December 2006

by Anette Schaefer, Consumer Research, Media & Entertainment/EMEA Director,

[email protected], 44-20-7307-1082

Web 2.0: Taking the Noise Out of the

Information, Part 1
The Bottom Line: Web 2.0 is transforming not only the internet, but also how users and companies communicate with each
other as well as how media is produced and consumed.
Key Concepts: Web 2.0 applications and services will transform the traditional media businesses.
Who Should Read: Product development, business development, corporate strategy, product management, COO, CEO

Practice Leader: Boyd Peterson, Senior Vice President--Consumer Research,

[email protected], 617-880-0283

Executive Summary
As the web matured during the late 1990s, the hopes of the new digital frontier went unfulfilled. Its use turned
out to be more about commerce than communities, and used more as a more shopping mall than social network.
The web, and the internet as a whole, had transformed many things, but had it also transformed its users?

During the first era of the internet—the so-called Web 1.0— the return on investment for many applications
was over estimated while they couldn’t reach a critical mass due to a lack of network capacity and end-user
access bandwidth. This included applications that enable user-generated content and sharing of videos, photos
and music, which aren’t new concepts: In the late 1990s, companies such as Digital Entertainment Network
(DEN), backed by Microsoft, Dell and Pepsi Co.; Pop.com, founded by DreamWorks SKG or New York-based
(and now revived) Pseudo.com tried to push content directly to the end user to engage with consumers as well as
to build portals for user web—and broadcasting. The companies failed but the now the ideas are back.

Exhibit 1.
New and Old Terminologies of the Internet
Source: Yankee Group, O’Reilly Media

Web 1.0 Web 2.0

DoubleClick Google AdSense/Google Analysis

Ofoto Flickr

Akamai BitTorrent

mp3.com Podcasting

Britannica Online Wikipedia

Personal web sites Blogging

Domain name speculation Search engine optimization

Page views Cost-per-click transaction

Portal Platform

© Copyright 1997-2006. Yankee Group Research, Inc. All rights reserved.

Yankee Group published this content for the sole use of Yankee Group subscribers. It may not be duplicated, reproduced or retransmitted in whole or
in part without the express permission of Yankee Group, 31 St. James Ave., Boston, MA 02116. Phone: (617) 956-5000. Fax: (617) 956-5005.
E-mail: [email protected]. All rights reserved. All opinions and estimates herein constitute our judgment as of this date and are subject to
change without notice.
But the World Wide Web also has grown up. Today, investors and entrepreneurs are once again gathering around the less meaningful
Web 2.0. The upgrade from version 1.0 to 2.0 suggests something revolutionary. Based on new web tehnologies and applications,
new business models emerged which attract millions of users.

How did Web 2.0 start? In 2004 Dale Dougherty and O’Reilly Media were looking to name a web developer conference. Because
they couldn’t find one term which described the current changes in the internet, they called it Web 2.0. But what they really initated
is an ongoing debate on the definition of Web 2.0, which describes the applications we show in Exhibt 1.

This Yankee Group Report investigates the general definition of Web 2.0 and its associated mechanisim of social networks, search,
user-generated content, transformation of marketing and its overall impact on digital media. This Report also focuses on new
emerging businesses to investigate if this time the web will not only be discruptive but also transform industries and create new
sustainable concepts. Part 2 of this Yankee Group Report will investigate the impact on European markets and in particular how
European broadband service providers already reacting to the developents of user-generated content.

2 © Copyright 1997-2006. Yankee Group Research, Inc. All rights reserved.

