The potential disruptive impact of Internet 2 based technologies
First Monday

The potential disruptive impact of Internet 2 based technologies by C. Pascu, D. Osimo, M. Ulbrich, G. Turlea and J.C. Burgelman



Abstract
This paper assesses the development of emerging computing applications that fall under the family of digital applications and technologies. These applications and technologies — Internet 2 based technologies for short — enable new ways of connectivity for networking, interfacing and producing content. They have the capacity and the force to disrupt existing social and economic relations and thus have major impacts on society. Hence, the term ‘e-ruptions’: emerging e-trends with potential disruptive power. This paper investigates the socio-economic impact of emerging e-ruptions, in an attempt to try and contextualise their implications and relevance for policy formulation.

Evidence on trend development is presented from both formal and less formal sources such as weblogs, journals, independent commercial sources and industry-produced data. Although this evidence is largely anecdotal, at least for Europe [1], it is consistent and growing, and is reflected in social and economic impacts. Some of the social computing applications are only at the promotion stage (e.g. Ajax, social networks and wikis [2]), but others (such as VoIP) have already been widely adopted.

The social relevance of these trends appears clear. They affect the way people find information, learn, share, communicate and consume and the way businesses do business. Throughout, an emphasis can be detected on interpersonal communication and on the role of the user as a supplier or co-producer of the service (content, taste, contacts, reputation, relevance, physical goods, but also software, connectivity and storage). In economic terms, these trends are already having a visible impact: new players and markets provide significant threats and opportunities for the ICT and media industries, and the new applications are increasingly used for professional purposes.

The rise of the user — as a person, group or firm — as a producer is recognisable as the common thread of most of the emerging trends. Users produce utility-bearing information that minimises the transaction costs on various markets for goods and services in a potentially Pareto-optimal setting. In interacting, they use platforms that enable social networking and facilitate the further development and spread of the new e-ruptive trends. This process also changes the structural composition of (primarily) ICT and media industries, influencing directly their competitiveness. The nature of the competition for platforms that support current e-ruptive trends has been identified as one of the key factors in the continuing development of these trends.

Although spectacular success stories of trend-setting companies promoting some of these applications can be observed, one has to be more cautious (bearing the Internet bubble in mind) when assessing their sustainability. In other words, a second bubble is not impossible. However, the success of innovation is measured by how established it is on the market and not by of any individual company. During the Internet bubble, the ‘holy grail’ of company success was "first-mover advantage"; now the focus has shifted back to more traditional business concepts, such as income, providing a more stable economic base. Internet 2 computing companies tend to have a smaller cost base, since they rely on users for a large part of their output, viable business models, and real market and they are much more closely integrated with the old economy, providing increasingly predictable income streams. This was not so much the case when the Internet bubble burst a few years ago.

The paper starts by analyzing the available evidence on the usage growth of these trends (point 2). It then spells out the drivers of this growth (point 3), the different types of social and economic impacts (points 4 and 5 respectively). Building on this analysis, it puts forward interpretations on the sustainability of these trends (point 6), and on the main implications for innovation and competitiveness (point 7). The conclusions point to further research needs, and European policy options (point 8). In the annex (point 9), the main empirical data and a rough impact assessment are given.




Contents

Introduction
The growth patterns
The key features of Internet 2 computing
The social relevance
Economic relevance
Sustainability of the trends
Implications for innovation and competitiveness
Future research and policy implications
Annex: A rough guide to Internet 2

 


 

Introduction

Over the last few years, we have witnessed the impressive growth of several user-driven applications [3] such as blogs, podcasts, wikis, social networking Web sites, search engines, auction Web sites, games, and VoIP and peer-to-peer services. Together, they are referred to as Internet 2 based technologies or social computing, as they exploit the Internet’s connectivity dimension to support the networking of relevant people and content. The user is an integral part and co-producer of all the elements of a service delivered: of content (blog, wiki, Flickr), of taste/emotion (Amazon, de.li.cious), of goods (eBay), of contacts (MySpace), of relevance (Google pagerank), of reputation/feedback (eBay, TripAdvisor), of storage/server capacity (P2P), of connectivity (wifi sharing, mesh networks) or of intelligence (business web2.0) [4].

This paper summarizes and analyzes these trends in order to gain insight into their size, impact and policy relevance, based on an extensive desk-based survey of secondary data on the development of social computing applications, summarized in the Annex. While the evidence collected is strong enough to indicate patterns, the availability and quality of the data is certainly a cause for concern. The nature of the available data does not fully allow us to put social computing in the context of other applications, or, to be more specific, to understand whether growth is concentrated among a few societal groups ("geeks", teenagers, etc.) or is more widespread (in the case of social networking, for instance). However, no official statistics are available, and often data are provided by independent commercial sources (Nielsen NetRatings, Pew Internet & American Life Project, 2006) or by the industry itself. Moreover, the available data are often not compatible with official statistics and not comparable on an international level.

However, the size and scope of the evidence analyzed enables us to draw a solid overall picture of the development of social computing, its drivers and main impacts.

 

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The growth patterns

Available data show clearly dramatic growth in take–up over the last three years. (see figures reproduced in the Annex). In many cases the growth is so high that it reminds us of Metcalfe’s law (square growth of network utility), or even Reed’s version (exponential growth of group–forming networks) (Reed, 1999). Comparative research is needed over longer periods of time, but, in the history of communication technology, not that many examples exist of such an exponential growth in such a short time (e.g. Flichy, 1995; Zerdick, et al., 2005). The number of blogs, for example, have doubled every five months for the last two years; social networking Web sites usage is multiplying year on year; peer-to-peer has become the largest source of traffic on the Internet in three years; and, FON, the wifi-sharing network, has become the largest wifi network in the world in just one year (see Annex).

Sometimes this explosive growth is due to the very small starting base (wifi sharing, blogs, social networking), and, in some cases, it is still more a future projection than a reality (like podcasts). However, their growth has generally been continuous over the last three years, and cannot be considered just a passing trend. Even eBay, founded in 1997, is growing by 25 percent a year in terms of number of users and 30 percent in terms of volume of transactions [5].

Furthermore, some of these trends have already reached the mainstream of Internet usage. In terms of penetration, most Internet users rely on search engines to find information, half of them visit social networking Web sites, and a very large share visit blogs, use eBay, and make phone calls via VoIP. With regard to intensity of usage, social networking Web sites are the most visited sites in terms of page views, and the largest part of Internet traffic by far is peer-to-peer file sharing.

A minority of users appear to make active use of these applications, by writing blogs, contributing to Wikipedia, creating podcast and videos, and offering goods for sale on eBay. However this does not undermine its importance: firstly, because the small number of users producing and distributing content is much bigger than it was before; for example, the explosion of blogs. Secondly, this difference between passive and active usage is also well known in other Web applications (e.g. using e-commerce Web sites for information rather than transaction purposes) and in media consumption (nobody expects the number of journalists to be equal to the number of readers!). Finally, active usage is expected to grow over time as users acquire more familiarity. This phenomenon is also called as "lurking" — that is, quietly reading but not actively contributing to Internet and e-mail discussions (Markham, 1998).

 

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The key features of Internet 2 computing

All across emerging trends, a significant emphasis can be detected on the "communication" function of ICT and, more importantly, on the role of the user as a supplier, co–producer or even innovator of the service.

These applications build on the capacity of ICT to increase possibilities for interpersonal communication. Blogs, wiki, voice over IP, podcast, taste sharing and social networking services all increase the possibility of finding other people like us, and therefore enhance communication possibilities and their value. When analyzing the reason for the explosive success of social networking sites such as Flickr and Delicious, several analysts point to the fact that these services exploit what computers are good at, i.e. "enhancing communication, collaboration and thinking, rather than trying to substitute for them" [6]. By exploiting this capacity to connect relevant people and content, they make possible new things. A crucial element in this is therefore the capacity to enhance relevant connections, which has taken significant steps forward in the last few years, thanks to technological solutions such as Google Pagerank, eBay’s reputation system, tagging in Flickr and Delicious, and blog links in Technorati. It is also interesting that these specific technological solutions, which enable the creation of relevant connections between people and content, largely rely on user input for defining relevance.

This emphasis on the importance of the communication features of ICT is not a new theme. In fact, Metcalfe’s law has already explained how the number of users is the key determinant of the value of a network. Reed’s law further emphasizes the relevance not only of the number of users, but also of the capacity of users to create groups — thereby making the value of a network grow exponentially to the number of users. It is worth noting that on the basis of this law, David Reed (1999) predicted the huge success of eBay as compared to traditional e-commerce platforms. The service automatically gets better as more people use it.

It is noticeable that in academic and policy discussions on the emergence of the information society, and the nature of the technologies that drive it, the presence of the word "communication" has, for the most part, been overlooked (Burgelman and Punie, 2006). The focus was on information rather than communication, while at the same time, huge numbers of users were rapidly taking up communication facilities such as e-mail, mobile phones and mobile messaging (SMS and MMS). In everyday life, the drivers of the information society have, in fact, quite consistently been those addressing the need for, and management of, communication, rather than information (Silverstone and Sørensen, 2005). This shift from information towards communication is significant, since it involves a very different set of practices, and it also involves a different scope, as thinking in terms of networks (Castells, 1996-98) raises issues such as communication, interactivity and the active role of users (Tuomi, 2002).

In the early 2000s, when broadband was slowly gaining ground in Europe, the debate around possible drivers for broadband adoption was divided between supporters of "content" and supporters of "networking". As a report from the EC-funded STAR research project in 2003 put it: "Is content the key driver for broadband acceptance and use?" Interviewed experts generally support the view that audio and video content have strong relevance for broadband demand. But several experts questioned this, mentioning communication and the interactive potential of networks as the main motivations for broadband use — or, as Kaplan put it, "the killer application of networks is networking" [7].

