Prior to posting part 2 of the ‘2.0 Service Architecture – A Conceptual Framework’ series…I will change tracks a bit and share my musings on this question that I have heard quite a bit in recent times.

The Web 2.0 bubble is seen by many as having already burst, or as being on its way to burst in the near future. Economist.com for instance refers to the current state of the Web 2.0 ecosystem as ‘The end of free lunch – again’.

How could a movement like Web 2.0 that has fostered several insanely viral & popular social networking/media services like Facebook, MySpace, Flickr, Twitter, YouTube, SlideShare, Digg etc. be seen as having hit or trending towards such a low? While there could be numerous opinions and theories for this, the Economist.com write-up referenced above IMO nails the crux of the ‘2.0 bubble burst’ perceptions…predictable monetization strategies required to keep the lights burning and wheels churning have been an after thought for the vast majority of the players (predominantly web startups) in the 2.0 ecosystem. Like traditional brick & mortar businesses, each Web 2.0 service is also an online business operated as a (small) company (aka startup) with operational costs, and requires a consistent source of funding to remain functional. While a venture capitalist or investor or in some cases the founder may invest initial cash based on potential to help bootstrap, sustaining such investments without demonstrating an ROI is impractical (and having a couple of million active users without active revenue generation is not ROI, at least not the kind required to sustain the longevity of a service)

‘Let’s rake in the users first, and worry about/figure out monetization strategies beyond advertising later in the game’… has been a commonly recited mantra in the ecosystem. Though a viable source of income for multi-faceted giants like Google and possibly sufficient to keep the the top 1% of siloed Web 2.0 services spinning for a while, relying solely on advertisements today is not a very viable pillar to lean on given the current state of the global economy. In layman terms, a few other top of the line general factors that have contributed to the slumping trend/state of the Web 2.0 ecosystem include:

• Deferring the quality and tough problems of addressing the ‘who?’ and ‘why?’ dimensions of ‘paying for a service’
• A limited view of the target demographics who could benefit from a service – consumer centricity and a prolonged ignorance of monetizable enterprise/business opportunities
• Multiple ‘Me 2 style investments’ with significant deltas between the leaders and the followers – case in point being the number of photo/video sharing services and social networking communities that permeate the web today v/s the number that have attained their user reach potential

The above observations are not meant to imply that there are no web startups out there that have thought through these quality problems and are investing in value differentiating service offerings with credible monetization strategies over & beyond advertising. SmugMug, Socialtext, Zooppa, and uTest are examples of such (likely lesser known in comparison to the likes of Facebook and Twitter) services whose offerings and monetization strategies (ranging from value differentiation in a populated consumer context, to being unique providers of services with potential to benefit business operations) have personally impressed me. It is just that there are not enough of such services around to claim the Web 2.0 movement as being a success in the economic context (at least not as of yet).

Given the general uncertainty and perceived state of the Web 2.0 ecosystem, it is not uncommon for folks in the traditional brick & mortar enterprise/business segments to question and be very skeptic about the value proposal of 2.0 investments in an enterprise/business context. I personally am an optimist when it comes to the value potential of 2.0 investments in the context of an enterprise/business. My optimism is based on the following foundational pillars of thought:

• Unlike a web startup, an established Enterprise/Business is an operation with product/service offerings that actively generate revenue via established monetization channels (viz. there are people who invest in/pay for the products/services)
• Unlike a web startup, the operational costs of a profitable Enterprise/Business are accounted for by the company’s established revenue streams
• The essence of Web 2.0 does not exist in one off viral consumer centric services that permeate the web today (YouTube/Facebook/Twitter/etc. != Web 2.0)
• The generic notions of viral user engagement, social dynamics, and network effects that are prevalent across popular Web 2.0 services, constitute the essence of Web 2.0. These notions are the pillars of the social web today and the enablers of related disruptive experiences/capabilities that have gained viral adoption while enabling users to accomplish personal and mutual goals in a variety of contexts. These notions are here to stay and are broadly shaping user expectations of applications and services in the contexts of both personal and professional usage
• Investing incrementally in enabling viral user engagement, social dynamics, and network effects to foster greater productivity and disruptive (in a good way) engagement models in the context of core enterprise/business functions (employee collaboration, marketing/sales, hiring, B2B, B-2-Customer, B-2-Community, internal business systems etc.) to materialize significant organizational agility and benefits, constitutes the crux of Enterprise 2.0
• There exists a plethora of opportunities for current & next generation web service providers to materialize predictable monetization strategies through mutually beneficial services/service options that enable the materialization of the ‘The Enterprise 2.0 Opportunity’

A million dollar question that now deserves some attention is whether the Web 2.0 movement should be written off as yet another bubble burst in the holistic sense? My personal net-net take on this is “No, the 2.0 movement is not a complete write off”, it has fostered some key paradigms that are here to stay and that are actively shaping (knowingly or unknowingly) investments in a variety of segments. Numerous opportunities still exist to apply these paradigms in ways that yield mission critical benefits and impact the top & bottom lines in a variety of contexts (Enterprise/Business operations, Consumer services, Non-profit organizations, Govt/Public sector operations, and industry verticals). Materializing these opportunities to turn the tide on the slide down to yet another bubble burst is a higher order bit of greater significance than say adventurous ventures to define/shape a Web 3.0 movement.

Drawing an analogy in the context of the current times, the down state of Web 2.0 today and the opportunities on hand to turn around a bubble burst, are similar in subtle ways to the cause(s) of the current state of economic recession and the measures being adopted across the board to restore balance with an eye towards emerging stronger at the end of the tunnel. I see ‘The Enterprise 2.0 Opportunity’ as having the potential to be a game changer in the context of enabling Enterprises/Businesses and emerging web startups to cope with these trying times and emerge stronger at the end of it all.

In my future postings, I will get down to specific examples of cross-cutting opportunities and share my thoughts on factors of relevance to related business & technology decision making. I would also love to hear your thoughts on this subject!

Cheers!
Karthik