 December 2006

Table of Contents

I. Web 2.0: It’s All About the User ··························································································································· 3

II. Trend and Trend Analysis ······································································································································ 5

From Portal to Platforms: The New Way to Engage With Consumers ..................................................................................... 5
Competitive Analysis ............................................................................................................................................................................ 9
Advertising Strategy ............................................................................................................................................................................. 11
Inhibitors of Change ............................................................................................................................................................................. 12

III. Conclusions and Recommendations······················································································································ 13

Recommendations for Media Companies ........................................................................................................................................ 13
Recommendations for Advertisers, Advertising and Media Agencies....................................................................................... 14
Recommendation for Investors/Venture Capital........................................................................................................................... 14
Recommendation for Broadband Service Providers/Network Operators ............................................................................... 14

IV. Further Reading······················································································································································ 15

I. Web 2.0: It’s All About the User

During Web 1.0, the virtual relationship between companies and consumers mirrored the real world:
Companies used the World Wide Web to offer information and goods that users searched for and purchased.
The most-used formats were portals, which competed to attract eyeballs and clicks.
With Web 2.0, the exchange of information and goods is completely different: now user communication
drives platforms and content that transforms businesses and the way they communicate. This affects the
relationship between consumers and companies. Consumers are no longer only being serviced; they are parts
of the business. Platforms such as eBay or Amazon not only sell direct, but also create marketplaces where
users sell as well as rate goods, business transactions and other users. Technology brings power to the masses
that transforms how companies operate, create products and define a new customer relationships.
EBay and Amazon aren’t really new; therefore Web 2.0 isn’t really a new development. Even tools such as
blogs and picture and link sharing sites such as Flickr or del.icio.us, which are the poster children of new
Web 2.0 programming, have been around for years. However, Web 2.0 is more of a description of a trend in
which the individual user plays a central role. Therefore, the internet is no longer only for the masses,
economical advantages lie in services that target individuals.

© Copyright 1997-2006. Yankee Group Research, Inc. All rights reserved. 3

 Wikis, blogs, picture/video sharing sites, links, tags—can all these new applications earn money? Are they only
hype without any economical base? Selling content over the internet was always challenging. Users expect to
get content free and only a few are willing to pay even a couple of cents (see Exhibit 2). This consumer
expectation could not only impact new business built around Web 2.0 applications, but also traditional license-
based business models such as software. Therefore, to sell content over the internet, companies need to find
new ways of marketing. A good example for earning money with content is Google. Instead of following the
traditional business model of search engines, selling online advertising and pop-ups, Google defined a new way
to engage users through advertising. It uses contextual advertising, or tags and text ads, and only receives
money if a user clicks. And this approach is not limited to big players—by integrating it into a web site, anyone
can participate. What seems like a small marketplace for classified ads is already changing the market for local
newspapers because Google reaches everybody online, no matter where they are.

Exhibit 2.
The New Applications Transforming the Relationship between Users and Companies
Source: Yankee Group

Search Engines Services that combine search with Yahoo!

contextual advertising and allow user Google
revenue particpation. Technorati

Social Networks Services that leverage user personal Linked In

connections. Friendster
Facebook

Content Sharing Services that allow users to share and MySpace

to develop content. YouTube
Picasa

Tagging Metadata assigned to content or web Flickr

pages to facilitate search and sharing. del.icio.us
digg

Wikis Software and services that allow users Wikipedia

to develop, edit and share content. Socialtext
Basecamp

P2P File Sharing Services that allow users to share BitTorrent

media as a client and a server. Kazaa
Gnutella

Blogs Services that allow users to create Blogger

and share their online diaries of text Gawker
and media. TypePad

Podcasts Services that allow users to download PodShow

video and audio. Juice
Odeo

RSS Services that allow users to collect NewsGator

and read content feeds (XML). FeedBurner
Bloglines

User Review Services that allow users to search for TripAdvisor

Platforms peer reviews on products and CNET
services. ReviewCentre

Consumer-to- Services that allow users to buy and Amazon

Consumer Commerce sell over the web. eBay
uBid

4 © Copyright 1997-2006. Yankee Group Research, Inc. All rights reserved.

 December 2006

Video and content sharing sites create tremendous awareness, but they haven’t created any return on
investment yet. The traffic from these kinds of social networking sites will only come as long as users invest
their unpaid time. Users’ willingness to collaborate depends on how platforms communicate and react when
customers answer and object to, for example, products, services or corporate communication. Companies
that see a decrease in user participation and direct involvement of the consumer in the business can take
advantage of the rise of direct interest from users to develop new products and services as well as build new
consumer relationships based on trust. With Web 2.0, the internet is going back to its roots, where users are
an integrated part. Therefore, companies will need to adapt they way the communicate and advertise, which
will ultimately transform the entire business.