As an indirect confirmation, quantitative data highlight the relevance of communication in household consumption as a key development over recent years. Communications is the category of expenditure which has enjoyed highest growth over the last few years, despite a simultaneous fall in price — thereby indicating a huge increase in consumption (OECD, 2005). It seems, therefore, that Internet 2 focuses on the communication capacity of ICT and it enhances it through new technological solutions (tagging, ranking, feedback mechanisms) that make it possible to connect relevant people and content, largely relying on user input.

This brings us to a second feature: most Internet 2 applications have embraced the power of the Web to harness collective intelligence. Users are becoming much more deeply involved in the process of production and service innovation [8]. Again, this is not a new feature: in the 1980s, the futurologist Alvin Toffler coined the term prosumer in his book The Third Wave, when he predicted that the role of producers and consumers would begin to blur and merge, so that people are increasingly both producers and consumers. More recently, the Cluetrain Manifesto [9] noted that "a powerful global conversation has begun. Through the Internet, people are discovering and inventing new ways to share relevant knowledge with blinding speed. As a direct result, markets are getting smarter — and getting smarter faster than most companies."

This long-term societal trend is particularly visible in social computing applications. In every application considered, the role of the user is essential to the delivery of the service: in the production, the distribution, and the selection/retrieval of content and services.

Firstly, the user is a supplier of content. Social computing applications (such blogs, podcast, wikipedia, YouTube) enable the user to easily publish and share text, audiovisual content, and contacts (in social networking Web sites). The relevance of this phenomenon with regard to the media industry cannot be underestimated. Secondly, the user supports the distribution of content and service. In peer-to-peer networks and wifi sharing, the user is a provider of the transport infrastructure and services. (Somewhat more prosaically, in eBay the user is in charge of packaging and sending the goods!). Thirdly, the user plays a fundamental role in finding/selecting/and filtering the relevant content and services. Search engine ranking relies on other sites’ links in order to estimate the relevance of the search; wikis rely on users to evaluate and select the quality of content; tagging and taste-sharing by users, and finding what other users like, is a fundamental way to share and find interesting information and content (like music!) over social networking sites; feedback by users is the basis of the reputation management system of eBay.

At the height of the Internet boom, the mainstream technology-oriented assumption was that digital technologies had lowered the costs and complexities of content production and distribution to such a degree that, potentially, every individual or group could become a content producer, thus offering an important development potential for Internet-based start-ups. However, with the burst of the Internet bubble, it appeared that low entry barriers alone do not necessarily guarantee start-up survival in the longer term, if this is not accompanied by a viable business model, based on real revenues (Punie, et al., 2002). And it is exactly the latter that seems to be different today as compared to five years ago, as showed in the section "The economic relevance".

 

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The social relevance

The potential, but largely undocumented, social relevance of these trends follows from the quite spectacular take-up figures and from the qualitative changes that are occurring. Individuals have unprecedented possibilities to achieve visibility and broadcast their opinions.

Customers and users are becoming more aware and demanding, thanks to horizontal sharing of information, mainly through blogs. Information, content and services are increasingly available for free or at low cost, either thanks to advertising or to piracy, and users are becoming more selective in what they are ready to pay for. With the help of technical solutions such as RSS (Really Simple Syndication) and news aggregators, every user is able to build her own personal newspaper. Again, this idea is not new. The concept of a "Daily Me" was put forward, for example, by MIT Media Lab founder Negroponte (1995) in his book Being Digital.

Bloggers are influencing the way public opinion is shaped, particularly in terms of agenda setting, and focussing attention on issues which would not otherwise be considered by mainstream media. Blogs played a major role in the 2004 American elections, and in the "No" campaign in the French referendum on the EU Constitution. Social computing applications rely on the cooperative behaviour of users, in terms of software development, content creation, or infrastructure sharing. What is interesting is that social computing, on one hand, facilitates this cooperation and lowers its costs (through technical solutions such as wiki and RSS) and on the other hand, it increases benefits and non monetary rewards, through organisational solutions such as the reputation management system of eBay. Therefore, these applications are changing the way people find, know, collaborate with and trust each other. As Bryant and Wilcox (2006) put it, "new things are possible, with a critical mass of connected people and content, that we could not do before." They seem to have realised what has been a common "dream" for many communication technologies: that "every sender should become a receiver and every receiver a sender" [10].

The transition of the passive role of the user, inherent in the television culture, to an active one, essential to the Web culture, induces noticeable changes in behaviour. Although, the underlying component of social computing applications is the basic act of communication, significant changes can be noted in our relationship and the way we interact with media. The notion that users play a major role in contemporary production processes is currently under investigation in various fields, namely, marketing, advertising and more recently innovation and design. However, as the key social structures of our society become more intertwined around electronically processed information networks and the processes they make possible, more complex forms of cooperation are taking place (Brown and Duguid, 2000).

The shift from consumption to participation, and from interpretative to configuration practices induced by new media technologies, is affecting everyday social practices (Moulthrop, 2004). The significance of this evolution lies in the fact that ‘users’ play a major role in technology advancement. They are both clients and service providers. This is evident in the way users have become an integral part in online eruptive services, such as Amazon, eBay, Google and Wikipedia. They present new possibilities in organising people, processes, relationships, knowledge and collaboration (Saveri, et al., 2004). Such "new ways of operating" (de Certeau, 1984) in the way people are appropriating such communication protocols requires further understanding of the social and cultural transformative potential of these new applications and their impact on ICT policies.

Moreover, as people become more networked and interconnected through the use of ICTs, new forms of social organisation are emerging which are different from the ones known in traditional societies (i.e. social relations based on physical proximity and close social ties such as the extended family ones). These issues echo the ongoing debate in social sciences, dating back to the nineteenth century, regarding the changes in community life due to economic and technological advances. Some feel community life has been "lost" due to the emergence of the industrial society, while others, by looking beyond locality as a defining characteristic of community, point to transformations in social life and the emergence of a "liberated" community (Quan-Haase and Wellman, 2004). The breakthrough of the communicative use of ICT, as illustrated by social computing applications, is providing clear signs that people are indeed building new social ties and new social networks (e.g. communities of interest), possibly leading to greater social engagement and providing the basis for a "glocal" (i.e. simultaneously both global and local) civil society (Van Bavel, et al., 2004). These digitalised social networks allow people to construct and maintain personal digital identities and provide "ontological security" (Giddens, 1993) — that is, having basic trust and confidence in the world you live in, which was provided by physical proximity and traditional ties in earlier times. It is this trust and confidence that is being developed in ICT-mediated communications that is having an important impact of on the social fabric of society.

 

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Economic relevance

These trends appear to already have economic relevance, although not all at the same level, or of the same kind.

Firstly, some more established companies are already big corporations, showing huge profits, like Google and eBay. Several blogs, wikis and social networking sites such as MySpace.com and YouTube, have been acquired for large sums by established players or have attracted investment (such as FON). Rather than achieving the status required for Initial Public Offerings on NASDAQ, social computing start–ups are generally bought by existing players..

Many small Web sites are also generating revenues now, mainly thanks to advertising. In this way, even a small but well written blog can become a source of revenue and a full time job for its owner. In a similar way, trading on eBay has become a full-time job for many of its users: about one million people rely on it as primary or secondary source of income.

Secondly, many social computing applications and players represent a direct threat to established industry leaders, in different ways for the different products, such as telecommunications and content industries. VoIP, for instance, puts the revenue sources of telecom operators at risk (with regard to voice traffic); wifi sharing threatens the revenue streams of Wireless Internet Service Providers (with regard to subscriptions for home connections and consumption fees for nomadic hotspot connections).

And a combination of WiFI with VoIP might well change the whole operator business for good.

With regard to content industries, freely available user-produced content (blogs, wiki and podcast) is competing with content produced by established providers (broadcasters, newspapers, encyclopaedias) in terms of audience and advertising. Also, we cannot underestimate the degree to which sharing of audiovisual content through peer-to-peer platforms threatens the revenues of content industries, although it is uncertain the how long this will persist in the future, bearing in mind the increasing numbers of legal complaints by the audiovisual industry. With regard to the software industry, the threat is perhaps less immediate and less visible. However, Google, for example, has launched several Web-based collaborative applications, which could become competitors of MS Office.

Thirdly, social computing applications are already being used for professional purposes. Blogs and wikis are increasingly used in the corporate world to collaborate inside and outside the company. Peer-to-peer is being used by companies, especially in the media sector, to distribute content efficiently. Most broadcasters distribute content via podcasting. Google Earth was used in the aftermath of the Katrina hurricane to support the relief effort. And of course, as this paper shows, researchers increasingly rely on wikipedia as a reliable source for their work.

Last but not least, social computing applications change the relation between final customers and suppliers by reducing the information asymmetries. Thanks to horizontal sharing of information between users, customers become "smarter", more demanding, and more aware of the choices – in one word, empowered. "Blog-alike" feedback and customer reviews are now standard in e-commerce Web sites, and bloggers, for example, have been instrumental in drawing attention to faulty Sony batteries in some laptop computers products, forcing the firm to recall millions of items.

To sum up, we can identify four aspects of economic relevance of social computing. The providers of these applications are increasingly profitable and contribute to growth and employment. At the same time, they already constitute an important threat to the telecommunication and content industries. They are increasingly being adopted as a productivity tool in the private and public sector. And in all sectors of the economy, customers are becoming smarter thanks to horizontal exchange of information with other users.

 

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Sustainability of the trends

Although the evidence presented so far is largely anecdotal, it still allows us to conclude that Internet 2 based applications are currently some of the fastest-growing areas of the information society. However, given the experience of the Internet bubble in 1999-2000, one has to ask the following questions: Is this is the beginning of a sustainable long-term trend or will it fade away again? Are the emerging trends and the practices associated with them here to stay? Will they become disruptive to the industry (and society), or not?

Opinions differ drastically between the sceptics and advocates of social computing. Even the usually moderate Economist has proclaimed "a media revolution on the scale of that launched by Gutenberg in 1448" [11]. On the other hand, the more doubtful OECD argues that "it is very uncertain how the participant digital economy will develop" [12].

