The Power of Us

By Robert D. Hof
BusinessWeek Online
June 16, 2005

Mass collaboration on the Internet is shaking up business

The 35 employees at Meiosys Inc., a software firm in Palo Alto, Calif., didn't know they were joining a gang of telecom-industry marauders. They just wanted to save a few bucks. Last year they began using Skype, a program that lets them make free calls over the Internet, with better sound quality than regular phones, using headsets connected to their PCs. Callers simply click on a name in their Skype contact lists, and if the person is there, they connect and talk just like on a regular phone call. "Better quality at no cost," exults Meiosys Chief Executive Jason Donahue. Poof! Almost 90% of his firm's $2,000 monthly long-distance phone bill has vanished. With 41 million people now using Skype, plus 150,000 more each day, it's no wonder AT&T (NYSE: T - News) and MCI Inc. (Nasdaq: MCIP - News) are hanging it up.

How can a tiny European upstart like Skype Technologies S.A. do a number on a trillion-dollar industry? By dialing up a vast, hidden resource: its own users. Skype, the newest creation from the same folks whose popular file-sharing software Kazaa freaked out record execs, also lets people share their resources -- legally. When users fire up Skype, they automatically allow their spare computing power and Net connections to be borrowed by the Skype network, which uses that collective resource to route others' calls. The result: a self-sustaining phone system that requires no central capital investment -- just the willingness of its users to share. Says Skype CEO Niklas Zennström: "It's almost like an organism."

A big, hairy, monstrous organism, that is. The nearly 1 billion people online worldwide -- along with their shared knowledge, social contacts, online reputations, computing power, and more -- are rapidly becoming a collective force of unprecedented power. For the first time in human history, mass cooperation across time and space is suddenly economical. "There's a fundamental shift in power happening," says Pierre M. Omidyar, founder and chairman of the online marketplace eBay Inc. (Nasdaq: EBAY - News) "Everywhere, people are getting together and, using the Internet, disrupting whatever activities they're involved in."

Collective Clamor
Behold the power of us. It's the force behind the collective clamor of Weblogs that felled CBS (NYSE: VIA - News) anchorman Dan Rather and rocked the media establishment. Global crowds of open-source Linux programmers are giving even mighty Microsoft Corp. (Nasdaq: MSFT - News) fits. Virtual supercomputers, stitched together from millions of volunteers' PCs, are helping predict global climate change, analyze genetic diseases, and find new planets and stars. One investment-management firm, Marketocracy Inc., even runs a sort of stock market rotisserie league for 70,000 virtual traders. It skims the cream of the best-performing portfolios to buy and sell real stocks for its $60 million mutual fund.

Although tech companies may be leading the way, their efforts are shaking up other industries, including entertainment, publishing, and advertising. Hollywood is under full-scale assault by 100 million people sharing songs and movies online via programs such as Kazaa and BitTorrent. The situation is the same with ad-supported media: Google Inc.'s (Nasdaq: GOOG - News) ace search engine essentially polls the collective judgments of millions of Web page creators to determine the most relevant search results. In the process, it has created a multibillion-dollar market for supertargeted ads that's drawing money from magazine display ads and newspaper classifieds.

Most telling, traditional companies, from Procter & Gamble Co. (NYSE: PG - News) to Dow Chemical Co., are beginning to flock to the virtual commons, too. The potential benefits are enormous. If companies can open themselves up to contributions from enthusiastic customers and partners, that should help them create products and services faster, with fewer duds -- and at far lower cost, with far less risk. LEGO Group uses the Net to identify and rally its most enthusiastic customers to help it design and market more effectively. Eli Lilly & Co. (NYSE: LLY - News), Hewlett-Packard Co. (NYSE: HPQ - News), and others are running "prediction markets" that extract collective wisdom from online crowds, which help gauge whether the government will approve a drug or how well a product will sell.

At the same time, peer power presents difficult challenges for anyone invested in the status quo. Corporations, those citadels of command-and-control, may be in for the biggest jolt. Increasingly, they will have to contend with ad hoc groups of customers who have the power to join forces online to get what they want. Indeed, customers are creating what they want themselves -- designing their own software with colleagues, for instance, and declaring their opinions via blogs instead of waiting for newspapers to print their letters. "It's the democratization of industry," says C.K. Prahalad, a University of Michigan Stephen M. Ross School of Business professor and co-author of the 2004 book The Future of Competition: Co-Creating Unique Value with Customers. "We are seeing the emergence of an economy of the people, by the people, for the people."

