Silicon Insider: From Web 2.0 to 3.0, Cash in Hand

Transitioning to the next generation of the Web means "monetizing" users.

March 28, 2008 — -- Here comes Web 3.0.

You may have read the news announcement Wednesday that YouTube, the hugely popular Google subsidiary, has introduced YouTube Insight, a free analytical tool to help video makers track their users.

YouTube Insight enables these video makers to track where viewers are located and what path they took to find the videos.

Here's the money quote from Google: "For example, uploaders can see how often their videos are viewed in different geographic regions, as well as how popular they are relative to all videos in that market over a given period of time. You can also delve deeper into the lifecycle of your videos, like how long it takes for a video to become popular, and what happens to video views as popularity peaks."

All of this may sound like a cute new little novelty tool -- you know, so you can find out that the largest percentage of folks watching your new Mentos-in-the-Sprite fountain video are in Barcelona, Spain and Clinton, Okla., and that most of them linked to the video from eBaum's World -- but YouTube Insight is anything but a toy. It is also not designed for you and me.

Rather, the real target is marketers and advertisers, and YouTube Insight, despite its apparently low-key introduction, is in fact a major salvo from Google in forcing the evolution of Web 2.0 to Web 3.0.

If that sounds confusing, join the club. The whole Web generational thing has always suffered from a lack of clarity about definitions -- a fact secretly cheered by companies in the industry who want amorphous terms so that they can claim to be anything venture capitalists are willing to pay for.

For our purposes, let's keep the definition simple. Web 1.0 consisted of all of the so-called e-commerce companies of the 1990s -- that is, the thousand of firms that pioneered the notion of retailing on the Internet -- as well as the first generation of Web sites such as eBay and Amazon, and communities such as AOL and Yahoo!. These sites were largely static, with the interaction mostly reduced to order forms. Most of the Web 1.0 e-commerce companies died when the dot-com bubble burst in 2000.

Web 2.0 are those firms that emerged, almost unnoticed at first, from the rubble of the dot-com bubble. The mainstream sites morphed into more dynamic experiences, featuring streaming audio, then video. Users were more empowered to customize their experiences, and were allowed to do much more linking to other sites.

The most important new Web phenomenon to emerge in the Web 2.0 era were the social networking sites -- including MySpace, Facebook and YouTube -- as well a new generation of start-ups providing tools and applications for those networks.

We still live in the Web 2.0 world -- and indeed, companies such as MySpace are now among the most used services on the planet. But, as is always the case with tech, even as one era is approaching its peak, another is already waiting in the wings to replace it.

If Web 2.0 was the application of the latest content technologies to the Internet, Web 3.0 is the systematic attempt to use technology to monetize the gigantic audiences for the Web 2.0 communities.

The dilemma faced by Web 2.0 companies, the one propelling them into this uncertain future, has to do with their underlying business model -- or lack thereof. At the heart of Web 2.0, in a strategy devised by Google, is the notion that content should be free to users. This not only removes all barriers to entry by potential "customers," but also rewards market pioneers by enabling them to quickly ramp up to a huge market share and scare off potential competitors. Smart Web 2.0 companies learned quickly that the trick to doing this was to create an appealing platform then provide users with the tools they need to construct the site themselves.

And what users saw as a wonderful opportunity to customize their own experiences, the companies saw as a de facto work force of millions of unpaid employees laboring to improve the site.

It was an absolutely brilliant business model, one that, as we now know, was capable of attracting customer bases bigger than the population of most countries. It also deservedly made its founders billions of dollars.

But there was one flaw -- potentially fatal in the long term -- with this model: It assumed that once the millions of users were signed up, they could then be "monetized." That is, techniques could be found to convince them to spend money and create real revenues for the company.

Google found a way to do that with search, by persuading advertisers to pay for those searches that went their way -- without the user ever seeing anything of the transaction. That's why Google is the hottest company on Earth these days.

But for the rest of the Web 2.0 social network crowd this conversion has proven much more difficult -- not least because of the ethos they instilled in their users that all Web content should be free … meaning not only no subscriptions, but not even visible banner ads.

The result has been a rush to find alternative monetization schemes that are both profitable and yet somehow invisible or least embedded in the everyday experiences of the Web 2.0 user.

Some early attempts were failures, most notably Facebook's catastrophic Beacon program, which was designed to automatically notify your "friends" of your recent online purchases. It collapsed (at least temporarily) in widespread protests, accusations of invasion of privacy, and the threat of a lawsuit by the ACLU.

Other Web 2.0 companies have begun looking elsewhere -- and the most popular new monetization solution they've come up with now is metrics. That is, tools for measuring viewership, downloads and reach of online content. Until now, the Web has been woefully short of this information, which is why advertisers have been slow to migrate from traditional media (despite their falling circulations) to Web sites. The goal of these new tools, such as Insight, is to change all that. Indeed, done right, these Web 3.0 tools hold the prospect of improving on traditional reader demographics by actually tracking behavior over time (How did you get to this site? Where are you going next?), and not just at the moment of measurement. As for the privacy implications of this, that's for another column.

One of the key figures in this Web 3.0 metrics world is Max Levchin, formerly of PayPal, and now founder of a company called Slide. If you've even heard of Slide (which means you are probably a teenage girl) you probably think of it as the maker of fun little widgets (Top Friends, Funwall, etc.) for Facebook, MySpace and other social networks. But it is, in fact, a powerful system to track the lifestyles of Web 2.0 users. That's why those in the know are already starting to compare Levchin to Bill Gates … and why Portfolio magazine just had me profile him. Levchin is on track to become the most important figure in the Web 3.0 world -- all because he holds the metrics on the Web 2.0 world.

This, too, is what YouTube Insight is all about. Google spent a lot of money on YouTube and its 80 million users, and has been thinking long and hard about how to get money out of the business. Insight is its first attempt at a solution. If it works, Google's hegemony on the world's media advertising will be greater than ever -- and its deflated stock will start inflating again. And if Insight fails, you can be certain Google will try something else with YouTube. Like all of the other Web 2.0 social networks, it has no choice but to keep going for the money.

TAD'S TAB: With only a search bar and a title, is a simple, but effective engine for finding free music. Its selection is vast, and the music can be played through quick-time on the browser or easily downloaded to your computer. Where many music selection Web sites can be complex and ineffective, Taltunes gets you music fast.

This is the opinion of the columnist, and in no way reflects the opinion of ABC News.

Michael S. Malone is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury News, as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, the Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the Silicon Insider columnist since 2000.