There are several good reasons why Internet 2.0 is not likely to end in tears, but become a major turning point in the development of the Internet towards a more active role of users. In particular, although it remains to be seen if the business models for many applications are sustainable in the longer run, the economics of social computing look much less shaky than the economics of applications during the Internet bubble. This is due to two factors: the contributions of users and revenues from other sectors of the economy.

In economic terms, providing an application for user-generated content, whether blogs or social networks, or a node for user-provided infrastructure, means getting most of the work done by an army of unpaid workers or suppliers. Given the high cost of staff in the ICT industry, this reduces expenditure drastically and allows firms to turn a profit with much less income than under a traditional business model. It also reduces the capital burn rate for start-ups allowing them more time to become profitable. Finally, since a lot of work is done by volunteers, a larger share of those involved will continue the project even if it turns out not to make everybody a millionaire.

However, perhaps one big difference to the Internet bubble is that the latter developed in its own world. It was believed that not only was the Web, in itself, the future — "the medium is the message" to quote McLuhan — but also that it was economically isolated. In the rush for market share, every Internet company invested all its newly-raised money in advertising, thereby pushing up the valuation of the companies providing advertising, which in turn attracted new investment into new start-ups – basically, a giant pyramid scheme which collapsed when the new funding eventually dried up (Graham, 2004). In contrast, Internet 2 is rapidly integrating with the "old" economy and society. This integration brings with it revenues from the more traditional sectors of the economy, providing an increasingly predictable income stream for these applications.

There are three main avenues for start-ups to gain access to funding provided by other sectors. Firstly, despite some exceptions, such as Vonage, Internet 2.0 companies which would have targeted an Initial Public Offering (IPO) during the Internet bubble, are now more likely to be bought by an established company – established by Internet standards, that is. Examples abound, such as News Corporation buying MySpace, eBay buying Skype, Yahoo buying Flickr, Google buying Writely, etc. Secondly, large established old-economy companies have started to jump onto the bandwagon and to finance social networking applications, too. For instance, Coca-Cola has just launched a Web site for uploading user-generated content, and even Wal-Mart launched a campaign for teenagers to create their sites linked to its corporate Web site [13], while MTV started a TV channel called Flux for user-generated content [14]. Thirdly, and most importantly, advertising revenue is now based on advertisers from old-economy companies, which increasingly use Internet 2.0 applications for their promotional activities, for example Unilever uses a game promoted within MySpace by a MySpace celebrity 15] or Burger King organising a contest on heavy.com [16]. The buying by outsiders provides funds for survival and expansion at an early stage of company development, while the imitation and advertising/sponsoring of old economy firms indicate one way for Internet 2.0 to be sustainable in the long term, largely as an extension of the media industry. Together, they provide a workable business model.

However, while the Internet 2 trend looks unstoppable, some qualifications apply. Firstly, it is important to distinguish between the trend-setting companies and the trends themselves. Indeed, it is frequently the case that the pioneers who popularised a new application fade away, while the application continues to grow. Internet navigation has left Netscape far behind, just as Napster is history as regards file-sharing. Therefore, Flickr or Del.icio.us may well be gone tomorrow while their invention lives on. Secondly, the success of social computing does not require the sustainability of all its current forms. It is quite possible that some of them fail while others will continue to flourish. For example, wikis may grow, but blogs may wither, or vice versa.

One key criterion for the continuing success of different applications may be the level of involvement required from normal users: some applications such as YouTube or Wikipedia require active cooperation only intermittently [17], whilst others, like blogs, need regular involvement and are therefore in more danger of losing out when they are no longer seen as exciting innovations. Already, the rate of discontinued blogs is very high.

It would be a mistake, though, to expect even the successful applications to continue their development in today’s categories. The distinctions currently in use – blog, social network, user-generated content, wiki – are blurring fast, because applications both converge and diverge simultaneously. On the one hand, for example, the social network site MySpace has become one of the most-used blogging sites in the U.S. (Pew Internet & American Life Project, 2006), while Wikipedia now has rapidly updated entries qualified as "current events", which are increasingly similar to news reports. On the other hand, from the starting point of a single author simply posting his opinion to the world, blogs have quickly started to diverge, now ranging from a large majority of amateurs with small and very small audiences and occasional postings via multi-person blogs to nearly professional Web sites which in many ways have more in common with news sites than with other kinds of blogs.

Given this double dynamic – first the trends e-erupt, and then they converge and diverge – the key for the first Internet frenzy – i.e. the 'first mover advantage' — has disappeared from company strategies. During the Internet bubble, this was the holy grail of company success: being the first in a particular market segment was thought to be the one and only key to success (Ya–De Wong, 2003). As a consequence, many simple business rules were ignored in the race for market shares. However, the simple first-mover advantage – being first – does not necessarily provide a key competitive advantage. It only does so when it allows the first mover to lock in customers, for example by network effects, by pushing subscribers to invest in specific equipment, or by imposing proprietary standards. That is rarely the case on the Internet, where even network effects are easily replicable. Therefore, in Internet 2, the focus has shifted back to more traditional business concepts, such as income, providing a more stable economic base. Eventually, the fizz of Internet 2.0 will fade, but it will go without a bang.

 

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Implications for innovation and competitiveness

The development of social computing applications must be set in a wider economic context. Competitiveness in the knowledge economy is at the crossroads of rapid and profound economic, social and technological developments [18]. The current technological cycle, focused on information and communications technologies, and considered as having begun with the microprocessor breakthrough, is nowadays deemed to be in its deployment phase [19]. In this phase, the spread of new economic and social practices (whether in organizational structures, including those within businesses, or social interactions) is the main driver of the diffusion of the new technologies. In response, these reinforce the ongoing social changes and economic re-engineering.

We made a case for the role of the consumer (or user) as a producer being the main shaper of the economic and social landscape in the deployment phase of the current technological revolution. This practice is made possible by the widening availability and greater affordability of technologies that enable the associated ever-higher social networking, as part of the technological convergence process [20].

User as a producer can imply, in economic terms, that the frontier between supply and demand is blurring. However, it is more appropriate to think of it as markets getting smarter. The users produce information with more utility (therefore value) that will minimise transaction costs on a given market in a Pareto-optimal setting.

Essentially, where the consumer benefits from its input is in personalised, filtered, useful information, which helps him improve his life style. The nature of the benefit is beyond the simple consumption/utility relationship, as it often implies driving creation of production niches at the lower prices possible. Again, enabling wide self-expressing and self-fulfilment of the customers, the available technology feeds the trend from the opposite end. The providers of various goods and services compete for their market shares, including through advertising, in their typical ways, but they now benefit from cheaper sources for investigating tastes and trends and getting in contact with consumer needs and potential niches(the acclaimed long tail phenomenon — Anderson, 2006). The corresponding business strategy essentially means producing mass goods and services personalised to uniqueness as flexible and rapid response to permanently emerging consumer needs, tastes and preferences of an ever increasing complexity, sophistication, and variety.

Also, while innovation is now recognized as a key dimension of a country’s competitiveness, over the last few years the important role of users in the innovation process has emerged. In the theoretical context that led to theories of innovation systems (Freeman 1988), scholars of innovation studies (von Hippel 1976) clearly identified, as early as 30 years ago, the emerging and "dominant" role of the user in the innovation process, and its disruptive impact in the economic system. Within the context of ICT, as argued quite convincingly by Tuomi (2002), innovation is inherently a social process grounded in social practices, largely driven by communities of users, and provides insight into how the very recombination of existing resources is a key dimension of innovation. This is clearly visible in social computing applications, largely using content syndication.

The role of the providers of the platforms is fundamental: they appropriate the price of offering the platform for information flows including through revenues from (better targeted) advertising, and payments for other similar intermediation services that use the platform. This is how new (mostly ICT) technology becomes embedded into current business operations and also in consumer goods and services, generating overall economic efficiency, additional consumer welfare and well-being, and emergence of new needs. The last will feed back into the process of innovation and the speed of pushing further technological frontiers, which in turn lead to further profitability and long-term competitiveness.

It is worth noting that Internet heavyweights such as Yahoo!, Google and eBay originate from national markets with more flexible innovation cultures, mostly from U.S. [21] The entry costs on these markets are generally low [22], and the successful network will gain huge value simply by being used [23], with limited additional investments. However, the risk of failure may be very high. This pinpoints the role of innovation systems in defining competitiveness in the knowledge economy. On these markets, the trade of ideas often replaces the nurturing of R&D capabilities [24], and the risks of implementing them are easily transferred to venture capitalists.

At the macro-economic level, this observation corresponds to the argument recently put forward that the reason for higher economic growth in the U.S. over the last ten years resides in the focus of European economic policy on competition between established firms, at the expense of the role of new entrants (Aghion and Howitt, 2006). This policy is seen as efficient when Europe was catching up technologically with the U.S. in the post-war period, but is considered ill-suited to fast growth after the catching-up process was completed in the early 1990s. More precisely, the main barriers to innovation-led growth in ICT appear to be, especially for the SME sector, "systemic" inefficiencies. An example of this is IP protection which is insufficiently adapted to the specific features of the new e-ruptive trends [25] and the underdeveloped, bureaucratic and risk adverse venture capital markets [26].

The specific issue regarding the role of the IP protection in the framework of Internet 2.0 refers to patenting business methods, legitimised in the U.S. since 1998 and explicitly excluded from patenting at EPO [27]. Since 1998, Internet 2.0 companies such as Amazon or Priceline, Expedia and Barnesandnoble have either tried to enforce such patents — or tried to defend their businesses against them [28]. The Internet heavyweights, the success of which is based more on enabling lucrative social interactions and innovative business methods than on pure technological advantages, will welcome the advantages of a broader and quicker patenting system. This explains, at least partially, their preference for locating their headquarters in the U.S. market. However, the role of the IPR in this respect remains disputable, especially in what regards its effect on longer term competitiveness. Patenting the business method behind the creation of a network will allows time for networks to grow, but on the other hand, it may raise the entry costs for potential competitors.

