I’ll risk using a hype-laden term like “Web 2.0” in the headline of this article. Most of us have been around long enough to understand that hype doesn’t mean that nothing is there. Still, it can distract us from seeing things we should be watching.

I have been in the thick of the “adoption curves” of Java, e-business transformation and SOA/Web services¹. They have been instrumental in creating a new information infrastructure and business process capabilities. “Web 2.0” will prove to be the most transformational so far because it is changing relationships.

It changes people’s relationships with each other and it will change how companies and customers relate. It will demand “Marketing 2.0”.

Tectonic Shift

As I argued in “The 3.x Economies²”, we are transitioning away from the industrial economy and entering the knowledge economy.

In the industrial economy, companies created value by manufacturing products efficiently based on their core competencies and they marketed products to customers. They also created and marketed services on a large scale. “Marketing” grew as a profession during the 20th century. Its job was to “create demand” for production capacity.

In the knowledge economy, agricultural and industrial products are still consumed. Most of the perceived value and differentiation is achieved by using information to create knowledge. While Starbucks sells coffee (the product), the differentiation is the experience of drinking coffee in a cafe.

The knowledge is creating the experience of drinking coffee in a cafe en masse and everywhere. Likewise, Apple sells computers and iPods. Its differentiation is in creating a digital entertainment experience. Even work becomes a fun experience.

In the industrial economy, companies produced and consumers consumed. Companies had more information about customer needs, competitive solutions and substitutes. Superior information gave companies an advantage in the market over consumers. They are still accustomed to this.

Web 2.0 resources³ enable individuals to create, find and share text, graphic, audio and video content virtually for free across the globe.

Individuals are no longer isolated and they can assemble, educate each other and become more proactive when, where and how they want with few restrictions. Reflecting this trend, TIME magazine recognized “you” – the Web 2.0-enabled individual – as its 2006 person of the year.

Individuals are getting advice from each other about how to create a satisfying experience. They often trust other individuals in online forums to give them the skinny on a company, product or service more than an expert or a company representative.

Other individuals have credibility because they are customer focused by default and they are not tainted by having to make a buck. Moreover, their advice is vetted by other people in the community who chime in with their experiences (using the product to accomplish something) and contradict advice.

While isolated individuals used to have access to very little specific knowledge, today people assemble in smart tribes and can develop extremely valuable specific knowledge extremely quickly.

When I discuss this with corporate executives in 2007, they doubt the relevance because individuals have been isolated and ignorant. However, smart companies will aggressively experiment with tapping knowledge created by customer-to-customer interactions in Web 2.0 spaces.

They will push to integrate this information into their discovery, marketing and innovation processes.

Patty Seybold gets this: “The company with the smartest customers will win.”⁴ Help your customers become smarter and they will educate you. Your innovation will outperform your competitors. Industrial economy efficiency is increasing the table stakes and innovation will increasingly drive value and survival.

Marketing 2.0

Marketing 2.0 will be much more profitable than “Marketing 1.0,” which could not access the voice of the customer very easily. In Marketing 1.0, companies simulated the understanding of customer needs by using limited data points from focus groups, point-of-sale data, surveys, etc.

They used these to create demand models.

They created new offerings and “innovated”. Results have been consistent: product failures have been rife in every industry and innovation efforts have more than a 90 percent failure rate⁵. Prior to Web 2.0, reaching customers and integrating their knowledge into processes was not economically feasible.

However, Web 2.0 communications are digital and asynchronous, which significantly reduces the cost of finding and exchanging information.

Customers interact digitally and generate user-specific information for fun. People like collaborating online and solving problems makes them feel good about themselves. Marketing 2.0 will mix customers and providers in a new collaborative milieu.

Of course, online collaboration has been around a long time in the form of bulletin boards, support forums and communities. Still, it has mostly been limited to techies.

However, Web 2.0 will increasingly be mainstream and everywhere. Combine Web 2.0 resources like social networks, blogs, YouTube and Flickr with mobility and customers will communicate every minute of the day, everywhere and about every product category. Imagine point-of-sale reviews for all retail and wholesale.

While Marketing 2.0 will continue to use Marketing 1.0 processes, it will integrate the real-time, increasingly rich “voice of the customer” to dramatically increase the success of new offerings and innovation. Astute companies will develop action plans for 2007 and act on them⁶.

¹ For a full biography, see here.

² “The 3.x Economies” in the Global Human Capital Journal.

³ Web 2.0 is a bit of an amorphous term. It refers to technologies that promote peer-to-peer (P2P) interaction. However, these technologies are bundled into fantastically user-friendly Web sites like LinkedIn, MySpace, Flickr and YouTube. Intermediaries like Technorati and del.icio.us help people find content based on their interests. See here for more information.

⁴ See here for more information.

⁵ See here for more information.

⁶ For more on action steps, see here.

Christopher S. Rollyson is a veteran of several global consultancies and currently advises global enterprises on collaborating with Web 2.0-enabled customers to drive innovation. He can be e-mailed at chris@rollyson.net.