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7.1 Introduction

Learning Objectives

  1. Recognize the unexpected rise and impact of social media and peer production systems, and understand how these services differ from prior generation tools.
  2. List the major classifications of social media services.

Over the past few years, a fundamentally different class of Internet services has attracted users, made headlines, and increasingly garnered breathtaking market valuations. Often referred to under the poorly defined umbrella term “Web 2.0A term broadly referring to Internet services that foster collaboration and information sharing; characteristics that distinctly set “Web 2.0” efforts apart from the static, transaction-oriented Web sites of “Web 1.0.” The term is often applied to Web sites and Internet services that foster social media or other sorts of peer production.,” these new services are targeted at harnessing the power of the Internet to empower users to collaborate, create resources, and share information in a distinctly different way than the static Web sites and transaction-focused storefronts that characterized so many failures in the dot-com bubble. Techies often joust over the precise definition of Web 2.0, but these arguments aren’t really all that important. What is significant is how quickly the Web 2.0 revolution came about, how unexpected it was, and how deeply impactful these efforts have become for individuals, businesses, and society. Consider the following:

  • Six of the world’s top ten most heavily trafficked Internet sites are social: Facebook, YouTube, Blogger.com (considered separately from parent Google), Wikipedia, Twitter, and QQ.com (China).Via Alexa.com, June 1, 2011. Via Alexa.com, June 1, 2011. U.S. users now spend more time with social media than on any other category of Internet use.“What Americans Do Online: Social Media and Games Dominate Activity,” NielsenWire, August 2, 2010. 
  • It took just three years for the number of social sites in the top ten to grow from one to six. However, the list is volatile, and half of the top social sites from three years ago (MySpace, Hi5, Orkut) are no longer ranked in the top ten.Morgan Stanley, Internet Trends Report, March 2008. Morgan Stanley, Internet Trends Report, March 2008.
  • With only seven full-time employees and an operating budget of less than $1 million, Wikipedia has become the fifth most visited site on the Internet.G. Kane and R. Fichman, “The Shoemaker’s Children: Using Wikis for Information Systems Teaching, Research, and Publication,” MIS Quarterly, March 2009. G. Kane and R. Fichman, “The Shoemaker’s Children: Using Wikis for Information Systems Teaching, Research, and Publication,” MIS Quarterly, March 2009. The site boasts well over eighteen million articles in over 260 different languages, all of them contributed, edited, and fact-checked by volunteers.
  • Just twenty months after its founding, YouTube was purchased by Google for $1.65 billion. While Google struggles to figure out how to make profitable what is currently a money-losing resource hog (over forty-eight hours of video are uploaded to YouTube each minute),J. Roettgers, “YouTube Users Upload 48 Hours of Video Every Minute,” GigaOM, May 25, 2011. J. Roettgers, “YouTube Users Upload 48 Hours of Video Every Minute,” GigaOM, May 25, 2011. the site has emerged as the Web’s leading destination for video, hosting everything from apologies from CEOs for service gaffes to questions submitted as part of presidential debates. Fifty percent of YouTube’s roughly three hundred million users visit the site at least once a week,Morgan Stanley, Internet Trends Report, March 2008.  and the site serves over three billion videos each day,B. Erlich, “YouTube: Two Days’ Worth of Video Uploaded Every Minute,” Mashable, May 25, 2011.  with an increasing number watching from non-PC devices, including mobile phones and televisions.
  • The population of Facebook users is now so large that it could be considered the third largest “nation” in the world. Half the site’s users log in at least once a day, spending an average of fifty-five minutes a day on the site.“Facebook Facts and Figures (History and Statistics),” Website Monitoring Blog, March 17, 2010. “Facebook Facts and Figures (History and Statistics),” Website Monitoring Blog, March 17, 2010. Facebook is solidly profitable and revenues have been growing with astonishing speed (estimated at over $4 billion in 2011, doubling from the prior year).P. Kafka, “Facebook Isn’t Eating Google’s Lunch Yet, but It’s Getting Hungry…,” AllThingsD, March 13, 2011.  By spring 2011 some suggested that the value of the privately held firm may have reached $100 billion.G. Fowler and A. Das, “Facebook Numbers Feed IPO Outlook,” Wall Street Journal, May 1, 2011. 
  • Facebook and Twitter have become activist tools and have played vital roles in supporting protest movements worldwide. China and Iran are among the governments so threatened by the power of these services that each has, at times, blocked Facebook and Twitter access within their borders.
  • Twitter has emerged as a major force that can break news and shape public opinion. By the time Twitter was a five-year-old, the service boasted a population of over two hundred million users that were collectively posting more than a billion tweets (Twitter messages) each week.P. Kafka, “Twitter CEO Dick Costolo Talks about His New Photo Service, but Not about Profits,” AllThingsD, June 1, 2011. P. Kafka, “Twitter CEO Dick Costolo Talks about His New Photo Service, but Not about Profits,” AllThingsD, June 1, 2011. In another nod to the service’s significance, the U.S. Library of Congress announced plans to archive every tweet ever sent.N. Bolton, “Chirp, Twitter’s First Developer Conference, Opens Its Doors,” New York Times, April 14, 2010; M. Shaer, “Google Launches Archive Search for Twitter,” Christian Science Monitor, April 15, 2010. 
  • Services such as Twitter, Yelp, and the highly profitable TripAdvisor have unleashed the voice of the customer so that gripes, praise, and ratings are now often captured and broadcast immediately at the point of service. Reviews are now incorporated into search results and maps, making them the first thing many customers see when encountering a brand online. TripAdvisor, with just five hundred employees, brings in over $500 million in revenue (at roughly 45 percent margins),B. Wash, “Double Duty,” Colby Magazine, Winter 2009; S. Morrison, “Expedia to Spin Off TripAdvisor,” Wall Street Journal, April 8, 2011. B. Wash, “Double Duty,” Colby Magazine, Winter 2009; S. Morrison, “Expedia to Spin Off TripAdvisor,” Wall Street Journal, April 8, 2011. while Yelp has reportedly turned down acquisition offers valuing it at $700 million.P. Burrows, “Hot Tech Companies Like Yelp Are Bypassing IPOs,” BusinessWeek, February 4, 2010. 