The issue is less unclear as regards venture capital. While in terms of volume of venture capital available, or in the profitability rate, the EU substantially lag behind the U.S. [29], the characteristic feature of EU venture capital is that it appears to focus a lot of attention on the later stages of firms and management buy-outs. Evidence from the U.S. suggests that, to have most effect, venture capital needs to be available to start-ups and high technology businesses [30]. The recent move of Austrian "innovated" VoIP service Jajah to the U.S. (Financial Times, 27 September 2006) illustrates the company choices over a less bureaucratic and restrictive venture financing. Aggregation of these behaviours will generate short and long term competitiveness on the global markets as the most technologically daring ideas will compete for money available to put them into practice.

At company level, the key to competitiveness and profitability seems to be for firms in all sectors, the ability to make smart use of the platform for social computing applications. From a broader point of view, the disruptive character of social computing trends resides in their ability to overturn business models in the entire economy (Batelle, 2005), in particular in business practices related with distribution, marketing, information management and human resources (Lazonick, 2005).

The direct consequence for sectoral competitiveness is that the new market information flows associated with the emergence of the e-ruptive trends sharpen competition, including by exposing the market through international competition, and lead to greater welfare and innovation-based competitiveness in the overwhelming majority of sectors [31]. Some of the sectors are subject to more profound transformation, beginning with the emerging ones and their business behaviour. Facing relatively low entry costs specific to their markets, the tendency of the platform providers is to protect their position by patenting business practices and software products, or using traditional ones to try to lock-in customers [32]. roll out services offered by their rivals [33], form strategic partnerships and alliances [34], and mergers and acquisitions [35].

Most important, though, the platform providers attempt to integrate downstream and upstream segments of the value chain to gain dominant market shares for their own final products [36]. This will particularly disrupt and influence the realignment of various layers of the ICT industry as the equipment and software producers, the infrastructure administrators, platforms and application integrators, content suppliers and the end users [37]. The key issue seems therefore to be how the competition model will look on these emerging markets at the less regulated global level, especially in the context of the integration of vertical chains and emergence of new horizontal markets.

 

++++++++++

Future research and policy implications

The research agenda in the field of Internet 2 applications and their impact is still very much to be defined, especially where policy implications are concerned. The most urgent empirical need is certainly to collect more solid comparative evidence that would enable better assessment of the long term importance of these trends in terms of socio-economic impact (for instance, impact on business models, on other sectors, on ICT industry etc. and on society and overall economy), gaps associated with the potential impact and the quantitative and qualitative differences of the EU compared to the rest of the world (U.S., Asia) in terms of supply and usage. This implies a reflection on innovative data collection methods that combine robustness, cost-effectiveness and agility. This is necessary in order to bridge the huge gap between the wealth of "marketing-type" data and the lack of official statistics, which occurs for every new socio-techno-economic trend, especially in the fast-evolving ICT landscape.

The development of Internet 2 applications also opens a wealth of policy-related research questions. For example, as it concerns the impact of these new trends on the ICT industry, the key issue seems to be the competition model and the way it will look at these emerging markets at the less regulated global level, especially in the context of the integration of vertical chains and emergence of new horizontal markets. With the emergence of new players, what are the implications in terms of industrial policy? How important is it to have a European business base in Internet 2.0? European ICT industry is likely to face major difficulties in maintaining a competitive edge in the years to come if Europe does not exploit these new opportunities emerging in IST.

On the demand-side, social computing applications have an impact on the ICT-using sectors and on the society as a whole. It is necessary to explore, for example, how social computing applications are being taken up for professional purposes. The use of social computing could also indirectly change ICT-using sectors, as users become more aware thanks to horizontal exchanges of information, and as they can take a more proactive part in services delivery. For example, how are public services (health, education, etc.) expected to change, facing users who have increased awareness and expectations? How will the role of the public sector change, as users take a more proactive role in organizing the way they learn and take care of their well-being?

Historical economic patterns teach us that major benefits of the ICT revolution are still to come, but they need policy support (Perez, 2006). Actions beyond conventional wisdom would necessarily have to incorporate a certain level of risk and the setting of bold goals, while doing things differently. Social computing seems to pose challenges to public policies in very diverse fields, such as media and telecom regulation, innovation policy, IPR regulation, democratic participation, public sector information, trust and security, public service delivery, education and culture. Legal issues related to these trends have also to be addressed as they could hinder their potential development considerably. It appears that policy-makers in all of these fields will have to take into account these emerging trends and their direct and indirect implications. End of article

 

About the authors

C. Pascu, D. Osimo, M. Ulbrich, G. Turlea and J.C. Burgelman are researchers of the Institute for Prospective Technological Studies (IPTS) of the Joint Research Centre (DGJRC) of the European Commission. Based in Seville, Spain, the Institute is one of seven scientific institutes of the Centre.

The views expressed in this publication are the sole responsibility of the authors and do not necessarily reflect the views of the European Commission. As research into the technological aspects of Information Society Technologies is well developed in Europe, the ICT unit of IPTS addresses the policy aspects of the European Information Society in general and the socio–economic impacts of IST`s in Europe in particular.

Corina Pascu joined IPTS in 2002 as scientific officer. Her major research interest at IPTS concerns EPIS ("European Perspectives on Information Society") (http://epis.jrc.es), Socio–economic impact of web.20 (ERoSc) and FISTERA ("Foresight on IST in the European Research Area" (http://fistera.jrc.es).

David Osimo joined IPTS in 2005 to coordinate research activities on e–government. His current research interests cover future models of government, mapping e–government research, and the proactive role of users in delivering public services.

Martin Ulbrich joined IPTS in 2004. His main topics are biometric identification system, ICT and productivity, and the impact of ICT on social and economic structures.

Geomina Turlea joined IPTS in 2005. Her main interests are in macro–modeling and applied econometrics, particularly with regards to the knowledge economy and endogenous growth.

Jean–Claude Burgelman is head of the ICT Unit at IPTS. Jean–Claude is board member of scientific journals in IST policy (Communication and Strategies, Telematics and Informatics, Media, Culture and Society, etc.) and member of the scientific board of CPR, the Communication Policy Research Conference and of the ITS 2006 conference (the International Telecommunications Society).

 

Acknowledgements

The authors express their gratitude to their colleagues in the JRC–IPTS, namely Y.Punie, R. Cachia and D. Zinnbauer for their comments and contributions.

 

Notes

[1] Basic data exists at the moment only for the U.S., for instance Pew Internet & American Life project, etc.

[2] 2006 Gartner Hype Cycle at http://www.gartner.com.

[3] Called "e-ruptive trends" in Burgelman, et al. — "Take Up and development of the Information Society in Europe: implications fro R&D and innovation in ICT," presentation in the plenary session of ISTAG, September 2005.

[4] In Internet jargon, these application are often referred to as "web 2.0" or "Internet 2.0", pointing to a new "second" phase of development of the Internet, where the Web itself is the operative system and/or application. However we prefer and use the term "social computing", which is more content-related and appears less linked to the relative perception of this specific historical moment.

[5] eBay 2005 financial results, available at www.ebay.com.

[6] Technology Review, August 2005.

[7] STAR project, 2003, "STAR conference summary: Policy Challenges for the Age of Networks," http://www.databank.it/star/index_2.html.

[8] In 1976, Eric von Hippel published its seminal work on innovation.

[9] The Cluetrain Manifesto is a set of 95 theses organised and put forward as a manifesto, or call to action, for all businesses operating within what is suggested to be a newly-connected marketplace. The ideas put forward within the manifesto aim to examine the impact of the Internet on both markets (consumers) and organisations; available at http://cluetrain.com/.

[10] "Broadcast has to be changed from a system of distribution into a system of communication. Broadcast would surely be the perfect means of communication in the public sphere, […] if it were able not only to receive, but also to send – which is to make listeners not only to hear, but also to speak, and insofar not to isolate them but to put them into relations." Bertold Brecht, Radiotheorie, 1932.

[11] The Economist: "Among the audience", a survey of new media, 22 April 2006.

[12] DSTI_ICCP_IE(2005)12_CHAP5_REV1_FRE[1].

[13] Financial Times, 2 August 2006.

[14] Financial Times, 24 July 2006.

[15] The Economist, 29 July 2006.

[17] Half of Wikipedia’s edits are done by less than 1% of all users.

[18] The broad theoretical framework we use to approach it is the concept of Techno-Economic Paradigm Shifts, a further development of the Kondratieff waves [Perez (2006)]. This will be correspondingly amended to account for specificity of the economic backbone beyond the social computing type of trends previously described and to set the way towards an assessment of their sustainability that will follow.

[20] The EITO 2005 report sees 2005 as the Year One of the new scenario of global digital convergence, bringing the vision of unrestricted access to a wide number of applications on any platform closer to reality.

[21] Or migrate, as it is the case of Skype, based in Luxembourg, founded in 2002 by Scandinavian entrepreneurs Niklas Zennström and Janus Friis, currently a subsidiary of eBay.

[22] Starting a network is often cost-free, and potential competitors can imitated its practices in the Internet 2.0 framework. Therefore, its success depends on the basic idea to start it. Setting up a distribution network as eBay borne costs related with the software platform, creation of a distribution network etc., which are nevertheless low in comparison with the normal sunk costs associated with market entry in traditional industries. Many of the ideas that start a business generate disputes over patenting business practices, but this is not a fully settled issue, especially on the globalised market. Most of the trend-setting companies do not need sustained R&D effort to survive, and their functioning is generally not subject to international trade restrictions.

[23] This explains the very high market values that companies as eBay currently have.

[24] Instead of developing their own R&D departments, big American companies tend to buy spin-offs already successful in new markets. In the last 12 years, Cisco aquired 107 companies building up its profile as one of the most valuable high-tech companies in the world. In 2005 News Corp bought of MySpace parent company, and in 2006 the online karaoke player kSolo and News aggregator Newroo (etc.).

