Any web 2.0 business model must, by law, include five or more buzz words from user-generated content to API to social networking to get venture funding.  Companies are desperately trying to use social media like Facebook, Second Life, and even the iPhone to manufacture marketing and attention. The result is start-ups and established companies focusing resources because that’s where the hype is rather than where the smart business is.

Hype is the keyword here.  An already popular company like Facebook or Apple launch something new and obviously there’s hype.  But this hype is not contagious.  A former boss of mine said the reason we were developing an iPhone app before we had a mobile site was to “Get some attention when the app store launches.”

For start-ups limited in resources, jumping on the internet bandwagon is more often a waste and at best a distraction.  It’s best to focus on building your own features and worth to make sure once people find you, they want to stay.  Building applications for other platforms fragments your audience and time - what you build on Facebook needs to be rebuilt for the iPhone and rebuilt for Netvibes.

Second Life has become a prime example of hype overblowing marketing potential.  Last year, just as another company I worked for wanted to build a Second Life presence, Wired wrote about the marketing waste the virtual world had become. Coca-Cola, Reebok, IBM, Sears, and dozens more build huge islands with style and zazz, paying high-profile Second Life consultants and expecting the viral marketing to take off.  But no one visited.  The hype came from companies trying out Second Life, but no one ever posting resulting.  Since Second Life accounts are free, the 4 million users it boasts is misleading.  Only 1 million had logged on in the past 30 days and only a third of that in the past week.  Only 100,000 of those live in the U.S.  Those who do sign on spend most of their time in sex shops or gambling, not looking at marketing campaigns.

Facebook is likely to follow. Facebook itself is having trouble monetizing its massive user base, how do third parties expect to do better?  iPhone applications can be sold for money, which makes them less viral.  And working with any closed platform like Facebook or Apple puts the platform in control of your future.  Facebook suddenly blocked some of its most popular applications, Top Friends, Super Wall, and Social Me, with little notice and challenges to get back in the platforms good graces.

The opposite strategy of releasing your own API is more worth the time (if it makes sense for your product and not just a buzz word for investors) but has its own risks.  Twitter’s success and constant downtime are both due to their API.  Without the API, much of the sites usefulness wouldn’t have happened leading so many to join.  But because of the API’s popularity, the site can barely keep basic features operational.

So this is a lot of don’t.  The dos, unfortunately, are the hardest because it needs to be case-by-case.  Because there are so many platforms and APIs and doodads to try and sync up with, it’s impossible to say everyone should do this.  The key is when deciding how you want your product to integrate with the greater web world, think about your own strength and goals rather than bullet list features.  Everyone is pushing the same bullet lists.  You’ll stand out more by not.

The most talked about new web 2.0 sites, from Facebook to Twitter, are facing business model challenges. Scott Karp points out the challenge of print advertising online while Alexander van Elsas goes farther in his post “Advertisement holds web 2.0 in a death grip.”

Web 2.0 has focused on free services - free services that build virally fast and then, hopefully lead to a business model when the venture capitalists get impatient. But banner ads and tier subscriptions aren’t enough.

Advertising, as Karp and van Elsas point out, isn’t useful. Google pioneered ads that use your search terms so they are relevant and unobtrusive, whereas the only thing Facebook can sell me are gay dating sites (Google advertises better ones). The challenge isn’t simply advertising isn’t working, but that you can’t charge people for your services.

Most web services offer a paid option with valuable features. Remember the Milk charges $25 a year just to sync my tasks to my phone. Yahoo Mail wants another $20 to give my email portability. Each service doesn’t cost too much, but add them up, and suddenly the internet got expensive.

Bernard Lunn says social networking “is at a major fork in the road” (leading to web 3.0?) where they have to choose between walled gardened, open APIs, or mix. All the free on the web will need a business model, and every site from social to content providers will find charging customers harder and harder and advertising spread thinner and thinner.

Google’s strength came from reinventing advertising to its strength - search - creating a unique model that let companies and individuals advertise without upfront costs. Amazon and eBay have built retail businesses that couldn’t exist in brick and mortar stores. Most other sites have relied on 7-8 figure buyouts to make money.

Other websites will need to find new business models. Some ideas like market research and statistics, like I discussed for Facebook and other social networks, make excellent use of their large user bases, but will lead to a decrease in value when every social site starts offering this research. Further, with open source and APIs all the rage, regular pageviews will become less reliable as people use services how they want, not how the websites want them to. For example, advertising will work even less for content providers once RSS readers takeover the mainstream.

This is a lot of doomsaying without many solutions. I think sponsorships and product placement has potential, but again, it’s going to be impossible to control users. The best business models thus far have been enterprise level customer service, best seen in companies like Red Hat which provides customized Linux solutions and and MySQL’s Enterprise Unlimited. Companies will pay for customized services and research which individuals have no use for. Less than one percent of MySQL’s customers pay, but that was enough for Sun to pay $1 billion to buy the company.

The focus over the next few years needs to be on developing new and hopefully revolutionary business models that recognize the internet, software, and content want to be free (yes, even music and movies). The old business models required payment, but the future doesn’t have to be constrained by old-fashioned thinking. Think outside the tubes.

The social networking world has been all a buzz. First MySpace announced their Data Portability to allow some sites access to MySpace user information. Then Facebook releases Connect to share its users. The Google quickly unleashed Friend Connect to try to share everything. Facebook was having none of this. They blocked Google’s Friend Connect access in the name of privacy.

