What Can Web 2.0 Do for Your Business? You might have heard of Web 2.0, but do you know what this new version of the internet means for your business? Get in step with the more collaborative, more interactive web of the future.

Online Exclusive: For a closer look at the hottest Web 2.0 companies, see our exclusive slideshow.

I wrote this article using a word processor. That in itself is not unusual. But this particular word processor exists solely on the internet and comes with "download," "share" and "publish" buttons at the top of the screen. This is ThinkFree's internet office suite, and there's a whole lot of Web 2.0 going on here. It's an online application that would normally reside on a desktop. There's a built-in collaboration feature. And there are minor technical snafus to remind you that it's still in beta. It's a microcosm of where we're at with Web 2.0.

Web 2.0 is a nebulous term. It implies an upgrade, a better version of what has come before. It includes innovations in the ways we think about and use the inter-net. Just like the growth of Web 1.0 before it, this new incarnation of the net is set to change the way businesses function and how entrepreneurs interact with customers, employees and colleagues. Depending on who you ask, this second generation of the web is either an evolution or a revolution, but most likely it's somewhere in between. "It's a blurry term," says Jason Fried, 32-year-old founder of web-based software company 37Signals in Chicago, whose revenue increases by about 10 percent each month. "It puts the focus too much on technology, [which] isn't what's important now. What's important is building simple things that people can use."

Web 2.0 is a people-oriented technology movement. Ease of use, social features, collaboration, fast-loading applications, interactivity, quick development times and real-time updates are all major trends. Instead of a million features packed into one expensive software program, you get smaller, sleeker online applications that aim to do just a few things very well. It's good news for the pocketbooks of growing businesses, because these applications usually come in free versions or are available for an affordable subscription price that doesn't tie you into a long-term contract. Getting onboard with Web 2.0 isn't a matter of if, but when.

A Computing Platform
The applications you associate with your desktop are moving over to the internet. Web-based e-mail is probably the most widely known and used application. Big companies like Google, MSN and Yahoo! all offer sophisticated online alternatives to desktop applications. "A lot of the Web 2.0 services have richer user interfaces. They look more like desktop applications. There's more interaction," says Ed Anuff, 38, co-founder of widget directory startup Widgetbox in San Francisco (more on widgets later). Online programs have the advantage of being accessible from any web-connected device, giving them the power of portability and flexibility.

Even desktop workhorses like word processing and spreadsheet and presentation software are going Web 2.0. ThinkFree is one example. Google Docs & Spreadsheets stems from Google's acquisition of online word processor Writely. Documents can be imported, exported, shared with other users for collaboration and published to the internet or posted to a blog. "The internet is the new super-platform," says Dion Hinchcliffe, founder and CTO of Web 2.0 consultants Hinchcliffe & Co. in Alexandria, Virginia. "All our productivity software, communications software--everything is moving to the web in better versions."

There is still a ways to go in overcoming issues with slow networks and technical hiccups. But look for online offerings to grow more sophisticated and reliable as users are increasingly pulled onto the web to access everyday business applications.

Getting Interactive
The web has been getting very sociable lately. Web users are coming to expect a level of interactivity and customization in the sites they visit. Social networking is one way entrepreneurs can provide this.

Web widgets--small programs that can be embedded into a web page--can help businesses build online communities within their sites. Eric Alterman, 43, is founder and CEO of KickApps, a hosted platform launched in July that helps companies bring social networking and user-generated content onto their websites using widgets. "We combine Flickr, MySpace and YouTube," says Alterman. KickApps, which expects 2007 sales in the millions, handles video, audio and photos on hosted sites and lets users build personalized spaces while KickApps runs unnoticed behind the scenes. Individual widgets can be "stolen" by web visitors for use on their own sites or blogs, but they still link back to your business' site. It's a new twist on viral marketing that helps businesses take advantage of the human networking aspects of Web 2.0. "This is what the next generation of social networking means," says Alterman, who adds that his New York City company's white-label social network solutions are now deployed on more than 800 sites across the internet. "The minute you deploy us, you deploy over the entire web."

Advanced social networking aspects aren't the best fit for every business website, but many entrepreneurs will find creative ways to integrate interactive communities. Social networking can be used to communicate with customers, gather feedback, allow users to help each other and get input into new product developments. "The key in letting people interact socially on the site is using that activity and input constructively," says Hinchcliffe. Social networking can help you "lower your support costs [and] increase customer satisfaction," he says, "but you have to give it structure so [users] can support each other and you can gather information."

Widgetbox is a user-friendly, self-service clearinghouse for a variety of different web widgets. There is a widget that lets visitors send text messages to your phone, one that lets customers know your Skype status, one that integrates newsfeeds and one that brings search features to your website. "The bar has been raised in terms of what [people] need to do to add that extra credibility that comes with the site being more interactive and visually appealing," says Anuff. Widgets may well be the simplest way for entrepreneurs to gain credibility without having to build these website features from scratch. Using widgets also ties into the massive trend of user-generated content and media that YouTube epitomizes. That's part of the aim of Web 2.0: to bring these interactive tools to the masses to create a more customizable and user-friendly internet experience.