[25] Moser (2003) finds no evidence that patent laws increased levels of innovative activity but strong evidence that the design of the patenting system influence the distribution of innovative activity across industries.

[26] Association for Competitive Technology (‘ACT’) Web page, http://www.actonline.org/library/consultation-document-on.html.

[28] http://news.com.com/2100-1017-963434.html; A relevant case connected with the e-ruptive trends is simply eBay, and its recent court case with MercExchange on three patents covering methods of creating and searching online marketplaces and auctions that MercExchange began applying for in the spring of 1995, few months before eBay was launched.

[29] OECD, "Venture Capital: Trends And Policy Recommandations," http://www.oecd.org/dataoecd/4/11/28881195.pdf#search=%22venture%20capital%20%2B%20oecd%22.

[30] Keynote, Cambrigde Manufacturing Review, 2002, www.ifm.eng.cam.ac.uk/service/cmr.

[31] With noticeable exceptions of media and telecommunications, which need to restructure and adjust to survive.

[32] Through introducing subscription fees, offering a plethora of complementary services and customising the interactions with the clients, a.o. Moreover, the business model based on advertising revenues is naturally self-expanding, as the advertisers tend to favour networks with the most visited sites (IDATE[2006]).

[33] MSN and Yahoo! have invested in search engines to undermine Google. Google launched Gmail, attracting users with greater storage capacities, and Google Talk as alternative instant messaging tool (IDATE[2006]).

[34] For instance, key partnerships: Google with AOL (for search engines, video and instant messaging), MSN with Yahoo for IM interoperability (IDATE, 2006).

[35] Yahoo! (Flickr), Yahoo! (Del.icio.us), eBay (Skype), among the recent more famous M&A (IDATE[2006]).

[36] The high profit margins of the Internet heavyweights allowed them to surpass their original ambition of controlling the Internet e-ruptive areas (search, instant messaging, e-mail, online payment), covering now various areas of content production as digital TV, music, video, digital home and network access (IDATE, 2006).

[37] See a.o. Fransman, M. "Telecom Visions" Web page: http://www.telecomvisions.com/map/.

[38] SETI@home is a scientific experiment that uses Internet-connected computers in the Search for Extraterrestrial Intelligence (SETI). Everybody can participate by running a free program that downloads and analyzes radio telescope data. See http://setiathome.berkeley.edu/index.php.

[40] Varsavsky.

[49] For Google stats on advertising revenue as compared to overall revenue and expenses over time see: http://investor.google.com/fin_data.html.

[51] D. Reed, "Weapon of Math Destruction," Context Magazine (Spring 1999), http://www.contextmag.com.

 

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Annex: A rough guide to Internet 2

For every new application we first give a definition and some figures on growth, then make an assessment of their social and economical relevance, and finally look at their main expected impact (user driven and revenues).

1. New ways of connecting

P2P

"A peer-to-peer (or P2P) computer network is a network that relies primarily on the computing power and bandwidth of the participants in the network rather than concentrating it in a relatively low number of servers. P2P networks are typically used for connecting nodes via largely ad hoc connections. Such networks are useful for many purposes. Sharing content files (see file sharing) containing audio, video, data or anything in digital format is very common, and real–time data, such as telephony traffic, is also passed using P2P technology" — Wikipedia.

EITO clearly summarizes the key advantages of P2P:

Table 1: The driving factors of P2P.
Source: EITO, 2006
Availability of content On-demand access to vast catalogues of free content, at home
Low distribution costs Content storage and delivery costs supported by the user
Network externalities The efficiency of distribution increases with the number of users
Optimised distribution of large files Hashing files into packets makes it possible to benefit from the community of clients
Robustness Networks do not depend on a central server

Examples of peer-to-peer applications and networks today are eMule/eDonkey (application/network) and Torrent.

While P2P is conventionally considered a solution for sharing and disseminating content, in some cases computing power is also shared. Therefore, the border between P2P and grid computing, which is mainly about solving computational problems by splitting tasks between different under-utilized remote computers, is not always clear. For example, both the P2P community and the grid community believe the SETI@home project[38] to belong to their community (Leslie, et al., 2003).

P2P usage has shown strong growth over the last years, in terms of number of users and intensity of usage. Of course, the driving factor of the diffusion of P2P is the possibility to download audiovisual content, in many cases illegally. The relevance of the phenomenon is well shown by the attention that key publications on ICT development devote to it; OECD IT Outlook and the European Information Technology Observatory (EITO) 2006 have entire sections dedicated to it.

According to EITO 2006, based on a survey of users in different countries by Nielsen/Netratings, between 18 and 34 percent of broadband subscribers are using P2P, in U.K., U.S., France and Germany. Take-up in European countries appears to be on a similar level to the U.S. It is worth noting that numbers could be underestimated as people could be reluctant to declare their usage of an application perceived as quasi-illegal.

Table 2: P2P users in selected countries.
Source: EITO based on/Nielsen Netratings
  Broadband subscribers (millions) Percentage of broadband subscribers using P2P P2P users (millions) P2P users as percentage of total population
France9,7313 5,0
Germany9,7343,3 4,0
United Kingdom10,1181,83,0
United States52,42613,54,6

According to data from Forrester Research, "35 million Europeans regularly download files from file-sharing services"

However, the most impressive data are those referring to the volume of traffic generated by P2P applications. Already at the end of 2004, P2P was by far the most used Internet application in terms of amount data transfer, representing around 60 percent of overall internet traffic.

Internet traffic

Figure 1: Worldwide IP trends, Internet traffic, 1993–2004, in percentage.
Source: CacheLogic – P2P in 2005.

The chart clearly show how dramatic the speed of diffusion of P2P has been in just a few years, making it one of the fastest growing protocols ever.

P2P has made a dramatic impact on the content industry. The availability and usage of free content is changing the way people consider and use it. Whether right of wrong, users increasingly expect content to be freely available and become more selective in content they purchase. However this does not prevent the success of initiatives to sell content legally, as the experience of iTunes shows. P2P has also proven to be one of the killer applications of broadband, driving and being reciprocally reinforced by its diffusion.

It is worth noting that the approach of P2P is very close to the origin of the Internet, as a decentralized structure.

Traditionally, P2P is seen as essentially useful for illegal distribution of copyrighted material, thereby providing interesting services mainly for teenagers and posing a threat to the audiovisual industry. Therefore, the economic relevance of P2P appears to be low, or negative – as a threat to economic development and growth in the absence of enforceable intellectual property rights.

However, P2P has shown remarkable robustness and efficiency as a technology and is being taken up increasingly in "serious" matters. It is moving from illegal file sharing to productivity tools, like distributed computing, database systems, communication and collaboration. OECD (2004) mentions several application fields: PIER and Piazza are examples of database systems based on P2P technology; Skype uses P2P technology to deliver VoIP services; banks are increasingly using it to transfer data to branches; companies such as Kontiki Uprizer and Groove Networks use P2P to provide corporate applications for delivering sales presentations and multimedia content. P2P file sharing is also used in academia and government, to share academic material faster and more reliably, and to integrate data from different government agencies. The economic relevance is also shown by the fact the investment of important ICT companies: for example, Microsoft acquired Groove networks in 2005, in order to make "anytime, anywhere collaboration a more natural and easy extension of how information workers coordinate their projects and document-centric work" (Microsoft press release, 2005). However, the most immediate application of P2P rests in efficiently delivering audiovisual content. EITO 2006 prospects future opportunities for legally sharing files, but already today there are experiments going on. BBC has carried out the trial of its Integrated Media Player (iMP) via P2P; The iMP pilot uses peer-to-peer distribution technology to distributes its audio visual content effectively and Geo-IP technology to restrict iMP to U.K. Internet users only.

In P2P, users are obviously a key element, as they play the role traditionally played by servers: the users’ computers store files, they serve incoming request for download, and for some applications they act as catalogue of resources and provide computing resources.

Very often the underlying software is developed as open source, on a voluntary basis (such as eMule). Costs for storage and server capacity are basically equal to zero when broadband always on is available, and costs such as electricity and computer maintenance are freely provided by users as they strongly and immediately benefit from network economies. Through P2P, users exchange mutual benefits. Finally, some search engines and indexing services such as www.isohunt.com contain advertising related to the search performed.

VoIP

Voice over Internet Protocol (VoIP) treats voice as data, cuts it into small packets, and transmits them over the Internet. At the other end, the data packets are reassembled and voice re-emerges. That why it is called packet-switched, in contrast to the established circuit-switched telephony, where a line (a circuit) is opened all the way between both ends of the conversation. As a result of the different technology, the same line can transmit numerous voice calls simultaneously, thus reducing costs significantly. Between consumers who already have broadband connections for other reasons, the effective cost of making VoIP phone calls is zero, but connecting with the traditional network incurs fees. Customers can sign up to VoIP offers of their local telecom operator, or use freely available software such as Skype.

Most of VoIP growth can still be found in projections for the future; a typical estimate would be iSuppli prediction of 197 m residential (i.e. without Skype) VoIP subscribers worldwide in 2010 [39]. However, there are already some very impressive numbers, too. In April 2006, Skype, the largest specialised provider for free VoIP, had reached 80 million users and was adding 250,000 new users daily (Financial Times, 19 April 2006). Vonage, a specialised provider for residential VoIP, had 1,853,000 total subscriber lines at the end on June 2006, more than double the previous year (Vonage press release, 1 August 2006). From another angle, France Telecom estimated that 15 percent of all voice communications were passing entirely over VoIP at the end of 2005, expecting this figure to rise to 40 percent by the end of 2006 (Total Telecom, 3 February 2006).

