Digitalwall: The Web 2.0 Revolution (1) the Root Cause is Cost

All discussions about Web 2.0 should be centered around the axis of the question: what will happen when person-to-person connection and transaction cost continues to drop?

[+] Always have a critical mind about the Internet

I have always felt that it is more or less a pity that people nowadays are unfamiliar with the train of thought and experience developed during the evolution of the Internet. The Internet has become a "fact", yet there are quite a lot of people who have no idea why it has become what it is today.

During these ten years, we have experimented various kinds of seemingly wild ideas, and we have experienced moments of excitement and confusion. These thoughts have been scattered in every article of mine completed all these years. After a good deal of contemplation and numerous trials, we have finally come to realize what is feasible and what is not.

I had a plan to organize this collection of thoughts and publish it under the name of "the ABC's of the Internet". Yet after having a look at the guidelines just put together, I am surprised to find that much of the stuff is being challenged by the new developments of the Internet and is very likely to be over-written.

Web 2.0, this very popular word, is not as simple or confusing as what is portrayed in the media. Only those who have experienced the intense exchanges and experiments of ideas in the days of Web 1.0 are able to understand that Web 2.0 is really a silent revolution.

For terms such as Blogs , Social Networking Service, participation economy and others, there should be a more straightforward rationale behind. In front of the Internet, the vast crystallization of the wisdom and ideas of the mankind, we should always have a critical mind with devoutness.

[+] The declining cost of storage and bandwidth

There is only one root cause of the Internet revolution - the declining cost of computer storage and network bandwidth. In the social context, it would mean "the declining cost of the interpersonal connection or communication"; in the business context, it is "the disintegration of corporations which thrive on the monopoly of information and of capital".

In the era of Web 1.0, the shrinking cost of online publishing had resulted in drastic changes in the media and publishing industries. However, as the cost was not low enough, we had not seen in other industries such revolutionary changes centered around the idea of common participation.。

How low can the cost go? It is not easy to show with real statistics. Yet I have the impression that in 1999, SINA, a Chinese portal, launched its free email service offering "huge" storage of 50MB. Considering that at that time the storage of a hotmail account was merely 2 MB, it was 'huge" undoubtedly because SINA even bought TV commercials to publicize it.

But now you can easily apply a free email account with 2GB storage, which is 1000 times as big as that of a Hotmail account in 1999. In other words, the storage cost now is one thousandth of that in 1999.

And it means more than just the decline of the storage cost. With the increasing mailbox capacity, users have started to send emails attached with big files. It has led to the growing traffic or growing bandwidth consumption, or more practically growing cost to the email service providers. The providers today are able to afford such cost, meaning there has been staggering reduction in the bandwidth cost during this decade.

[+] Web 1.0: reduction of cost has impacted traditional B2C businesses

In 1999, free online hard-disk services were quite popular for some time. Users can upload files to the host machine for free. After the bust of the Internet bubble, these all turned to be paying services, and Xdrive, an renowned U.S. Service provider, is one of these providers.

Yet today you can get 5 GB storage with a monthly fee of USD5 or so, and 1GB storage can cost you nothing. Due to fierce competition, Xdrive is now planning to offer 5GB storage for free, to be launched this September.

By raising these examples I am not intending to explore the competition in and development of the business of free email or online hard-disk services. Rather, I am trying to point out how low the cost of storage and bandwidth has gone in these ten years. What can really stun us is the changes of the industries driven by the reduced cost the bandwidth and storage.

In the Web 1.0 era, we saw the rising of Internet media, which later developed into portals; this had impacted on the traditional capital intensive and seriously concentrated media industry. Also there was the emergence of online job sites, which greatly reduced the employment/recruitment cost and impacted on the related industries.

The shrinking of cost has triggered significant changes in the above mentioned B2C business models. While the cost continues to drop, the B2Cs are either encroached or even replaced by C2Cs. Some businesses are dying away, and some are forced to move upstream.

[+] Web 2.0: cost continues to drop, and C2Cs are impacting B2Cs

C2C business models are not a new idea. Person-to-person trading or payment service such as eBay and PayPal in the U.S. has been there for years. Online classified advertisement website Craigslist is seen as a good model for Web 2.0 participation economy, yet it came into being long before the appearance of the term Web 2.0.

In the U.S. there are now some websites providing a platform for person-to-person loans. Normally people will only lend money to reliable acquaintance, because the cost to find a reliable stranger is too high. Now the cost to identify a reliable stranger has dropped to such a low level, so guess which traditional industries will get shocked?

From 1.0 to 2.0, the revolution is a gradual one, because the cost of storage and bandwidth is not plunging overnight but declining step by step. There must be quite a few websites or business models with the label of 2.0, but actually they have been there since the days of 1.0. They just become more outstanding in the time of 2.0 when the cost has gone a lot lower.

So all discussions about Web 2.0 should be centered around the axis of the question: what will happen when person-to-person connection and transaction cost continues to drop? If in the future there comes the so-called Web 3.0, just think what kind of revolution there can be with the cost approaching to zero. (
2006/08/20 - By Digitalwall.com - Way to
China Internet/Telecom )