Chapter Eight: Social Networks and Industry Disruptors in the Web 2.0 Environment 1

Online File W8.1 and Company: Advertisement and Wars

One of the major changes from Web 1.0 to Web 2.0 according to O’Reilly (2005) was the change in online advertisement from collaborative filtering (e.g., DoubleClick to Google and its AdSense technology (Chapter 4). Google completely changed online advertising by giving it a major boost and driving the creation of many Web 2.0 companies, including many social networking companies that benefited from the new advertisement concepts. However, the success of Google resulted in fierce competition in search–engine-based companies. Before we get into this subject, let’s look briefly into the search engine concepts and industry. Search Engine Concepts A search engine is a document-retrieval system designed to help find information stored on a search engine computer system, such as on the Web, inside corporate or proprietary files, or in a personal A document-retrieval computer. Cell phones can perform searches as well. system designed to How Do Search Engines Work? help find information stored on a computer A search engine allows one to request content that meets specific criteria (typically those system, such as on the containing a given word or phrase), and retrieves a list of items that match those criteria. This list is often sorted with respect to some measure of relevance of the results. Search engines use Web, inside corporate regularly updated indexes to operate quickly and efficiently. There are differences in the ways proprietary files, or in various search engines work. But they all perform three basic tasks: a personal computer. 1. They keep an index of words they find, and where they find them. 2. They allow users to look for words or combinations of words found in that index. 3. They search the Internet based on keywords. Types of Search Engines There are hundreds of search engines in dozens of categories. Wikipedia provides examples of 28 categories (see en.wikipedia.org/wiki/Search_engines). Exhibit W8.1.1 provides representative examples. Search Wars: Google Versus Yahoo! and Others One of the most spirited arenas of Internet competition is that of Web search engines, and never more so than in 2004. Historically, , , AltaVista, , and others had held the title of “top search engine.” These search engines mostly relied on keyword analysis—counting the frequency and placement of keywords in the Web page—and few ever made a profit. The Web search world changed in 1998 when Google introduced link popularity—counting the number of links and importance of those links—in its search algorithm (see The Economist [2004] for an explanation of this search algorithm). Soon, Google became the top search engine; now it is part of our everyday language (e.g., to google is now a verb and google bombing is a page-ranking strategy). Google also is the Internet’s first highly profitable search engine, earning substantial profits from sponsored ads and achieving a highly successful IPO launch in mid-2004. The Real-World Case in Chapter 1 describes some of the essentials of Google. Many consider Google the best company to work for (Lashinsky 2007). Google’s success has not gone unnoticed. Nothing attracts competition like success, and in 2004 other companies, large and small, began to enter this competitive arena. The biggest battles in the search wars are between Google and some of the search engine giants of electronic commerce—notably Yahoo! The search war is about the Internet advertising dollars. In February 2004, Yahoo!, an innovative and profitable company that had changed itself from a Web directory into an Internet portal, launched Yahoo! Search. It is based on Yahoo!’s 2002 and 2003 acquisitions of search engine technology from Inktomi, AltaVista, and AllTheWeb, all of which were significant search engines in their own right (Sullivan 2004). In September 2004, Amazon.com introduced A9 (a9.com), a “search engine with memory.” A9 allows users to store and edit bookmarks, revisit links clicked on previous visits, and make personal notes on Web pages for later viewing. Commentators describe Amazon.com’s competitive advantage as follows: “The ability to search through your own history of Web searches is insanely powerful,” and “It’s not just about search, it’s about managing your information” (Markoff 2004a). (continued) 2 Part 4: Other EC Models and Applications

Online File W8.1 (continued)

EXHIBIT W8.1.1 Categories of Search Engine Category Examples General search engines Google, Windows Live, Yahoo! Search Open source search engines DataParkSearch, Namazu, Xapian Metasearch engines , Excite, Hotbot, Mamma, Sidestep Regional search engines (China), (Korea), Rediff (India) People search engines Chacha, Zoominfo E-mail–based search engines TEK Visual search engines Kartoo, Grokker Answer-based search engines Answers.com, Lycos IQ, Yahoo! Answers Google-based search engines AOL Search, Netscape Yahoo!-based search engines AltaVista, GoodSearch Windows-Live–based search engines A9.com (Amazon), Lycos, Alexa Internet Job search engines Hotjobs.com, Monster.com, Craigslist.org, Jobster.com Blog search engines Bloglines, IceRocket, Pubsub.com News search engines Google News, Yahoo! News, Topix.net Multimedia search engines Podscope, Picsearch Code search engines Krugle, Koders Bit Torrent search engines Bit Torrent, Mininova Accountancy search engines IFACnet Medical search engines WebMD, Entrez Property search engines Zillow, Home.co.uk Business search engines Thomasnet, Business.com Comparison shopping search engines Froogle, MySimon, PriceGrabber, Shopzilla Geographic search engines Google Maps, Map Quest, Yahoo! Maps Social search engines Google Co-op, Rollyo, Wink Desktop search engines Ask.com, Google desktop, Copernic, Hotbot, XI Enterprise Video search engine Mamma.com

In November 2004, Microsoft released its test version of MSN Search (now Windows Live), its primary artillery in the search wars. MSN Search seeks to fulfill the battle cry its CEO Bill Gates issued earlier in 2004: “We took an approach [ignoring the Web search market] that I now realize was wrong, [but] we will catch them” (Markoff 2004c). Perhaps more significant, Microsoft includes comprehensive Web and desktop search capabilities in Vista, its Windows operating system. Google also is facing competition from smaller companies that are trying to create the next “great leap forward” in Web search technology (Roush 2004). For example: ◗ Mooter (mooter.com) makes searches more personal by recording which links get clicked and adjusting the ranking of Web sites in subsequent searches based on these preferences. ◗ Clusty (clusty.com) organizes search results into folders, or “clusters,” by grouping similar items together based on textual and linguistic similarity. For example, a search on “George Bush” produces clusters such as “White House,” “election,” “quotes,” and “Iraq,” and each cluster contains a number of search results. ◗ Snap (snap.com) uses click-stream information (e.g., what sites Web users visit, how long they stay) to rank Web search results as well as sorting the results based on various criteria. (continued) Chapter Eight: Social Networks and Industry Disruptors in the Web 2.0 Environment 3

Online File W8.1 (continued)