In addition to making telephony cheaper, VoIP can be combined with other applications using the same network protocols. For example, it can be merged with e-mail and instant messaging, or integrated into Web sites. Where bandwidth allows it, it can also be integrated with video. Hence, it can be the basis of a unified multimedia communication tool. Moreover, it can also be integrated with workshare software, allowing business not only to reduce costs, but to increase efficiency as well. Finally, VoIP is nomadic – a user can call and be called from at any broadband access point under his number, again increasing mobility and flexibility for private users, and enhancing efficiency for businesses. As a result, VoIP will allow people to maintain professional and personal networks at much greater distances.

VoIP is extremely disruptive for telecom operators: it changes their business model. Voice telephony according to the distance-based charging model accounts for about 80 percent of Telecom Italia’s revenues, and 60 percent of the revenues of France Telecom and Deutsche Telekom. VoIP offers a much cheaper alternative or even free telephony for broadband subscribers, in particular because long distance and international calls are not more expensive than local ones; as a consequence, sooner or later distance-based charging will disappear. The operators may or may not change, depending on how well the incumbents react to the challenge, but the market certainly will.

VoIP works with user-provided content, in so far as one can speak of content in this context. In addition, where a peer-to-peer VoIP system is used, the user can host certain elements of the network architecture, for example as distributed directories.

In one respect VoIP is very different from other e-ruptive trends: the business model is already clear. VoIP providers connecting to the telephony network charge the users just like telecom operators used to charge their customers, only at a much lower level, mostly based on flat fees, and in the long term without distance-based price segmentation. VoIP providers on the Internet do not charge anything, as their marginal costs are zero. There may also be alternative business models – such as free calls in exchange for listening to commercials –, but they will remain niche markets.

Wi-fi sharing

FON is the largest wifi community in the world: 86K vs. 30K of T-Mobile and world’s largest aggregator of Wi-Fi sites, with Boingo claiming about 45,000 hot spots. FON seems to be a universal movement that is limited to big cities.

Wifi is perceived as a threat to ISP and telecom and wifi providers, such as T-Mobile, especially if combined with VoIP, although it relies on them as infrastructure. VoIP enabled mobile phones have come on the market.

In terms of user contribution for wifi, users provide the access infrastructure.

Revenue is generated from charging for connections (shared with owners). There in place alternative plans, which include selling ads and possibly content. Licensing revenue can be drawn from planting FON software in Wi-Fi-enabled devices like mobile phones and MP3 players. "The killer applications will be voice and games, and close to that will be music" [40], in other words, people will use Wi-Fi to make phone calls, play Quake and fetch Coldplay songs.

2. New ways of sharing and interfacing

Search engines as application platform

Web search engines need to be distinguished of the more specialised information retrieval systems (such as library catalogues). In the early days of the Internet, the alternative was the Web directory (linked to a portal) such as Yahoo! At present there seems to be a convergence between the pure search engines approach with the search box (Google), and the portal approach that offers much more than just the search functionality (such as Yahoo! or AOL).

They are generally thought to be a coordinated set of programmes that includes: (i) a spider that crawls the Internet; (ii) a program that creates huge database or index; and, (iii) program that processes the user’s request and matches the request with the index. Increasingly a new type of database (iv) is becoming critical: the database of information on the various users that use the search engine. This database enables the search engine provider to return tailored ads, and enables smoother processing of search requests. This gives rise to a number of privacy-related issues. At the end of 2005, four major search engines received U.. government subpoenas for their search data. In August 2006, AOL blundered when it posted some 19 million Internet search queries made by more than 600,000 of its unwitting customers.

Only a very small amount of the Web is searchable due to the fact that many sites are dynamically generated, and the fact that a lot of information is locked up in proprietary formats and databases, plus much information comes in multimedia formats, which is extremely difficult to automatically register and catalogue.

We are witnessing increasing importance of mobile search, local search, geographic search, personalised search, desktop search (including toolbars), specialised search (e.g. news search, blog search), multimedia search, etc. Though growing concentration in some segments of the search engines market can be observed (e.g. few firms have a sufficiently exhaustive search index), it is not established that there is by the same token a lack of competition in the market – such finding hinges on a detailed analysis of relevant market, switching costs and barriers to entry.

In July 2006, 49.2 percent of the U.S. home and work Web surfers used Google which obviously dominates the search market, followed by Yahoo! (Nielsen//Netratings, August 2006).

search engines

 

share of searches

 

market shares

Figure 2: Search market shares.
Source: NetApplications, at http://marketshare.hitslink.com/report.aspx?qprid=4

 

It is a cross-border issue. For instance, Google has a 49 percent share of the U.S. search market, and derives more than 40 percent of its sales from international operations (BBC, 20 July 2006).

A wealth of information leads to a scarcity of attention. With exponentially growing data volumes online, the centrality of search — in all its variants — is obvious. Searching is recognised as one of the top Web applications, together with e-mail. It became easier to locate homepages of organisations or find a specific information item even deep inside institutional sites via a search engine. The inclusion of to google as a verb in the authoritative Oxford English Dictionary clearly reflects the social significance that online search in general and this dominant service in particular has attained.

The leading search engine, Google, lies at the centre of what some consider the next leading business model in the Internet 2.0 era: the Web service-centric model (as opposed to the Microsoft PC-centric model). Microsoft and Google have adopted radically different business models. Instead of selling software to make a profit, Google profits by selling advertising to firms that want to attract the attention of those who use its free products. This model relies on the provision of AJAX applications that can be run in real-time in a Web browser – all or most data are kept on the server far from the end-user – one successful example is Gmail, or Web word processors such as ThinkFree. In this view, searching becomes the next application platform. This application platform depends on and is driven by "clicks." It evolves rapidly and organically according to and in intimate connection with the users’ online behaviour. Google, hence, is not just a search engine. The latest project in its portfolio of services is an online payments system which aims to compete with auction giant eBay. However, none of the new ventures launched over the past four years have established themselves as a market leader (Business Week).

In less than a decade, Google has transformed itself from a Silicon Valley start-up into one of the richest media companies in the world. In 2005 alone it doubled in size and took in over US$6 billion in revenue (BBC News, 15 August 2006). The search giant generated net income of US$721m (£390m) in the three months to the end of June 2006, compared with US$342m for the corresponding period last year (BBC, 20 July 2006). Roughly 500,000 U.S. small businesses rely on unpaid or "natural" search for the bulk of their revenues (Batalle, 2006).

The search algorithms that underpin the dominant search engines currently in use systematically harness the collective intelligence of Web users and publishers by ranking sites that receive more inbound links (i.e. are found worthwhile to be referenced by the Web community) more highly and by attaching great weight to outbound links by sites that themselves receive more inbound links. It is thus created a hierarchy of cumulative recommendations for its presentation of search results. Evolving search engine techniques are also tapping into existing knowledge more widely through tagging, click through tracking, search history features and other methods. The search queries are filtered in a collaborative manner – my queries depend on the opinions of my circle of friends/trust. The latest wave of search engines that are using this insight are called social or collaborative search engines. The most important example of collaborative or collective search is provided by Eurekster (other examples abound: JetEye [41]; GigaOM [42]; Wink [43]; Jookster [44]; PreFound [45]; Filangy [46]; Findory [47]). Eurekster does more than refine your results. It also shows you the things that other people in your network are looking for [48].

In sum, the user as provider of references, recommendations and search preferences plays an increasingly central role in refining and customizing the online search experience but also bears multiple risks.

Revenues are generated from advertising data e.g. Google adwords on search site: enables advertisers to put their advertisements together themselves and state how much money they are willing to spend. They are then charged on the basis of the number of times an advertisement is clicked. Revenues also are generated from AdSense syndication on other Web sites i.e. advertisements are placed in relation to search requests on third parties’ Web sites ("AdSense for content"). For AdSense, Google has a revenue-sharing model, with some of the advertising income generated going to the information providers [49]. Also, from paid inclusion, search syndication and gathering user data (recent AOL scandal; COPA scandal with Google, Yahoo, and MSN).

Web-based social networking

Web social networking refers to a category of Internet applications that allows for social networks to be made and opens up different forms of communication. There are many different types of social networking sites, ranging from community Web sites (e.g. MySpace), social bookmarking (e.g. del.icio.us), file sharing such as digital photos (e.g. Flickr), to business connections (e.g. LinkedIn).

As of April 2006, social networking sites are attracting nearly half of all Web users in the U.S. (Nielsen//NetRatings, May 2006).

 

social networking

Table 3: Top social networking sites.
Source: Nielsen/Netratings.

 

MySpace, owned by Rupert Murdoch’s News Corp. and a favourite among teens and young adults, registered a year-over-year growth rate of 367 percent. Blogger, owned by Google, was second with 80 percent growth rate.

"The content is relatively inexpensive for publishers to produce, and social networking is not a fad that will disappear. If anything, it will become more ingrained in mainstream sites, just as reality TV programming has become ubiquitous in network programming." (Niesen//Netratings 2006)

Teens gain valuable social skills online: one in five online teens in the U.S. – about four million individuals – have their own blog. The Internet expands and strengthens the social ties (Pew Internet and American Life Project, January 2006).

Nearly half of American Internet users (45 percent) remark that the Internet has played an important or crucial role in helping them deal with at least one major life decision in the previous two years (a 33 percent increase from a similar survey in early 2002, Pew Internet and American Life Project, December 2005 survey). "Romance blossoms online …" — One in ten (American) Internet users say they have personally gone to dating Web sites or other sites where they can meet people online (Pew Internet and American Life project, March 2006)

The reasons for cultural differences need also to be explored and explained — why Brazilians connect better through Google’s Orkut (http://www.oekut.com), Europeans with Passado (http://www.passado.com), Japanese with Mixi (http://www.mixi.jp), why Philippines use Multiply, British use Bebo (Forbes).

In July 2005 MySpace was purchased for US$580 million by the News Corp., and late last year launched its own record label in partnership with Interscope Records. The firm plans to spend US$500m to US$1 billion a year in the next three to five years; the sites' combined traffic pushed News Corporation up among the giants of the Internet (ahead of eBay and Google — ComScore Media Metrix, October 2005).