Peer Production
That suggests even more sweeping changes to come. Howard Rheingold, author of Smart Mobs: The Next Social Revolution, sees a common thread in such disparate innovations as the Internet, mobile devices, and the feedback system on eBay, where buyers and sellers rate each other on each transaction. He thinks they're the underpinnings of a new economic order. "These are like the stock companies and liability insurance that made capitalism possible," suggests Rheingold, who's also helping lead the Cooperation Project, a network of academics and businesses trying to map the new landscape. "They may make some new economic system possible."

Perhaps they already are. Yochai Benkler, a Yale Law School professor who studies the economics of networks, thinks such online cooperation is spurring a new mode of production beyond the two classic pillars of economics, the firm and the market. "Peer production," as he calls work such as open-source software, file-sharing, and Amazon.com Inc.'s (Nasdaq: AMZN - News) millions of customer product reviews, creates value with neither conventional corporate oversight nor market incentives such as payment. "The economic role of social behavior is increasing," he says. "Things that would normally just dissipate in the air as social gestures become economic products."

Indeed, peer production represents a sea change in the economy -- at least when it comes to the information products, services, and content that increasingly drive economic growth. More than two centuries ago, James Watt's steam engine ushered in the Industrial Revolution, centralizing the means of production in huge, powerful corporations that had the capital to achieve economies of scale. Now cheap computers and new social software and services -- along with the Internet's ubiquitous communications that make it easy to pool those capital investments -- are starting to give production power back to the people. Says Benkler: "This departs radically from everything we've seen since the Industrial Revolution."

Sound pretty threatening to anyone invested in the status quo? You bet. Indeed, as the title of Rheingold's book implies, there could be a dark side to this new cooperative force, especially if it results in mob rule. Quite often, the best solution to a problem comes from the sudden flash of insight from a solitary genius such as Charles Darwin or Albert Einstein. It would be a tragedy if these folks, sometimes unpopular in their times, got lost in the cooperative crowds. Clearly, peer production has its limits. Almost certainly, it will never build railroads, grow wheat, run nuclear power plants, or write great novels.

Yet this cooperative force may spread beyond such easily shared commodities as information, knowledge, and media. People are starting to use the Net to pool tangible goods as well. In a sense, Skype enables people to share computer hardware. Thanks to the Web's ability to serve as a meeting ground and scheduling coordinator, it's becoming economical to share cars, for example. Services such as Zipcar Inc. and Flexcar let members use the Net to reserve one of a fleet of autos in crowded cities, almost on demand, for an hourly fee.

What's driving all this togetherness? More than anything, an emerging generation of Net technologies. They include file-sharing, blogs, group-edited sites called wikis, and social networking services such as MySpace and Meetup Inc., which has helped everyone from Howard Deaniacs to English bulldog owners in New York form local groups. Those technologies are finally teasing out the Net's unique potential in a way that neither e-mail nor traditional Web sites did. The Net can, like no other medium, connect many people with many others at the same time.

What sets these new technologies apart from those of the Internet's first generation is their canny way of turning self-interest into social benefit -- and real economic value. They have what tech-book publisher Tim O'Reilly calls an "architecture of participation," so it's easy for people to do their own thing: create a link on their Web site to another Web site they like; rate a song; or just show off their knowledge with an online product review. Then, those actions can be pooled into something useful to many: the 3 billion song ratings that help people create personalized Net radio stations on Yahoo (Nasdaq: YHOO - News)! Inc. or Amazon's millions of customer-generated product reviews, which help decide hits and duds. Exclaims Amazon CEO Jeffrey P. Bezos: "You invite the community in, and you get all this help."

It's surprisingly good help, too. New research indicates that cooperation, often organized from the bottom up, plays a much greater role than we thought in everything from natural phenomena like ant colonies to human institutions such as markets and cities. It's what New Yorker writer James Surowiecki, in his illuminating 2004 book of the same name, calls "the wisdom of crowds." Crowds can go mad, of course, but by and large, it turns out, they're smarter at solving many problems than even the brightest individuals.