Why is there such intense interest in Web search technology and winning the search wars? All these companies want to be the next Google, obtaining the profits and fame that Google has acquired. However, winning in this arena also is about power. Brewster Kahle, the founder of the Internet Archive, notes that 20 percent of all Web traffic goes to only 10 Web sites, and search engines dominate that list. He observes: “The level of mind space that provides is enormous. If you want to control the world, it’s essential that you be there” (Markoff 2004b). How Does Google Compete? Google is meeting the competitive challenges it faces head on. Google offers an expanding repertoire of tools in line with its core competency in search technology. The major tools are: ◗ Froogle (froogle.google.com) is a product-comparison search engine for online shopping. A similar search tool is Google Catalogs (catalogs.google.com), which searches a database of mail-order catalogs. ◗ Google News (news.google.com) searches news-oriented Web sites and displays stories according to a computer algorithm that rates stories based on how many news sites are publishing the stories, how recently the articles were published, and for searches, keyword occurrence. ◗ Google Earth (earth.google.com) is a collection of zoomable aerial and satellite 3D photos of the earth that enables users to find information linked to geographic location. ◗ Google Maps (maps.google.com) and Google Maps for Mobile (google.com/gmm) present countless maps of cities and streets around the globe. They enable users to get driving instructions from one location to another. ◗ Google Scholar (scholar.google.com) searches the scholarly literature, including peer reviewed papers, theses, books, preprints, abstracts, and technical reports. Many hits are abstracts or citations, not full articles, and some are “cloaked” behind subscription-only journal subscriptions. ◗ Google also has introduced Google Wireless (google.com/mobile) where search, maps, Gmail, SMS, YouTube, and GOOG-411 are available. Google Groups (groups.google.com) is where you can discuss online or through e-mail and create rich customized pages for your particular group.

Strategically, Google is leveraging its widely recognized brand name and search technology expertise into areas beyond Web searching. Sometimes these projects bring Google into direct competition with the EC giants mentioned earlier. ◗ Google Print (books.google.com) is similar to Amazon.com’s “search inside the book” feature. Users can search by keyword (e.g., “books about Nelson Mandela”) and then search for keywords or phrases within the books. ◗ GMail (gmail.google.com) is Google’s offering in the huge Web-based e-mail market that is currently dominated by Microsoft’s Hotmail and Yahoo! Mail. GMail offers new services such as grouping related messages together and keyword searching through e-mail messages. ◗ Google Mini (google.com/mini) is a cost-effective appliance businesses can use to deploy corporate searches that mimic the main Google Web search engine. ◗ Google Desktop (desktop.google.com) searches the contents of computer files, e-mail messages, books, and even recently viewed Web pages. This is a dramatic improvement on the Windows “Find” feature, which only searches computer files, and then mostly by file name. Google Desktop preempts technology that Microsoft is intending to put into Longhorn. The strategic moves Google is making are all in line with its mission statement: “to organize the world’s information and make it universally useful and accessible.” ◗ Orkut (orkut.com) is a social-networking service that competes in one of the fastest-growing Internet markets—Web sites that connect people through networks of friends or business contacts to find new friends or contacts. A Google account is required to sign in at Orkut (see Section 8.3).

Financially, Google also is proving to be very successful, reporting revenues of almost $3.1 billion in the third quarter of 2007. As of January 2008, its market capitalization is $190 million, compared to $143 million for IBM and $13 million for General Motors (quotes from money.cnn.com). (continued) 4 Part 4: Other EC Models and Applications

Online File W8.1 (continued)

What is ahead for Google? Financial observers have noted that although its roots are in search engine technology, its revenues and profits are in sponsored advertising, the same as portals such as MSN and Yahoo! (Munarriz 2004).Will further expansion by Google into new territory dilute its search engine reputation, brand name, and profits? Or are these moves necessary to assist in its inevitable evolution into a portal? What business is Google really in? The answers to these questions will determine Google’s next moves in the Internet marketspace. According to NetRatings Inc., the market share of the major search engines (advertising revenue) was as follows: Google 53.6 percent, Yahoo! 19.9 percent, MSN 12.9 percent, AOL 5.6 percent, and Ask.com 1.7 percent. Both Google and Yahoo! are slowly increasing their share at the expense of others (Nielsen NetRatings 2007). Here are some facts about the two main rivals: 1. Google is a crawler-based search engine; Yahoo! is a human-powered directory. 2. Google dominates search; Yahoo! dominates content. 3. Google sells AdSense; Yahoo! sells Content Match. 4. Google works on pay-per-click, which is useful for SMEs; Yahoo! works on sell-per-impression, which is great for large companies, but not so well for SMEs. 5. Google uses a technical, systematic approach; Yahoo! uses a people-oriented approach. 6. Google is viewed as an Internet search company; Yahoo! is viewed as an Internet media company. In April 2007, Google purchased DoubleClick, an online ad pioneer (Chapter 4), for $3.1 billion. This may strengthen Google’s position considerably (Story and Helft 2007). Also in 2007, Google partnered with Echostar to launch a new, automated system for buying, selling, delivering, and measuring ads over the 125-channel Dish Network (Hefflinger 2007). For more details on Google see Carr (2006). In November 2006, Yahoo! Inc. signed a revenue-sharing deal with 176 newspapers to sell ads, share content, and deliver Internet searches, graphics, and classified advertising to customers (Walsh 2006). This agreement provides a competitive edge to Yahoo!, but Google is making similar agreements with other newspapers (Story 2006). In 2007, Yahoo! instituted an improved ad system (code name Panama) that may provide it with an advantage over Google (see Chmielewski 2007). Also, the acquisition of Flickr (Section 8.3) may help Yahoo! with its struggle against Google (see Schonfeld 2005). Answer-Based Search Engines Some of the interesting types of search engines are those that provide answers to questions. Insights and Additions W8.1.1 provides an example. Google discontinued its answer-based search in November 2006. Disruptors of Google: Will They Succeed? Many companies want to displace or to become as successful as Google. Here are two examples. Intelligent Search Engine—Will It Work? The various search engine models are based on keywords, which may result in poor or incorrect answers. So people can improve a search by adding one or two keywords (which most people do not do) for an advanced search. (powerset.com), a new startup, wants to use natural language queries instead of keywords. So Powerset cut a deal with Xerox’s PARC labs, a top research company on natural language understanding. Major unknowns are the quality of the natural language processing and whether searchers will be willing to key in the long natural language queries instead of simple short keywords. However, if successful, this concept may disrupt the search engine industry and intensify the industry wars. According to Sloan (2007), Web advertisers are moving beyond search by using powerful science to figure out what people want—sometimes before the searchers even know. (continued) Chapter Eight: Social Networks and Industry Disruptors in the Web 2.0 Environment 5