II. Trend and Trend Analysis

From Portal to Platforms: The New Way to Engage With Consumers
Will social networks disrupt the traditional business and create new revenue streams for an industry that’s
desperate for new revenue streams? Following recent acquisitions (see Exhibit 3), traditional media
companies are willing to invest in companies which haven’t received any revenue yet or have yet to break
even. Also, venture capital companies are back in the internet game, providing seed funding for startups such
as Flickr, CollegeHumor and del.icio.us, which were only in business for 12 months when they were acquired
by media majors. Traditional media companies are looking to take control of new media assets before they
disrupt their business models. Their strategy is to preempt the kind of transformation the music industry
experienced as a result of peer-to-peer file sharing. Reasons that underpin those acquisitions include:
• Establishing control of new, disruptive technologies to protect the traditional value chain
• A means to engage younger (14 to 29 year old) consumers; it is more difficult to target audiences that
abandon the traditional media space
• Creating new, scalable advertising platforms, which deliver more information in regards to consumer
behavior and can be leveraged in the traditional media planning

© Copyright 1997-2006. Yankee Group Research, Inc. All rights reserved. 5

Exhibit 3.
Media Companies Willing to Invest in Social Networks and User-Generated Content
Source: Yankee Group

Social Network Investor Amount

News Corp. $580 million
MySpace
$900 million to be exclusive
Google
search engine for 3 years

Friendster Private Equity $10 million

NBC/WB and others Strategic Partnership

YouTube
Acquired by Google $1,65 Billion

Flickr Yahoo! $79 million

(was paid for Flickr, del.icio.us,
Webjay, upcoming, konfaktulator)
Del.icio.us Yahoo!

Friends Reunited ITV $300 million

Grouper Sony $65 million

AtomFilms Viacom $200 million

Truveo AOL $25 million

About New York Times $480 million

WildTangent WPP $3 million

$10 million
Facebook IPG
(for a 0.5% equity stake)

Several Startups Denuo/Publicis Consulting for equity

Jot Spot Acquired by Google Undisclosed figure

6 © Copyright 1997-2006. Yankee Group Research, Inc. All rights reserved.

 December 2006

MySpace
MySpace is the most popular community platform, with more than 80 million registered users. MySpace lets
users set up their own web site with pictures, videos, music and text to share and link the content with
friends. When News Corp. acquired Intermix Media, which owns 30 different web sites such as
MySpace.com, for $580 million in August 2005, predictions that the new owners would mess with the social
network flew fast and furious. Instead, News Corp. has managed to keep MySpace largely intact, even
expanding it commercially. This has been accomplished by realizing that users have the power to leave
whenever they feel like it’s no longer their space. Before the end of 2006, MySpace will allow music bands
(3 million of them are registered) to sell music downloads. Songs can be sold on the bands’ MySpace pages
and on fan pages, in MP3 format, which will also work on portable players. The bands will decide how much
to charge per song after MySpace’s distribution fee is included. Although bands will be able to set their own
price, MySpace will secure a minimum payment to cover the costs of running the service. Any additional
money will be divided between the site and the artists. Starting in October 2006, Fox Interactive Media
started selling movies and TV shows on the Direct2Drive web site owned by Fox's IGN Entertainment. The
programs will be available the same day as their DVD release. Soon after Direct2Drive starts selling Fox
programming, the content will be available for purchase from News Corp.'s MySpace.com. Movies will cost
about $20 and shows will be available for $1.99. They will be playable on portable entertainment devices
with Microsoft's copy protection system. Twentieth Century Fox currently sells its films through download
services such as CinemaNow and Movielink.
MySpace also announced that it will leverage its users’ content on mobile devices and will offer games and
applications on gaming. Therefore, MySpace will engage games publishers and mobile operators to sell
content on shared-revenue basis.
The News Corp. investment in MySpace seems already to be paying off: Google will pay MySpace $900
million in the next 3 years to be the exclusive search engine on the web site.

