Web 2.0, Social Networks in ’09: The Year of Consolidation, Not Innovation

In 2009, Web 2.0 technologies such as blogs, wikis and social networks will continue to be used by people both at home and work. But I think most consumer-based social networks will struggle toward profitability, and consolidation in the enterprise Web 2.0 market could hamper innovation around those tools, too.

Let’s start with the consumer market. At CIO this year, we’ve mainly focused on three social networks: Facebook, Twitter and LinkedIn. 

Here’s a quick look at how they did, and where they’re going:

This year, Facebook got better. It became more useful for end-users, who embraced the service’s new design (after a loud minority initially shunned it). It’s cleaner, less noisy and navigation-friendly. While I think the current social ad model that Facebook has will prove itself untenable, the social network’s explosive growth (in users) is something to celebrate. There’s reason to believe it will find a way to make money over time. But based on interviews their CEO has given publicly, that probably won’t happen this year.

Twitter continues to improve. I get the “fail whale” symbol (a cute, cartoonish error message) far fewer times a month than I used to; a sign the site used some of its venture capital to improve service reliability. The intellectual exchange I get on Twitter is wonderful. It begs the service to hit a broader set of users in 2009, moving beyond its core group: techies, consultants, and analysts, as well as the media and PR people who follow them. I want to see more people from other areas of society use it (and in broad swaths, not just the same heralded examples the Twitter fanbois can point to).

This year, I’d like to see Facebook make Twitter a fair offer, and I hope Twitter accepts. Such an acquisition should ensure that Facebook honors Twitter’s superior design for posting a status message. But the thought of having the Twitter experience with a broader set of social networking users from a variety of backgrounds (which Facebook has) really excites me. For some of Twitter’s hardcore users, there would be a “oh-no-Dylan-went-electric” kind of revolt, but I think it would be better for a great many of us, making naysayer’s objections a footnote at best.

LinkedIn was this year’s sleeper in the Web 2.0 and social networking space. As demonstrated in an article chronicling LinkedIn’s growth, it’s less glitzy than the former two social networks, but it has been making money. It shouldn’t rest this year. With its founder retaking control as CEO, it should focus on innovating around its existing platform. Releasing an applications platform this year was a start, but a mere nine applications was overly cautious. And while it’s understandable why LinkedIn might want to maintain a professional feel–given the fact that Facebook can offer the same things with little development effort if it feels inclined–LinkedIn needs to be more aggressive and avoid complacency.

Now, a word about the enterprise Web 2.0 (or Enterprise 2.0) market: This is the space served by big business software vendors like Microsoft (SharePoint) and IBM (Lotus Connections), as well a bunch of start-ups such as Socialtext, Atlassian, Newsgator, MindTouch, Telligent, Jive Software, and [insert e-mails here from 30 enterprise 2.0 vendors who will write me and tell them I forgot to list them].

This market was built by the above mentioned companies through copying all the cool things that happen in the consumer Web 2.0 space and making them palatable for business use — an admirable job when you consider what business leaders have given us to work with over the past decades. The problem: the latter list of start-ups I mentioned find themselves in a fragile market. Technology spending will be nearly flat or decline (depending on who you ask). Traditional IT executives who trust IBM and MS, even if they’ll eventually have to pay those vendors more money in a time when they have less to spend, might keep their allegiances.

This isn’t great for business users if we automatically see everyone play it safe by purchasing IBM and Microsoft. (Have you seen a SharePoint wiki? I have, and it’s not pretty.) This is not a knock on the incumbents, who deserve some credit. My interview with the forward-thinking Stephen Elop, president of Microsoft’s business division, shows the company has turned a page (somewhat) in clinging to old business models. IBM, for its part, has more aggressively shown willingness to move forward with Lotus Connections, which right now has a better design than the social software features in SharePoint, which is largely still a document management system.

But both companies are further removed from innovation than the enterprise 2.0 vendors. While enterprise 2.0 vendors mimic what they see in the consumer market, thus keeping them a degree of separation away from where the innovation actually occurs, the incumbents are even further removed; they simply copy the enterprise 2.0 vendors.

This isn’t a sustainable model for innovation in the enterprise Web 2.0 market. With shrinking access to venture capital, there’s reason to believe some of the enterprise 2.0 start-ups will fail or struggle to make money in 2009. When this happens, they’ll either fold or be purchased by IBM or Microsoft.

This could have good and bad effects. On one hand, it will make the market less confusing and noisy. The number of folks who don’t understand the products they peddle at a trade show will decrease, and the choices for enterprise buyers will become clearer.

Some argue that a recession like ours is actually the best time to invent something, as it forces us to do more with less. But I’m a big believer that innovators need to be worried about ideas, not about how they’ll pay the bills or a staff.

If the Silicon Valley layoffs we’ve seen recently are any indication, Web 2.0 companies will be more worried about operations and staying afloat rather than innovation in 2009.