Online File W8.1 (continued)

Insights and Additions W8.1.1 Amazon.com’s Askville Service

Amazon.com recently launched an interesting service called Askville. According to Garrett (2007), this is a Web 2.0 product. The online service lets users ask questions and get a response from other users in lieu of posting query after query to one of the Web’s many search engines. Amazon.com bills Askville as a place where users can “ask, answer, meet, and play.” If a person has a question on food safety or the proper care of hedgehogs, she can leave her question on one of Askville’s forums, where other users are free to respond. Users get “Quest Coins” and “Experience Points” for their activity, which they can redeem at Questville, a Web site that Amazon.com manages. Unlike Google’s defunct service, Askville’s users can jazz up their answers with self-made movies from YouTube, Bolt.com, and yes, even Google Video. They can also integrate Google Maps into their answers if their subject deals with geography. Sites like these—sites where users become authors, providing the site with its head count of writers and more than copious content—are part of Web 2.0.

Wikia.com and Collaborative Innovation Wikia.com (wikia.com) is a for-profit Web site related to Wikipedia Foundation (which is a not-for-profit organization). Wikia is growing very rapidly; 30,000 contributors created 500,000 Wikia articles in 45 languages in a 2-year period (see McNichol 2007). One of its projects uses the people’s community brain to build a better search engine than Google. The idea is to tap into users’ enthusiasm (see McNichol 2007 for details). Conclusion The moves Google is making are consistent with its core competencies in search technology and the value proposition it offers to its customers, as stated in its mission statement “to organize the world’s information.” Google was not a first mover in Web search engines, but it has been a best mover by innovating the Web search technology market. An interesting area in the search engine war is the global market. For example, in China, Google is only number two (baidu.com is number one). Baidu chose a poetic Chinese name because it wanted the users to remember its heritage. As a native speaker of the Chinese language, Baidu focuses on what it knows best—Chinese language search. Applying avant- garde technology to the world’s most ancient and complex language is as challenging as it is exciting. For example, there are at least 38 ways of saying “I” in Chinese. However, Google is gaining ground, probably because its search results are more attractive to advertisers. In summary, Google’s innovative approach to its strategic placement in the marketplace exemplifies many of the key points about EC strategy.

Online File W8.1 ◗ REVIEW QUESTIONS 1. What is a search engine? 2. List the major types of search engines. 3. Compare Yahoo! to Google. 4. Review Google’s competitive strategy. 5. Describe answer-based search engines. 6 Part 4: Other EC Models and Applications KEY TERM Search engine 1

REFERENCES FOR ONLINE FILE W8.1 Carr, D. F. “How Google Works.” Baseline, June 6, 600&en=4290df4187bde817&ei=5007&part- 2006. ner=USERLAND (accessed January 2008). Chmielewski, D. C. “Yahoo!’s Ad System Is Almost McNichol, T. “Building a Wiki World.” (Wikia vs. Ready.” LA Times, January 24, 2007. Wikipedia), Business 2.0, March 2007. money.cnn. The Economist. “How Google Works.” September 16, com (accessed January 2008). 2004. Munarriz, R. A. “What’s Google’s Growth Strategy?” Garrett, D. “Who Needs Google? We’ve Got Amazon.” The Motley Fool Take, August 31, 2004. fool.com/ NewsFactor Network, January 4, 2007. newsfactor. news/take/2004/take040831.htm (accessed January com/story.xhtml?story_id=0110010E57Q6 2008). (accessed January 2008). Nielsen NetRatings. “Nielsen Netratings August 2007 Goldberg, M. “Market Wrap Up.” Financial Sense Search Share Puts Google on Top, Microsoft Holding Online, December 13, 2006. financialsense.com/ Gains.” September 21, 2007. nielsen-netratings. Market/goldberg/2006/1214.html (accessed January com/pr/pr_070919.pdf (accessed January 2008). 2008). O’Reilly, T. “What Is Web 2.0?” OReillynet.com, Hefflinger, M. “Google, Echostar Partner on Satellite September 30, 2005. oreillynet.com/pub/a/oreilly/ TV Ad Sales System.” DigitalMediaWire, April 3, tim/news/2005/09/30/what-is-web-20.html 2007. dmwmedia.com/news/2007/04/03/google- (accessed January 2008). echostar-partner-on-satellite-tv-ad-sales-system Roush, W. “Search beyond Google.” Technology Review, (accessed January 2008). March 1, 2004. technologyreview.com/articles/ Lashinsky, A. “Google Is Number 1: Search and Enjoy.” roush0304.asp (accessed January 2008). CNNMoney.com, January 10, 2007. money.cnn. Schonfeld, E. “The Flickrization of Yahoo!” Business com/2007/01/05/magazines/fortune/Search_and_ 2.0, December 2005. enjoy.fortune/index.htm (accessed January 2008). Sloan, P. “The Quest for the Perfect Online Ad.” Markoff, J. “Amazon to Take Searches on Web to a Business 2.0, March 2007. New Depth.” New York Times, September 15, 2004a. Story, L. “Google Navigates an Offline Course.” Taipei nytimes.com/2004/09/15/technology/15search.ht Times, November 23, 2006. ml?ex=1252900800&en=63edc8f5d6ce2fc6& Story, L., and M. Helft. “Google Buys an Online Ad ei=5090&partner=rssuserland (accessed January Firm for $3.1 Billion.” New York Times, April 14, 2008). 2007. Markoff, J. “Microsoft Unveils Its Internet Search Sullivan, D. “Search Wars: Battle of the Superpowers.” Engine, Quietly.” New York Times, November 11, SearchEngineWatch.com, April 29, 2004. search- 2004b. nytimes.com/2004/11/11/technology/ enginewatch.com/showPage.html?page=3347181 11search.html?ex=1257915600&en=bd174957c62 (accessed January 2008). c5cfd&ei=5090&partner=rssuserland (accessed Walsh, M. “Yahoo!, Newspapers Form Major Alliance.” January 2008). MediaPost Publications, November 21, 2006. Markoff, J. “The Coming Search Wars.” New York publications.mediapost.com/index.cfm?fuseaction= Times, February 2, 2004c. nytimes.com/2004/02/ articles.showarticle&art_aid=51432 (accessed January 01/business/yourmoney/01goog.html?ex=1390971 2008). Chapter Eight: Social Networks and Industry Disruptors in the Web 2.0 Environment 7

Online File W8.2 ZOPA, Prosper, and P2P Lending: Will They Disrupt Banking?