And let the Info Wars begin. The winner will own your data and you’ll be lucky if you have a choice.

Maybe I’m hyping this a little much, but the truth is user information is to the internet what oil is to the Middle East. Advertising has its place, but slowly websites, especially social networking sites, are learning their user information is the most valuable resource.

That’s why Facebook wants to block Google. Whoever controls the user info will control the internet.

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How did you discover that new web game or hilarious video? Between social bookmarking, social networking, socializing, the internet has made sharing information and ideas as simple as pointing and clicking. So do we need anointed trend setters anymore? Two conflicting theories are hashing out the marketing debate, but both forget to give credit to the real influencer - the internet. The internet has flattened the playing field for anybody to contribute to starting or spreading a trend.

Marketing conventional wisdom has followed the teachings of books like The Tipping Point by Malcolm Gladwell and The Influentials by Jon Berry and Ed Keller. These books claim a few well connected individuals inspire the vast majority in terms of the clothing we wear or movies we watch. These people are often called influentials. Marketing companies promote their connection with these influencers and often focus advertising budgets strictly to reaching this oligarchy of culture.

New research is challenging this conventional wisdom. Clive Thompson writes for Fast Company about Duncan Watts research on social trends.

[Duncan Watts] has analyzed email patterns and found that highly connected people are not, in fact, crucial social hubs. He has written computer models of rumor spreading and found that your average slob is just as likely as a well-connected person to start a huge new trend. And last year, Watts demonstrated that even the breakout success of a hot new pop band might be nearly random. Any attempt to engineer success through Influentials, he argues, is almost certainly doomed to failure.

“It just doesn’t work,” Watts says. “A rare bunch of cool people just don’t have that power. And when you test the way marketers say the world works, it falls apart. There’s no there there.”

Watts theorizes trends are more random, or at least harder to track. All the research done on trends has looked at successful trends. Trends that failed to catch on are harder to study. Watts computer simulations give more credit broader social networks, meaning marketing to a larger group is more important than a select group. Simply, if more people know about your product or idea, the odds are more likely someone will share that information.

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Google must get special treatment from Google MeanGene.com has put together a hilarious mock up of the Google homepage if it had to, like the rest of us, worry about its Google PageRank. Google needs to feign importance with repetitious words, links, constant updates, and on and on. It puts into perspective all the crap web designers have to do for the leg up. That once clean Google homepage becomes a jungle of blue links to no where all in the hopes of creating importance. How long do you think until we have a search engine that can truly rank importance? Do you think anyone will read Prodigeek.com when that happens?

Newspaper editors can relax. Geeks aren’t replacing them yet. The Project For Excellence in Journalism reported a study compared the leading stories on social bookmarking sites like Digg, Reddit, and Delicious to 48 mainstream news outlets, finding great differences in the types of stories that get the most visible placement.

Social bookmarking sites, who’s stories are chosen by anyone with an account on the site, have a greater focus on blogs and other user generated sites like YouTube. These stories rarely overlapped with the lead stories in major news outlets. Social bookmarking sites focused more on technology like the iPhone and video games, crime and celebrity stories, and a lack of international coverage.

The study tries to hold social bookmarking sites to task for being standards of what’s news and what’s not. The study says:

Despite claims that the Web would internationalize consumers’ news diets, coverage across the three user-news sites focused more on domestic events and less on news from abroad than the mainstream media that week. Yahoo News, both on its main news page and three most popular pages, meanwhile, stood out for being decidedly more international that week.

Unfortunately, the study forgets one important detail about social bookmarking sites: the people. Social bookmarking caters to niche, often geeky audiences who pick stories they like to recommend to others. Digg thus far is not positioned nor intentioned to replace standard media outlets for news coverage. Instead, it helps the social community around the site find articles, websites, and features that would interest the community. Finding popular stories increases your clout among the community. But like any social community, sociability is only as good as the community.

Digg, Reddit, and Delicious are still catering to early adopters, often tech-savvy individuals, much like how Wikipedia features more articles about Star Wars characters than world religions. There’s nothing wrong with this, even though this study seems to portray these bookmarked articles as trivial. They are not trivial to the people who take the time to post them or the people who make them popular. There is a difference between what people need to know and they want to know. The question should be who is responsible for each.

As part of the movie industry’s flawless strategy to combat piracy, the Advanced Access Content System provides encryption data for HD DVDs and Blu-Ray discs.  After their spotless record of never being able to stop the copying of DVDs, the same song is being sung for HD DVDs.  Hackers posted the encryption key used to prevent the copying of HD DVDs.  AACS sent DMCA warnings to websites with the key claiming copyright infringement.  This action sparked more publicity for the encryption key, including high popularity on the social bookmarking site Digg.

But HD DVD sponsors Digg.  So Digg removed the link to the encryption key even though it looked to be one of the most popular links on the site.  This has lead to a mini-revolt of bloggers and hackers who have united to spread the encryption key and force its placement to the top of Digg’s popular links.  The first four pages have been dominated by web pages with the encryption key, often in the title, or at least talking about the story. 

Why the AACS and media companies believed their new fanged encryption software would be any more challenging for hackers remains a mystery.  The entertainment industry used the same tactics and even the same organization to protect its next-gen discs after watching simply software allow anyone with a computer to copy DVDs.  And by resorting to DMCA threats, the AACS has only brought more attention to its failure.  Media companies keep wanting to blame YouTube, BitTorrent, and KaZaa for failure to police or stop piracy when these media companies can’t even do it themselves.