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Web 2.0 Business
    Models
 CEO Teemu Arina / Dicole Oy
        03.02.2008




                               Photo: Tracy O
1.
What is Web 2.0?

              Photo: Don J. McCrady
quot;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 intelligencequot;
- Tim O’Reilly, 2006
“The Semantic Web is not a separate
Web but an extension of the current
one, in which information is given
well-defined meaning, better enabling
computers and people to work in
cooperation”
- Tim Berners-Lee, 2001
Both are Ecosystems

Semantic Web: interaction between machines
 Social Web: conversations between people
Integrated intelligence



                   Individual intelligence
                   Computer intelligence



                        Integrated:
                   Collective intelligence
                        (networked)‫‏‬


Image: uscfan
Information Technology




                 • Core is information
Interaction Technology




                                         • Core is interaction
Ref: Esko Kilpi (2006)
Web 2.0
Recipe for Web 2.0




                2 .0
         W eb
                       Photo: ulterior epicure
Web as a platform




                    Photo: Christopher Chan
Software above a
     single device




Photo: *One*
Data as the new
  Intel inside




           Photo: _fabrizio_
Harnessing collective
    intellgence




                   Photo: Donna Cymek
Lightweight business
  models, e.g. SaaS
    (Software as a Service)




                              Photo: ulterior epicure
Rich Internet
Applications
(RIA, AJAX)
Leveraging the Long Tail
    Head (20%)
                                                                         r
                                                                    powe
                                                                g
                    Sign                                 lt erin
                        al v                       ire dfi
                            s. n
                                ois           R equ
                                    e
Sales




                                        Tail (80%)




                                   Products


                                                                       Ref: Chris Anderson
2.
What are the new
business models?
              Photo: Don J. McCrady
Web 2.0 Business Models
Web 2.0 Business Models
Typical business models
■   Create a large/focused niche user community
     ■   Sell API access (Google)
     ■   Sell services to a large group of SMEs (Salesforce.com)
     ■   Sell data to partners (Facebook? :))
     ■   Get a revenue share from transactions (eBay)
     ■   Sell advertisements (MySpace)
     ■   Sell value-added platform (Amazon Web Services)
     ■   Freemium - Sell premium memberships (Livejournal)
     ■   Sell your company (Youtube)
Sell your company?
Get your
feet on the
  ground




      Photo: Fernando A.
Get 2 million €
in investment?



                  Photo: Big-E-Mr-G
Wake up.
 Most Web 2.0 startups get to
the market with 200k€ or less
                        Photo: Big-E-Mr-G
How?
Expansion strategies
1. Create an API (Application Programming Interface)
2. Distribute source as Open Source (e.g. Sugar CRM)
3. Create developer ecosystem (e.g. Amazon)
4. Create browser plugins (e.g. del.icio.us)
5. Create plugins for other platforms (e.g. blogging)
6. Create embeddable widgets (e.g. Meebo)
7. Advertise on Google AdSense (e.g. everyone)
8. Utilize SEO (search engine optimization)
Even more importantly....

Give something valuable for free
Example revenue of X
  ■   40% premium memberships
  ■   42% Google Adsense
  ■   10% selling one ad directly to advertiser
  ■   5% text link ads
  ■   3% referall money from amazon.com and linkshare

Minimal self funded startup costs, focus on a specific
community, value created to the user base through a clever
combination of services driving repeat visits and premium
subscription, viral growth, advertising revenues and eventually
(hopefully juicy) sponsorships.
3.
How to position
  yourself?
              Photo: Don J. McCrady
Concept analysis
Development                                                                         Attention
                                     Simplicity   Content

                          Features                          People


                 Iterative                                            Interaction



        Extendability                                                     Automation




           Personal                                                       Immediate



                  Social                                              Long term


                        Emotional                           Regular

                                     Practical     Occasional
Value                                                                                   Time

                                                                        Improved on A. Bäck, S. Vainikainen
Usage analysis
Visibility                                                                   Participation
                            Identity building   Creation