The Internet's supreme group-forming capability suggests the rise of an almost spooky group intelligence. Within minutes of Pope John Paul II's death, hundreds of eBay sellers had posted related products for sale. Whether it is responding to world events or new products such as Sony Corp.'s (NYSE: SNE - News) PSP game machine, eBay's hive mind reacts to shifts in demand much faster than traditional companies with layers of management approval. Although eBay recently has seen some mature markets in the U.S. and Germany slow, the group smarts have helped keep growth more than respectable, with gross merchandise sales this year expected to rise 32%, to $45 billion. As eBay CEO Margaret C. Whitman has noted: "It is far better to have an army of a million than a command-and-control system."

More companies are starting to understand the logic. If they can get others to help them design and create products, they end up with ready-made customers -- and that means far less risk in the tricky business of creating new goods and markets. So businesses are accessing the cyberswarm to improve everything from research and development to marketing. Says Alpheus Bingham, vice-president for Eli Lilly's e.Lilly research unit: "If I can tap into a million minds simultaneously, I may run into one that's uniquely prepared."

Procter & Gamble's $1.7 billion-a-year R&D operation, for instance, is taking advantage of collective online brain trusts such as Lilly company InnoCentive Inc. in Andover, Mass. It's a network of 80,000 independent, self-selected "solvers" in 173 countries who gang-tackle research problems for the likes of Boeing Co. (NYSE: BA - News), DuPont (NYSE: DD - News), and 30 other large companies. One solver, Drew Buschhorn, is a 21-year-old chemistry grad student at the University of Indiana at Bloomington. He came up with an art-restoration chemical for an unnamed company -- a compound he identified while helping his mother dye cloth when he was a kid. Says InnoCentive CEO Darren J. Carroll: "We're trying for the democratization of science."

And apparently succeeding. More than a third of the two dozen requests P&G has submitted to InnoCentive's network have yielded solutions, for which the company paid upwards of $5,000 apiece. By using InnoCentive and other ways of reaching independent talent, P&G has boosted the number of new products derived from outside to 35%, from 20% three years ago. As a result, sales per R&D person are ahead some 40%.

The online masses aren't just offering up ideas: Sometimes they all but become the entire production staff. In game designer Linden Lab's Second Life, a virtual online world, participants themselves create just about everything, from characters to buildings to games that are played inside the world. The 45-person company, which grossed less than $5 million last year, makes money by charging players for virtual land on which they build their creations. Second Life's 25,000 players collectively spend 6,000 hours a day actively creating things. Even if you assume only 10% of their work is any good, that's still equal to a 100-person team at a traditional game company. "We've built a market-based, far more efficient system for creating digital content," says Linden CEO Philip Rosedale.

Likewise, groups online are starting to turn marketing from megaphone to conversation. LEGO Group, for instance, brought adult LEGO train-set enthusiasts to its New York office to check out new designs. "We pooh-poohed them all," says Steve Barile, an Intel Corp. (Nasdaq: INTC - News) engineer and LEGO fan in Portland, Ore., who attended. As a result, says Jake McKee, LEGO's global community-development manager, "we literally produced what they told us to produce." The new locomotive, the "Santa Fe Super Chief" set, was shown to 250 enthusiasts in 2002, and their word-of-mouse helped the first 10,000 units sell out in less than two weeks with no other marketing.

Corporate planners are even starting to use the wisdom of online crowds to predict the future, forecasting profits and sales more precisely. Prediction markets let people essentially buy shares in various forecasts, often with real money. Most famously, they've been employed in the University of Iowa's experimental Iowa Electronic Markets to determine, with remarkable accuracy, the most likely winner of the Presidential election. The ease of organizing groups on the Net has caused an explosion in their use, says Emile Servan-Schreiber, CEO of NewsFutures Inc., a consultant that has run 40,000 prediction markets for companies and publications.

Mob Mentality
Hewlett-Packard Co.'s services division was having trouble a few years ago with forecasts in the first month of a quarter. So Bernardo A. Huberman, director of HP Labs' Information Dynamics Lab, set up a market with 15 finance people not normally involved in such planning. They bought and sold virtual stock that represented a range of forecasts at, above, and below the official company forecast. Their collective bets yielded a 50% improvement in operating-profit predictability over conventional forecasts by individual managers.

For all the benefits, Net-based cooperation holds plenty of peril for the unwary. Obviously, not all crowds are wise. Even The Wisdom of Crowds author Surowiecki wonders if the Net connects like-minded people so well that it can amplify groupthink. "The more we talk to each other, the dumber we can get," he notes. Groups that discourage independent thought potentially could put a damper on out-of-the-box ideas from brilliant individuals. They can also become herds that buy or dump stocks on momentum alone. For that matter, they can devolve into lynch mobs and terrorist groups.