Any industry making a huge profit margin off its customers is a good candidate for disruption. Banking is a classic case— just think of the 19 percent interest you pay on credit cards and the 2 percent you earn on your savings account. In this section, we introduce two Web 2.0 companies that are trying to disrupt the banking industry—ZOPA in the United Kingdom and Prosper in the United States. The Innovation: Person-to-Person Lending Individuals who want to borrow money may be required to pay 10 to 20 percent interest if they use their revolving credit cards. At the same time, they receive 2 percent to 5.5 percent interest on their savings. The banks take the difference, but they also take the risk from the lenders. Now assume that an individual lender can negotiate directly with an individual borrower. It is likely that each can be better off than with the bank. Suppose they agree on an interest rate of 8 percent. The lender will get much more. The borrower will pay much less. The problem is how they find each other and negotiate and secure loans. This is where innovative sites such as ZOPA enter the picture. The basic idea is that of person-to-person lending, meaning you lend money directly to a consumer rather person-to person than “selling” your money to the bank, and the banks then loaning their money to consumers. lending The Zone of Possible Agreements in Negotiation Lending done between individuals, circum- Exhibit W8.2.1 illustrates a typical negotiation situation. Suppose you want to sell your used venting the traditional car. Usually, you have some range of expectation within which you are willing to settle. You role of banks in this know that you will never get more than $10,000 for your car, but in the worst case, you will accept $6,000 (these numbers may be changed with the time and the experience of offers). process. The buyer also has a settlement range, for example, $5,000 to $7,000. Notice that in such a case there is an overlap between the ranges, which means that a deal is possible. The seller will start with $10,000 and reduce the price slowly, and the buyer will start with $5,000 increasing it slowly. If the ranges do not overlap, there will be no deal. Otherwise, you will sell your car with a price in the overlapping zone. This overlapping range is called the “Zone of Possible Agreements” (ZOPA), and this is also the name of the pioneering company. Agreement in this zone must also be more beneficial to both sides than what they can get in the bank. Note that ZOPA has a lower limit, which signifies the seller’s walk-away position ($6,000 in our example). If an offer is less than $6,000, the seller will not entertain it. Similarly, the buyer’s walk-away point is $7,000; therefore, he or she will not consider any higher price. The same idea applies to lending. However, this time you need intermediation, and this is where ZOPA and Prosper enter the picture. These (and similar companies) are using the Web to allow personal lending on a massive scale. ZOPA was the first company to introduce such peer-to-peer lending. What Skype did to telecoms and Amazon.com did to retailers is being done here to traditional banks, namely—disintermediation. ZOPA LTD. ZOPA (zopa.com) was founded in London in March 2005, and by January 2007 it had 40 employees and 105,000 registered member users (lenders and borrowers). ZOPA arranges for more than $100,000 loans every day.

EXHIBIT W8.2.1 ZOPA’s Zone of Possible Agreements $6,000 Seller’s settlement range $10,000 Seller’s walkaway point (lower limit)

ZOPA

Buyer’s walkaway point $5,000Buyer’s settlement range $7,000 (upper limit)

(continued) 8 Part 4: Other EC Models and Applications

Online File W8.2 (continued)

Securing the Loans ZOPA tries to check the background of the borrowers in the following ways: ◗ Conducting a credit rating investigation at Experion, Equifax, or a similar company ◗ Checking people’s eBay rating (if available) ◗ Checking the borrower’s profile (if available online) ◗ Only one account is permitted for each borrower ◗ Checking the possibility of identity theft by a borrower by asking questions about past borrowing, demographics, etc. In addition, ZOPA advises lenders to spread out the risk by lending from one individual to several borrowers. In addition, if you like to sleep better, you can get insurance (for a fee) on the amount you lend. The risk, however, is not large; the actual bad debt rate is less than 0.05 percent. A possible explanation of the low default rate is that borrowers are more likely to pay back real people than a faceless bank. The unlucky lenders can use a collection agency as in any other unpaid debt. Finally, ZOPA covers any damage from fraud done to your ZOPA account by intruders provided you have kept your per- sonal account details secure. The Revenue Model ZOPA takes 0.5 percent of the loan amount from both the lender and the borrower. There are no hidden fees, and the only other (optional) cost to the lender is the insurance (plus the fees that ZOPA takes for arranging the insurance). At the moment there is no advertisement on the site. But it is likely that in the future vendors will try to sell related products or services to either the lenders or the buyers. The Lending Process Step 1. Let’s say that a lender has $20,000. She transferred it to her ZOPA account stating her willingness to get a 7.5 percent interest rate from borrowers of top credit rating, for 2 years. Step 2. ZOPA organizes a pool of, for example, 40 borrowers with a similar credit worthiness of top rating, one that meets the lender’s requirement. Each will get $20,000 divided by 40, or $500. Step 3. The lender can read the profile of the prospective borrowers and the intended use of the money. The borrowers can read the lender’s profile as well. This fosters a personal relationship between borrowers and lenders and helps in reducing default(s). Step 4. ZOPA arranges the contracts. Step 5. ZOPA collects interest payments and mails the lender a monthly check. Step 6. ZOPA arranges repayment of the loan after 2 years. Prosper Prosper (prosper.com) is the first U.S. P2P lender. Started in February 2006, it was created to make consumer lending more financially and socially rewarding for everybody. In January 2007, Prosper reported 130,000 members and outstanding loans of $30 million. It operates somewhat similar to ZOPA, but its revenue model is different. Prosper collects a 1-to 2-percent fee of the funded loan from the borrowers. In addition, lenders pay .5 percent annual loan servicing fees. Because of the higher fees, the company can assume more risk. Thus, they check only credit scores and borrowers’ group affiliation. The way Prosper works is intuitive to people who have used eBay. However, instead of listing (by sellers) and bidding (by buyers) on items, here lenders bid and borrowers list needs using Prosper’s online auction platform. For details see Steiner (2007). Here are the major steps of the process: 1. Borrowers create a loan listing on Prosper, specifying amount needed, the purpose of the loan, and the interest rate they are willing to pay. 2. Prosper displays borrower credit grade (from AA to higher risk). 3. Borrowers provide photos of themselves, their children, and even of their pets. They also provide the purpose of the required money and how they plan to pay it back. 4. Lenders review loan listings and bid to fund only the ones they choose using a bidding process. 5. Group leaders manage borrower groups and use their reputation to get great rates for borrowers. 6. When a match is found, Prosper arranges for the money transfer and then manages the loan. (continued) Chapter Eight: Social Networks and Industry Disruptors in the Web 2.0 Environment 9

