Understanding the full impact of the web

This will probably sound crazy, but despite all the hype about Web 2.0 and web startups, the most common mistake we see tech companies making with regard to the web is underestimating its long-term impact on their businesses.
I’m not sure why this is. Maybe it’s a reaction to the Internet bubble — because the short-term effects of the web were oversold, people also tuned out the long-term effects. I know some companies are so settled in their current franchises that they don’t understand how vulnerable they are over time to the changes taking place in the marketplace. Others take the web very seriously in one respect, but don’t understand its full impact across their entire company.
To understand what the web is going to do to our businesses, you have to look at it as both an application development platform and a new communication medium. Either change alone would have huge impacts, but the two together are especially powerful. Here’s what we see happening in each area, followed by some ideas on what they mean for businesses.
The web as a software development platform
We’ve written about this before, but it bears repeating because so many tech companies don’t fully understand it: The web enables a much more efficient and faster model of software development. Companies developing software on the web deliver new features faster and use fewer engineers than companies doing traditional software development.
The development tools for creating web apps, and the features of the web platform itself, are not currently as sophisticated and powerful as the traditional programming environments like Windows and Mac OS. So you can’t create a fully functional clone of Microsoft Office or Adobe Photoshop with the current state of the art in web tools. This is shielding the big software companies from immediate competition in their core businesses, and often produces a false sense of security.
However, the web platform is evolving much faster than the old-style operating systems. At some point it is inevitable that the web platform will become mature enough that web apps can challenge the established software standards. At that point, the swarming little web 2.0 application companies will fall all over themselves to take bites out of those lucrative franchises.
When will the crossover point come? It’s very hard to predict, because no one knows the full range of development tools and APIs being created by the chaotic web apps community. Given current course and speed, the crossover looks likely to come sometime before the end of 2010. That sounds like a long time, but remember that it could be earlier, and that big software companies usually plan and develop in 18-month cycles.
In other words, if you have a major packaged software app, you probably have time to do only one or maybe (if you’re lucky) two more major turns of your core products before the business will change radically.
The end is in sight, and you should be planning for it now.
The web as a communication medium
Although the changes the web is making to software development are profound, the changes to communication are in some ways even more impactful, because they reach far beyond the tech industry. For companies of all kinds, web communication challenges not just how they do marketing, but how they structure their relationship with their customers.
You can group the communication impact of the web into two buckets. The first is that the web is spawning not just one new medium, but a whole series of new media types. Each has its own unique dynamics. So an audio podcast reaches a different audience, and affects them in a different way, than a written weblog does. And both are very distinct from a traditional website like News.com or NYTimes.com. Search site advertising is yet another new medium, with very different dynamics of its own. To a marketeer, the situation is as if someone had simultaneously created TV, radio, billboards, and newspapers. Companies and ad agencies frequently make the dual mistakes of trying to apply their traditional marketing approaches to the new media, and of trying to treat all Web-based media in the same way. The result is as awkward as printing a newspaper classified ad on a billboard.
That’s the smaller impact the web is having on marketing. The bigger one is that the web transforms one-way communication into two-way communication. Virtually everything you can do in web marketing has a two-way element. You place a banner ad so people will click on it and come to a website where they interact with you. You write in a blog and people post comments. You send an e-mail and people reply to it.
That is, they will if you let them. Many companies are used to thinking of marketing as a one-way process in which they act on the market and manipulate people to do things. Marketeers dress up this process with polite words like “awareness” and “conversion,” but actually those are just labels for how you pull on puppet strings. We see many companies trying to force web marketing into this one-way mold. So they send out e-mails from addresses that don’t accept replies. Or even if they’re brave enough to have a corporate weblog, they turn off the commenting function.
In the era of mass media, this sort of one-way communication was acceptable because there was no way to talk back to a TV ad (or you could, but it wouldn’t do you any good). But on the web, refusing to engage is implicitly an insult.
Here’s an analogy. If you wanted to discuss a problem with your neighbor, would you go over and talk with them, or would you leave a letter in their mailbox? Which approach works better? Which approach leads to a good relationship with the neighbor?
On the web, every customer is a neighbor. If you treat them like a puppet, don’t be surprised if they treat you like a faceless corporate monolith.
Most companies don’t get this yet. Or even if they do get it, they’re terrified to engage because they don’t know how to deal with large amounts of customer feedback. What a horrible problem! Your customers actually want to talk with you, to get to know you and form an emotional bond with you — and you’re too busy to do it!
Isn’t that sad?
It’s especially sad because there are ways to handle the two-way communication, to learn from it and become a stronger company as a result. But they require re-thinking the role of marketing in the corporation, and breaking down the silo walls between marketing and other departments such as engineering and sales. This is such a politically sensitive subject, and it’s such a big change, that we see many companies shying away from the entire subject.
What to do about it?
It’s one thing to describe these changes, but quite another to say what to do about them. We don’t think anyone has all the answers, but here are our current thoughts — and please post a comment if you have anything to add.
For startups, the prescription is pretty clear. If you’re building new software, build it in the web apps world. Take advantage of the lower cost structure to keep your company lean and small. Architect the company from the start to be open to online communication, at all levels. We spoke to one successful startup recently that routes every e-mail question to every person in the company — because everyone learns from them. This is a company with tens of thousands of customers. If you build for openness from the start, you learn to handle the communication load as your company grows.
For existing companies, the prescription is more complex. If you’re an established software company, you need to watch carefully for little web app competitors on the periphery of your business. They are probably tackling only low-margin parts of your business today, or narrow verticals, but they’re the ones who will start attacking your core business as the web app tools improve. We think the best defense here is a good offense — you need to develop your own in-house group of carnivorous web app developers who experiment with new online services and products for your customers. Separate them from the core folks working on traditional software, and force them to work on a low budget and through cooperation with other web companies. They’ll spot new opportunities, and will have the best chance of identifying the control points where you’ll make money in the new software world, so you can grab those franchises before someone else does.
Will these in-house web apps people cannibalize some of your existing business? Yes they will. But better you should eat your own business than someone else does.
The impact on marketing departments. Fortunately for everyone with a marketing title, customers who are heavily into weblogs and online streaming video are still a tiny percentage of the overall population. So you still have some time to adapt. But you can’t predict when some new web technology will suddenly reach a larger audience — for example, when iTunes added podcast support, it drove a huge jump in the use of audio podcasts. You need to start learning these new media now, before they take off.
This is a much bigger subject than we can tackle in a single article, so you’ll find a lot of discussion of it throughout our site. But the first and most difficult step is to stop thinking of marketing as marketing. It’s now market relationships. The only way you can cope with the flow of two-way communication is to turn everyone in the company into potential contact points, and to turn your best customers into partners who help communicate your messages out to the market. This is doable, and a number of companies are working on it. But it’s a huge change in the thinking, training, and habits of your employees and senior managers. It’ll take years to make the changes feel natural, so it’s all the more important that you start now.
Give us a call or send us a note if you want to talk about it in more detail. And feel free to post your thoughts below.

