Acadia Partners Blog

Every once in a while my ties to the world of high tech swing me around so that I can see something new about our local economy. An article in last week’s Financial Times, coupled with some conversations with friends who follow the changing landscape of technology business, got me to thinking about how we do business and solve problems here on the downeast coast.

Something known as “Web 2.0″ is emerging in the world of Internet business. It is a new way of building products, financing a business, and working together. It is a big enough deal to make Microsoft worry about its future. Meanwhile, a lot of us here back home are still trying to get something better than dial-up when we want to get our email. But, all the same, there are some things about Web 2.0 that are worthwhile for us to pay attention to.

Web 1.0 and Web 2.0

I need to explain a little about what Web 2.0 is in order to make the connection between this next stage of the Web and life here in Maine, where we live “life as it should be.” Web 2.0 is not a product, or anything like that. It is more like a way of doing business on the web. The easiest way to understand it is by comparing it to what came before, which we will call “Web 1.0.”

The most famous Web 1.0 company was Netscape, which some of you might remember as the first big challenger to Microsoft’s dominance in the world of computer software. Netscape was the first company to recognize the potential of the Internet and to make a big play in the stock market as it tried to cash in on the Internet’s potential. Their idea was to create a web browser to give a away for free, with the hope that all that web browser notoriety would lead to sales of a more expensive software product, called a web server.

There were two things that went wrong with Netscape’s plan–both are important. The first was that web servers turned out to be commodity products–like web browsers–rather than something that you could charge a lot of money for. (In fact, the very widely used Apache web server, which is the web server that sent you this page you are reading now, is free.)

Netscape probably could have survived this first problem if that had been the only problem. The solution would have been to migrate to another product–one that theycould charge money for. What really killed Netscape was the second problem, which was that despite their new products and emphasis on the Internet, Netscape was fundamentally in the same business as Microsoft and other large, well established software companies. Netscape’s business depended on building and licensing software products. This was a business that Microsoft and others understood very well. When Netscape stumbled, failing to quickly develop a revenue stream, the other software companies, which did have strong revenues streams, moved in for the kill.

So, in the world of Web 1.0, we had the Internet, but the basic business models didn’t change very much. The delivery mechanism was different, but the way that a company made money–whether that company was selling advertising, books, software, or other products–stayed pretty much the same.

What’s important about Web 2.0 is that the business model has changed. The most notable Web 2.0 company is Google. The thing to pay attention to here is that Google is not in the business of licensing software. Instead, it provides a service–one that is free, for you, as someone looking for things on the Web, but one that advertisers are happy to pay for. Google provides companies with potential customers coming to their websites.

But there is more. Google offers a service called “AdSense,” in which anyone with a website can “rent out” ad space, through Google. So, if you are running a website on, say, quilting, and have a lot of your fellow quilters coming to your site to find out about patterns, techniques, and to share information about quilting, Google will work a deal with you in which Google places ads on your site, and you get paid when people click through on those ads.

You don’t need to be a big company to do this–the quilting site could just be a personal site. This kind of arrangement can be great for the person or the company that runs the site, since it provides extra income. It is also a good deal for the advertisers, because Google uses its searching and classifying capability to make sure that all the advertisements are tied to the content of the site. In our example, this would mean that the advertisements would all be targeted at quilters. The result is that advertisers can reach the exact audiences that will be interested in their products.

There is a lot more to Web 2.0 than Google. eBay is another good example of a Web 2.0 company, offering a service rather than a product.

Web 2.0 for the Little Guy

Not all Web 2.0 companies are big companies. In fact, part of what makes Web 2.0 so interesting is that it is opening up opportunities for new smaller businesses. It is a different world for technology start-ups today than it was ten years ago, and the differences make it easier for the little guy:

• There is now a well developed infrastructure of software services and applications on the Web. You don’t have to build as much new stuff today. Instead, a company can create useful, lightweight applications that work on top of the existing infrastructure.
• A lot of tools are available for free, as “open source” software. (As an example, this Acadia Partners website is built entirely from free, open source products.)
• There are a lot more people and organizations using the web, and many of them have high speed access, which opens up new possibilities for new applications.
• Google’s AdSense can provide many new companies with an instant revenue stream. This is another example of being able to take advantage of what has been built up over the last decade.

The Financial Times article provides a good example of this difference, quoting Joe Kraus, one of the founders of the search company known as Excite during the Web 1.0 era, who has now started a new company called Jotspot: “When I started with Excite, it cost us $3m from the idea to when we had a product in the market. For Jotspot, it has cost me $100,000.”

If you want to know more about Web 2.0, Tim O’Reilly has written a good overview. The question I want to address here is what this has to do with Downeast Maine.

What Web 2.0 Might Do For Us

I see a number of things about Web 2.0 that could turn it into a positive development for businesses and community organizations in our area:

• Reduced capital costs and less time from concept to first revenue is a good thing for us. Maine is mostly about small businesses, and anything that creates new opportunities for smaller ventures is a good thing for this area.
• Web 2.0 businesses often reach out to niche markets with special needs or interests. This, too, is good for us–Maine businesses often serve smaller markets.
• A Web 2.0 business is often a distributed business, pulling together talented people who do not all live in the same area or show up for work in the same building everyday. This is good for Maine–we are a “distributed business” state–anything that makes physical distance less of a disadvantage helps level the playing field for our area.

In short, Web 2.0 is potentially good for Maine because it opens up new doors for the little guy. You don’t have to big a big, centralized organization with an office in a big city to succeed. In fact, some go so far as to argue that being a big outfit can be a disadvantage in the Web 2.0 environment and that Web 2.0 favors organizations that are nimble and that can do a good job of meeting the needs of particular customers.

So, we might hope that Web 2.0 opens new opportunities for this economy located up on the far northeast corner of the country.

Digital Divide?

Or, it could go the other way. My fear is that we could miss out.

There are a couple of things that worry me.

• We are one of the few places in the Northeast where there are a lot of towns in which high speed access is simply not easily available. In much of Gouldsboro, for example, you have to install satellite access if you want something better than dial-up.
• Most small businesses and an even greater percentage of non-profit organizations here in Maine make very little use of the Web as part of their regular business.
• For many people, the Internet and the Web seem esoteric–like something that other people do someplace else.

In short, we are behind the curve in terms of knowing–or, in some cases, even caring about things like Web 2.0, web based collaboration, and web-based business. There is real risk that, rather than seeing this situation slowly improve over time, we will fall even farther behind as the Web moves toward Web 2.0 — an entirely new phase of web business. Heck, we haven’t even figured out the first era of the web and here they are moving on to a new one …

Why It Matters

It looks like Web 2.0 presents an opportunity for our part of Maine, and for Maine as a whole. It would be a shame to miss out on that opportunity.

But the trade-off between opportunity and risk is even greater than that. There are now companies and non-profit community groups that are learning how to take advantage of this new Web environment to grow and thrive. We compete with the areas in which those companies and organizations are located. We compete to sell products, we compete to attract funding, we compete to attract talented people who can grow new businesses and add their talents to the local economy.

My concern in looking at something like Web 2.0 is that, while it presents an opportunity for us to grow in ways that were not possible a few years ago, it also presents a risk that the gap between us and other areas of the country–areas that are already engaged in web-based business and services–will grow larger instead of smaller.

Put another way, it won’t necessarily work out that we will slowly catch up. The information and knowledge economy that is growing up around new Web capabilities is not waiting for us, it is accelerating. Things will get harder, not easier, if we allow ourselves to be left behind.

This entry was posted on Saturday, November 19th, 2005 at 11:55 am and is filed under Technology, Internet, Local Economy. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.