Web 2.0, hype or just hype? An IT Skeptic Special Report

The hype wave of Web 2.0 approaches a crescendo. Apparently it is going to transform IT and reengineer the business. The IT Skeptic thinks not. Actually I think "not again".

I have been holding off on the Web 2.0 topic until I could do something learned, erudite, pontificating. But the whole thing is as slippery as a soapy baby so I waited as I tried to pin it all down [WARNING this is a mixed metaphor: do not try to pin babies]. As usual an article has set me off and I wait no longer. The catalyst is Web 2.0, Sea Changes and the Enterprise.

The author, Steve Andriole, freely admits

I was in the very heart of the dot.com bubble... We took lots of companies public in those days. Only a few survived. Many ... crashed and burned and lots of good people suffered. Is anything that different now? I find myself muttering phrases like “sea change,” “game over,” and “killer apps” way too often. I really thought I was cured.

I think he isn't.

1) Wikis could revolutionize the way that companies document policies, processes and procedures.

No they won't. Wikis are a useful tool for a large group of people to collaborate on writing stuff down, but good useful documentation is authorative, structured, consistent, complete and meticulously accurate, none of which are attributes of wikis in general.
Impact on the business on a Richter scale of ten: 1

2) Blogs can be used to vet ideas, strategies, projects and programs. They can – along with wikis – be used for knowledge management... They can also be used as living suggestion boxes and chat rooms ...

Well, yes... in as much as a blog is a webpage that folk can write on, much like a piece of paper only more complex and expensive (actually I think he's including forums when he refers to "living suggestion boxes and chat rooms"). Knowledge management? No. KM is one of those much-abused labels that people slap on anything handy. Chucking facts in a bucket is not KM.
Impact on the business: 0.1

3) Podcasts can be used for pre-meetings, in-meetings and post-meetings documentation. Repositories of podcasts can contribute to institutional memory and together comprise a rich audit trail of corporate initiatives and decision-making.

Oh my, he's really winding up now. We have been able to record audio for a century. The reason it hasn't displaced paper is that it is inconvenient, impossible to index or search or copy, and bulky. A "rich audit trail" I think not, unless "rich" means "impenetrable". Voice mail was an advance in communications?
Impact on the business: 0

4) RSS filters can be used to fine tune information flows of all kinds to employees, customers, suppliers and partners

Phew, back to earth. Agree on this one: RSS feeds and filters would be a much more useful mechanism than the barrage of emails I used to get (and not read) within the corporation. But filtered crap is still crap. This addresses the symptom not the problem of corporate communications - nothing fundamental here.
Impact on the business: 1

5) Mash-up technology makes it easier to develop applications that solve specific problems – if only temporarily. Put some end-users in a room full of APIs and watch what happens.

Lost me on this one. "end-users in a room full of APIs" will result in precisely nothing, as anyone who has struggled with JAD and similar methodologies will tell you. Mash-ups are as dodgy as the name implies. Just like prototypes, ad-hoc queries, user programming and spreadsheets: they should be allowed nowhere near a real production IT environment; and their use by the business will result in as many errors as successes.
Impact on the business: 0

6) Crowdsourcing can be used to extend the enterprise via the Web and leverage the expertise of lots of professionals on to corporate problems

Back to earth again with a bump. The potential of crowdsourcing is real ["outsourcing to the wisdom of the crowd", or posting your problems on the internet and asking for solutions]. But not infinite: crowdsourcing fatigue will set in, the crowd is not always right [a future blog], it will fall victim to spam and nutters, and it can only be used where commercial confidentiality is not important (don't want to telegraph a new development to competitors before it has even been designed). R&D has not been transformed - it just has one more useful tool.
Impact on the business: 1

7) Service-oriented architecture ...is actually a decentralizing force that will enable companies to solve computational and display problems much faster than they ever did in the past. What will it be like when we can point to glue and functionality and have them assemble themselves into solutions?

I can hear the wild arm-waving. I grew up a bit earlier than Steve, and I remember all the magic solutions that were going to transform IT or business: relational database (once all the data was in one place...), corporate information model (once we had one picture of the business...), fourth generation languages, CASE (once we generated the code in one place...), structured programming, modular programming, object-oriented programming (once all the methods were defined in one place…), information engineering, repository (once all the meta-data was defined in one place…), RAD, JAD, directory (once all the data was indexed so it looked like it was in one place….), data warehousing (once we had a copy of all the data in one place…), EAI (once we glued it all together automagically so it looked like it was in one place…), MIS and then EIS (once the executives had all the key data in one place….), CRM (once all the customer interactions were kept in one place…), extreme programming, content management (once all the documents were in one place…), HTML, ERP (once we had the whole damn business in one place…), Web Services (once all the APIs are dynamically linked, and the UDDI lets us look up everything in one place…), and of course e-commerce [embarrassed silence while we all blush]. Every one was accompanied by similar arm-waving pundits shouting "follow the gourd" [Life of Brian, Monty Python]. SOA will allow us to do things better and smarter by adding yet another layer of complexity to be integrated and managed and kept stable: three steps forward and two back.
Impact on the business: 2 if it works.