YouTube
YouTube, recently acquired by Google, allows users to upload video onto its web site as well as at their own.
Other users can comment and rate the videos. According to Nielsen NetRatings, YouTube was the fastest
growing web site between January and July 2006; the number of unique visitors grew from 4.9 million to
19.6 million per month—this reflects an increase of 297%. With its acquisition of YouTube for $1.65 billion,
Google makes it second inroad into social networking. The investment community favored the deal because
of its potential of tax deductions (from YouTube’s debts) and the exchange of shares. Even with its current
market value of $150 billion (Q3), it’s questionable if Google will see an equivalent amount of return for its
combined $2 billion it has paid to engage directly with customers.
One thing is for sure, because of the acquisition YouTube lost its amateur status and became a target for
copyright holders, which now seize the moment to claim royalties. According to the Japanese Department for
Copyrights, on October 22, 2006, YouTube had to delete 30,000 videos that used parts of TV, music and
film, which breaches copyrights from its original authors, composers, directors and producers.
Media companies such as Viacom, News Corp. and even NBC Universal (the parent company of NBC, which
is currently using YouTube as a promotion channel) announced that they will eventually sue YouTube if it
doesn’t pay $150,000 for each illegal video. Music companies such as Universal Music, Sony BMG, Warner
Music, and TV networks CBS and NBC, sealed a contract with YouTube to develop a tool that will
automatically recognize copyright-protected content. This system will allow YouTube to pay royalties to the
copyright owners, similar to traditional media companies that pay fees for every piece of music or film they air.

© Copyright 1997-2006. Yankee Group Research, Inc. All rights reserved. 7

 Google and YouTube decided not only to pay professionals for their content, but they also started a new
business model for amateurs. Because of the tremendous success of the producers of the Coca-Cola/Mentos
spots (first shown on Google Video), Google will show the spots exclusively. Therefore, Google will pay the
producers $5 per 1,000 clicks, but only if the video was viewed more than 20,000 times.
In the short term, these new business models might not replacing the core revenue streams. Like MySpace,
YouTube tries to define new ways to engage advertisers besides banner ads, promotions and sponsorships.
YouTube now offers new options for its advertisers called Participatory Video Ads (PVA) and Brand
Channels. Each day at YouTube's homepage, a PVA—a one-video ad—will be featured. It will rise and fall
based on its own entertainment merits, which users judge. Visitors to the site can rate the ad, share it with
others, write comments about the ad, embed the ad inside their own videos or make the ad a favorite.
The Weinstein Company also signed a contract with YouTube to promote its feature film “Pulse” through a
PVA campaign. Warner Brothers Records currently promotes Paris Hilton’s debut album with a cross-
marketing campaign with FOX TV. Therefore, it launched a single “brand channel” on YouTube, which is
sponsored by “Prison Break,” as shown on FOX TV, currently in its second season.
The promotion of new TV shows, at the same time as the season starts on TV, seems to reverse the
relationship between old and new media. Now it’s the new medium that has the media power and audience
reach to create awareness. Consequently, NBC launched its own brand channel for trailers and cross-
promotional advertising of its new programs. However, the cooperation is only a barter deal;NBC’s on air
time in prime-time and late night against YouTube’s promotion channels to show exclusive clips to promote
shows such as “The Office.”NBC also tries to engage with the users by running a contest where users can
produce 20-second video clips that the NBC will air.
Whether these current deals with established media companies will enable YouTube to attract more traditional
brands and advertising budgets is questionable.
From a media planning standpoint, even with its tremendous success in attracting visitors, YouTube remains a
risk being affiliated with non-edited content, even though many videos with questionable content were deleted
since the acquisition from Google. The new partnerships might mitigate this while advertising can be embedded
into more traditional media.
The more important question for YouTube is whether the users will stay as the commercial aspect becomes a
central part of the web site. YouTube must transform its business into an eBay-type of video platform where users
will make money from entertaining others and professionals will see ROI from a new platform, like the music
channels on MySpace.