The Web 2.0 moniker is a murky one because like so many popular technology terms there’s not a precise definition. We’ll add some precision to our discussion by focusing on social media efforts—technologies that support the creation of user-generated content, as well as content editing, commenting, curation, and sharing. Social media efforts include blogs, wikis, social networks, Twitter, and photo and video sharing sites. The rise of social media has also coincided with the rise of mobile computing—meaning the worldwide Internet conversation is always in your pocket. Mobile and social also work together to create entirely new services, like the location-based game / discovery engine / deals platform, Foursquare.

The peer productionWhen users collaboratively work to create content, products, and services. Includes social media sites, open source software, and peer-produced services, such as Skype and BitTorrent, where the participation of users provide the infrastructure and computational resources that enable the service. leveraged by collaborating users isn’t only used to create social media; it can be used to create services, too, and these are also considered to be part of Web 2.0. Skype and BitTorrent leverage users’ computers instead of a central IT resource to forward phone calls and video. This ability saves their sponsors the substantial cost of servers, storage, and bandwidth. Peer production is also leveraged to create much of the open source software that supports many of the Web 2.0 efforts described above. Techniques such as crowdsourcing, where initially undefined groups of users band together to solve problems, create code, and develop services, are also a type of peer production. These efforts often seek to leverage the so-called wisdom of crowds, the idea that a large, diverse group often has more collective insight than a single or small group of trained professionals.

Table 7.1 "Web 1.0 versus Web 2.0" lists several examples typically considered to fall under the Web 2.0 classification (a term coined by publisher and pundit Tim O’Reilly), and each is offered alongside its first-generation Internet counterpart.Adapted and modified from the original list presented in T. O’Reilly, “What Is Web 2.0?” O’Reilly, September 30, 2005.

Table 7.1 Web 1.0 versus Web 2.0

Web 1.0 Web 2.0
domain name speculation search engine optimization, fans, and followers
page views cost per click
screen scraping Web services
publishing participation
content management systems wikis
directories (taxonomy) tagging (“folksonomy”)
Britannica Online Wikipedia
personal Web sites blogging, status updates, and link sharing
Ofoto Flickr, Facebook, and Twitter
instant messaging Twitter and Facebook
Monster.com LinkedIn
RealNetworks YouTube
YellowPages.com Yelp
Travelocity TripAdvisor
Vonage Skype

Millions of users, billions of dollars, huge social impact, and most of these efforts grew to influence millions in less time than it takes the average freshman to complete college. When technology moves that quickly, even some of the world’s most preeminent thought leaders can be sideswiped.

Consider that when management guru Michael Porter wrote a piece titled “Strategy and the Internet” at the end of the dot-com bubble, he lamented the high cost of building brand online, questioned the power of network effects, and cast a skeptical eye on ad-supported revenue models. Well, it turns out Web 2.0 efforts challenged all of these concerns. Among the efforts above, all built brand on the cheap with little conventional advertising, and each owes their hypergrowth and high valuation to their ability to harness the network effect.

