I attended a couple of hours of the Money:Tech conference organised by O’Reilly Media in New York today. Tim O’Reilly himself - originator of the phrase Web 2.0 - was the keynote speaker, and was followed by a chat with Jim Cramer, host of Mad Money, founder of TheStreet.com, etc. etc. The conference was about Web 2.0 and financial services, and O’Reilly started out by talking about Web 2.0 and what it means to him. Ovum certainly has a definition of it, which revolves around four parts - social, business, content and technology models which define Web 2.0 services and sites. However, O’Reilly has a simpler definition, which stays away from specific technologies and services, and is simply this:

Web 2.0 is really about harnessing collective intelligence. It’s about creating a network-effects driven data lock-in with accelerating results to the winners. [I'm paraphrasing based on my notes but that was the gist]

In this way, O’Reilly says, it’s similar to Sun CEO Scott McNealy’s “red-shift” concept - that is, as you start to successfully differentiate yourself in something, your lead over the competition begins to grow ever more quickly. It’s all about creating business models which thrive off network effects - examples, according to O’Reilly, include Google (where the network effects come from the number of links people make), eBay (where the critical mass of buyers and sellers is the biggest barrier to competitive entry), Amazon (where he suggests the reviews are the key network effect) and so on. The value lies in accumulating data which leverages network effects in such a way that it is very hard for competitors to emulate what you have done.

Another major theme at the conference was open source software, and a debate during a panel session focused on whether open source adds or destroys value from a market. There were arguments on both sides, but it’s pretty clear to me that it destroys value for existing players, since it replaces proprietary products priced at a premium with free open source products. At the same time, it creates new opportunities for players which didn’t have the in-house resources to develop their own software, and it reduces the cost of doing business for everyone, which increases liquidity and therefore provides broader benefits.

So, how does all this apply to the OpenSocial program, the Social Graph API and efforts to create data portability? Do these effectively do to value in the Web 2.0 world what open source is doing in the software world? Does Facebook’s value proposition go away? Part of the answer may lie in something else O’Reilly talked about, which is Clayton Christensen’s “law of conservation of attractive profits,” which states:

When attractive profits disappear at one stage in the value chain because a product becomes commoditized, the opportunity to earn attractive profits with proprietary products usually emerges at an adjacent stage.

This would suggest that when open source enters a market, the value flees to the adjacent markets. And when data portability enters the Web 2.0 market, value will flee away from the Facebooks and MySpaces and to - where?

I would argue, as I’ve suggested in other entries, it flows to those best able to make use of the new technology - data portability - to create new services which thrive off it. I think this is the logical conclusion, and it’s another reason why Facebook, MySpace and others need to create value in something other than the information they hold about their users, because that will soon become commoditised and easily duplicated. They need to leverage that data in ways others can’t because of special sauce they themselves have concocted. It’s not clear to me that they have figured this out yet, hence (perhaps) their resistance to full data portability. But they’d better figure it out quick or that value really will go to someone else (and who would bet against Google here?).

I’ve just started reading Googler Brad Fitzpatrick’s essay on the Social Graph problem and his accompanying slides. While I agree with a lot of what he says, I find that one of his big assumptions (as stated in the slides) is

some edges/nodes secret (but most public!)

This remains one of my biggest beefs with social networking - that the assumption is we want everything public. I sound unfairly old when I say this, but I’m just not comfortable with the younger generation’s tendency to put everything in the public domain. I have very separate groups of acquaintances (they’re not all “friends” in either sense) in real life and would like to maintain the same distinction online. I will put some of it in the public domain (like this blog), allow Google’s bots to crawl it and so on, but just as I have a personal blog which isn’t linked to here (or crawled by Google), I want to control access to my information, even to the extent that “most” would be “private” in the sense of being shared with certain people but not everyone. And I think this is a key feature of the endgame of social networking I discussed in an earlier post. I also wonder how Google will participate when some of the data is password protected. I think we still need the current model of providing behind the scenes authorisations for one application to access another to download key data, and I don’t want all that going through Google.

Update: looks like I’m not the only one with this concern. Although this article takes a slightly different tack, the problem it points out is essentially the same - not everyone wants all data tracked and searchable by Google. Having said that, there are ways to put up stop signs respected by the Google search bots, but not everyone knows about them and certainly not everyone would have thought it necessary before the Social Graph API came along.

Google just released the API code for its Social Graph initiative and Plaxo already has an early application which makes use of it. While it’s a bit glitchy, it essentially allows you to create a lifestream from various sources such as Twitter, Facebook, Flickr, Pownce, Google Reader and others. I found that it wouldn’t import my Flickr feed and the Facebook feed is restricted to two elements - notes and posted items - rather than your news feed. But this is an excellent early example of what should become possible over time. And hopefully we can go beyond a lifestream and actually create dynamic profiles based on this information from other sources.