Grouper
Sony Pictures bought video-sharing site Grouper for $65 million in July 2005. At that time Grouper had
already received $5.25 million in seed funding, $1.75 million from T-Ventures, Deutsche Telekom’s
investment arm. T-Ventures plans to launch the service in Europe through its broadband service provider, T-
Online in Germany and Club International in France, which launched IPTV in April 2006. Grouper was
started in 2004, its founders sold Spinner.com to AOL for $320 million in 1999. Grouper was originally a
development of a P2P file sharing client, and only changed into a video-sharing site in late 2005. Grouper
hasn’t had the same success as YouTube and MySpace, but it has a more robust technology platform that lets
users share their content seamlessly between iPods, PSP and other portable entertainment devices.
Furthermore, Grouper offers an editorial suite, called Groovie, which lets users amend videos and still
images. In August 2006, Grouper had just 8 million unique users last month according to Nielsen
NetRatings, which the company denies because its main competitors, such as MySpace and YouTube,
probably attracted more users.

8 © Copyright 1997-2006. Yankee Group Research, Inc. All rights reserved.

 December 2006

Sony Pictures announced that the studio wants to distribute and promote its films and TV programs on the
internet. Sony also finds opportunities for its consumer electronics company to sell devices through new
editing software. In the long term, Sony plans to define an ad-supported model for its premium content
business through Grouper. The acquisition also demonstrates that Sony hasn’t come up with any innovative
platform in recent years that allows to cross-sell its devices through a vehicle like content sharing.
Grouper will offer an unlimited upload of videos through its services while videos longer than 3 minutes
can’t be watched as a video stream; they are only accessible to others via download. Users can also decide to
have their video viewable only by friends or an invited audience.

Competitive Analysis
Yahoo! and Google: A Different Approach to Search but One Resource In Common
Yahoo! and Google have very different approaches to media and Web 2.0. Yahoo! originally was launched
as a media company, Google was driven by a mathematical obsession to organize information. This is
reflected in the acquisitions and investments that both companies have made in the last 2 years. Yahoo!
started Yahoo! Entertainment with former Hollywood executives and acquired social networking platforms
such as Flickr, del.icio.us and others (see Exhibit 3). Whereas Google developed more technology
applications such as Google Earth, it also invested in network infrastructure such as dark fiber or
transatlantic cable, or broadband access such as metropolitan Wi-Fi networks in San Francisco. As much as
they differ, Google and Yahoo! have the same objective to fund their new developments and further
expansion: advertising (see Exhibit 4).
To address advertisers’ needs, Yahoo! and Google rely on two complete different approaches: Yahoo! uses
human editors to monitor user behavior and communities to generate relevant data; Google relies heavily on
algorithm. Those different strategies are also reflected in their business models with advertisers and media
planning agencies. Yahoo! changed its approach to local markets by changing its strategy in the regions by
transforming its sales offices into full-service units.

Exhibit 4.
Google and Yahoo! Revenue from Advertising
Source: Company annual reports, Yankee Group, 2005