Online File W8.2 (continued)

Groups on Prosper are formed to bring people together for the common goal of borrowing at better rates. Groups earn reputations according to their members’ repayment records. Borrowers that organize groups earn rewards. Competition P2P lending competes both with traditional banks and with online banking. Online banking is especially attractive to small investors, with some banks offering online savings accounts of 5 percent to 6 percent in 2006 through 2007. Online File W8.2 ◗ REVIEW QUESTIONS 1. Define P2P lending. 2. Describe the zone of possible agreements. 3. Describe how ZOPA arranges loans. 4. Describe security measures for lenders. 5. Describe Prosper.

KEY TERM FOR ONLINE FILE W8.2 Person-to person lending 7

REFERENCE FOR ONLINE FILE W8.2 Steiner, C. “The eBay of Loans.” Forbes, March 12, 2007. 10 Part 4: Other EC Models and Applications

Online File W8.3 Typical Applications on YouTube

Inside YouTube Users can submit videos in several common-file formats. YouTube automatically converts them to the H.263 variant of Flash Video and makes them available for online viewing. Flash Video is a popular video format among large hosting sites due to its wide compatibility. Outside YouTube Each video is accompanied by the full HTML markup for linking to it or embedding it within another page; a small addition to the markup for the latter will make the video play automatically when the page is accessed. These simple cut-and-paste options are popular particularly with users of social or networking sites. However, members of such sites have cited poor experiences where autoplaying embedded YouTube videos has slowed down page loading time or even caused browsers to crash. Downloading Videos YouTube itself does not make it easy to download and save videos for offline viewing or editing, but several third-party applications, browser extensions, and Web sites exist for that purpose. Index Sites As of 2006, many sites started to bloom while offering an index service, which arranges the content on YouTube through links arranged by order of seasons and episodes of a certain show. Some of the sites, such as TVLinks, NetworkOne Australia, and WikiRemote gather around them a rather large community of users. These users make requests and report bad links. Chapter Eight: Social Networks and Industry Disruptors in the Web 2.0 Environment 11

ONLINE FILE W8.4 Comparison of 10 Video-Sharing Services Eyespot Grouper Google Video Jumpcut Ourmedia Appeal Easy-to-use It’s Google. Looks like Create, edit, and The global home for video YouTube with a remix video online. grassroots media. uploading file-sharing and remixing. application built on top. Interface Bright and Typical clean For full function- Slick interface feels Slow, confusing, and colorful. and sparse ality, requires an more like an applica- messy. Requires an Tagging, Google layout. application tion than a Web Internet Archive forums, Uploading download. page. Scales all account, and the groups. Not a requires down- Windows Media videos to a larger integration of the lot of com- load of the Player–based size than other sites, two services is munity Google Video (converts other but videos do not convoluted. Keeps features uploader. formats). autoplay, and there your content in its (end of Supports plenty Ratings, tag- is no indication of native format, which 2006). of metadata, ging, groups, what portion of the is both good and including a RSS feeds. video has already bad—it does not transcript. You been downloaded. recompress your can monetize video, but it requires your content by its users to have assigning a sale several different price to each players installed clip (you can correctly. Creative also give users a Commons’ licenses “day pass,” giv- built-in. ing them access to the content for a limited time, but not ownership). Editing Trim begin- None Create mashups Bar none the best None ning and end, videos and pho- editing options of reorder clips tos, set to music the bunch. Splice on a timeline, (“groovies”). your footage, reorder add music the shots, and add and photos. music, photos, and transitions. (continued) 12 Part 4: Other EC Models and Applications

ONLINE FILE W8.4 (continued) Eyespot Grouper Google Video Jumpcut Ourmedia Sharing Post to a Google Video Post directly to E-mail to a friend or RSS feeds, e-mail to a group or requires a MySpace, embed in a Web friend, direct link to invite a friend “video verifica- Friendster, eBay. page (worked flaw- files from your own to the service tion” process, Download to lessly in wordpress). site. (but not whereby your hard drive or directly to submission is iPod. your clip). reviewed to ensure it con- forms to Google’s tech- nical standards and legal poli- cies. This process “may take several days” so check back for an update.

ONLINE FILE W8.4.1 Revver VideoEgg Vimeo vSocial YouTube Appeal Similar to Lets you painlessly Similar to Flickr The fastest, The most popular YouTube with upload video of any but for video. easiest way video-sharing site monetization—if format to the Web to upload, everyone’s already people watch and post it to other watch and heard of. your video (and sites or share it share your the embedded with friends. favorite ad), you get paid video clips 20 percent of (end of what the 2006). advertiser pays Revver. If they click on the Revver link at the end, you split the 50 percent of the proceeds. (continued) Chapter Eight: Social Networks and Industry Disruptors in the Web 2.0 Environment 13