As companies have learned, the online hordes can quickly turn against them. Last September bike-lock manufacturer Kryptonite tried to downplay a blogger video that showed how to open its bike locks with a BIC pen. But the video instantly spread across the Net, forcing the company to spend more than $10 million on lock replacements.

To contend with this rising people power, corporations will have to craft new roles for themselves and learn new ways to operate in order to stay relevant. They'll be unable to keep secrets for long amid the chorus of online voices, as Apple Computer Inc. (Nasdaq: AAPL - News) learned when fan sites spilled the beans on unreleased products. Managers and employees will have to learn how to take orders from customers more than from bosses. "Networks are becoming the locus for innovation," says Stanford University professor Walter W. Powell. "Firms are becoming much more porous and decentralized."

The challenges, though, go to show that we're not talking about merely a new capitalist tool -- at least not one that's dominated by big capitalists. Upstarts, both ad hoc groups and new companies, are seizing the initiative far more than are established businesses. They're transforming industry after industry faster than individual companies can cope with.

Nowhere has that phenomenon happened faster than in software. Collaborative open-source development is rapidly moving beyond basic utility software like Linux to mainstream applications as well. An especially eye-opening example is SugarCRM Inc., which provides an open-source version of customer-relationship management software now dominated by Siebel Systems (Nasdaq: SEBL - News) and salesforce.com Inc. (NYSE: CRM - News) The 10-person outfit's software, which CEO John Roberts calls "the collective work of bright CRM engineers around the world," has been downloaded more than 235,000 times for free.

The company makes money from services such as technical support and a $40-a-month Web-based service, as well as more fully featured corporate software for which it charges $239 per user per year. Scarcely a year old, SugarCRM won't reveal its finances, but its business model suggests a big change in how the software industry works. "The fact that everyone can participate [in open-source] is creating a new market ecology," says Kim Polese, CEO of SpikeSource Inc., a startup providing bundles of open-source products. Or, as Roberts adds brightly: "We're turning a $10 billion market space into a $1 billion market space."

The same scary prospect lies ahead for other information-based industries, such as entertainment, media, and publishing, that are rapidly going digital. People are not only sharing songs and movies -- legally or not -- but also creating content themselves and building sizable audiences. The threat comes from more than the 10 million-plus blogs. Overall, 53 million Americans have contributed material to the Net, from product reviews to eBay ratings, according to the Pew Internet & American Life Project.

The most breathtaking example: Wikipedia. Some 5 million people a month visit the free online encyclopedia, whose more than 1.5 million entries in 200 languages by volunteer experts around the globe outnumber Encyclopedia Britannica's 120,000, with surprisingly high quality. "Our work shows how quickly a traditional proprietary product can be overtaken by an open alternative," says co-founder Jimmy Wales. Unlike Britannica, Wales is not aiming to generate much, if any, revenue. But "that doesn't mean that we won't destroy their business," he notes. Britannica spokesman Tom Panelas says sheer volume of articles isn't a measure of quality and may be overload for most readers and researchers.

Then again, the cooperative crowds offer a lifeline to beleaguered media such as newspapers. The five-year-old online paper OhmyNews in South Korea has marshaled 36,000 "citizen journalists" to write up to 200 stories a day on everything from political protests to movies. Its popularity with 1 million daily visitors has made it the sixth-most influential media outlet in Korea, according to a national magazine poll -- topping one of the three television networks. "It's participatory journalism," explains founder Oh Yeon Ho, who says OhmyNews turned a profit last year. The idea is starting to catch fire in the U.S., too, via independent citizen-media efforts such as Backfence Inc. and Bayosphere and budding initiatives by E.W. Scripps Co. (NYSE: SSP - News) and others. The New York Times Co. is also testing the waters: In March, it bought About.com, which has 475 citizen experts on consumer electronics, personal finance, and other topics.

Even industries that traffic in physical goods are being turned upside down by Net-driven sharing. In retail, for instance, "consumers" are becoming active participants in the merchants they buy from, transforming the venerable suggestion box into something more influential. At Amazon.com, thousands of volunteers write buyer's guides and lists of favorite products. Amazon also lets thousands of merchants, from Target Stores (NYSE: TGT - News) to individuals, sell on Amazon pages.

