Lots of folks are interested in the money side of Web 2.0. Charlie Wood, a great chap who I met at the Web 2.0 Conference, has created a blog to follow it all called, what else, Bubble 2.0. He’s not as cynical as you might think: he uses the tagline “Please God, just one more bubble”! and has said on one occasion that the schizophrenic nature of the blog “swings wildly between abject cynicism and irrational exuberance…”.

Getting acquired hasn’t always been a bad thing. I worked on a failed dot com startup and getting acquired was one of our primary goals. I didn’t think it was a bad idea then and I don’t now. In fact, my buddy Bill is still working on it at Labprints, and he’s providing real value to professional Wedding photographers (i.e. he’s making a profit). He decided to make a decent company out of it the day I left, for some reason.

What does seem to be a bad idea is to think about getting acquired without providing any value first, either to users or anybody else. And this is where the problem lies, I think.

What we’ve seen recently are companies that think that providing social software for the sake of it is a great way to build value. Problem is, that providing social tools in software doesn’t actually make people use it. But it can be lucrative, as long as you’re talking about millions of users. If you can’t generate a user base like that, then your social software isn’t very social, is it?

And then there’s Flock, which bills itself as a social browser given its built-in Del.icio.us and Flickr integration. Flock has been seriously maligned in the recent weeks following their beta launch because people don’t see a business model behind their software. Folks have been upset that they received venture funding (to the tune of a couple million dollars) because they see Flock as nothing more than another advertising front, which it very well might be. Given that advertising is powering the most exciting company on earth, this might not be a bad strategy.

But then there’s the attention factor. Bart Decrum, CEO of Flock, in response to the negative vibes, points to referral fees from Google and Yahoo as a revenue stream. He points out that Opera is now free because of their ability to generate enough referral fees in this way. And the number of $30 million has been floated for the amount of cash that Mozilla makes off of its referral deal with Google. (A Mozilla/Google branded Search page is the default home page in the Firefox browser).

In an attention economy, some, but not all, of the rules have changed. I’m not saying that Flock is going to succeed or that there isn’t a bubble, but if you can get attention and give attention better than other folks, you’ve got power, and you might just be lucky enough to get bought out at a rediculous price.

Unless, of course, you wanted to work your whole life.

Many companies are throwing their bets into the ring, and several have released word processor type applications recently. One recently one was the minimalist Writeboard, released by the 37signals crew, riding an always excellent marketing job by those guys. One that seemed to have even more buzz here at Web 2.0 is Writely, which toats a more sophisticated interface and exports to Word format (a critical feature, in my opinion). There’s also Jotspot and many others.

The folks at TechCrunch have kept good tabs on the product announcements, and one of their latest reviews started a heated argument among the competitors (hat tip: Richard). Michael Arrington of Techcrunch wrote a review about a new word processor called Zoho Writer, and got replies from both the creators of Writeboard and Writely that it’s basically a ripoff of their software. (see comments after the review). They suggested that Arrington not write about people who copy their software.

All gossip aside, this signals an interesting turning point concerning all this new web-based software: direct competition. I dare say that none of these companies can lay claim to anything as their own idea, given that even I thought of a web-based office suite as a good idea many, many moons ago. (if I thought of it, then many other people thought of it many months before that). It’s not a large leap, to be sure. However, I would say that what got Jason and Sam (of Writeboard and Writely) upset was the fact that they were two of the first into the web-based app ring with their products. But whatever advantage they enjoyed being a first mover is largely gone.

I don’t mean to sound be flippant, but didn’t they expect this? Hadn’t they seen the writing on the wall, pardon the pun? This is what software development is all about (just ask Visicalc, Wordperfect, and Konfabulator), who largely innovated their respective products to usefulness and then were effectively killed off by competition from OS makers, forcing them to alter their initial strategy. Many mourn their demise, but most recognize the simple fact that there are many other software makers in the world, and far fewer obviously good ideas.

That said, their main point in rejecting the review was that Arrington hadn’t done due diligence in his analysis of Zoho, which seems correct. (It was more of a “look at this” sort of review.)