This chapter can be considered in two parts. The first explains many technologies behind the social media / peer production / Web 2.0 movement, and we provide several examples of their use and impact. The final part of this chapter describes how firms should organize to engage with and take advantage of social media—specifically detailing how to “Get SMART” (with a social media awareness and response team). After going through both sections you should have a solid overview of major social technologies, how businesses are leveraging them, and how firms can organize for effective use while avoiding pitfalls.

Table 7.2 Major Social Media Tools

Description Features Technology Providers
Blogs Short for “Web log”—an online publication that keeps a running chronology of entries. Readers can comment on posts. Can connect to other blogs through blog rolls or trackbacks.

Key uses: Share ideas, obtain feedback, mobilize a community.

  • Immediate publication and distribution
  • Reverse chronology
  • Comment threads
  • Persistence
  • Searchability
  • Tags
  • Trackbacks
  • Blogger (Google)
  • WordPress
  • Tumblr
  • Posterous
Wikis A Web site that anyone can edit directly from within the browser.

Key uses: Collaborate on common tasks or to create a common knowledge base.

  • Collaborative content creation
  • All changes are attributed
  • Revision history, with the ability to roll back changes and revert to earlier versions
  • Automatic notification of updates
  • Searchability
  • Tags
  • Monitoring
  • Socialtext
  • PBWorks
  • Google Sites
  • Atlassian
  • Jive
  • Microsoft (SharePoint)
  • Apple OS X Server
Electronic Social Network Online community that allows users to establish a personal profile, link to other profiles (i.e., friends), share content, and communicate with members via messaging, posts. Most personal relationships are reciprocal (i.e., both parties agree to be “friends”).

Key Uses: Discover and reinforce affiliations; identify experts; message individuals or groups; virally share media.

  • Detailed personal profiles using multimedia
  • Affiliations with groups, organizations, and individuals
  • Messaging and public discussions
  • Media sharing
  • “Feeds” of recent activity among members
Open/Public
  • Facebook
  • LinkedIn

Private Platforms

  • Ning
  • Lithium
  • SelectMinds
  • LiveWorld
  • IBM/Lotus Connections
  • Salesforce.com
  • Socialtext
Microblogging Short, asynchronous messaging system. Users send messages to “followers” who aren’t required to follow back.

Key Uses: distribute time-sensitive information, share opinions, virally spread ideas, run contests and promotions, solicit feedback, provide customer support, track commentary on firms/products/issues, organize protests.

  • 140-character messages sent and received from mobile device
  • Ability to respond publicly or privately
  • Can specify tags to classify discussion topics for easy searching and building comment threads
  • Follower lists
Open/Public
  • Twitter

Private Platforms

  • Socialtext Signals
  • Yammer
  • Salesforce.com (Chatter)

Key Takeaways

  • A new generation of Internet applications is enabling consumers to participate in creating content and services online. Examples include Web 2.0 efforts such as social networks, blogs, Twitter, and wikis, as well as efforts such as Skype and BitTorrent, which leverage the collective hardware of their user communities to provide a service.
  • These efforts have grown rapidly, most with remarkably little investment in promotion. Nearly all of these new efforts leverage network effects to add value and establish their dominance and viral marketing to build awareness and attract users.
  • Experts often argue whether Web 2.0 is something new or merely an extension of existing technologies, but it’s more important to appreciate the magnitude of the impact of the current generation of services.
  • Peer production and social media fall under the Web 2.0 umbrella. Social media refers to content that is peer produced and shared online. But peer production also includes services that are enabled when users collaborate (examples include Skype and BitTorrent).
  • Many Web 2.0 services often leverage the wisdom of crowds to provide insight, products, or ideas that can be far more accurate or valuable than those provided by a smaller group of professionals.
  • Network effects play a leading role in enabling Web 2.0 firms. Many of these services also rely on ad-supported revenue models and open source software.

Questions and Exercises

  1. What distinguishes Web 2.0 technologies and services from the prior generation of Internet sites?
  2. Several examples of rapidly rising Web 2.0 efforts are listed in this section. Make your own list of Web 1.0 and Web 2.0 services and technologies. Would you invest in them? Why or why not? Are there cautionary tales of efforts that may not have lived up to their initial hype or promise? Why do you suppose they failed?
  3. In what ways do Web 2.0 efforts challenge the assumptions that Michael Porter made regarding Strategy and the Internet?
  4. Trends in computing platforms and Internet services change quickly. How have the firms profiled in the bullet points above fared? Has each increased in use, value, and impact or shrunk? Are there other efforts or updates that you think are worthy of making the list in the next edition of this book?