What's more, Amazon is opening up the technology behind product databases, payment services, and more to 65,000 software developers. They're creating new services, such as the ability to compare brick-and-mortar store prices with Amazon's by scanning a bar code into a cell phone. Thanks in part to such moves, the company is solidly profitable on $6.9 billion in sales last year. "We're all building this thing together -- Amazon itself, outside developers, associates, and customers," says Jeff Barr, Amazon's Web services evangelist.

That raises a key point: All of us will have to take on more responsibility. And to get the most out of the new cooperative tools and services, we'll have to contribute our time and talent in new ways -- such as rating a seller on eBay or penning a short essay in Wikipedia. But the rewards will be more personalized products and services that we don't merely consume, but help create.

Ultimately, all this could point the way to a fundamental change in the way people work together. In 1968, ecologist Garrett Hardin popularized the notion of the tragedy of the commons. He noted that public resources, from pastures and national parks to air and water, inevitably get overused as people act in their own self-interest. It's a different story in the Information Age, contends Dan Bricklin, co-creator of the pioneering PC software VisiCalc and president of consultant Software Garden Inc. in Newton Highlands, Mass.
Instead, he says, there's a cornucopia of the commons. That rich reward may be worth all the disruption we've seen and all the more still to come.

The Sharing Economy

Edited by Patricia O'Connell
BusinessWeek Online

Yale law professor Yochai Benkler points to Google and Skype as examples of a new, Info Age market structure, based on peer production

As a professor at Yale Law School, Yochai Benkler doesn't seem like a prime candidate to rewrite the field of economics. But in a couple of papers, most recently "Sharing Nicely: On Shareable Goods and the Emergence of Sharing as a Modality of Economic Production," he suggests that the Internet and cheap computers are spurring a new method of producing economic value besides the market and the traditional company. He calls it commons-based peer production.

Open-source software, song sharing, the volunteer-written online encyclopedia Wikipedia, and other activities, he contends, require neither traditional corporate oversight nor monetary incentives to create real value. And that's likely to both threaten some existing companies and create entirely new ones, as it has with search engine Google (Nasdaq: GOOG - News) and Skype Technologies, a provider of free Internet phone service.

Benkler recently spoke with Robert D. Hof, BusinessWeek's Silicon Valley bureau chief, about how peer production works and what it will mean for corporations and the economy. Edited excerpts of their conversation follow:

Q: How did you conceive the notion of peer production from such seemingly disparate activities?
A: I had been looking at commons-based behaviors in unlicensed radio spectrum and in intellectual property, and their important role in innovation. I was uncomfortable with the notion that this was purely a phenomenon of software or musicians. That doesn't explain Wikipedia. That doesn't really explain Slashdot [the peer-written and -reviewed tech news site]. That doesn't explain why Google was so phenomenally successful.

Q: What qualities do those things have in common?
A: [They show that] the economic role of social behavior is increasing. It used to be that if you said, "Here, this is interesting, why don't you read this?" it was primarily social. When you take the exact same behavior and plug it into Google's Page Rank algorithm, you actually get a discrete economic output that increases welfare in the economy overall -- even though you continue to have a certain social interaction there as well.

Q: Why is peer production happening now, and what technologies are enabling it?
A: With the steam engine, the archetype of the Industrial Revolution, we moved to industries where the physical capital was relatively concentrated. You had to have financial capital in order to enable effective collaboration between individuals.

What we're seeing now is cheap processors, which put computation on our desktops and in our laps, cheap storage, and ubiquitous communications. It's this combination of a low-cost personal computer and the Internet...that allows this aggregation of behavior. Things that would normally just dissipate in the air as social gestures come to have some persistence as economic products. This departs radically from everything we've seen since the Industrial Revolution.

Q: How is the combination of these technologies turning that behavior into something economically valuable?
A: You can build platforms and tools that assume that what you're doing is facilitating sharing -- as opposed to producing a finished product to a consumer. Look at Skype. It has built a platform that allows us to share our PCs' excess capacity to produce connectivity. No one has built a network for Skype -- all the million or 2 million people online are contributing resources. There's no commercial transaction between us.

Just imagine trying to build a global voice-over-IP [VoIP] network. The cost would be unimaginable. The costs are unimaginable, except they're borne by a million or 2 million different people instead of by a company. It hasn't become less capital-intensive. The way in which it's financed has changed. It's user-capitalized networks.