               Social networking                              Contribution


                Publicity                                           Aggregation / acquisition



             Privacy                                                     Play




              Alone                                                      User-generated



                   Team                                             Commercial / professional


                       Community                              Hierarchical

                             Loose network      Associative
Activity                                                                           Content

                                                                       Improved on A. Bäck, S. Vainikainen
Business analysis
Market                                                                              Revenue
                                      SMEs     Advertising

               Large companies                               Value-added services


            Public sector                                           Subscription / SAS



         Consumers                                                      Loss-leader




   Local installation                                                   Web services (APIs)



          Online service                                             Plugins


                        Freemium                             Source code

                             Offline version    Deep linking
Availability                                                                   Expansion
Typical Web 2.0 problems


1. Spam and scammers
2. Inability to scale business after reaching
   a certain number of users
3. Crowds flee to the next cool service
4. Many sites competing on user attention
5. House-of-cards business platform
                                           Photo: Mike9Alive
4.
How to drive users?

                Photo: Don J. McCrady
Top-down innovations Bottom-up innovations
Source of     Management and your own
                                                  Customers and users
  ideas             organization
              Internal resources, products,      Deep understanding of
 Drivers
                       positioning                 customer needs
Interaction     Structured and managed         Spontaneus and non-linear

 Strategy         Go to the customer          Invite customer to participate

Processes      Linear and strictly defined       Emergent and serendipic
                                              Communities, crowdsourcing,
               Market research, surveys,
 Methods                                       peer-production and social
                    focus groups
                                                        media




                                                                       Photo: JJay
Social objects connect people




Beat                                                                         Hum


 Occasional    Videos Blog posts Photos Microblogging Presence   Continuous


Particle                                                                      Wave
                   1.   Define your object
                   2.   Define key verb
                   3.   Make your objects discoverable
                   4.   Turn invitations into gifts
                   5.   Charge publishers, not spectators
                                                                  Ref: Jyri Engeström
Power Law of Participation

                                                    Ownership
                                                                          High
                                                  Moderating
                                                                       Engagement
                                              Collaborating
                                               Reflecting
                                      Recommending
                                         Linking
                                Commenting
                              Tagging
                        Rating
      Subscribing                                                          Low
Reading
                                                                         Threshold

    Collective                                 Collaborative
   Intelligence                                 Intelligence
  (implicit creation)                           (explicit creation)


                                                                      Ref: Teemu Arina, based
                                                                         on Ross Mayfield
Participation Inequality


                       1% creators

                       10% synthesizers

                       100% consumers




                       Ref: Bradley Horowitz, Jacob Nielsen
Organize information with tags
Cognitive analysis of tagging


Tags

                 Stage 0               Stage 1                  Tag it!
               Object worth        Multiple concepts         Write down
               remembering          are activated         activated concepts




Categorization
         Stage 0           Stage 1                Stage 2          Categorize it!
       Object worth    Multiple concepts     Choose one of the     Note the chosen
       remembering      are activated        activated concepts       concept

                                           Analysis-Paralysis!

                                                                               Ref: Rashmi Sinha
Recommendations based on
     user behaviour
Broaden tags with user
    contributions
Get user-generated content that can
 be aggregated, not just comments
Target advertising based on
       user interests
5.
How to be innovative

                 Photo: Don J. McCrady
Read these
Then start the engines, fellas
Virtually everything new seems to come
    from the 20 percent of their time
engineers here are expected to spend on
side projects. They certainly don't come
      out of the management team.



                              Eric Schmidt
                              Google CEO




                                       Kuva: GustavoG
Challenge
■   Globalization forces organizations to get into innovation-
    based competition and networking:
    ■   Get products faster to market
    ■   Increase ROI of R&D investments
    ■   Increase transparency of product development
    ■   Involve customers through open innovation
    ■   Support continuous learning and knowledge sharing
    ■   Get into networked collaboration (outsourcing etc.)