Even still, given this heated competition, there really hasn’t been any existing word-processing companies to enter the fray. When this happens, you can bet that competition will get even more fierce. Just ask any of the Blog reader makers how they felt when Google released their Google Reader software yesterday. There had to be at least an “Uh Oh”, despite all their assurances that Google is “just another competitor”.

It is safe to assume, I think, that over the next year competition in the web-based office arena will only get more heated. When this happens, I’ll still root for Writeboard and Writely because they were two of the first and most innovative, but honestly I think they have a steep hill to climb. Perhaps the comment by Sridhar , the Zoho Writer creator, seems most prescient. He responds to Jason and Sam (Writeboard and Writely), saying:

Zoho is not your threat. Wait till Google and Yahoo and Microsoft show up for the Web 2.0 party. If you believe they are not coming, I have a bridge to sell you.

Despite it’s name, there was only one salient point about business models to emerge from this session, in my opinion.

The point came from Paul Rademacher, the creator of the most interesting mash-up we’ve seen so far: Housingmaps.com. To make Housingmaps, Paul combined data from two public services: Google Maps and Craigslist.

His point revolved around the idea that if you’re creating a mash-up from publicly-available data, then that data cannot be your competitive advantage, since anybody else can access the same data and create the same application as you.

Given that, competitive advantage must come from somewhere else. Paul suggested that there were three ways to do this with mash-ups.

1. User Experience Advantage
   User experience as competitive advantage means that your interface or some other part of the experience is actually better than other applications, which makes users want to stay with it. This could be ease-of-use, customer service, accessibility issues, and other things. This is the goal that Paul was shooting for with Housingmaps, and the resulting elegant interface shows his attention to this detail. I should point out, however, that Paul is not really competing with anybody with his application. In fact, because of the success of Housingmaps, he got a job at Google.
2. Algorithmic Advantage
   This is the advantage that Google Search has enjoyed over the last 6-7 years. Google can be seen as a mash-up because it indexes basically the same data that anybody else can index, but their algorithm for assigning relevance to content (Pagerank) is superior to others. Also, it is widely known that Google continues to refine its algorithm all the time, so they’re intent upon keeping this advantage over time. Another service that intends on leveraging an algorithm is Linked In, which creates tools that allow people to create links to other people in their social network, and then produces interfaces that make those links apparent. Because of this, LinkedIn has become one of the most popular of social networking sites among a sea of competitors.
3. Added Data Advantage
   This means adding data on top of the publicly-available data being used. This is the approach that sites like Yahoo are adopting, adding services that you can quickly get up to speed with and tie into your existing Yahoo account. Additionally, there are sites like MapBuilder, which I found out about as the result of you readers!, that adds personal data on top of a Google Maps interface.

These approaches are not orthogonal: many applications will try to leverage all at once. Most developers will try to make a great interface, perhaps add some additional data, and possibly create an exceptional algorithm.

Structured blogging is an effort spearheaded by the folks at Pubsub.com to bring semantic markup to specific blogging genres like movie reviews, calendar events, and anything that has a relatively well-established set of information. Here’s the press release they released Wednesday: PubSub Introduces Open-Source Structured Blogging at Web 2.0.

Most importantly, several of the great blogging tools have promised support: WordPress, Moveable Type, Drupal, and Reger.com.

The best working example that I’ve seen of how this might work is an application that I linked to several weeks ago: Joe Reger’s XML Schema example. Joe has built a system in which you can specify the genre in XML schema files, upload them to your blogging tool, and then simply write posts in that genre.

I met Joe Reger and he’s doing awesome work. His vision is that people will write to blogs without knowing anything about the underlying technology. If they want to write a movie review, they simply fill out a form with helpful fields for movie reviews: rating it, a brief synopsis, principal actors, etc. This user-centered approach is built into his reger.com blogging system, which in my opinion serves as an indication of how blogging will be done in the future. This is because once we have a few common genres (structures) that work, bloggers will not have to add specific fields, repurpose existing fields, code unique forms, or write any database access code.

They’ll just upload and write.

So kudos to Pubsub for pushing it along. And kudos to the platforms that have promised support.