Q: Does peer production challenge the market system as a whole?
A: I don't see a risk of that. At the end of the day, people have to put food on the table, and food won't be produced in this way. Cars won't be produced in this way. Buildings won't be produced in this way. Even novels won't be produced in this way.

There's a subcategory of things that can be produced in relatively fine-grained, modular units that are amenable to this production. It so happens that a lot of the most valuable products of the Information Economy can be produced this way: software, most information, most knowledge, a lot of computation, a lot of storage, a lot of connectivity. And that's quite significant. But it's not a threat to business as a broad category.

Q: Still, it sounds like peer production could be pretty disruptive to many existing businesses, since they exist largely to marshal people to produce things under one roof.
A: It's going to create a pressure for a lot of companies in this space to see how they coexist in this new ecology and how they take advantage of the productive energies and capabilities of this new player.

If you're in the business of making readymade barns, then a sudden influx of people doing barn-raising will kill your business. But if you're in the business of planks, hammers, trucking, it's actually not that bad at all. Or take the car and the horse-drawn carriage. There was a whole industry eliminated. But what about asphalt producers? What about suburban builders?

Q: What business models are emerging that leverage peer production?
A: The first is surfing, like Google surfs the collective judgments of lots and lots of people, or like IBM (NYSE: IBM - News) surfs on Linux. The second is essentially toolmaking, like Second Life, a multiplayer online game environment, where 99% or so of the objects in the same have been produced by the users. Skype has another business model. It's built on untapped capacity in the economy, but it sells other things that allow us to connect into the public switched telephone network.

Q: Where might peer production go from here?
A: There's a possibility of using some of these insights for building distributed backup systems for data, like peer-to-peer networks. The basic idea is that these are fault-resistant backup systems. You could imagine banks having some kind of relationship with people who have accounts to create these kinds of distributed backup systems.

You could begin to imagine local governments using mesh networks built on top of Wi-Fi or next-generation wireless networks, to create robust emergency communications infrastructures. Connectivity in the last mile is co-produced by people basically handing messages that their neighbors are sending.

Q: Why is a law professor diving so deep into economics?
A: When you're looking at an area of radical technological, economic, and social transformation, we need to know what's happening in the social and economic domain, why it's happening in technological terms, and what are the technological possibilities. Only then can we understand that if we pressure this point with law or pressure that point with law, things will change in a way that is attractive or unattractive.

Q: What has been the reaction of traditional economists to your ideas?
A: I've found myself treated with a reasonable amount of respect among the people interested in open-source software. But it's an uncomfortable shoe for economists. Business-school economists, more than economics department economists, are interested in this. And more specifically, businesses are interested in this.

Tour the Collectives of Cyberspace

Edited by Patricia O'Connell
BusinessWeek Online

New technologies have people communicating and collaborating on an unprecedented scale. Here's a look at some of the hottest spots

The Internet isn't just about e-mail or the Web anymore. Increasingly, people online are taking the power of the Internet back into their own hands. They're posting opinions on online journals -– Web logs, or blogs. They're organizing political rallies on MoveOn.org. They're trading songs on shady file-sharing networks. They're volunteering articles for the online encyclopedia Wikipedia, and they're collaborating with other programmers around the world.

It's the emergence of the Power of Us. Thanks to new technologies such as blog software, peer-to-peer networks, open-source software, and wikis (group-edited Web sites), people are getting together to take collective action on an unprecedented scale. And it's often with no overt corporate oversight.

At the same time, plenty of business opportunities are here. Outfits such as search engine Google (Nasdaq: GOOG - News) and social-networking site MySpace are building entirely new markets. Even a few savvy corporations like Procter & Gamble (NYSE: PG - News) and Eli Lilly (NYSE: LLY - News) are finding ways to ride this wave of peer power, such as creating quasi-stock markets to predict sales or handicap regulatory approvals. Still, peer power is a hard concept to grasp. That's why a nickel tour of the emerging landscape may help.

24/7 PARTY PEOPLE. A good place to start is some of the familiar places we all know -- or thought we knew. eBay (Nasdaq: EBAY - News), for instance, wouldn't exist without the 61 million active members who list, sell, and buy millions of items a week. But less obvious is that the whole marketplace turns on the trust engendered by eBay's unique feedback system, by which buyers and sellers rate each other on how well they fulfilled their half of each transaction. Everyone's feedback rating is visible to everyone else. Here, check out mine.