ONLINE FILE W8.4.1 (continued) Revver VideoEgg Vimeo vSocial YouTube Interface QuickTime–based Requires download Nice and clean, Many Supports tabbed interface. of an application in uses a flash Web 2.0 pages feature ratings, Requires down- order to upload. wrapper to play features favorites, flagging, load of a client The download native formats. included. tagging, and com- for uploading seamlessly embeds No download Big fonts, menting. Create content. in the browser, pro- required, simple AJAX, playlists, subscribe to Supports tag- viding drag-and- and easy tagging, rat- other’s uploads, and ging, e-mailing, drop functionality. uploads. ing, review- subscribe to tags. The rating, and Supports tag- ing, RSS player-only features a playlisting. ging, feeds, mute button (rather commenting, Creative than level control), and voting. Commons’ and full-screening the Nice player with licenses and video opens a new a volume more. window and restarts control and no playback. burned-in logo. Editing None Basic trimming of None in the Offers “edit None beginning and end 2006 version. this video” points. functionality. Can also cre- ate “Video Rolls,” which are cus- tomized playlists gen- erated from preselected criteria. Sharing Offers a unique Post directly to Post to Flickr, Embed in Embed in other popu- revenue-sharing eBay, Blogger, and send to your own lar Web sites, includ- model that may Typepad. Creates a del.icio.us, page, ing Friendster, eBay, appeal to con- simple URL, lets download origi- MySpace, Blogger, and tent owners and you e-mail the nal files, embed Typepad, MySpace. producers. video, and gives in your MySpace Blogger, you JavaScript and profile or blog, del.icio.us, HTML code for create an RSS Flickr, Blog embedding in your feed. It! (e.g., own pages. write a post on your own blog about a video with- out leaving vSocial). 14 Part 4: Other EC Models and Applications

ONLINE FILE W8.5 EC Application USING INTELLIGENT SOFTWARE AND SOCIAL NETWORKING TO IMPROVE RECRUITING PROCESSES The Internet has made advertising and applying for jobs A slightly more personal approach is available online a much simpler process. However, sometimes with through some of the social networking sites, which offer simplicity comes complexity. The challenge now for some support for companies to locate the best talent for a large companies is how to cost-effectively manage the particular position. Sites such as Jobster ( jobster.com) online recruiting process, because online ads are attracting and LinkedIn (linkedin.com) rely more on a networking large numbers of applicants. For example, Infosys now approach. Jobs posted on Jobster, for example, are linked receives in excess of 1 million job applications each year to to other job sites, to blogs, to user groups, to university fill about 9,000 positions. It might sound like a good prob- alumni sites, and so on. People who are part of the social lem to have too many applicants, but companies are find- network are encouraged to recommend others who might ing that there is often a poor match between the skills and be suited to a particular job, irrespective of whether they attributes they require and the many hundreds of applica- are actively seeking new work. In this way, a company tions received. Thus, despite attracting a lot of applicants, looking to recruit the best talent has its job advertised they often still suffer from a shortage of good applications. much more widely and may benefit from word-of-mouth Furthermore, how can a company be sure it is accessing recommendations and referrals. For example, LinkedIn and attracting the very best talent in a particular field? offers prospective employers a network of more than Some interesting new developments are changing the way 8 million people across 130 industries, meaning much companies may address these issues. larger exposure for job vacancies and a much larger talent Trovix offers a service to companies based on its award- pool to seek referrals from. Sites such as Jobster can also winning HR software, which uses embedded intelligence to track where applicants come from, helping companies help manage the entire recruitment process. Trovix argues adopt better recruitment strategies and thus achieve that its tools Trovix Recruit and Trovix Intelligent Search can better returns from their investments in seeking the emulate human decision makers and assess a candidate’s best staff. amount, depth, relevance and recency of work experience, education, and the like. The software presents in rank order the best candidates to fit an advertised position. Other fea- Questions tures enable tracking of applicants, reporting, and communi- 1. What are some of the challenges of online recruitment? cations. A number of institutions are using this service, including Stanford University, which needs to fill thousands 2. How can intelligent recruitment software and of positions each year. Trend Micro adopted Trovix and was Internet technologies support and improve an able to screen 700 applicants and list the top 10 in about 20 organization’s search for new talent? minutes. The accuracy is probably no better than manual 3. What role can social networking approaches to processing, but the software can screen applicants in a much recruitment play? Are there any disadvantages or shorter period of time. risks involved in such approaches? Chapter Eight: Social Networks and Industry Disruptors in the Web 2.0 Environment 15 REFERENCES FOR ONLINE FILE W8.5 Ere.net. “Trovix Makes Good at Stanford University: Totty, M. “Career Journal: Recruiters Try New Tools to Premier Educational Institution Turns to Intelligent Find the Best Candidates—Services Analyze, Rank Search Provider for Recruiting Top Talent.” March Online Résumés, Saving Valuable Time.” Wall Street 8, 2006. ere.net/newswire/announcement. asp? Journal Asia, October 24, 2006. awsj.com.hk/ LISTINGID=%7 B66B8732B-C61D-4906-35F- factiva-ns (accessed January 2008). 490AD939DE23%7D (accessed January 2008). trovix.com (accessed January 2008). jobster.com (accessed January 2008). McKay, J. “Where Did Jobs Go? Look in Bangalore.” Gazette.com, March 21, 2004. post-gazette.com/pg/ 04081/288539.stm (accessed January 2008).

ONLINE FILE W8.6 EC Application HOW WIKIS ARE USED

Startups such as JotSpot (jot.com) are out to harness few hours applications that might have cost $50,000 to the power of wikis for businesses. JotSpot’s wiki-based $100,000 to develop in Java. Opsware’s technical sales software lets companies create wikis for business team uses one JotSpot wiki to manage information such processes. Here are some end-user developments utilized as proposals and status reports associated with pilot by JotSpot’s customers: projects for prospective customers. “It’s a very rich ◗ Create an intranet. Publish company information, such document management system,” says Jason Rosenthal, as news or employee guidelines. See Sundai at vice president of client services at Opsware. “It’s so quick watermelonworks.com. and easy that a new user can learn to use it in 10 to ◗ Project management. Schedule project deadlines, 15 minutes.” The software also reduced the time it took assign tasks, and define product specifications. See the company to prepare for a proof of concept from 5 days Roxor Games at roxorgames.com. to 3, Rosenthal claims, adding that wikis will revolu- ◗ Document collaboration. Multiple users author tionize how companies share information internally. documents with the aid of version history and Microsoft Says Rosenthal, “It’s easier for new users to do what it Word integration. See Symantec (symantec.com) and used to take a webmaster to do.” Insider Pages (insiderpages.com). ◗ Collaborate with virtual teams. Communicate with remote contractors or clients. See Wingate Studios Questions (wingatestudios.com) and Unimedia (unimedia.org). ◗ Track software bugs. Log defects and build custom 1. What is the difference between a traditional Web queries. See Al Technology at altechnology.com. site and a wiki? ◗ Call center support. Access case histories and increase 2. How do wiki tools make end-user development more customer support. See Your Privacy Info at efficient and effective? yourprivacy.info. 3. Should end users be encouraged to develop their Opsware (opsware.com), a data center automation own applications? What are the advantages and dis- software vendor, has used JotSpot to create in just a advantages of end-user development? 16 Part 4: Other EC Models and Applications REFERENCES FOR ONLINE FILE W8.6 Dragoon, A. “End User Development: Something Wiki jot.com (accessed January 2008). This Way Comes.” CIO Magazine, April 2005.