                                                       Source: Manuel Castells
Ways to innovate
                Culture
               Organization




   Design       Product       Business
  Experience     Service       Models




               Technology
                 Platforms

                                         Source: Pekka Himanen
Types of innovation
■   Technological innovation
    Remixing old in new ways (mountain bikes) or inventing new technologies
■   Business innovation
    Supply chains (Walmart), processes (Toyota), business models (Dell), brands
    (Nike)
■   Product/service innovation
    Products (Skype), marketing (Apple), services (Salesforce.com)
■   Design innovation
    Look & feel (Apple), emotion & experience design (Idean)
■   Cultural innovation
    Leadership (Linux), organization (Google), transparency (Seismic)

                                                                        Source: Pekka Himanen
Innovation through experience design

                                       Context

                                     Experience
                                Stimulus                      Aha!

   Data          Infor-                        Know-
                                                                         Wisdom
(products)       mation                        ledge




             •   Presentation              •   Testing               •   Research
             •   Information               •   Conversation          •   Retrospect
             •   Parameters                •   Narratives            •   Interpretation
             •   Comparison                •   Combination           •   Remixing
6.
Where is the money?

                Photo: Don J. McCrady
New paradigm: Enterprise 2.0

“Enterprise 2.0 is the use of emergent
  social software platforms within
 companies, or between companies
  and their partners or customers.quot;



                            Andrew McAfee




                                     Kuva: GustavoG
Enterprise 1.0              Enterprise 2.0
Hierarchical organization       Flat organization
 Automation in the core      Interaction in the core
   Tree representation      Associative representation
      Bureaucracy                    Agility
     Static and rigid         Dynamic and adaptive
  IT driven technology       User driven technology
  Feature-driven value          User-driven value
       Top-down                    Bottom-up
      Centralized                  Distributed
   Hand-picked teams          Self-organizing teams
          Silos                  Open borders
Controlled communication          Transparency
      Taxonomies                  Folksonomies
      Complexity                    Simplicity
    Closed standards             Open standards

                                                         Photo: JJay
Ultimate challenge
                               In the future,
                               organizations will
                               compete on:

                               Who can create a rich user
                               community where users
                               interact with each other to
                               improve products




Image: Felippe Torres
Crowdsourcing

Taking a job traditionally performed by an employee
 or contractor, and outsourcing it to an undefined,
           generally large group of people




                                               Photo: Hugo*
Dell IdeaStorm
Innocentive
CASE
Anatomy of an Enterprise 2.0

    Nervous system                            Brain
Feeds, Search, APIs -                  Wikis, tagging -
 Sharing, discovering and            Connecting and remixing
  tapping into reflections                  reflectons


          Senses                          Blood system
  Blogs, Microblogs,                  Social networking,
Social bookmarking -                       Real-time
 Reflection in and on action            communications,
                                     Network analysis -
                                     Optimizing interaction flow
         Skeleton
 Automation, Real-
   time processes,
       Operative
 technologies - Back-
bone for business processes
                                    Ref: Teemu Arina, Illustration: Lotta Viitaniemi
Command & Control

           becomes

Collaboration and Communication




                                  Photo: tashland
Contact info
  CEO Teemu Arina
  Dicole Oy
  050 – 555 7636
  teemu@dicole.com
  Blogi: tarina.blogging.fi
  www.dicole.com


