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    Making Web 2.0 Commercially Successful

    « H E email
    posted Monday, 21 November 2005
    Following up on this weekend's mainstream media discussion of Web 2.0 being a better, healthier boom than the original dot-com speculation frenzy, I've had some time to reflect on the ways that Web 2.0 software can be commercially successful. Certainly, the most popular model for most Web 2.0 startups themselves is through mergers and acquisitions. In this model, you typically build a successful service with a unique identity, some hip attitude, and attract a large user base and as long as you've done it cost effectively, the attention base of your users alone probably pays for the acquisition in the eyes of the buyer.



    But once acquired, how can you stay commercially successful using Web 2.0 ideas? Sure, Google, eBay, and iTunes have shown it can be done, but knowing all the workable routes is important, especially if you significantly depart from the proven advertising model of Google or the pay-per-use models of eBay and iTunes. I think the answers to this question will be fascinating. And having the various pathways to commercial success explored is one of the remaining big stories to be written about Web 2.0.

    ZDNet's Phil Wainwright recently laid out the most common approaches to generating revenue from on-demand software services. What he lists are the major revenue models generally open to the kind of software services that commercial Web 2.0 companies will offer.

    This just identifies the ways you can gain financial remuneration for your services though. Being successful in the Web 2.0 era is about more than just generating net revenue. It's about     keeping your market share. To stay successful you have to maintain critical mass so that your continually contributed and enriched data stays better than the next person. It's about having the best content and functionality on the Web, and ensuring it stays that way. And that's where the next important ingredient to commercial success comes in. As I see it, there are (at least) four ways to have content and/or functionality that no one else has. These are patented techniques, hard to recreate data sources, copyrighted content, and secret formulae.



    If you look at the big players in the Web 2.0 world, they have one or more of these mechanisms in place to keep you using their service. This might be iTunes with its music and video library (copyrighted content), Google with its closely held best-of-breed search index (secret formula and patented techniques) , or del.icio.us with the best bookmarks on the Internet (hard to recreate data sources). And for now, with open source databases like Wikipedia pounding the daylights out of copyrighted sources, you can bet that patents will become an increasing factor in the Web 2.0 world. Just like each of the big computer revolutions in the 1980s and 1990s ended with massive legal battles over who really created the best ideas, you can virtually count on Web 2.0 shaking out in the next five to ten years with battles over the legal protections established around the content and functionality of the dominant Web 2.0 players.

    In fact, patents are now understood to be an integral part of a company's intrinsic worth and the issues surrounding software patents in particular are growing as the number of software patents granted has skyrocked in recent years. Expect that many players may establish and keep their dominance through use of patented capabilities and the resulting disputes will likely be a feature of the Web 2.0 revolution end-game.

    What do you think? Will Web 2.0 companies have to resort to patent protections to achieve lasting success?

    Technorati: web2.0, patents

    links: del.icio.us    


    Web 2.0 is about participation! Please leave comments. Use wiki markup for links/images. (6)

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    1. simone left...
    Monday, 21 November 2005 10:58 am :: http://blogs.ugidotnet.org/piyo/

    I don't like the idea of going to patents for the commercial success of web 2.0 I'm from Italy, and Europe just voted against patents in the software industry, and from a community point of view software patents are evil.


    2. Michael McDerment left...
    Monday, 21 November 2005 12:56 pm :: http://www.michaelmcderment.com/

    It's hard to imagine how you can patent anything from most of the web 2.0 companies out there today. They are light services based more on simplicity and usability than any particular technological advance. Their value is in the ease of use, community and “good fit” they provide for the user base. Through these “value adds” companies achieve critical mass (as you point out).

    Blogs: any patents there? Doubtful.

    Wikipedia: any patents? Doubtful.

    Del.icio.us: any patents? Doubtful.

    2ndSite: any patents? Doubtful.

    Easy to use, easy to build, right fit for the user - that’s the web 2.0 we have seen to date. Some may find patentable elements, the vast majority will not. What does this mean? Competition will be stiffer because your clients can leave anytime to the next guy. It's good for competition and the consumer because providers have to deliver to their users or their users will leave. Customers are more fickle than ever and Companies are now more accountable than ever. But that is just my two cents.


    3. Dion Hinchcliffe left...
    Monday, 21 November 2005 1:26 pm :: http://hinchcliffe.org

    Hi Michael,

    Thanks for posting your thoughtful comments. I would say though, that those that are doing commercial Web 2.0 are already applying patents to it and rather successfully.

    As a counterexample, look at patent #6285999 (Google PageRank) and patent #5960411 (Amazon's One-Click), and there are many others. These patents can, and to some extent, are being used today to the advantage of commercial Web 2.0 companies to create entities with valuations in the billions of US dollars.

    My point was that leveraging exclusive public access to patented function has already been proven successful, unlike the less succesful (so far) monetization of blogs, wikis, and open databases. When it will get really interesting is if someone manages to patent techniques related to leveraging The Long Tail and other aspects of Web 2.0 business models. The people that find a way to do that will be the ones with big advantages, even if only in the short term.

    So I think the way is fraught with some peril but enormous promise and it's important to realize that some folks will use old-world techniques to co-opt advantage in the new.

    Best,

    Dion


    4. Michael McDerment left...
    Monday, 21 November 2005 3:29 pm :: http://www.michaelmcderment.com/

    Fair enough and I agree that there are opportunities as you describe, I’m just saying that the vast majority of web services today (and into the foreseeable future) will not be able to leverage the benefit of patents. Amazon’s “one click” patent has always blown me away...not so sure everyone will be able to pull that sort of thing off...congrats to Amazon. Smart. Smells like the Patent officers may have been asleep at the switch that day though. If too many patents are put through that influence/restrict “usability” like one-click, healthy competition online will be jeopardized. Yes I know this is the purpose of patents, but I hope the patent office gets wise to the ensuing effects of granting too many “usability” patents like “one click”. The real purpose of patents is to encourage R&D spending by giving the incentive of a sustainable competitive advantage to companies that INVEST in trying to find a “break through”. This usually costs a lot of money. Patents like “one click” (and I have NOT read the patent details) seem like legal artistry, not the result of real R&D investment. I’ll bet they spent more on legal bills than R&D for it, but again I have not read it so I could be dead wrong.

    And with regards to using old ways to ensure success in a new age, I could not agree more. I think I posted a link to an essay I wrote on the subject in another comment already, but here it is again in case someone is interested:

    http://www.michaelmcderment.com/article/Web2ChroniclesVolumeOne.html


    5. Keith left...
    Wednesday, 23 November 2005 8:17 pm :: http://www.mredkj.com/

    Dion, you're right that patents will put the patent holder in a position to be commercially successful. But at what cost?

    I agree with what Michael is saying about software patents jeopardizing competition. Patents are supposed to help innovation, but take a look around at the current batch of Web 2.0 ideas. How many of them needed a patent to justify all the time and energy they put in?

    I don't know who did social bookmarking first, but hypothetically let's say del.icio.us patented it. Then furl.net would need to license the technology. LookSmart would probably just pony up, but how many small companies would just give up on their ideas rather than go through the bureaucracy of the patent system.


    6. john left...
    Sunday, 9 July 2006 9:17 pm

    hello sir, i read u r comments about the web2.0. it is really fine.

    • i am having two question i hope u can answer for these they are-

    web 2.0 as an attitude not a technology , 1) why adopting this attitude is becoming increasing important for companies? with example

    2)how this attitude might successfully manifest itself in terms of a company's website?

    i am waiting for u r responses plz

    regrads john.