Pioneer e-tailer Amazon.com (Nasdaq: AMZN - News) encourages all kind of customer participation in the site -- including the ability to sell items alongside Amazon's own. But beyond that, take a look at this page for an iPod music player. It's chock-full of customer-generated material, from uploaded photos to a long list of helpful features on the far left -- customer reviews and a place to write your own, lists of related products, a list of what else customers of iPods bought, and an easy way to e-mail a friend about the product.

Other sites are more like a 24/7 party. MySpace for instance, is the latest phenom in social networking, attracting 14 million unique visitors a month. Many are music fans, who can blog, e-mail friends, upload photos, and generally socialize.

WAITING FOR E.T.'S CALL. Some sites are much more specialized, such as the photo-sharing site Flickr. There, people not only share photos but also take the time to append their shots and others with "tags" that help everyone else find photos of, say, Florence, Italy.

You can even join in the search for alien life, craters on Mars, or indulge in other scientific endeavors from the comfort of your own den. SETI@home, a project that has radio telescopes searching for evidence of extraterrestrial intelligence, for instance, provides a downloadable screensaver. It runs when your PC is idle, crunching data from signals captured by the telescopes. More than 5 million people are taking part, though they haven't found anyone out there -- yet.

A few sites encourage people to get together in the real world, not just online. Meetup, for instance, has many thousands of groups that get together regularly, from English bulldog owners in New York City to scrapbookers in Singapore. For left-leaning activists, there's MoveOn, where people can arrange campaigns and rallies on causes such as saving Social Security.

PEER PRODUCTION. The same sort of community ethos powers the fast-growing grass-roots media. For a good overview of blogs, including links to some of the best, read BusinessWeek's recent cover story. And you can read more about wikis here, including the awesome Wikipedia and services to help you create your own.

Just emerging now is a raft of citizen-media sites, which encourage people to offer up their own stories. They range from the nerdy, such as Slashdot, to the down-home, like Backfence.com. Some, such as Ourmedia, still in test mode, even let you upload video files.

Some of the most compelling examples of peer production, though, are the least obvious. Take search engine Google. At first glance, it's hard to find any sign of people here. So what's the peer-power angle? What Google's mathematical formulas do is instantly surf the collective judgments of millions of people whose Web sites link to another. When you into type "Johnny Cash" into Google's search box and land at the official site of the late country singer, the reason that was the first Web site listed is basically because more people are telling you it's the most relevant Johnny Cash site -- which it probably is.

WISDOM OF CROWDS. Likewise, Skype on the surface looks like software that lets you make free phone calls over the Internet -- which it does. But the way it works is that by using Skype, you're automatically contributing some of your PC's computing power and Internet connection to route other people's calls. It's an extension of the peer-to-peer network software such as KaZaA and BitTorrent that allow you to trade songs -- at your legal peril, if those songs are under copyright.

Now, let's get down to business. Despite the anti-corporate nature of peer power, companies are starting to dive in. Eli Lilly's InnoCentive, for instance, set up a network of 83,000 scientists around the world to help the likes of Procter & Gamble and Boeing (NYSE: BA - News) tackle research problems they couldn't solve internally. Actually, you needn't be a scientist, so sign up and give it a shot.

Other corporations are trying to tap the wisdom of crowds with so-called prediction markets. Hewlett-Packard (NYSE: HPQ - News) and others have set up experimental markets in which they corral people to buy and sell virtual stock in, say, one of a range of profit forecasts -- and their picks often prove more accurate than official forecasts.

JUST BET IT. You can't see the corporate experiments in actions, not surprisingly, but you can get a taste of them at the Iowa Electronic Markets, a real-money futures market in political election outcomes. And at Intrade, people are buying and selling contracts related to the Michael Jackson trial outcome.

If any of that has whetted your appetite, you may want to dive deeper into how the leading thinkers are viewing this emerging peer power. Chief among them is Howard Rheingold, author of Smart Mobs: The Next Social Revolution. His blog is a rich resource for the latest news and research. He's also part of the Cooperation Project, a group of researchers and businesspeople trying to map out the new landscape. It's also worth checking out Yale Law School professor Yochai Benkler's remarkably accessible paper "Sharing Nicely", which makes the case that open-source software, SETI@home, and other cooperative online efforts represent an entirely new mode of economic production.