Yritys 2.0 -kirja tulossa!
  http://www.yritys20.com
                             Photo: Tanakawho
Reading
 •   Naked Conversations: How Blogs are Changing the Way Businesses Talk with Customers (Robert
     Scoble)
 •   The Medium is the Message (Marshall McLuhan)
 •   Complex Responsive Processes in Organizations: Learning and Knowledge Creation (Ralph
     Stacey)
 •   The World Is Flat: A Brief History of the Twenty-first Century (Thomas Friedman)
 •   Informal Learning: Rediscovering the Natural Pathways That Inspire Innovation and Performance
     (Jay Cross)
 •   Deschooling Society (Ivan Illich)
 •   The Innovator's Solution: Creating and Sustaining Successful Growth (Clayton Christensen)
 •   The Cluetrain Manifesto: The End of Business as Usual (Christopher Locke)
 •   Convergence Culture: Where Old and New Media Collide (Henry Jenkins)
 •   The Wealth of Networks: How Social Production Transforms Markets and Freedom (Yochai
     Benkler)
 •   Open Business Models: How to Thrive in the New Innovation Landscape (Henry Chesbrough)
 •   The Long Tail: Why the Future of Business is Selling Less of More (Chris Anderson)
 •   Wikinomics: How Mass Collaboration Changes Everything (Don Tapscott)
 •   Seeing What's Next: Using Theories of Innovation to Predict Industry Change (Clayton
     Christensen)
 •   Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages
     (Carlota Perez)
 •   The Social Life of Information (John Seely Brown)
 •   The Wisdom of Crowds (James Surowiecki)
 •   Complexity and Innovation in Organizations (Jose Fonseca)
                                                                                    Photo: Tanakawho