There is "secondary economy "of shareable content providers like YouTube, which powers videos, and Photobucket, which hosts images and sites for niche interests. Friendster is sharing profit with Asian wireless carriers that use Friendster’s brand to sell text messaging services.

Several new startups are implementing new technologies and models to take social networking into new dimensions. For instance, Evoca (http://evoca.com/), launched in March 2006, aims to get users to share voice recordings instead of blog posts. Gaia Online (http://www.gaiaonline.com/) and IMVU (http://www.imvu.com/) will bring social networking inside virtual worlds with customizable, 3D avatars. In April 2006, MySpace struck a partnership with Cingular Wireless, the largest U.S. mobile-phone service provider. In May 2006, wireless startup Helio (http://www.helio.com/) began offering phones preloaded with MySpace features. In April 2006, Facebook began allowing users of Cingular, Sprint Nextel, and Verizon Wireless to receive friend requests on phones and reply via short text messages (SMS). Nokia is planning multimedia phones will come integrated with Flickr, allowing users to post photos shot with their mobiles onto the Flickr site with one click.

In terms of social relevance, Web-based networking brings people together — "in which millions of members publicly articulate mutual ‘;friendship’ relations, creating a browseable network of social relations" (University of California, Berkeley, 2005). The premises of social networking are simple and intuitive — communicating and interacting. People are social, and will naturally form groups, share information and contacts. The Internet expands and strengthens the social ties (Pew Internet and American Life Project, January 2006). Gartner predicts that people driving the creation of communities shall cause significant disruption and drive opportunity for business and the IT industry in 2006 and beyond (2006 Gartner’s 10 Year Scenario for IT, Business and Society)

Users are producers of content (Flickr), tastes (e.g. del.icio.us), "the real-time Web, organized by you"(Technorati) and contacts (e.g. MySpace).

Revenues are generated by subscriptions (Linkedln, Friendster), advertising (Facebook, Friendster, Windows Live Spaces).

3. New ways of producing content

Collaborative new content

"The terms collaborative writing and peer collaboration refer to projects where written works are created by multiple people together (collaboratively) rather than individually. Some projects are overseen by an editor or editorial team, but many grow without any top-down oversight. A wiki is a type of Web site that allows users to easily add, remove, or otherwise edit and change some available content, sometimes without the need for registration. This ease of interaction and operation makes a wiki an effective tool for collaborative authoring, for instance. The term wiki can also refer to the collaborative software itself (wiki engine) that facilitates the operation of such a Web site (wiki software), or to certain specific wiki sites, including the computer science site (and original wiki), WikiWikiWeb, and the online encyclopedias such as Wikipedia. Therefore, wiki generally refers to a specific technology which enables collaborative working. Collaborative content production can be also considered linked to blogs and syndication.

Wikipedia, a very popular online encyclopedia, launched in 2001, is written entirely by volunteers through collaborative software. It is now available in 20 languages, with more than two million articles and 100,000 authors in its English version. OhmyNews is a South Korean online newspaper, founded in 2000 with the motto "every citizen is a reporter". A large majority of its content (80 percent) is produced by over 41,000 ordinary citizens.

In March 2006, Wikipedia had over one million articles (Wikipedia, March 2006). It currently ranks among the top fifty most visited Web sites in the world (alexa.com). In the U.K., according to Nielsen/Netratings, it was the seventh fastest growing Web site in the past year.

Wikipedia

Figure 3: The number of authors of content in Wikipedia.
Source: Wikipedia

OhmyNews, besides having already 41,000 contributors, has a readership of over two million readers per day (in a country of about 50 million inhabitants) (Wired).

Wikipedia has become an important reference point by a very large readership. It provides a free encyclopaedia, available to everyone (Nature), and considered by some nearly as reliable as Encyclopædia Britannica. OhmyNews has a very influential role in the Korean society, also because of its large readership. OhmyNews reporters are given access to government ministries and public institutions, putting them on level footing with professional reporters. Top officials increasingly give its journalists exclusive interviews. It was widely believed to have directly impacted the Korean presidential election, and the elected president gave the first post-election interview to OhmyNews.

It is also important to point out that while collaborative content production has started in the specific field of ICT, today sites like Wikipedia and OhmyNews are not focusing on ICT issues but have a broad coverage of content, thereby addressing a public with wide interests and competences (not only ICT). These e-ruptive trends are being increasingly considered by the media industry.

Wiki software is anticipated to become increasingly used in commercial context. Nokia has already been using Socialtext wiki software for a year and a half to facilitate information exchange within its Insight & Foresight group. Yahoo! uses TWiki software to help its development team overcome the problems associated with working from a variety of separate locations. Michelin, Kodak, Cingular, Disney, Motorola, and SAP are also among the notable companies with wiki success stories. Clearly, the very existence of initiative for the scale of Wikipedia poses direct threats to established and costly encyclopedias.In February 2006, OhmyNews and the Japanese firm SoftBank signed an investment contract valued at US$11 million for creation of OhmyNews Japan.

BBC and other mainstream media are trying to harness the potential for widespread user participation – e.g. contributing pictures or impressions to a story (e.g. terrorism in London underground).

The user is the (co-) author of the content, writing articles or parts of articles for the encyclopedia/newspaper. In many cases, like Wikipedia, users are also in charge of discussing/validating the content produced by others. In other models, like OhmyNews, content is validated by editors in a hierarchical way.

In terms of revenue, Wikipedia is a non-profit initiative, depending on voluntary work for the content and private donations for server and technical costs. OhmyNews is a commercial venture, and revenues come from advertising. It raised about US$400,000 in 2004, more than two-thirds from advertising (Time, 29 May 2005).

Podcasting and RSS news feeds

Podcasting is defined as "a digital recording of a radio broadcast or similar program, made available on the Internet for downloading to a personal audio player" (New Oxford American Dictionary). The term "podcasting" is derived from the iPod (Apple Computer’s popular device for playing compressed audio files) and "broadcasting." Some have referred to podcasting as "audio blogging." For many, podcasting is a logical next step from blogging. The first printed use of the term podcast appeared in a Guardian article by Ben Hammersley in 2004 [50] in the context of portable listening to audioblogs ("... all the ingredients are there for a new boom in amateur radio. But what to call it? Audio blogging? Podcasting? Guerilla Media?").

Podcasting allows for audio files that would have been previously downloaded and played on a personal computer to be automatically downloaded and listened to on portable music playing devices (such as the iPod and other MP3 players). In late June, 2005 Apple Computer added a podcasting feature to their iTunes software, making over 3,000 podcasts available for free, which helped podcasts reach a wider audience. Variants of the podcast include autocasting (the automatic generation of podcasts from text-only sources), MMS Podcast (podcasting to mobile phones using MMS) , Mobilecast (podcasting to mobile phones), Narrowcasting (podcasting to narrow audiences), Peercasting (re-distribution of live streams by the viewers/listener), Podstreaming (converting streaming audio to a podcast), Vodcasting (video podcasting), VoiceCast (podcast delivery through a telephone call) , Phonecasting (creating podcasts using a phone), and Skypecasting (creating podcasts by recording a Skype conference call).

In the United States, 6,6 percent of the adult online population has recently downloaded an audio podcast; 4,0 percent recently downloaded a video podcast (Nielsen//NetRatings), almost equalling those who publish blogs (4,8 percent), and online daters (3,9 percent).

An U.K. poll revealed that nine out of 10 of U.K.’s taxi drivers, hairdressers and pub landlords — the apparent "barometers" of British society — had no clue what "podcasting" was (BBC News, October 2005). The average American (65 percent) is not sure what podcasting is, or what an RSS feed does (Pew Internet and American Life Project 2005 survey).

Available stats show that two percent of the European online population has listened to podcasts (Forrester Research Report, March 2006, "European Podcast Consumer"). Of relevance to the growth of podcasting has been the development of MP3–type devices with larger storage capacity and Apple’s iTunes. An explosion in podcasts’ popularity has culminating in the launch of a podcast directory at Apple’s iTunes service.

Growth estimates for podcast usage (Forrester Research Report, "The Future of Digital Audio" report) – projected to grow to 12.3 million households in the U.S. by 2010. As a comparison, MP3 adoption is expected to grow to 34.5 million households by 2010. So that means in four years, about a third of those MP3 owners will be listening to podcasts on those devices.

"Consumers want to listen or watch when they want, where they want, and how they want" (Podcasting News, 2005). "Podcasting’s main appeal at the moment is time-shifting professionally-produced programmes" (Forrester Research 2006). "One-quarter of online consumers express interest in podcasts, with most interested in time-shifting existing radio and Internet radio channels. Companies that are interested in using podcasts for their audio should focus not only on downloads but also on streaming audio as a means to get their content and ads to consumers" (Forrester Research April 2006)

In December 2005, iTunes reached 14 percent of active Internet users and 241 percent year-over-year growth (Dec 2004- Dec2005) (Nielsen//Netratings, 2006)

European iTunes® Music Stores have sold more than 50 million songs from in its first year (5 January 06). iTunes Music Stores were launched in the U.K., France and Germany in June 2004, and now operate in 17 European countries including Austria, Belgium, Denmark, Finland, Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden and Switzerland.

New podcasting start-ups have been setup, for instance PodShow (BusinessWeek 2005 Best Leaders) with capital of US$8.85 million in August 2005; in February 2006, PodShow and Limelight Networks, Inc. announced the launch of the PodShowPDN™ (PodShow Podcast Delivery Network).

Podcasting is challenging the business model of established media companies. Major commercial media conglomerates such as AOL, public broadcasting companies such as NPR, PRI and American Public Media, the London-based BBC and Canada’s CBC Radio, as well as big multinational corporations like IBM started podcasting services.

Traditional radio industry is exploring high&ndashdefinition radio, which will provide CD–quality sound, an edge over the competition. By 2010, 2,500 stations are expected to have this capability. Over the next few years HD technology will provide the ability to store music and news, as well as offer on–demand content, allowing it to compete with the podcasting market.

