Sneaking up on the enterprise

While the dot-com boom's standard bearers were never shy about hype, the companies involved in the Internet's next wave — Web 2.0 — are a little more self-deprecating. For instance, there's sales services company Cerado's "Web 2.0 or Star Wars Character?", an amusing quiz that challenges you to distinguish real 2.0 companies from film creations. The movement's proponents say this time they're for real, but they've still got some convincing to do.

Stamford, Conn.-based research firm Gartner calls the online social networking and collaboration that define Web 2.0 "a significant wave of often-overdue Web business refreshes." Its 2006 Hype Cycle report lists Web 2.0 as the No. 1 technology theme to watch in the next 10 years for having "transformational, high or moderate impact." And in its Predicts 2007 report Gartner says that by the end of 2007, 30% of large companies will have some form of Web 2.0-enabled business initiative underway.

According to a MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, Internet-specific companies captured $1.1 billion (how much of that is Web 2.0-specific is unknown) of venture capital funding in Q3 2006, or 17% of total investment — a four-year high. Peter Rip, partner at San Francisco-based investment firm Crosslink Capital and Menlo Park, Calif.-based Leapfrog Ventures (and himself a blogger), says that while he's seen a lot of Web 2.0 businesses, he's invested in only four of them in as many years, for a total of about US$18 million. Crosslink has about US$1 billion under management and Leapfrog has about US$200 million. Says Rip, "There's more imitation than innovation going on in Web 2.0, a lot of variation on a theme."

He attributes the proliferation of Web 2.0 companies to the combination of open source and existing programming being widely available along with the reduced cost of computing. This has meant companies can get started on tens of thousands of dollars rather than the millions required in the past.

George Tsiolis, president of Toronto-based Agoracom, an investor relations firm for small-cap companies, has jumped on Web 2.0 tools like blogging and RSS for his customer-facing applications. But he's holding off when it comes to internal tools. "We know they're out there," says Tsiolis, "but we just want to hear more. You want to protect your core business at the end of the day. We don't want to be in that experimental stage where we need to get something done because a prospective client is waiting for something and the software is acting in a way that we're not familiar with and it delays us getting out critical information."

Greg Dowling, an analyst with New York-based Jupiter Research, points out that some larger organizations have begun moving to Web 2.0, albeit slowly. A 2006 Jupiter survey of companies with $50 million revenue says 30% of executives report already deploying wiki technology, and 40% have deployed RSS feeds. A further 68% have either deployed or are about to deploy internal corporate blogs. Some of the key stumbling blocks for larger enterprise include information control and security. Stuart MacDonald, Expedia.ca founder and co-founder of Canadian Web 2.0 conference MESH, says he expects these will be the hottest conversations at the next conference in May 2007.

Ismael Ghalimi, organizer of the Office 2.0 conference in San Francisco, concurs. "In enterprise, rules around security, governance, and compliance make the adoption of anything new an uphill battle." He thinks larger enterprise will likely adopt 2.0 applications, such as CRM or calendar options, individually as they suit the organization's needs.

He says the tipping point could be the entrance of Microsoft and Google Apps For Your Domain (which allows companies to use services like Google Talk under their own domain names). "Once Microsoft makes a first release for MS Live (a set of Web-based search tools) that will be the signal for the average user to start transitioning."

However, Jupiter's Dowling identifies as the biggest barrier not just security issues but, among larger organizations, cultural resistance to information sharing and collaboration. "No matter what kind of security assurances Google could provide, that's still a risk that I don't think enterprises are willing to take in the near term."

By way of solution, Gartner recommends that organizations interested in 2.0 "should allocate a two- or three-person team of business-oriented IT department colleagues to investigate Web 2.0 ‰??. CIOs should choose team members based on open-mindedness, analytical capability, insight and the ability to truly think differently."

No matter what the rate of enterprise adoption, at least some elements of Web 2.0 are here to stay. Says MESH's MacDonald, "If you think about the amount of time you already spend in a browser window accessing services over the Internet and how much that has changed over the past few years, there's no reason to think that's going to do anything but continue."