More than a penny for your thoughts

The years 2000 and 2001 were bad for Internet companies. There was so much hype about this e-commerce thing that no company could match expectations. Even Amazon.com, a company that sold actual physical goods and actually sold physical goods saw a precipitous decline in its stock price in 2000. Somehow, we'd managed to convince ourselves the web would "disintermediate" the whole world, that we'd entered a brave new world of storefront-free and sales tax-less commerce, that there was no limit to the money we'd make.

This past summer, from atop my perch in Mountain View, Calif., I got a view of the new Internet landscape. Like an eagle smelling irrational exuberance, I smelled the aromatic aroma of irrational exuberance in the air. The scent has a powerful effect, persuading all who inhale that their ideas are good and worth pursuing. I even succumbed briefly myself. In Silicon Valley, it feels as if the bubble never burst. There's a startup in every garage and a dream in every pot. Probably a little ramen too.

Each dream calls itself by the same name — "Web 2.0" — the next version of the web. No one seems to know what exactly Web 2.0 is, but everyone is sure that it's the best thing out there. More platitudes have been heaped on this Web 2.0 thing than any other quasi-phenomenon in the history of man. Web 2.0, they say, is design, participation, grassroots involvement, simplicity, wikis, mobility, joy of use and freedom. They've even invented some sweet neologisms like "folksonomy," "remixability" and "mashup" to describe pieces of the new web.

From the comfort of my metaphorical eyrie, I wondered what could be driving this new Internet revolution. What has changed about the Internet in the last six years? How can so many people see so much potential in a medium that failed them so recently? Being a smart eagle, I figured it out. Also being an annoying eagle, I'll explain my idea through silly syllogisms.

They say that power corrupts, that knowledge is power, that love = love, that food = love and that money is power. Since the relation of being is symmetric, it follows that knowledge corrupts, that knowledge is money and, most importantly, that food equals food. Yum. The point is that information isn't just powerful, it has real monetary value. Maybe this seems trivial, like something you've known all along. Give me a chance to convince you that it's only obvious in hindsight.

Old school software companies make applications for you to fill with data. Microsoft makes Windows, Word, Excel and PowerPoint, and you are supposed to fill them with information that you have in your head or on your computer. Oracle makes database software so that companies can store and access their information effectively. Your information makes these applications work. Back in the day, Netscape was also pushing an application. It hoped that its web browser would make the Internet popular enough to drive sales of its expensive corporate servers. Microsoft and Oracle make lots of money on the application model. For a time, so did Netscape. Like good successful companies, they kept doing the things that made them lots of money.

New-school software makers recognize that data is even more valuable than software. Google is primarily in the business of giving you access to information. Because you can use Google (or MSN, Yahoo, Answers.com) to find all the dirty, funny or academically interesting things you want to find online, you tolerate (and perhaps occasionally click on) their ads. Because Google has collected so much information about the sites on the web and the kinds of things people search for, it k nows which ads to show for your searches. Google gives you data, and it gets paid by giving you more data (ads). Because it's collected so much data, it knows even better which data to give you. The cycle never ends — the more data you have, the better the service is, the more money you make. It's data all the way down.

Lots of other companies have jumped on the data bandwagon in Google's wake. Think about the services you use online. Most of them are (seemingly) free. Google and other search engines are free. Facebook is free, and so is MySpace. Meebo, Meetro, Flickr, Pandora, YouTube, Yelp and Blogger. MapQuest may find the dopest route, but it doesn't charge you any money. Neither do Google or Yahoo maps. Why in God's name would they give you these great services for free? Because they can extract money from the system in other ways.

For the most part, these companies want to know more about you to show you more effective ads. Sites like Amazon, Facebook, MySpace, YouTube, Flickr and Yelp get free money when you post to their sites. As more people join Facebook, it becomes more attractive. The more reviews there are on Amazon or Yelp, the more likely people are to use them. Other companies blindly collect data hoping to use it in the future.

The "nice" thing about this approach is that it lets people start companies that have no hope of ever making a profit. They turn to their deity and devoutly pray, "Buy us, O Google!" They hope that someone will think their data is valuable enough to pay a few hundred million for it. The not-so-nice thing about this business plan is that most everything I do online is recorded. I'm sure someday that's gonna bite me in the ass, like an eagle biting me in the ass. Avi Flamholz '07 is a computer science major from Teaneck, N.J. He may be reached at flamholz@princeton.edu.