Yahoo! Google
Ad Revenue $4.6 billion $6.0 billion

Percentage from 87% 99%

Overall Revenue

In-direct: Direct:
Approach Media agencies AdSense/AdWords

Social Networks/ Flickr

Google Video
Content del.icio.us

© Copyright 1997-2006. Yankee Group Research, Inc. All rights reserved. 9

 Also, with its current acquisitions (see Exhibit 3), Yahoo! would be able to create a Web 2.0 portal with the
web services it has purchased in the past 18 months such as Flickr, del.icio.us, Upcoming.org along with its
own services (e.g., Yahoo! Answers, Yahoo! 360 and Yahoo Local!). For example, del.icio.us has 10 million
saved pages and half a million tags. Yahoo! is also relying on Yahoo! Publisher Network (YPN). Like
Google AdSense, YPN addresses ad words from small web sites and blogs. The difference is that YPN lets
web sites tag themselves so users or web site owners get more relevant ads in return. In the long run, YPN
could become a tool to tag content over different devices to track syndicated content.
At the same time, Google eliminated the industry standard of media planning revenue share for its clients
spending less than $1 million per month. These clients are now left alone but can monitor their web site
traffic as well their ad-word spending tool, called Google Analytics, which was introduced as a beta version
in 2005. It’s questionable how Google will acquire large cross-media budgets from media agencies by
cutting them out in the online space while a $1-million budget might be part of an overall cross-media budget
from major clients.
With Google AdSense, users or web site owners are be able to purchase keywords related to their web site,
which secures them a higher ranking in the search results. Google Analytics measures the success of the
Google AdWords campaigns. Google AdSense takes the search even a step further; users can purchase
advertising space next to the search results that automatically generated ads based on the search and the offer
of the web site. To become a provider/reseller for this publishing tool, users need to be certified by Google.
With a new product, launched in October 2005, Google Custom Search, Google takes its first steps into
social search. The tool enables users to express themselves and share their interests with the ability to search
information related to those interests. Del.icio.us offers a similar application to its register users. Through
this tool, Google is entering the space that was targeted by Yahoo!. However, it doesn’t really change
Google’s market domination. According to the media agencies MindShare (in Exhibit 5, MindShare is part
of WPP) and Initiative (in Exhibt 5, Initiative is part of IPG) Google’s advertising revenue in the UK of 900
million GBP in 2006 will exceed the one’s from broadcaster Channel 4 with 800 million GBP. As a result of
these tremendous shifts in advertising budgets, TV companies already announced that they not only would
need to decrease their production budgets, but also how they produce news and other related formats.
Through the constant availability of real-time information, users are abandoning the time-controlled media
environment and opting for on-demand and anywhere content.
According to our research, only four media conglomerates (see Exhibit 5) globally are responsible for 57.5 %
of the media spending worldwide, which is already not only divided by new and old media, but also shows
an increase in investing in content. (See the August 2006 DecisionNoteSM, European Commercial
Broadcasters Must Diversify to Retain Advertising Revenue). The remaining 42.5% is also being controlled
regionally by a few media agencies that have the largest budgets in their regions.
The competition to secure user relationships creates a common tool to retain users: Every user who links to
Yahoo! or Google on their own web site, which leads to a transaction, will participate in the revenue
generated. Therefore, Yahoo! is working on the social “folksonomies” described above; Google is working
on solving issues such as online storage required to upload media files. For example, on Google Video,
which lets anybody upload video, users can decide to charge for their content or offer it free. If there is a
cost, users get 70% of the fee and Google gets the remaining 30%.

10 © Copyright 1997-2006. Yankee Group Research, Inc. All rights reserved.

 December 2006

Exhibit 5.
Global Media Spending by Agency
Source: AdAge, company annual reports, Yankee Group

Omnicom WPP IPG Publicis Others

Media $1.33 $1.69 $1.93 $1.48 $4.77
Budgets billion billion billion billion billion

Omnicom
11.9%

Publicis
Market 13.2% Others
Share 42.5%

WPP
15.1%

IPG
17.3%

Where does all this leave Web 1.0—or traditional media companies? First of all, they need to recognize that
new media companies undermine their core revenue streams. Simultaneously, old media companies are in a
rush to secure new revenue streams through new Web 2.0 acquisitions. If they would retain new revenue
streams, they still rely on old measurements which they try to amend to the new digital ecosystem. On the
other hand, the new media applications didn’t come up with scalable measurement to replace the Nielsen
panel or other industry standards.

Advertising Strategy
Equity to Secure Future Platforms
Publicis, WPP and IPG (see Exhibits 3 and 5) are taking equity stakes in emerging digital platforms—games,
enhanced and interactive TV, and broadband video. The global companies want to be part of social media
companies at an early stage, so they might be able to control and scale the startups’ ad models and platforms.
They also want to secure access for their ad and marketing services accounts, and to have early looks at
experimental ad and new media delivery platforms. Currently, the investments are low compared to the ones
they made in the late 1990s: WPP made a $3 million investment in online game site WildTangent, as well as
a small stake in Visible Technologies, a provider of a consumer-generated content tracker. WPP also
invested in in LiveWorld, a social network provider. In July 2006, IPG paid $10 million for a 5 % stake in
Facebook. Publicis is making another attempt well-known in the Web 1.0 area: consulting for equity. Its new
company Denuo has already taken stakes in six startups, which are barter deals.

