The phenomenon best known as 'Web 2.0' has been hailed as the savior of the Internet. After the dot-com crash of the late 1990s, the world hung its head (and guarded its coffers) in the wake of manifold e-disappointments. Yet in 2006, the 19% rise in venture capital investment in Internet start-ups signaled a positive change. The meteoric rise of social networking sites like MySpace, Facebook, and YouTube illustrated that not only do we better understand the business of the web - now, we better understand its coveted demographic of 18-30 year-old users, having archived their hopes, habits, and desires to the second and calculated them to the cent. These successes imply that making money on the net is something like riding a bicycle: the industry paid the price of a few scraped knees before gaining its balance, but now, with painful lessons learned and pocket money replenished, we'll speed off into the distance with bells ringing.
Or will we? The media overflowed with enthusiasm for Web 2.0 in 2006, ignoring the fact that sites such as Friendster.com and Livejournal have linked users around the world for years. It was only after Google Inc.'s October acquisition of the video web service YouTube for $1.65 billion that the media at-large took note of social networking's sustained (and seemingly, infinitely sustainable) user base -- and thus, its potential for profit.
But although YouTube hit the nail on the head by providing users with video on-demand, the recent lawsuit levied against the site by Viacom presents a serious challenge to new, user-empowering websites, alleging that YouTube captures revenue by selling its ads alongside pirated content. Usage patterns on YouTube are undeniably similar to the early Napster—participants can post whatever they choose, with no practical barrier to the pirating of copyrighted content. Optimists argue that YouTube's most popular videos (unlike, in its heyday, Napster's most popular songs) are ones created by users, and do not raise copyright concerns. But critics allege that users are only drawn to original content after viewing copyrighted material, as with Comedy Central's "The Daily Show with Jon Stewart" and "The Colbert Report," the much-cited catalysts for Viacom's suit. With both Stewart and Colbert slated to testify as witnesses in the trial, Viacom's case seems to hinge on quality, not quantity - and its verdict will help to determine how much quality matters for similar sites to succeed.
Web 2.0 may be about community, but Viacom v. YouTube proves that content is still key - and so is how sites use it. So what does the future hold for the rest of social networking?
According to Marissa Mayar, Google's vice president of search products and user-experience, "The way you find really successful new innovation is to release five things and hope that one or two of them really take off." Importantly, Google's business success comes from the same ethos that prevails on social networking sites: unlocking the creative energies of its community. Google releases a cascade of betas, limited tests, and lab projects on a regular basis, encouraging its engineers to take time off from daily responsibilities to pursue independent projects. Popular products such as GChat and orkut have resulted.
But Google does not limit innovation to its in-house talent, however: for years, it has offered new products as "betas," allowing outside developers users to create useful applications that overlay new software still in its testing stages. Like Google maps? So did the 30,000-or-so third-party developers who incorporated the project into thousands of sites. Google Maps was first offered as a "beta," and by allowing outside developers to tailor their software to the needs of commercial sites, an unprecedented number of Google-based "mashups" sprung up on the web, ranging from the serious - HealthMap and ChicagoCrime - to the lighthearted -- a Starbucks Coffee Finder and an All Things Beer Map.
Notably, social networking sites have begun to adopt a similar approach to Google by launching special programming environments called Application Programming Interfaces (APIs). By doing so, they aim to cultivate a small but very important network of software developers who will pioneer new applications that supplement preexisting sites. Facebook leads the pack, having moved its API out of preliminary "beta" testing stages in May, but sites like orkut and Friendster have also confirmed their interest in making software specs available to developments. BusinessWeek.com recently predicted that MySpace.com and LinkedIn would also join this trend.
What are the fruits of all of this (free) labor? For inexperienced developers, API's offer a chance to test their mettle as programmers. For professionals, API's offer cutting-edge software that can be seamlessly integrated and customized to user interests - and often, for a profit.
When Facebook first launched its Development Platform in August 2006, projects ranged from matchmaking devices (Matchbook Revolution and TheFriendMatch) to roommate services, book-trading sites, and instant beauty ratings (all too reminiscent of that dinosaur of the net, www.hotornot.com). With names like PeopleRadar and Your Hottest Friend, it was questionable whether applications would actually serve the business model of growing the user-base of the site.
But with the official launch of the Facebook Development Platform on May 27, 2007, Facebook revealed partnerships with a cadre of corporate heavyweights that included Microsoft, Amazon, Comcast, Redbull, and Washingtonpost.Newsweek Interactive. Although applications - technically -- had been available for download for a year prior to Facebook's official release, products were met with an enthusiastic response when they were visibly introduced to the site's users. Downloads skyrocketed: only two days after the official release of Facebook applications, the "iLike" application became an early frontrunner, downloaded by over 600,000 users. Today, the application "Top Friends" surpasses "iLike" in popularity, boasting over 12 million downloads, and downloads of the top 10 most popular applications exceed 65 million. (Notably, eight of these 10 applications were developed by individuals or small teams of programmers, rather than by professional corporations).
The possibilities unlocked by Facebook's Development Platform appear to be open-ended. With the site's fastest-growing demographic the "25-and-up" crowd and already surpassing eBay in page views, online utilities focused on real-world -- rather than virtual - relationships, interests, and events will help the site to outgrow its reputation as a watering hole for college students and teens. Most importantly, Facebook's latest additions also appear to be habit-forming: according to Mark Zuckerberg, Facebook's founder, 50% of registered users come back to the site each day, viewing 50 pages on average. Clearly, community and content are not the only ingredients social networking success: functionality is a critical component in making content and connections relevant - and, dare I say it? -- fun.
For years the technorati have cast seeds of doubt about Zuckerberg and his business strategy -- arguing that users resent new applications that manipulate their content. This has yielded what Wired recently dubbed a "Zuckerberg backlash." Critics have also pointed out that the site has not yet managed to profit through clickstream advertising. Nonetheless, Viacom's case against YouTube serves as a helpful reminder that users are not only interested in content -- they demand accessibility and sparkling new ways to use it. And as for advertising? It's silly to finger Facebook and Facebook alone. Much of the Internet has the same lesson to learn.
Many have asked if Mark Zuckerberg is holding his cards too close to the deck, out-waiting his time to sell -after all, YouTube sold to Google and mySpace sold to NewsCorp long ago. Yet as seasoned web entrepreneur Todd Dagres comments, "great innovators won't be lumped into the Web 2.0 category; they will define their own categories. This is what will separate the few winners from the many losers."
Who will be the next winner? Only time will tell. But my money is on Zuckerberg.