Something for the weekend: Web 2.0 and the digital bubble

Two recent reports from consultants KPMG make interesting reading if you are planning a quiet weekend in a garden chair or hammock. The first, Enterprise 2.0: fad or future, by Gary Matuszak, covers the emerging use of Web 2.0 social software in corporate environments. It argues that such software can be used to help tackle what it refers to as key modern management challenges: “knowledge sharing and management, problem solving, innovation and collaboration”. The report gives a number of interesting corporate examples of the use of Web 2.0 in these different areas. For example it details the use IBM has made of a series of internal wikis for project collaboration and a chat-room process in which thousands of employees participate, simultaneously, in “innovation jams” to debate new ideas.

The report is generally pretty up beat, arguing that Web 2.0 services could “fuel a burst of productivity, as e-mail and the Internet have already done.”

This contrasts neatly with the other KPMG report, The Digital Bubble, which argues that we are in the midst of a revolution driven by the digitization of content. Although this presents unprecedented opportunities, the report warns, darkly, of the great potential for a “digital bubble” not unlike the dot-com boom and bust of the early 2000s. KPMG argue that in the kinds of environment that currently prevail for many Web-related businesses (rapid growth and change, over-heated valuations, unproven business models etc.) there is a tendency for management to focus on growth and increasing market share at the expense of ensuring that “the operational strengths required to support this growth are properly in place”.

One thing the report doesn’t mention is the role that the ‘Network Effect’ played in the original boom and bust. This is an Economics concept that describes the increase in value, to the existing users of an interactive service (e.g. a telephone network), as more and more people start to use it. This increase in value is often used in business model calculations and is one of the big ideas driving the Web at the moment. However, it is not without problems. Without getting into the ins and outs of it, it turns out that recent work by two academics might show that the original formula used to calculate the Network Effect may have been badly understood. If you’re interested in this, I discuss it more in the section on the ‘big ideas behind Web 2.0’ in my report on Web 2.0, which was published in February. The reason I think this is important is because we need to understand where we’ve gone wrong in the past, and if the Network Effect was part of it, then it has to factored in to future business models.

We have been warned!


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