© Copyright 1997-2006. Yankee Group Research, Inc. All rights reserved. 11

 But as before, conflicts of interest arise when media agencies try to be content producers and selling on-air
time for the ad breaks of the program they developed at the same time. For example, IPG’s stake in
Facebook will create new ad models for all of its clients. If IPG also becomes responsible for Facebook’s
media and advertising account, usually then media budgets will be bartered, and showing no real cash flow
for Facebook. Media barter deals similar to the one between AOL and Time Warner create huge accounting
challenges, which weren’t approved by the SEC. In the case of IPG, the acquisition of Facebook is even
more complicated because Initative is also handling the Microsoft media account. Microsoft is not only a
client, but also a stakeholder in Facebook.
Will such arrangements mean some clients in the future will need clarification before they retain agencies
due to competitive conflicts? This attempt would need more than the Chinese Walls that agencies guarantee
clients to ensure that agencies in their network holding competitive accounts don’t communicate.

Inhibitors of Change
Impact on Traditional Media Businesses: Everybody Is a Cameraman
Recently, the BBC announced that the traditional idea of broadcasting is gone and that the future lies in new
media networks and its users. The project, called “Creative Future” looks like a Web 2.0 program created
from citizen blogs, an open TV archive and an adult evening class for media design and production. With
this initiative, the BBC tries to stop the loss of audiences to gaming consoles, iPods and the internet, which
requires a total new reorientation. Therefore, a company called All New Video created convergent solutions
for BBC TV shows that can be viewed or used over Universal Mobile Telecommunications System (UMTS),
broadband/IP video and over VoIP. In addition, an underlying infrastructure allows BBC users to stream
their own videos. Consequently, users are loosing their passive status as viewers and taking the role of co-
producers. First trials already embed “Citizen Journalism” into the regular program schedule, into local news
shows and discussion shows such as “Have Your Say” on BBC World and BBC News 24.
This form of interactive TV requires more than sending an SMS or having viewers call into a show, which is
interactive but most of the time not aligned with the TV format itself. The BBC is well positioned to
integrate the growing users of internet and mobile amateur directors into the professional produced TV
shows. If the BBC, as public broadcaster, is capable of implementing its future concept, user-generated
content could come out of its niche and be more than an alibi.
According to our research, the BBC has no plans to replicate YouTube or MySpace but will work with those
sites. It mentioned ideas such as broadcasting Radio 1’s One Big Weekend on Second Life and using Flickr
to post audience photos. But the BBC’s ambitious video and archive will demand great navigation such as
Google Video, which will require metadata, great social software and recommendation engines, and clever
cross promotion from linear channels.

Traditional Content For New Media Distribution While Securing Ad-Revenue

In September 2006, Warner Bros. Television Group launched its Web 2.0 application, Studio 2.0. WB
announced it will develop original live and animated programming for broadband and wireless, which will be
licensed to web sites, service providers through its new WB Digital Distribution department. Instead of
marketing content through the licensee, WB is trying to engage directly with advertisers during the
production of the content. This seems to mitigate the risk of production costs, which could increase through
the amount of digital formats it needs to amend.

12 © Copyright 1997-2006. Yankee Group Research, Inc. All rights reserved.

 December 2006

III. Conclusions and Recommendations

Economic success requires more. Users must generate revenue, they must be either ready to pay for their
membership in a network—or at least buy products, which are offered on the web pages of the network.
Even with all the money currently invested in startups from all sorts of traditional media businesses and
venture capitalists, the lack of revenue is the weak spot of Web 2.0. Throughout, the conversion rate per user
is only at few euros or cents per month.
A community alone is still no business model. Many industry players don’t acknowledge this yet. A
community could become a platform to develop a business model (e.g., MySpace). With the 60 million
users, it targets particularly teens and tweens. But nobody knows how long they remain faithful to an online
platform, or whether new members regenerate and whether the MySpace users will ever be ready to pay for
this service. But this is not all; MySpace is intended above all that Murdoch’s TV, movie and publishing
conglomerate did not lose the contact to young target groups and new media.

