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Web 2.0 Business Breakfast

An event run by First Capital on 18 November 2005 addressed the Web 2.0 phenomenon, what it means and its associated business opportunities with speakers including John Battelle of Federated Media and Yahoo's Simon Levene, reports Deirdre Molloy...

This event run by First Capital on 18 November 2005 addressed the Web 2.0 phenomenon, what it means and its associated business opportunities with speakers including John Battelle of Federated Media, Accel Partners and Yahoo!'s Simon Levene...

By Deirdre Molloy

[Register and post your own comments on this article below...]

Paul Fisher – Associate Director, First Capital

Paul posited that Web 2.0 is really a collection of new terms that combined together allow a new set of business applications. It’s disruptive – a combination of cultural and technology disruption.

A driving force ushering in Web 2.0 has been broadband but technologies at a more granular level are also key: RSS, Ajax, peer-to-peer software – all these reduce the costs of content distribution. Also, the long tail of consumer demand is coming into play. A Linux Red Hat Linux developer set up Lulu, an online self-publishing book business, and Paul flagged up Skype as the quintessential Web 2.0 company.

John Battelle – Founder and Chairman of Federated Media Publishing / blog

Under the strapline of ‘Search, Web 2.0, Blogs and all That’ John reflected that Web 1.0 was long on vision, shorter on execution. The value was not in the access in the 90s, but in the content and services, not the software.

He then recapped some of the key Web 2.0 principles:

• The web as a platform: open source; cheap processing / bandwidth / storage

• Web 2.0 companies have an “architecture of participation” (eg. Six Apart, Flickr, Google, Amazon, Blogger, Yahoo!)

• Innovation In Assembly – theses sites aggregate, manage and analyze complexity. The essence of the Web 2.0 content business is that the readers pull it all together.

• Lightweight Business Models – This is produced by the web as a platform plus the architecture of participation, embodied in Boing Boing, Craigslist, Yahoo! and Federated Media.

• Power of the Long Tail – Google’s Adsense is a perfect example of this power law of supply and relevance operating at a granular level.

“Search rules”, said Battelle, “it’s the driver of Web 2.0 businesses. Search is our culture’s point of enquiry,” he continued, “the spade with which we turn the web’s soil. It’s the artefact of a new culture and we’ve barely begun to realise its impact.”

In Web 2.0, it’s about who has the best content. Content rules because the best content gets found, he explained. The essence of great publications is conversation, and blogs are a direct conversation between the author and the audience.

Networks are farming that conversation and aggregating blogs together. The IP is owned by the blog author but Federated Media sees the aggregate as a mash up. FM is more like a label or a book imprint, he reflected.

Judy Gibbons – Venture Partner, Accel, Board of Directors, 02

People came up with a lot of these ideas 5 years ago, Judy noted, but at that time they couldn’t raise revenue through advertising, subscriptions or micro-transactions. The media world is very moribund, she commented, and they don’t really want to hear about these things because it disrupts their business models.

Display advertising is about building relationships. In-game advertising is big already and will be massive. Micro-transactions will also be mainstream.

Less is more, Judy continued, and the approach of “constant Beta” equals less time, more agility; less planning, more agility; and finally less cost and more opportunity.

Open source content management system development overcomes the problem of getting user feedback through to engineers (ie. developers and designers). But now, engineers are on the outside in the open source community. This will revolutionise innovation in this sphere, she said.

There are lots of exit opportunities as these large moribund companies can’t innovate at the speed entrepreneurs do. Take the mobile internet. Mobile networks have a narrow, proprietary-focused business outlook. Paradigms of the value of the internet on mobile are different from PCs but there’s still huge opportunities in this space. She spoke of “my mobile” developments – Opera, for instance, speeds up the mobile internet, even on MSN phones!

Simon Levene – Managing Director, Corporate Development, Yahoo!

Disruption creates opportunity asserted Simon. They have 30 people in Corporate Development, 8 or 9 of them in London. The challenge is that folks like Yahoo! will increasingly be competing with investors for choice deals. The costs of entry in the Web 2.0 era are less limiting, and marketing and advertising costs less.

Yahoo! have added monetised services to Flickr, Simon noted. He also cited Midas Player, a skills-based betting games site that’s been plugged into Yahoo!’s gaming business in the UK.

Nick Kingsbury – Global Head of Software, 3i

Nick explained that 3i have £700m invested in technology assets around the world. On 1st September 2005 we entered the post-broadband era when Steve Jobs announced the delivery of movies and video through iPods.

Connectedness is the overarching feature, but by the same token it’s “all about me”. An issue arises here about whether the individual owns their own data, he noted.

The Long Tail and the IT Industry’s shift brings opportunity to the Web 2.0 sub-sectors. In business-to-consumer retail, B2C and C2C exchanges, and the ascendancy of easy price-comparison.

Other features of Web 2.0 are the power of community and social sites, and that of content aggregators and providers. Converged plays are starting to emerge, for example location-based services and mobile TV applications. Light Apps are another emerging area – Google Base [and their recently acquisition of Writely – Ed]; and Windows Live!. Security issues are an undercurrent of a lot of this innovation.

He listed a few relevant 3i deals in various areas. B2C: Poliris; B2C and C2C auctions: Peerflix and Priceminister; community / social sites: Fotolog and Habbo Hotel; B2B: Om Prompt; Infrastructure: Cache Logic; Content Aggregators: Blue Lithium; Lite apps: Mind Jet; Converged plays: Div Com.

Nick then ran through some important issues in this landscape: UK versus US; how come investment is down? In terms of the pricing of deals, is this another bubble? The pricing of deals on the way in isn’t crazy in Europe, he said, but in the US there’s a lot more pressure. In the US a bubble is developing, but not to the degree of Bubble One (1999-01).

Nick highlighted the changes wrought by “The Google Shift”. Web 1.0 mistakes were largely due to the fact that the timing was wrong, but its impact in 2000 was also underestimated. The effect of the internet is more profound that was originally thought.

Panel Q&A with the audience

Sam Sethi remarked that advertising is the emperor’s new clothes when you realise that Ad Blocker is the fourth most popular download. So, he asked, how do you make money on Battelle’s Web 2.0 business model?

Battelle countered that only 8% of Federated’s BoingBoing’s readers download Ad Blocker, because the ads they are surrounded by are relevant and useful. If you have the right kind of publication with ads for things that are endemic to that audience. Simon Levene added that with AdSense and the like, around 20% of users click.

But will the incumbents – Cisco Systems, Microsoft, etc – go over to open source, an audience member wondered. Nick Kingsbury didn’t reckon the big software vendors would shift that quickly.

What’s the next big thing and does the phrase “federated identity” come into it a delegate asked. Battelle said there was an opportunity for any attention-driven business. You cannot just market your way in, either your product is good or it isn’t so you have to earn that attention.

Judy Gibbons described herself as a big fan of the navigation and recommendation space. How do I get into a network where people are all exchanging tips on things?

Yahoo's Simon Levene said many businesses still had to address basic search engine optimisation and keywords, but the motivation for entrepreneurs in the Web 2.0 space is to work at whatever you have a passion to solve.

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Web 2.0 and Content 2.0
Discuss the issues further with global thought leaders from Yahoo!, Microsoft, Myspace, Blinkx, GapingVoid, Broadband Mechanics and more at the NMK conference Content 2.0 on 6th June at the RSA in London.

Read Paul Fisher of First Capital's report on his blog: The Coffee Shops Of Mayfair