0 Responses:

  1. Chris Dunphy. September 28, 2006 at 3:37 pm  

    “The only way you can cope with the flow of two-way communication is to turn everyone in the company into potential contact points, and to turn your best customers into partners who help communicate your messages out to the market.”
    One minor addition to your thoughts on applications moving to the web… I agree with you, with a few exceptions. High-end games are probably safely going to remain targeting native API’s for a long time to come because they need so much access to the raw hardware. Professional video and even photo applications may stay native for a long time too, for the same reasons.
    On the one hand you have an X-Box, on the other a high-end professional workstation. If you are targeting anything in between, you’d be foolish to not focus on Web 2.0.
    – chris

  2. fiat lux. September 29, 2006 at 7:56 pm  

    The major issue(s) for Web-based applications are not all that dissimilar to the limitations encountered by networked client-server applications in the past.
    Going to web-based apps puts a premium on network speed and stability, the absolute necessity of the application server(s) remaining online 24/7, significant hardware investment on the server side, excellent coding to reduce software bottlenecks, and of course data security.
    Now, all of those problems are solveable. But essentially, you’re trading off of one set of technical challenges for another set. Some of what you gain in faster software development gets eaten up by the need for more and better IT staff and infrastructure. On balance, you probably still come out ahead, but you need to look at the total picture to be sure.
    There’s other issues as well — for example, how to provide web-based applications for companies who either cannot or will not allow critical data outside the corporate firewall. Again, it’s an issue that can (and presumably will) be solved, but a company that doesn’t solve it properly will be just as endangered as the ones who don’t embrace the opportunity.


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