Online File W8.7 Nontechnological Success Factors

The rosy scenario for the future of EC is based partially on the following nontechnological factors and trends. Internet Usage The number of Internet users is increasing rapidly. With the integration of computers and television, Internet access via mobile devices, increased availability of access kiosks, increased publicity about the Internet, and availability of inexpensive computers (such as the simputer, short for “simple computer” and the $100 machine, [see Kanellos 2005]), the number of Internet surfers will continue to increase. As younger people (who have grown up with computers) grow older, usage will increase even faster. There is no question that sooner or later there will be a billion people surfing the Internet. Estimates are that by 2020, the number of worldwide Internet users will be 800 million, including more than half of the U.S. population. Opportunities for Buying The number of products and services available online is increasing rapidly with improved trading mechanisms, search engines, online shopping aids, intermediary services, presentations in multiple languages, and the willingness of more sell- ers and buyers to give EC a try. It is logical to expect significantly more purchasing opportunities. M-Commerce With about 2 billion people using cell phones in 2007, the ease with which one can connect from them to the Internet, and the introduction of 3G and WiMax capabilities, it is clear that m-commerce will play a major role in EC. Forrester Research predicts that as many as 50 percent of these wireless users will be online by 2007. The fact that one does not need a computer to go online will bring more people to the Web. M-commerce, as discussed in Chapter 9, has special capabilities that will result in new applications, as well as in more people using traditional applications. Purchasing Incentives The buyers’ advantages described in Chapter 1 are likely to increase. Prices will go down, and the purchasing process will be streamlined. Many innovative options will be available, and electronic shopping may even become a social trend. Also, for many organizations, e-procurement is becoming an attractive EC initiative. Increased Security and Trust One of the major inhibitors of growth of B2C and B2B EC is the perception of poor security and privacy and a lack of trust. As time passes, expect to see significant improvements in these areas. For more information on augmenting trust, see Chapter 4. Efficient Information Handling More information will become accessible from anywhere, at any time. Using data warehouses, data mining, and intelligent agents, companies can constantly learn about their customers, steering marketing and service activities accordingly. The notion of real-time marketing might not be so far away. This will facilitate the use of EC. Innovative Organizations IT is helping organizations restructure and reengineer (Turban et al. 2008; Ahadi 2004). Using different types of empowered teams, some of which are virtual, organizations become innovative, flexible, and responsive. The trend for process reengi- neering is increasing, as is organizational creativity. Innovative organizations will probably be more inclined to use EC. (continued) Chapter Eight: Social Networks and Industry Disruptors in the Web 2.0 Environment 17

Online File W8.7 (continued)

Virtual Communities and Social Networks Virtual communities of all kinds are spreading rapidly, with some already reaching millions of members. Virtual communities can enhance commercial activities online. Also, some communities are organized around professional areas of interest and can facilitate B2B and B2C EC. Payment Systems The ability to use e-cash or person-to-person (P2P) payments and to make micropayments online is spreading quickly. When these systems are implemented on a large scale, many EC activities will flourish. B2B payment systems also have matured, and attractive options are available. As international standards become the norm, electronic payments will extend globally, facilitating global EC. B2B EC Figures about the growth of B2B are revised frequently. In some cases, industry-type extranets are forcing many buyers and sellers to participate in B2B EC. B2B will continue to dominate the EC field (in terms of volume traded) for the intermediate future. More sellers, more buyers, and more services will continue to appear; the rapid growth of B2B will continue. The success of B2B will depend on the success of integrating EC technology with business processes and with conventional information systems. B2B Exchanges In 2000, the number of B2B exchanges exploded, but many subsequently collapsed in 2001 and 2002. The few that have remained are maturing, providing the infrastructure for $15 trillion of B2B trade forecasted by 2008. However, company- centric (private) marketplaces will account for the majority of the B2B trade. Auctions The popularity of auctions and reverse auctions is increasing rapidly in B2B, B2C, G2B, and C2C. This is an effective and efficient EC business model. eBay is probably the most successful large dot-com. Going Global One of the most appealing benefits of EC is the ability to go global. However, many barriers exist to global EC. With time, these are expected to be reduced, but at a fairly slow pace. E-Government Starting in 1999, many governments launched comprehensive G2C, G2B, G2G, and G2E projects. By 2007, more than 200 countries had established some form of e-government program. Intrabusiness EC Many companies are starting to discover opportunities for using EC in-house, particularly in improving the internal supply chain and communications with and among employees. E-Learning One of the fastest-growing areas in EC in 2005 was e-learning. Large numbers of companies have installed e-learning programs, and many universities are experimenting with distance-learning programs. E-learning should grow even faster in the near future. EC Legislation The legislative process is slow, especially when multiple countries are involved. However, with the passage of time, the necessary EC framework will be in place. 18 Part 4: Other EC Models and Applications REFERENCES FOR ONLINE FILE W8.7 Ahadi, H. R. “An Examination of the Role of Organiza- news.com.com/Indias + renaissance + The + 100 + tional Enablers in Business Process Reengineering computer/2009–1041_3–5752054.html (accessed and the Impact of Information Technology.” Infor- January 2008). mation Resources Management Journal 17, no. 4 (2004). Turban, E., et al. Information Technology for Management, Kanellos, M. “The $100 Computer Is Key to India’s 6th ed. New York: John Wiley & Sons, 2007. Tech Fortunes.” CNETNews.com, June 29, 2005.