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Web 2.0 Business Models

  • 1. Web 2.0 Business Models CEO Teemu Arina / Dicole Oy 03.02.2008 Photo: Tracy O
  • 2. 1. What is Web 2.0? Photo: Don J. McCrady
  • 3. quot;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 intelligencequot; - Tim O’Reilly, 2006
  • 4. “The Semantic Web is not a separate Web but an extension of the current one, in which information is given well-defined meaning, better enabling computers and people to work in cooperation” - Tim Berners-Lee, 2001
  • 5. Both are Ecosystems Semantic Web: interaction between machines Social Web: conversations between people
  • 6. Integrated intelligence Individual intelligence Computer intelligence Integrated: Collective intelligence (networked)‫‏‬ Image: uscfan
  • 7. Information Technology • Core is information
  • 8. Interaction Technology • Core is interaction Ref: Esko Kilpi (2006)
  • 10. Recipe for Web 2.0 2 .0 W eb Photo: ulterior epicure
  • 11. Web as a platform Photo: Christopher Chan
  • 12. Software above a single device Photo: *One*
  • 13. Data as the new Intel inside Photo: _fabrizio_
  • 14. Harnessing collective intellgence Photo: Donna Cymek
  • 15. Lightweight business models, e.g. SaaS (Software as a Service) Photo: ulterior epicure
  • 17. Leveraging the Long Tail Head (20%) r powe g Sign lt erin al v ire dfi s. n ois R equ e Sales Tail (80%) Products Ref: Chris Anderson
  • 18. 2. What are the new business models? Photo: Don J. McCrady
  • 21. Typical business models ■ Create a large/focused niche user community ■ Sell API access (Google) ■ Sell services to a large group of SMEs (Salesforce.com) ■ Sell data to partners (Facebook? :)) ■ Get a revenue share from transactions (eBay) ■ Sell advertisements (MySpace) ■ Sell value-added platform (Amazon Web Services) ■ Freemium - Sell premium memberships (Livejournal) ■ Sell your company (Youtube)
  • 23. Get your feet on the ground Photo: Fernando A.
  • 24. Get 2 million € in investment? Photo: Big-E-Mr-G
  • 25. Wake up. Most Web 2.0 startups get to the market with 200k€ or less Photo: Big-E-Mr-G
  • 26. How?
  • 27. Expansion strategies 1. Create an API (Application Programming Interface) 2. Distribute source as Open Source (e.g. Sugar CRM) 3. Create developer ecosystem (e.g. Amazon) 4. Create browser plugins (e.g. del.icio.us) 5. Create plugins for other platforms (e.g. blogging) 6. Create embeddable widgets (e.g. Meebo) 7. Advertise on Google AdSense (e.g. everyone) 8. Utilize SEO (search engine optimization)
  • 28. Even more importantly.... Give something valuable for free
  • 29. Example revenue of X ■ 40% premium memberships ■ 42% Google Adsense ■ 10% selling one ad directly to advertiser ■ 5% text link ads ■ 3% referall money from amazon.com and linkshare Minimal self funded startup costs, focus on a specific community, value created to the user base through a clever combination of services driving repeat visits and premium subscription, viral growth, advertising revenues and eventually (hopefully juicy) sponsorships.
  • 30. 3. How to position yourself? Photo: Don J. McCrady
  • 31. Concept analysis Development Attention Simplicity Content Features People Iterative Interaction Extendability Automation Personal Immediate Social Long term Emotional Regular Practical Occasional Value Time Improved on A. Bäck, S. Vainikainen
  • 32. Usage analysis Visibility Participation Identity building Creation Social networking Contribution Publicity Aggregation / acquisition Privacy Play Alone User-generated Team Commercial / professional Community Hierarchical Loose network Associative Activity Content Improved on A. Bäck, S. Vainikainen
  • 33. Business analysis Market Revenue SMEs Advertising Large companies Value-added services Public sector Subscription / SAS Consumers Loss-leader Local installation Web services (APIs) Online service Plugins Freemium Source code Offline version Deep linking Availability Expansion
  • 34. Typical Web 2.0 problems 1. Spam and scammers 2. Inability to scale business after reaching a certain number of users 3. Crowds flee to the next cool service 4. Many sites competing on user attention 5. House-of-cards business platform Photo: Mike9Alive
  • 35. 4. How to drive users? Photo: Don J. McCrady
  • 36. Top-down innovations Bottom-up innovations Source of Management and your own Customers and users ideas organization Internal resources, products, Deep understanding of Drivers positioning customer needs Interaction Structured and managed Spontaneus and non-linear Strategy Go to the customer Invite customer to participate Processes Linear and strictly defined Emergent and serendipic Communities, crowdsourcing, Market research, surveys, Methods peer-production and social focus groups media Photo: JJay
  • 37. Social objects connect people Beat Hum Occasional Videos Blog posts Photos Microblogging Presence Continuous Particle Wave 1. Define your object 2. Define key verb 3. Make your objects discoverable 4. Turn invitations into gifts 5. Charge publishers, not spectators Ref: Jyri Engeström
  • 38. Power Law of Participation Ownership High Moderating Engagement Collaborating Reflecting Recommending Linking Commenting Tagging Rating Subscribing Low Reading Threshold Collective Collaborative Intelligence Intelligence (implicit creation) (explicit creation) Ref: Teemu Arina, based on Ross Mayfield
  • 39. Participation Inequality 1% creators 10% synthesizers 100% consumers Ref: Bradley Horowitz, Jacob Nielsen