Any one of a dozen similar articles could have been the basis for this one. Sorry to pick on Steve. He's not alone of course. There are armies of them, just as there were behind all the previous waves of irrational exuberance. How about this one from a blog called EarlyStageVC

Mash-ups represent a potentially powerful way to create new ad hoc Web applications out of existing enterprise data and web services... Ultimately, they will emerge as complete business processes that mash (integrate) enterprise applications with applications in the cloud. And SOA and Web 2.0 will fully converge.

...and black and white will live in peace and harmony. Shockingly he is talking about Web 2.0 as passe ("on the verge of going from Wired to Tired"), and Web 3.0 as the next big thing. But there was one great point in that same article

Collaboration in a business context has a goal other than the act of collaborating itself. We used to call these goals business processes. Collaboration is one important component of a business process, but it is not the whole process.

...or even a large part of it. The real world runs on a lot more than a few wikis and tag clouds. Returning to a common mantra of mine: technology does not fix process. Most business problems are people and process problems. We have technology up the wazzoo: more is not going to help. In as much as Web 2.0 concepts and technology expedite people and process, they are a good thing and they will play their small part in making a difference. But they aren't going to change the world, and Web 2.0 and/or SOA are not going to transform business.


The Structure of the Factory Floor

Skeptic -

Thought you'd be interested with Honeywell's foray into Web 2.0. Or more precisely, Enterprise 2.0, to borrow from Harvard's Andrew McAfee. Yes, another label, but I don't see it as frivolous.

Honeywell is going live with a behind-the-firewall tagging capability. This allows Honeywell employees to securely tag both Intranet and Internet content, to have relevant tags returned with (Google-powered) search results, and to see other users' tag collections.

This is interesting for a number of reasons.

First, it's an experiment to use collective intelligence and network effects. Most Intranet content isn't heavily interlinked. Links are typically created by a few people rather than by a broad, diverse population (the factory floor). Tags are potentially a way to deal with this problem. They add after-the-fact structure to Intranets.

Second, it's an effort by a huge ($35B) 'old economy' company to embrace Enterprise 2.0 ideas. Honeywell is an old manufacturing conglomerate. They have embraced tagging as a way to let employees help each other find relevant content (a group-level goal) while simultaneously organizing their online environments (an individual-level goal).

Lastly, it has nothing to do with wikis or SOA. It is an expression of the same powerful idea (use the expanded factory floor to create increasing returns of nonrival goods) with a completely different set of tools.

Of course, it could be nothing more than hype.



Skeptic -

I believe you've got it backwards. Web 2.0 is an expression of an idea - not a solution.

20-years ago, Economist Paul Romer published a model of economic growth in his article "Endogenous Technological Change," bringing the economics of knowledge to the forefront after more than two centuries of being on the hazy periphery of the profession.

Romer's work redefined the traditional economic factors of production
from being land, labor, and capital to being people, ideas, and things.

Notice there is no mention of the inane "people, process and technology." I'll ignore that jewel for the time being.

There is a great contradiction that has lain at the heart of economics. It the struggle between the Pin Factory and the Invisible Hand, to borrow from Adam Smith.

On one side, huge increases in productivity can be achieved through the division of labor, as illustrated by the example of a pin factory whose employees, by specializing on narrow tasks, produce far more than they could if each worked independently.

On the other side, a market economy can harness self-interest to the common good, leading each individual as though ''by an invisible hand to promote an end which was no part of his intention.''

What may not be obvious is the way these two concepts stand in opposition to each other. The parable of the pin factory says that there are increasing returns to scale -- the bigger the pin factory, the more specialized its workers can be, and therefore the more pins the factory can produce per worker.

But for the Invisible Hand to work properly, there must be many competitors in each industry, so that nobody is in a position to exert monopoly power. Therefore, the idea that free markets always get it right depends on the assumption that returns to scale are diminishing, not increasing. Diminishing returns ensure that businesses cannot grow too large, preserving competition between them.

For almost two centuries, economic thinking was dominated by the assumption of diminishing returns, with the Pin Factory pushed into the background. The economics of diminishing returns lend themselves readily to elegant formalism, while those of increasing returns -- the Pin Factory -- are notoriously hard to represent.

Yet the fact of increasing returns was always a conspicuous part of reality, and became more so as the decades went by. Railroads, for example, were obviously characterized by increasing returns. Beatles recordings, CPU chips, coded signals, map of the human genome, can all be shared and used by many people at one time.