For all that, I've just skimmed the surface of what some folks are calling Web 2.0. So in the spirit of cooperation, please e-mail me (rob_hof@businessweek.com) about others you've heard about or are participating in. And look for updates and further posts on the Power of Us in BusinessWeek Online's Tech Beat blog.

It's a Whole New Internet

by Janice Fraser
April 21, 2005

Janice Fraser is the CEO of Adaptive Path. She has worked in high-tech media for over fifteen years. Her clients range from Intel to the United Nations

Have you seen Consumating.com? It’s a dating and community site where members write their own self-describing metatags. If you’re looking for an “untrustworthy, Lothario, harem-keeper,” you’ll find Lane Becker (He’s a funny guy). Follow the tags “California, girls, and artist,” and you find Lane’s wife, Courtney Skott. Lane and Courtney were early beta testers.

The site was created by Austin-based developer Ben Brown. Like the makers of del.icio.us, upcoming.org, Flickr, and Wikipedia, Brown is among the vanguard of independent developers defining a new vernacular for the Web.

Something is happening right now, and the developer community has an electric gleam in its eye. Curious, inventive people are making cool stuff again. There’s been a notable shift, and it’s incredibly exciting.

We’re nearing the tenth anniversary of the Netscape IPO, when a flood of capital launched the Internet into mainstream culture. Those were heady times that changed the world. When I started as an interaction designer at Netscape in January of 1996, we were 750 people crammed three-to-a-cube into two small buildings.

I’m fairly sure I got the job because I told Hugh Dubberly, then creative director, that I believed hypertext would change the way people think — that by becoming more aware of our non-linear thought patterns, we would begin to comprehend the complex nature of understanding. In the Web, I saw the demise of ivory-tower specialization and the rise of integrative thinking.

We had such big thoughts back then. We were excited, idealistic, and naive. It was a time when the Internet richly rewarded smart, passionate people. Anyone was free to create wildly improbable, but very cool, things.

Of course, that changed. With real money came real responsibility, and explosive growth prompted implosive failure. By fall of 2000 — just five years after the launch — the innovators were tired and the “innovations” failed to impress.

When the money left, the Internet development community entered a period of refinement and reflection. It gave us a deep appreciation for business basics and softened the shrill rhetoric that so often alienated Silicon Valley from the rest of the world. Pragmatism dominated, and we focused on delivering effective outcomes. Instead of invention, we were more inclined to think about sunk costs, resource allocation, and maximizing value.

But now, just now, the landscape has again shifted. Two months ago, Jesse James Garrett published an essay that provided a few diagrams, a basic description, and a name for a development technique that’s been around for years. Called Ajax, this approach removes the redraw-refresh paradigm for interacting with web applications. The firestorm of excitement around the idea took us all by surprise. In mere days, the “Ajax” meme was solidified. It was a tipping point.

For five years we’ve been working to refine what we know, and rest a bit after the madness of the nineties. And now we’re ready to dive in again — wiser, perhaps, but no less captivated by invention than we were ten years ago. Sure, everyone is excited by Google Satellite Maps and Yahoo’s acquisition of Flickr, but it goes beyond that.

I was sitting in a conference room with a pair of brilliant developers last week, watching them show-and-tell the latest geeky gadgets. Greg Veen loaded an Ajax-based file upload routine that was recently added to Ruby on Rails. Michael Buffington, a developer who’s been around the block too often to be easily impressed, said earnestly, “I think I’m gonna cry.” A few days later he wrote this on his weblog:

“The Web as we know it is changing probably more than it has since the first graphic showed up… The idea of the webpage itself is nearing its useful end. With the way Ajax allows you to build nearly stateless applications that happen to be web accessible, everything changes.”

What will happen when amateurization and folksonomies make their way into enterprise web applications? What happens when IT managers can tag Oracle’s product documentation with their own words? Where will our bookmarks go when the idea of the “webpage” becomes obsolete?

Invention inspires invention. Ideas are collapsing into each other, recombining, and having powerful effects. The Internet has always been a medium for democratization, and by reconnecting with our idealism we’re once again uncovering its poetry, nobility, and transformative power.

If you’re not yet amazed, inspired, and a little anxious, you might want to consider it. Then get a good night’s sleep and perhaps take a rejuvenating vacation. We’re going to look back at Spring 2005 as a milestone. Watch closely, ladies and gentlemen. Things are about to change in a very big way.

Janice Fraser is the CEO of Adaptive Path. She has worked in high-tech media for over fifteen years. Her clients range from Intel to the United Nations.