Andrew Walmsley on digital: Social interaction is key to web 2.0

But what is web 2.0, what makes it different to websites that have gone before, and why is there so much interest in this sector?

The traditional media world is one where power is concentrated in the hands of a few. The capital cost of launching a TV channel, magazine or radio station has ensured that only those with very deep pockets could afford to participate, because building distribution and an audience took a long time.

The internet has challenged this. The capital cost of setting up a website is a fraction of that required to create a newspaper. New business models based around revenue-sharing have enabled those without access to marketing budgets to secure distribution across a wide swathe of the web and build an audience quickly. Sites such as Yahoo!, MSN and Google are not simply the biggest websites in terms of audience, they are among the biggest media properties in the world.

Back in 1998, Geocities was the third-most visited website. It allowed people to manage their own web page, adding photographs, their favourite bands, films and commentary. Yahoo! bought it in May 1999 in a deal then valued at $3.6bn. This was a good price, even for bubble time, yet we have not heard much from Geocities since, although it is still there.

There is something different about My-Space and YouTube, though, that makes them worth the money being thrown at them: social networking.

Unlike Geocities, where creating a webpage was a largely solitary affair, sites such as Bebo, MySpace and YouTube allow users to share their work with others, connect their page with friends' pages, leave comments and see when they are online.

This ability to share and connect with other users is the defining characteristic of web 2.0, and it is a global phenomenon. Mixi, the so-called Japanese MySpace, debuted on the Tokyo stock exchange last month, valued at £1bn.

In South Korea, where broadband connectivity is about 70%, social networking has become a national obsession, with a set of social codes evolving that govern behaviour on Cyworld, the Korean version of MySpace. It is considered rude in the extreme to visit someone's Minihompy (Cyworld's term for a homepage) without leaving comments, and real pride is taken in how you decorate it.

Deutsche Telekom has partnered with Cyworld to launch in the German market, and it has ambitious expansion plans.

Finally, believe it or not, Dogster (a social networking site for dogs) and Catster (I know, I know) have just secured a round of angel funding to develop their sites further, although they claim already to be profitable.

Around the world, while the applications and customs within these sites might vary, the empowerment of people to connect with each other and share their thoughts, photos and videos has proved an extremely potent formula.

YouTube sees 65,000 videos uploaded a day, and about 100m video plays - and it is this audience that has made it such an attractive proposition for Google, whose Google Video proposition had failed to gain significant traction with audiences.

If YouTube can address the prickly issue of copyright material being uploaded to the site, and thus avoid a lawyers' feeding frenzy, this could be a great deal for Google. The bigger issue on the valuation is the loyalty of the audience.

If a site can grow in 18 months to these levels of traffic, then it can happen again. But if the audience moves on, that valuation is going to start to look a little salty.

- Andrew Walmsley is co-founder of i-level

30 SECONDS ON ... YOUTUBE

- Launched in February 2005, YouTube was founded by ex-eBay PayPal workers 29-year-old Chad Hurley and 27-year-old Steven Chen. It now has 67 employees.

- In August 2005 the site had 2.8m users a month. One year later its audience had grown to 72m people.

- YouTube attracts 20m unique visitors a month, according to Nielsen Net Ratings.

- The site has a 47% share of visitors to online video sites, according to HitWise, while MySpace Videos has 22%.

- YouTube claims that fewer than 20% of its video views come from MySpace, although News Corporation chief operating officer Peter Chernin told investors recently that 60%-70% of YouTube traffic comes from MySpace.

- Google and YouTube have struck a series of deals with media giants such as Universal Music, Sony BMG and CBS, giving them some of the rights they need to show videos.

This article was first published on Marketing