And so economists tried, again and again, to bring the Pin Factory into the mainstream of economic thought. Yet again and again they failed, defeated by their inability to state their ideas with sufficient rigor.

Great economists chose to exclude increasing returns from their analyses, even though many of them understood quite well that they were leaving out an important part of the story.

(Most notably Joseph Schumpeter, who was a sad figure in his later years; his canonization as a patron saint of economic growth -- based largely on his famous phrase, ''creative destruction'', in which the old ways of doing things are endogenously destroyed and replaced by the new -- came long after his death.)

The Pin Factory and increasing returns are finally moving to the forefront. Web 2.0 is an expression of this 200-year old idea, though beyond anything Smith envisioned.

The fact that technologists or writers stumble in articulating this concept with any rigor should come as no surprise. They are in good company.

web 2.0 is more about setting the invisible hand free

I think you draw a long bow to link the pin factory to web 2.0

Economies of scale result from a massively-scaled formalisd organisation where roles are indeed specialised.

Web 2.0 is about the freedom of the individual to contribute as and where they wish, then treating the result as an emergent phenomenon that hopefully has intrinsic value.

I am struggling to see the connection. I would have said that - if the Pin Vs Hand model is applicable here which is not apparent - web 2.0 is more about setting the invisible hand free, increasing the fluidity of the web economy.

There is an increase in return thanks to the increased scale of the web but it applies to the underlying organisation making money from the website, not the web 2.0 activity itself. And it arises from a dfferent economy of scale, nothing to do with specialisation and efficiency: simply the lower cost per item as volume grows (an effect that is massively amplified with digital products). Railroads and Beatles recordings are not examples of the Pin Factory effect, whereas chips and Toyotas are.

I haven't read Romer but he is obviously economics' version of Toffler and Drucker, as the underlying principles are much the same.

Think bigger

Romer’s paper observed all the conventions of an academic paper: passive voice, mathematical analysis and modest claims. The title was simple but intimidating: “Endogenous Technological Change"

The first paragraph contained a puzzling sentence: “The distinguishing feature of…technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, particularly excludable good…”

And thereupon hangs the tale.

That sentence, still not widely understood, initiated a conceptual rearrangement in economics. When the paper was introduced, there was no moment of climax, no scales falling from the eyes. Only gradually did it become a conviction shared by many that the world had changed once and for all.

Romer distinguished between goods that could be possessed with limited sharing and those whose essence could be a string of bits shared simultaneously by many with little practical limits.

A designer dress. The molecular structure of a drug. A Beatles recording. The text you are reading now. All these are nonrival because they can copied or shared and used by many people at the same time. Chances are you intuitively understood this well enough already. Chances are, like many, you missed the punch line.

Increasing returns set in when the same amount of work produces an increasing quantity of goods or, to turn the definition on its head, when your average costs fall and keep falling with the number of articles produced. The Pin Factory was about the subdivisions of tasks, but there were limits to that too.

Increasing returns are mainly associated with the output of machines – printing press, mechanical loom, the steam engine. Gradually, it was understood that increasing returns were present anytime there was little to no additional costs to adding a customer – railroads, electricity, telephones, for example. But this runs counter to human intuition. Scarcity was a fundamental problem, the human race was forever running out of something, whether floor space, land, people or coal.

Your mental model of Web 2.0 is the proposition that, left to their own devices and proper tools, a mass of individuals will pursue courses that lead to the outcome “best overall.” On ther other hand, when you think of the modern Pin Factory, you might think of Microsoft - producing more and more nonrival goods at ever increasing returns.

Until Linux, everyone believed that any software as complex as an operating system had to be developed in a carefully coordinated way by a tightly-knit small group of people. Torvald’s strategy of releasing every week and getting feedback from hundreds of users within days appeared naïve.

But therein lay the real bombshell discovery that had been at the heart of “Endogenous Technological Change” – that the nonrivalry of knowledge meant that the crown jewels of economics, the Invisible Hand, could not stand. The market simply could not get the prices of these goods “right.”

The fact that the contributors to Linux or Wikipedia are not tightly coupled to the factory floor, hierarchical or formalized is inconsequential. The contributions and specialization are thinly sliced and loosely coordinated, producing a product with increasing returns. The factory floor is greatly expanded with few scarcities. These are the economics of the Pin Factory.

And yes, Railroads and Beatle recordings are the outcomes of a Pin Factory. In the 60s, the factory floor had only four, highly specialized, long-haired workers. They grew rich from the phenomena of increasing returns. If Web 2.0 can be used to produce such highly complex products such as operating systems, encyclopedia and jetliners, why couldn’t it be used to produce music?

I’m not saying it will be good recording, but then, who knows?

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