A Collaboration Tool

There was a time when most businesses were run in a strictly top-down manner. But when you put powerful collaboration tools in the hands of your employees, managers and even customers, the chain of command starts to look more like a spider web. Entrepreneurs can certainly benefit from this characteristic of Web 2.0.

E-mail has become the default way for businesses to communicate and collaborate on projects, but lists of CCs, forwards, attachments and replies can become easily scattered. "Our focus is to enable businesses to collaborate more effectively with unstructured content," says Reid Conrad, co-founder with Lee Buck, 43, of Near-Time (www.near-time.com), a hosted online collaboration service based in New York City that mixes wikis, blogs, group calendars and file sharing. The open-ended, self-service style of Near-Time, which has experienced an annual customer growth rate of more than 700 percent since its 2005 inception, lends itself to a wide variety of uses. Conrad, 45, sees businesses using the platform for marketing, sales, tech support, customer service, product development and supply-chain management.

A lot of startups have stepped up to provide online collaboration solutions. 37Signals, for example, offers a roster of lean online applications, including the project collaboration tool Basecamp. Fried has advice for entrepreneurs who are shopping around: "Don't get caught up in the sales cycles and the long feature lists out there. Actually try to use these products for a few weeks and see how they feel." The latest collaboration solutions can help harness the creativity and productivity of your employees, customers and colleagues.

The Future of Web 2.0
When looking at the current explosion of Web 2.0 companies, it's hard not to conjure up images of the spectacular dotcom crash of the late '90s. But don't look for an exact repeat performance of that web burnout. "I do think there's going to be a bust, but not on the same level," says Fried. "It's going to be a healthy correction. You can't have all these companies doing the same thing; some are going to survive and some aren't." The ones that do survive will be the companies that have a real revenue model, whether it's based on subscriptions or a sustainable way to make money from advertising.

Entrepreneurial companies are innovating at an impressive pace, and businesses of all types will be reaping the benefits of better collaboration tools, web interactivity and customization. Growing businesses have a great opportunity to jump in and experiment with Web 2.0 in its early stages. Starting now means you won't get left behind. As Conrad says, "The competitive winners of the future understand the interactive nature of what the web is. I would jump in."

This is a good time for entrepreneurs to pause and reflect on how their businesses function online. But don't pause too long--get out there and use the social, collaborative and productive innovations that are already available. Says Hinchcliffe, "The aftershocks of Web 2.0 are going to be enormous. The web is going to be woven into virtually everything we do." So start weaving your own vision of Web 2.0 into the fabric of your business.

Don't miss our April issue, where we'll examine what the much-buzzed-about Web 3.0 could mean for your business.

REDESIGNING FOR WEB 2.0
Holger Ehlis, 33, & Kevin April, 25, of Spymac
Description: The world's largest Mac enthusiast community
Getting up to Speed: Founded in 2001, Spymac recently launched its sixth redesign, dubbed Leapfrog, and now boasts more than 1 million community members. In this new version, April and Ehlis have created a content hub where visitors can upload, embed, store, share and do just about anything else with content. New York City-based Spymac, which projects 2007 sales of $120 million, pushes the envelope with its international mind-set: Leapfrog adjusts page design, interface and language for visitors from 150 countries.
Generation Next: "In the past, you tried to block people from hot-linking your pictures," says Ehlis. "Now it's all about networking. Give users the tools and let them steer toward what is interesting." Ehlis believes in giving power to the people. "To know what people want is to understand that you don't know what people want." This means algorithms push the most popular content to top positions.
Keep It Simple: Ehlis has a saying he likes to repeat: "I want blue links, because people are used to blue links." He also says businesses shouldn't try to reinvent the wheel, but rather let their visitors take the wheel.

Terms to Know
Blog:Savvy businesses use blogs to keep customers informed. There are many software options available, both free and paid, including Blogger, TypePad, WordPress and numerous others.

Wiki: Wikis let businesses create a dialogue with site visitors, allowing them to make recommendations and edit them in real time. Get started wit EditMe, JotSpot, Socialtext and others.

Video: The ubiquity and simplicity of Flash based players has made video popular. Businesses use video to show tips, conferences, product demonstrations, commercials and more.

Podcast: Businesses use podcasts to provide company upadtes, product information, tips and more. The quality of podcasts varies, and newer podcasts even include video, called vodcasts.

Syndication: Smart businesses use syndication to broaden their customer reach. Feeds are typically done in RSS or Atom formats and can accommodate various media.

Social Network: Businesses can create their own communities for people to connect. Employees can use them to collaborate on projects. Blogtronix, ReachTree and Sparta Social Networks offer software.