  • 41. Cognitive analysis of tagging Tags Stage 0 Stage 1 Tag it! Object worth Multiple concepts Write down remembering are activated activated concepts Categorization Stage 0 Stage 1 Stage 2 Categorize it! Object worth Multiple concepts Choose one of the Note the chosen remembering are activated activated concepts concept Analysis-Paralysis! Ref: Rashmi Sinha
  • 42. Recommendations based on user behaviour
  • 43. Broaden tags with user contributions
  • 44. Get user-generated content that can be aggregated, not just comments
  • 45. Target advertising based on user interests
  • 46. 5. How to be innovative Photo: Don J. McCrady
  • 48. Then start the engines, fellas
  • 49. Virtually everything new seems to come from the 20 percent of their time engineers here are expected to spend on side projects. They certainly don't come out of the management team. Eric Schmidt Google CEO Kuva: GustavoG
  • 50. Challenge ■ Globalization forces organizations to get into innovation- based competition and networking: ■ Get products faster to market ■ Increase ROI of R&D investments ■ Increase transparency of product development ■ Involve customers through open innovation ■ Support continuous learning and knowledge sharing ■ Get into networked collaboration (outsourcing etc.) Source: Manuel Castells
  • 51. Ways to innovate Culture Organization Design Product Business Experience Service Models Technology Platforms Source: Pekka Himanen
  • 52. Types of innovation ■ Technological innovation Remixing old in new ways (mountain bikes) or inventing new technologies ■ Business innovation Supply chains (Walmart), processes (Toyota), business models (Dell), brands (Nike) ■ Product/service innovation Products (Skype), marketing (Apple), services (Salesforce.com) ■ Design innovation Look & feel (Apple), emotion & experience design (Idean) ■ Cultural innovation Leadership (Linux), organization (Google), transparency (Seismic) Source: Pekka Himanen
  • 53. Innovation through experience design Context Experience Stimulus Aha! Data Infor- Know- Wisdom (products) mation ledge • Presentation • Testing • Research • Information • Conversation • Retrospect • Parameters • Narratives • Interpretation • Comparison • Combination • Remixing
  • 54. 6. Where is the money? Photo: Don J. McCrady
  • 55. New paradigm: Enterprise 2.0 “Enterprise 2.0 is the use of emergent social software platforms within companies, or between companies and their partners or customers.quot; Andrew McAfee Kuva: GustavoG
  • 56. Enterprise 1.0 Enterprise 2.0 Hierarchical organization Flat organization Automation in the core Interaction in the core Tree representation Associative representation Bureaucracy Agility Static and rigid Dynamic and adaptive IT driven technology User driven technology Feature-driven value User-driven value Top-down Bottom-up Centralized Distributed Hand-picked teams Self-organizing teams Silos Open borders Controlled communication Transparency Taxonomies Folksonomies Complexity Simplicity Closed standards Open standards Photo: JJay
  • 57. Ultimate challenge In the future, organizations will compete on: Who can create a rich user community where users interact with each other to improve products Image: Felippe Torres
  • 58. Crowdsourcing Taking a job traditionally performed by an employee or contractor, and outsourcing it to an undefined, generally large group of people Photo: Hugo*
  • 61. CASE
  • 62. Anatomy of an Enterprise 2.0 Nervous system Brain Feeds, Search, APIs - Wikis, tagging - Sharing, discovering and Connecting and remixing tapping into reflections reflectons Senses Blood system Blogs, Microblogs, Social networking, Social bookmarking - Real-time Reflection in and on action communications, Network analysis - Optimizing interaction flow Skeleton Automation, Real- time processes, Operative technologies - Back- bone for business processes Ref: Teemu Arina, Illustration: Lotta Viitaniemi
  • 63. Command & Control becomes Collaboration and Communication Photo: tashland
  • 64. Contact info CEO Teemu Arina Dicole Oy 050 – 555 7636 teemu@dicole.com Blogi: tarina.blogging.fi www.dicole.com Yritys 2.0 -kirja tulossa! http://www.yritys20.com Photo: Tanakawho
  • 65. Reading • Naked Conversations: How Blogs are Changing the Way Businesses Talk with Customers (Robert Scoble) • The Medium is the Message (Marshall McLuhan) • Complex Responsive Processes in Organizations: Learning and Knowledge Creation (Ralph Stacey) • The World Is Flat: A Brief History of the Twenty-first Century (Thomas Friedman) • Informal Learning: Rediscovering the Natural Pathways That Inspire Innovation and Performance (Jay Cross) • Deschooling Society (Ivan Illich) • The Innovator's Solution: Creating and Sustaining Successful Growth (Clayton Christensen) • The Cluetrain Manifesto: The End of Business as Usual (Christopher Locke) • Convergence Culture: Where Old and New Media Collide (Henry Jenkins) • The Wealth of Networks: How Social Production Transforms Markets and Freedom (Yochai Benkler) • Open Business Models: How to Thrive in the New Innovation Landscape (Henry Chesbrough) • The Long Tail: Why the Future of Business is Selling Less of More (Chris Anderson) • Wikinomics: How Mass Collaboration Changes Everything (Don Tapscott) • Seeing What's Next: Using Theories of Innovation to Predict Industry Change (Clayton Christensen) • Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages (Carlota Perez) • The Social Life of Information (John Seely Brown) • The Wisdom of Crowds (James Surowiecki) • Complexity and Innovation in Organizations (Jose Fonseca) Photo: Tanakawho