Going further: How can we create software that allows us to receive recommendations that match our own authority model?

Our own authority model is built upon how we gather recommendations and make decisions from them.

Who do you listen to for movie recommendations? Friends, family, movie critics?

How about software? Friends, colleagues, industry pundits?

The value of recommendations changes according to what’s being recommended. And those people and places we ascribe authority to changes as well. I’m not going to ask my mother, though she uses a Mac, what software I should be using. Usually, I make recommendations to her. I think an important point in all this is that each person’s authority model is unique.

When creating software (web apps) for this, it will undoubtedly be crucial to allow for flexibility that allows for this uniqueness.

Just for the heck of it, the next time you make a decision to see a movie and actually go see it, try to trace the route of authority you took to get there. Can it be done in software?

Also, note on the hot tags page at Flickr that web2con is a hot tag in the last 24 hours (at time of posting). That’s the popularity decay in action…and you could even call the web2con tag emergent.

Closely related to the popularity decay idea is the idea of emergent tags. Emergent tags are those tags that become more popular over time.

The interesting thing about emergent tags is that they’re rare, but hugely valuable.

Why are they rare? Well, because human activity is slow to change: we do a lot of the same things that we’ve always done. Therefore, tags like “wedding” or “cameraphone” or “web” will be popular for a long time, because those tags represent certain ideas that are central to many people’s lives right now.

But take a tag like “Ajax”, which emerged over the last few months after Jesse James Garrett dreamt it up around the beginning of the year. This tag didn’t exist before that, or if did it meant something other than Asynchronous Javascript and XML.

Why are emergent tags valuable? Well, they’re valuable because they show trends of change. To give you an example of how useful this can be, Tim O’Reilly said in his opening talk that by watching the emergence of the Ajax tag they could predict that if O’Reilly published books about Ajax, readers would gobble them up. And judging by the number of people at this Conference who are building applications in Ajax, and the number of folks I’ve talked to who have shiny new Ajax books, this certainly is the case.

One of the great features of tagging is seen when tags are aggregated. Then, we can see trends in what people are tagging: valuable bookmarks on Del.icio.us, cool pictures on Flickr, for example. These trends are trends of popularity: what many people are doing.

One of the major problems with popularity is that popularity breeds popularity. When something gets popular enough, it is introduced to newer, wider audiences. These audiences, unaccustomed to the new idea, keep it popular. Unfortunately, these cycles tend to be too long: new things that become popular on a wide scale drown out those newer ideas that are still on the small scale, waiting their turn at the big time. These smaller ideas might be just as valuable as the popular ideas, they just haven’t had their chance to shine. Those folks who already know about the popular idea and are waiting for the new idea are out of luck.

The rate at which something loses its popularity is called popularity decay. It is similar to radioactive decay, except that radioactive decay is difficult to control. Popularity decay, on the other hand, is controllable to a large extent.

A great example of designers manipulating popularity decay is Flickr’s Popular Tags page, as shown during the session by Caterina Fake of Flickr/Yahoo. Instead of showing a generic “what’s popular” list of the most popular tags, this page shows three stages of popularity, with three different levels of popularity decay.

One stage contains those tags that were popular in the last 24 hours. This stage has a 24 hour popularity decay. Things that are popular today might not be popular tomorrow.

A second stage contains those tags that were popular in the last week, and thus a week-long popularity decay. Things that are popular this week might not be popular next week.

The third stage is all-time popularity, the default popularity for most systems, and it clearly shows the effect of a slow popularity decay. The popularity decay of this stage is never reset, as it is in the other stages. For something to be added to this list, it has to actually be more popular over all-time than the other things on the list. Therefore, turnover is very slow, and thus watching this list won’t tell you very much about trends as they happen. When some idea hits this stage, you can be sure that it is popular, but it certainly isn’t new, because it has had to be popular over the very long term.

The idea of popularity decay illustrates the tension between new ideas and popular ideas. Both are valuable, but not at the expense of the other.

I’ll be writing up the sessions I’m attending later. I try to do the stream of consciousness and I end up writing 20 lines of tangential thought for every interesting idea…