center as a result of users putting them to work, an organic software adoption process relying almost entirely on viral marketing.
The lesson: Network effects from user contributions are the key to market dominance in the Web 2.0 era.