Online File W8.8 EC Technology Trends

The trend in EC technologies generally points toward significant cost reduction coupled with improvements in capabilities, ease of use, increased availability of software, ease of site development, and improved security and accessibility. Specific technology trends include the following. Clients PCs of all types are getting cheaper, smaller, and more capable. The concept of a network computer (NC), also known as a thin client, which moves processing and storage off the desktop and onto centrally located servers running Java-based software on UNIX (Windows on Microsoft’s version), and the simputer could bring the price of a PC to that of a television (e.g., laptops were selling for less than $350 in 2007). Embedded Clients Another major trend is the movement toward embedded clients. In such a case, a client can be a car or a washing machine with an embedded microchip. In many cases, an expert system is embedded with rules that make the client “smarter” or more responsive to changes in the environment. It is a typical device in pervasive computing. Wireless Communications and M-Commerce For countries without fiber-optic cables, wireless communication can save considerable installation time and money. In 1998, wireless access reached T1 speed (about 1.5 mbps), with cost savings of over 80 percent. However, wireless networks may be too slow for some futuristic digitized products (see Chapter 9). An exception is Wi-Fi WLANs, which are growing rapidly. According to Rogers and Edwards (2003), wireless communications are expected to change the nature of e-commerce from content to context, reaching customers whenever and wherever they are ready to buy. Pervasive Computing The Gartner Group calls pervasive computing “the next big thing” in IT (Fenn and Linden 2001). Pervasive computing is starting to impact EC positively. Pervasive computing is facilitated by improvements in wireless communication and wearable devices. Wearable Devices With advances in pervasive computing and artificial intelligence, the number of wearable computing devices will increase. Wearable devices will enhance collaborative commerce, B2E, and intrabusiness EC. RFID This experimental application of pervasive computing will have a great impact on e-supply chains. Wal-Mart’s completion of its pilot implementation should cut costs and settle privacy issues. In addition to inventory monitoring, there will be many other areas of application, ranging from security to eCRM. (continued) Chapter Eight: Social Networks and Industry Disruptors in the Web 2.0 Environment 19

Online File W8.8 (continued)

Servers and Operating Systems A major trend is to use Windows XP and NT as the enterprise operating system. Among NT’s capabilities is clustering. Clustering servers can add processing power in much smaller increments than was previously possible. Clustering servers also is very economical, resulting in cost reductions. Microsoft and others offer special EC servers. Networks The use of EC frequently requires rich multimedia (such as color catalogs or samples of movies or music). A large band- width is required to deliver this rich multimedia. Several broadband technologies (such as XDSL) will increase bandwidth many-fold. This could help in replacing expensive WANs or VANs with the inexpensive Internet. The use of VPNs can enhance security on the Internet. EC Software and Services The availability of all types of EC software will make it easier to establish stores on the Internet and to conduct all types of trade. Already, hundreds of sites rent inexpensive pages for a variety of activities, ranging from conducting auctions to selling in a foreign language. Other support services, such as escrow companies that support auctions and multiple types of certifications, also are developing rapidly. In addition, a large number of consultants are being trained to assist in specialty areas. Search Engines Search engines are getting smarter, better, and more specialized. Use of this improved technology will enable consumers and organizational buyers to find and compare products and services easier and faster. Peer-to-Peer (P2P) Technology P2P technology is developing rapidly and is expected to have a major impact on knowledge sharing, communication, and collaboration by making these activities better, faster, less expensive, and more convenient. Integration The forthcoming integration of the computer and the TV and of the computer and the telephone will increase Internet accessibility. Web Services (see next item) also will facilitate integration. Web Services Web Services are being developed rapidly, solving major problems in EC systems development and integration, especially in complex B2B systems and exchanges. Web Services will enable companies to build EC applications more quickly, efficiently, and cheaply. Software Agents Users will be able to dispatch intelligent software agents to search, match, negotiate, and conduct many other tasks that will facilitate EC activities. Interactive TV Although it has shown few signs of success, some believe that in the future interactive TV may outshine the Net for e-commerce. Many desktop models in 2006 or newer allow you to watch TV programs from your PC (and record them for personal use). Universities are using interactive TV to teach classes in multiple locations. For example, Eastern Illinois University in Charleston, Illinois, offers MBA classes concurrently on both the Charleston campus and at Parkland Community College in Champaign, Illinois, using this technology. Tomorrow’s Internet Many research institutions around the world are working on tomorrow’s Internet. Although projects such as Internet2 are slow to progress, sooner or later these efforts will greatly advance EC applications (internet2.org). (continued) 20 Part 4: Other EC Models and Applications

Online File W8.8 (continued)

Utility Computing According to Bill Gates, utility computing, also known as on-demand computing as service-oriented-architecture, is computing that is as available, reliable, and secure as electricity, water services, and telephony (CNET News.com Staff 2002). The vision behind utility computing is to have computing resources flow like electricity on demand from virtual utilities around the globe—always on and highly available, secure, efficiently metered, priced on a pay-as-you-use basis, dynamically scaled, self-healing, and easy to manage. An example of using utility computing in EC is the case of Mobile Travel Guide, which rates over 25,000 restaurants and hotels in the United States and publishes travel guides for various regions. To accommodate the ever-increasing traffic of Web servers that are looking for its ratings, the company is using IBM’s on-demand hosting services. With this service, the com- pany not only solved all its capacity problems but also increased security at a 30 percent cost reduction compared to having its own servers. Grid Computing Conventional networks, including the Internet, provide communication among devices. The same networks can be used to support the concept of grid computing, in which the unused processing cycles of all computers in a given network can be harnessed to create powerful computing capabilities. Grid computing coordinates the use of a large number of servers and storage, acting as one computer. Thus, problems of spikes in demand are solved without the cost of maintaining reserve capacity (see oracle.com/grid). Grid computing is already in limited use, and many of the current grid applications are in areas that formerly would have required supercomputers. An example of using grid computing in EC is the case of J.P. Morgan Chase Investment Bank supporting electronic trading in real time using the computing power of thousands of employees (see Hamblen 2004).

REFERENCES FOR ONLINE FILE W8.8 CNET News.com Staff. “Gates Memo: ‘We Can and Hamblen, M. “J.P. Morgan Harnesses Power with Grid Must Do Better.’ ” CNETNews.com, January 17, Computing System.” ComputerWorld, March 15, 2004. 2002. news.com.com/2009–1001–817210.html Rogers, G. S., and J. S. Edwards. Introduction to Wireless (accessed January 2008). Technology. Upper Saddle River, NJ: Prentice Hall, Fenn, J., and A. Linden. “Wearing It Out: The Growth 2003. of the Wireless Wearable World.” Gartner Group, April 17, 2001.