Coverage of the recent Web 2.0 Conference suggests there was something of a feeding frenzy going on in San Francisco, with new VC money seeking out the-next-big-thing in Web 2.0. One definition I clearly missed in my previous roundup of Web 2.0 perspectives was this amusing contribution (from the Devil's Dictionary via Technovia):

Web 2.0, proper noun :
The name given to the social and technical sophistication and maturity that mark the— Oh, screw it. Money! Money money money! Money! The money’s back! Ha ha! Money!

Among the deals done at or around the conference, there were three key purchases of new media properties by old media prospectors. Congratulations to Jason Calcanis, who sold his weblogsinc.com stable of blogs to AOL for at least $25m. Arch rival Nick Denton's Gawker blog network has struck a deal with VNU to publish in seven European territories. Finally, even cranky blog-daddy Dave Winer has taken $2m+ from Verisign for his ping service weblogs.com, which complements their acquisition of Moreover.com, the late '90s pioneer of RSS and news aggregation. Whilst none of these compare to the recent multi-billion-dollar purchase of Skype by Ebay, they are nonetheless signs of another bubble filling with gas.

At the smaller end of the scale, a variety of companies presented their wares at the Web 2.0 conference. TechCrunch mentioned some of them, including two interesting newcomers that stand out: Zimbra and Joyent. Both companies are part of a growing wave of new ventures aimed at delivering simple, rich collaboration tools through a browser with AJAXy magic and other Web 2.0 goodness. There were also announcements from more established players, such as the very interesting Google Reader beta product.

Socialtext provided a wiki for the conference, which hosts a rather useful-looking Entrepreneur Exchange space for the hordes of hungry new startups looking to cash in on the Web's latest funding bubble. Of course, there is always a lottery element to these funding bursts, and some will just get lucky regardless of intrinsic value; but new startups in this space might do well to remember the following olde worlde factors if they wish to control their own destiny:

1. Business Fundamentals: Where is the revenue? More importantly, where is the profit? How long will it take to repay exuberant investments before you can really say you are making money rather than just achieving marginal profitability?
2. Customers: Many of the current crop of products do great things ... if you are a geek. Don't forget: huge corporates are still using MS Office and IE6, and in many cases they are none the worse for it. Exciting new Web 2.0 products are great - especially as they are so cheap as to be almost disposable - but who is doing the long haul work of transforming organisations and building the "architecture of participation" inside the firewall? It is far too easy to build what looks like a credible plan based on apparently modest predictions of a small share of a rapidly expanding market. This is a close relation of the "build it and they will come" fallacy. Knowing your customers is what really counts.

Products can scale, but Web 2.0 products are in such supply that I would hesitate to dive into multi-million-dollar funding committments unless I knew I had *the* product in my space, with no open source competitors ready to pull the rug out from under my company. On the other hand, whilst pure consulting and services are bigger ticket items and place you closer to customers, it can prove hard to scale a service business unless you become a McKinsey-style people factory.

However, I think there is a huge opportunity for hybrid strategies that can deliver on the value proposition of both approaches, and take advantage of open source software, in the area of enterprise social software. So far, most of the investment action is in the consumer or small tech business areas, with the exception of a few of our software partners in the United States that completed funding rounds earlier this year. Whilst one of the most exciting benefits of Web 2.0 is the idea of individual empowerment and self-representation, we must not forget that companies and other large organisations contain thousands of individuals who are often trapped in the dark ages of IT department nonsense and expensive, dysfunctional enterprise "tools". Who will free these poor souls from the Matrix?

Addressing the needs of organisations obviously starts with an understanding of how they work and what their issues are (hint: draggable AJAX GUIs are not necessarily high on their list of points of pain). It also requires a much greater focus on engagement and the 'people' issues associated with what is essentially a process of structural change augmented by technology. But it also needs the other Web 2.0 competencies that we are seeing among the better product developers: all the traditional interface, usability and technology skills plus new ones such as social network analysis, group behaviour profiling and ideas drawn from the meeting point of social sciences, information and knowledge management, technology, network and organisational theory.

In particular, with whizzy new Web 2.0 products and services emerging every week, there is a need for a brokerage role to help companies take the best of innovation occurring in the wild and translate it into usable, workable (sometimes boring) applications that empower their people to work and communicate better than before. That is what we have tried to do this year - sit with one foot in the geek camp and one foot in the world of organisations and their internal communications needs. This has allowed us to build some compelling applications - what has been called situated social software - very rapidly by combining best of breed software products, external web services and our own code as 'glue', in a way that is specifically tailored to individual needs. Hopefully, others will join us in this space soon so that we have some competition to fight against (Calcanis needs Denton as much as Google needs Yahoo), but in the meantime we just knuckle down and try to grow the business without letting the magic dust slip through our fingers. We have revenues that might surprise some people, and some great customers that we will get round to talking about here one day when we have a moment.

Just in case I sound cynical, I should add that I love what is going on with Web 2.0 and I think this is the most exciting time for social computing in recent years, despite the rising hype levels; but I also know that applying this stuff to change the behaviour of organisations takes longer than the attention span of bubble investors. We are in it for the long haul.