Recommendations for Media Companies

• Communities are no business model and the scalability of internet traffic is not measured yet in the
same way as traditional media. To secure the investment in social networks in the long term,
implement or develop new measurement tools that create an industry standard. Avoid the current data
mining and polling tools because they are a roadblock for the launch of a global standard due to
regulatory issues in various countries.
• Avoid social networks that target only young audiences with low disposable income. Turn your
investments or form strategic alliances with Web 2.0 platforms targeting mature audiences with a higher
net household income. Focus on mature broadband markets, which now attract late adopters to the internet.
• Cross-marketing campaigns are in high demand but need further improvement. Brands and
advertisers are spoiled by media companies’ undervalue of Web 2.0 media outlets and give the ad-space
away for less to secure the over all budget into traditional media. The new platforms require new media
planning tools to prove the return on investment.
• Non-edited content has its difficulties—it’s not trustworthy but users trust their platforms. There is
a huge discrepancy between user-generated content on wikis and user-generated sites such as MySpace
or Grouper. From a user standpoint, wikis are more reliable than entertainment web sites, but there is no
proof that wikis are reliable. In the future, media companies need to pay more attention to blogs and
other publishing web sites to differentiate with their edited content.

© Copyright 1997-2006. Yankee Group Research, Inc. All rights reserved. 13

 Recommendations for Advertisers, Advertising and Media Agencies
• Watch the competition from search engines and web portals. The internet hasn’t gone away. Since
the internet bubble burst, search engines such as Google and Yahoo! made grounds to develop a robust
advertising model. Stay in the game by forming alliances through leveraging the media budget power.
• The time of advertiser content developments as an alternative to traditional media is almost over.
Users are more likely to identify the author and source through Web 2.0 applications, such as blogs, wikis
and other sources. Engage users by taking advantage of the user-generated platforms, which already
interpret commercials (e.g., YouTube with Sony, Coca-Cola and Mentos). Rather than using the platforms
for promotions of brands and commercials, take advantage of the time users spend and the creative
approach they take with the content of commercials and support the new business models available.
• Follow the anywhere consumer and the anywhere content. Rather than relying on channels and
platforms, which have limited reach to engage with content owners or content developed for various
platforms. This will guarantee that advertisers not only reach groups they are targeting, but they have the
opportunity to engage with the users.

Recommendation for Investors/Venture Capital

• Seed funding already pays off with the investments taken by traditional media companies. Web 2.0
applications aren’t a business model per se. Communities need to be turned into returning customers. The
current Web 2.0 applications could generate more sustainable models if they are applied to establishing
e-commerce and web businesses.

Recommendation for Broadband Service Providers/Network Operators

• Web 2.0 applications can streamline internet platforms and offer new services—but will increase
the traffic from rich media content. This time, the internet is getting real. Keep the early broadband
adopters through enhanced Web 2.0 applications. Create communities to lower churn and stay current to
differentiate from web offers only. Acknowledge the increase of traffic from video and user-generated
content as well as define a strategy how to address the issue of network neutrality.

14 © Copyright 1997-2006. Yankee Group Research, Inc. All rights reserved.

 December 2006

IV. Further Reading

Yankee Group Link Data Research
Current Consumer Demand for Emerging Web Applications Leaves a Long Trail to Mass Market Adoption,
Report, November 2006
Mobile Social Networking Is a Hot Topic with Lukewarm Potential, DecisionNote, May 2006
Enabling Direct-to-Consumer Broadband Video Strategies, Report, May 2006
Ubiquitous Video Content over the Internet: A Race Against Time for European Broadband Service
Providers?, Report, May 2006
P2P Growth Continues Unabated, DecisionNote, January 2006

© Copyright 1997-2006. Yankee Group Research, Inc. All rights reserved. 15