The user is a ‘selector of content’. The publish/subscribe model of podcasting is a version of push technology, in that the information provider chooses which files to offer in a feed and the subscriber chooses among available feed channels. While the user is not "pulling" individual files from the Web, there is a strong "pull" aspect in that the receiver is free to subscribe to (or unsubscribe from) a vast array of channels. Users create their own, unique, personalized media environments.

Subscription fees are the main avenue for revenues – e.g. iTunes listeners to subscribe to a number of podcasts. Revenue splits between Apple and podcasters, depending upon their relative popularity (as measured by, say, the number of subscriptions per podcast). Alternatively, fees could be charged for subscribing to individual podcasts. Infomercials (podcast marketing or marcast) are used by companies to inform consumers about their products.

New business models such as nanocasting seek to provide podcasts that make a profit. "Nanocasting aims to deliver programming profitably to very small but highly interested audiences. Using radio effectively in nano markets requires very different strategies and opens the door to programming that would have been unthinkable and unsustainable under the broadcast model" (International Nanocasting Alliance, 2005).

Advertising ("podvertising") is a source for revenues (for example Virgin Radio in U.K.), however "podcasting is not set to become a new mass-market venue, at least for the next half decade" (eMarketer). eMarketer projects that spending on podcast advertising will reach US$80 million this year and US$300 million by 2010. Listener donations ("pledgecasts"), electronic tip jars (operated by services like PayPal) and cooption (podcasting of traditional broadcasters’ programming, including traditional radio and television and printed media- like British Broadcasting Corporation, Canadian Broadcasting Corporation, and ABC, printed media, including Business Week, Harvard Business Review and USA Today) are alternative avenues for generating revenues.

Blogging

The term "weblog" was coined by Jorn Barger in 1997. The short form, "blog," dates back to 1999 when Peter Merholz broke the word weblog into the phrase "we blog". This was quickly adopted as both a noun and verb ("to blog," meaning "to edit one’s weblog or to post to one’s weblog"). Technically, it means a Web page to which its owner regularly adds new entries, or "posts". Posts can be which can be text and hyperlinks to other blogs or Web sites, they can also contain pictures ("photoblogs"), audio (podcasting) and video ("vlogs").

Blogs often provide commentary or news on a particular subject, such as food, politics, or local news; some function as more personal online diaries. Several blog search engines are used to search blog contents (also known as the "blogosphere"), such as Blogdigger, Feedster, and Technorati. Corporate blogs are very strong communication and information sharing tools in a corporate community.

On 31 July 2006, Technorati tracked its 50 millionth blog which means the "blogosphere" is over 100 times bigger than three years ago and continues to double about every six months (since March 2003) (Technorati, State of the blogosphere, August 2006).

blogs tracked

Figure 4: Number of blogs.
Source: Technorati.

 

About 175,000 new blogs are created each day (as of July 2006), which means more than two new blogs created each second worldwide on average. About eight percent of new blogs are spam blogs ("splogs").

new blogs

Figure 5: New blogs per day.
Source: Technorati.

 

It is just as important to note the increased growth in the number of weblogs as it is to see if people are blogging at a sustained rate. In terms of posting volume (new posts made every day), it has followed a strong upward trend: more than 1.5 million posts per day or about 19 posts per second (the double the volume of about one year ago).

posting volume

Figure 6: Daily posting volume.
Source: Technorati.

 

In terms of language distribution of the blogosphere, one of the most interesting statistics is that English has retaken the lead as the number one language of the blogosphere; however the Japanese blogosphere has grown substantially as well. As of June 2006, English has had 39 percent of all postings tracked by Technorati in English, 31 percent in Japanese, and 12 percent in Chinese.

The hourly posting per language shows important cultural differences. It would appear that English-speaking people are more likely to blog during work hours and early evening in the U.S., while they are more reluctant to blog during work time in Japan. More research is definitely needed to understand when and where people are blogging.

posts by language

Figure 7: Blog post by language.
Source: Technorati.

 

Among large corporations, 35 percent plan to institute corporate blogs (JupiterResearch, 6 June 2006, "Corporate Weblogs: Deployment, Promotion, and Measurement"). Combined with the existing deployed base of 34 percent, nearly 70 percent of all corporate Web sites may have implemented corporate blogs by the end of 2006.

Worldwide news events trigger a powerful reaction of the blogosphere — not only in search volume, but also in posting volume (see for instance on Technorati — the London bombings or September 11). Mainstream media now openly invite its readers to contribute with audiovisual content (photos), especially in the case of particular events like the World Cup in Germany or the terrorist attacks in London. As Rupert Murdoch noted: "We tell you less, you tell us more." (BBC, 7 March 2006). Blogs are considered to have played a major role in the latest American elections, and to be one of the reasons of the success of the "No" campaign in the French elections (BBC).

According to Gartner, corporate blogging reached the peak of hype in 2004 although mainstream firms have not yet got involved. A growing number of businesses are hiring people to write blogs. Microsoft, media companies, Sun Microsystems and blogging companies are at the forefront of the corporate blogging wave. In addition to these, there are a large number of individual consultants, small business owners, and individual bloggers who are blogging about what is going on at their businesses (Technorati , "State of the Blogosphere: Part 4 Corporate Bloggers").

Blogging impacts on content delivery, management, and participation systems. Blogs represent a fundamentally new publishing platform. Blog syndication is seen as the "mass-media of the future". Blogs are used internally to enhance the communication and culture in a corporation or externally for marketing, branding or PR purposes. Gartner predicts that corporate blogging will impact on projecting corporate marketing messages primarily and secondarily in competitive intelligence, customer support and recruiting.

Although the most influential media sites on the Web are still well-funded mainstream media sites, like the New York Times, Washington Post, and CNN, some bloggers are achieving a certain degree of attention and influence.

influence

Figure 8: Number of incoming links, blogs vs. mainstream media.
Source: Technorati.

 

Political consultants, news services and candidates began using blogs as tools for outreach and opinion forming.

Some users are using tags to help build communities around a topic (for instance, by suggesting tags for use in social book marking services like del.icio.us).

Most blogs are non-commercial. There are commercial interests that are companies producing Web interfaces that allow blogs to be created and updated, as well as blog search engines. Some companies (e.g. AlwaysOn) started subscription services, giving its users access to special interviews and advanced search features. Nanopublishing (or "thin media") is a publishing model on the Web that primarily uses blogging technologies focusing on reaching targeted audiences through niche topics (e.g. Weblogs Inc.).

Online auctions

"The online auction business model is one in which participants bid for products and services over the Internet. The functionality of buying and selling in an auction format is made possible through auction software which regulates the various processes involved.

When one thinks of online auctions they typically think of eBay, the world’s largest online auction site. Like most auction companies, eBay does not actually sell goods that it owns itself. It merely facilitates the process of listing and displaying goods, bidding on items, and paying for them. It acts as a marketplace for individuals and businesses who use the site to auction off goods and services." (Wikipedia)

The following data refers to eBay as by far the most sizeable auction Web site at the global level. However, in some world regions, such as China and Japan, other players are market leaders (such as Taobao.com).

According to its own data, eBay has now a base of more than 150 million registered users worldwide, of which 50 million in Europe, showing an increase of 25 percent in one year. On average 21 million items are traded each day. Independent data from Nielsen Netratings show that in the U.K., eBay is the most visited Web site in terms of pages viewed, almost the double of Google. It had a 44 percent increase between 2004 and 2005. It is visited each month by almost half of the entire U.K. Internet population. Its Home and Fashion section is visited by 1 of 10 of the entire U.K. population, and the Motor section is the most visited Web site in the whole automotive sector.

The social dimension of online auctioning is a key element of its success. In a similar way to gambling or flea markets, entertainment and social interaction are important elements.

Apart of being an auction site, eBay is supportive of community building. In 1999 David Reed predicted the success of eBay because of it approach towards building communities, rather than simply enabling market transactions [51]. Recently, eBay added an eBay Wiki and eBay Blogs to its Community Content which also includes the Discussion Boards, Groups, Answer Center, Chat Rooms and Reviews & Guides. It is also worth reminding that in 2005 eBay bought Skype (VoIP provider) for US$2.6 billion.

In this sense, a key enabler of community building is its trust and reputation management system, which uses feedback by users to assess the reliability of sellers and buyers alike.

eBay is a relevant economic actor in its own right. It has 11,000 employees, and its revenue went up to US$4.55 billion in 2005. Furthermore, it has a positive impact on the economy, especially on small businesses. According to its own research, 724,000 people in the U.S. (up from 430,000 in 2003) and 170,000 in the E.U. rely on eBay as primary or secondary source of income. It is estimated to have a booming effect on parcel firms, and 70 percent of eBay sellers note that eBay positively contributed to their success by facilitating cross-border trade, helping increase sales, and improving profitability. In the specific context of the European Union, eBay is lobbying legislators in the European Parliament for harmonized tax and trading rules across the 25 European Union member states.

Users play of course a key role in eBay, as they perform most of the tasks related to their service: they provide the goods, photography them, write listings, communicate with buyers, pack and dispatch their sales. Furthermore, by providing feedback on other users, they enable the reputation management system, encouraging trust and preventing fraud.

eBay generates revenue from a number of fees. There are fees to list a product and fees when the product sells.

 


 

Editorial history

Paper received 30 October 2006; accepted 5 January 2007.


Contents Index

Copyright ©2007, First Monday.

Copyright ©2007, C. Pascu, D. Osimo, M. Ulbrich, G. Turlea and J.C. Burgelman.

The potential disruptive impact of Internet 2 based technologies by C. Pascu, D. Osimo, M. Ulbrich, G. Turlea and J.C. Burgelman
First Monday, volume 12, number 3 (March 2007),
URL: http://firstmonday.org/issues/issue12_3/pascu/index.html





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