Could Web 2.0 impact on economic growth?

Web 2.0 has the potential to impact on economic growth because, through its inherent network effects, it enables users benefit from collaboration with other users in the network and optimise their ability to create wealth.

Networks are basically sets of components connected by links. The Internet and mobile phones are modern examples of network technologies. Early network technologies included financial systems in the seventeenth century, transportation networks in the eighteenth century and modern transportation and electrical networks in the nineteenth and twentieth centuries.

Historically, network technologies are associated with industrialisation and growth in the modern world (Lucas et. al., 2003). The reason for this is that networks exhibit an economic phenomenon known as “network externality”. Network externality occurs when a transaction between two participants affects (as a side-effect) a third party that is external to the transaction. In other words; the more users, the greater the value to the individual user.

The economic gaps that have emerged between countries, communities and individuals over the past two centuries resulted from waves of network technologies and network innovations. The innovators who took advantage of network effects rapidly moved far ahead of others so that gaps in relative incomes grew.

Network externality results from the fact that a user joining a network adds to the benefit of all other network users because the number of potential interactions increases.

Web 2.0, as a network technology, represents the opportunity for businesses to benefit from the participatory nature of the web and exploit the changes in the way that end users are starting to use the web. Network externalities in a web 2.0 environment play an important role because the value of the network is positively related to the number of its members. In this case, network effects take the form of being able to communicate with, collaborate and exchange ideas with a larger number of other users.

Web 2.0 business solutions are conducive to developing high levels of collaboration in organisations (Hamel, 2007). Tools, like virtual meetings and Web-based applications make it possible to do things at scale without necessarily having large groups of people physically aggregated, with hierarchic structures.

The collaborative networks that web 2.0 business solutions create, enable people to aggregate their collective intelligence and learn at an individual and a team level. They create a sense of community within teams (Joyce, 2006). Collaborative tools also enable business professionals to explore the true potential of their team. Web 2.0 enabled collaboration tools make employees more effective and processes more efficient and this benefits the business by ensuring sustainable competitive advantage.

Carefully managed, the benefits of collaboration and the network externalities inherent in web 2.0 enabled environments could create wealth for the organisations and the individual participants in the network, and the more organisations and individuals that are creating wealth the more potential for economic growth.

Reference

Joyce, S. J (2006) Teaching an Anthill to Fetch

Lucas, H., Sylla, JR. and Sylla, R. (2003) The Global Impact of the Internet: Widening the Economic Gap Between Wealthy and Poor Nations?

Hamel, G. (2007) The Future of Management