When a photograph of a flaming laptop computer circulated on the Internet in the summer of 2006, Dell Computer quickly got a two-part lesson in the power of Web 2.0.

The lesson had little to do with the risks of an extended supply chain (the fire was the result of a faulty battery made by a third party and used in laptops and other devices manufactured by many companies) and everything to do with the risks — and opportunities — of a phenomenon that some tout as the Next Big Thing, others claim is already passé, and still others maintain doesn’t exist at all.

“Web 2.0” is a term used to describe both a collection of relatively new Web technologies and, perhaps more important for CFOs, the changes in business processes that those technologies make possible. Collectively these technologies, which include blogs, podcasts, social networks, and other innovations (see “The ABC’s of 2.0” at the end of this article), emphasize the Web’s ability to foster communication, between companies and customers, between employees, or both.

The debate regarding Web 2.0’s status as a legitimate paradigm shift, a brief fad, or a complete myth hinges on two things. First, there is no clear dividing line between Web 1.0 and any subsequent second generation. The Web was created to foster communication, and continuous enhancements have improved its ability to do so, making it virtually impossible to point to any time period or specific development that qualifies as an unambiguous leap forward. Second, at least some of the technologies that are often identified with Web 2.0 seem more gimmicky than substantive, appealing to younger Web users who will embrace anything new, but unlikely to have a lasting impact on how most people use the Web.

Despite those caveats, executives shouldn’t dismiss the Web 2.0 concept out of hand. There is a perceptible and rapid evolution in how employees and customers use the Internet, and in what they expect from it, and while the definition of Web 2.0 may be arbitrary and even contentious, it’s a useful shorthand for changes that are afoot.

We Hear You

Take Dell. Just days before the infamous photo of the inflamed laptop circulated on the Web, Dell had launched “one2one,” a customer-focused blog on which the company promised frank discussions about product-development efforts and other aspects of its business.

In its first few days, the blog offered no acknowledgement of a laptop-battery problem. That sparked the ire of the burgeoning ranks of consumer bloggers, who dismissed Dell’s foray into this particular Web 2.0 technology as predictable corporate pabulum.

Then Dell got religion. Yes, said one of its blogging employees, the battery issue did merit serious attention and, in fact, Dell was talking to the Consumer Products Safety Commission and an independent lab about how to assess and respond to the matter.

Normally, the “We’re aware of the problem and are working to correct it” response is regarded as the classic corporate dodge, but in this case Dell was praised for its forthright (if tardy) response.

Was there something fundamentally different about issuing that statement in a blog versus a press release? Yes, say advocates of Web 2.0. Charlene Yi, principal analyst at Forrester Research and a co-author of the forthcoming book Groundswell: Winning in a World Transformed by Social Technologies, says that by responding via its corporate blog, Dell spoke directly to the customers who were asking pointed questions. More important, she says, was what happened next: Dell continued to respond quickly to a range of questions, entering into the kind of direct dialogue with customers that is one hallmark of Web 2.0.

Freedom of Speech

To make that happen, employees had to be empowered to respond without running their comments through three layers of legal approval. This is where Web 2.0 becomes a delicate matter for many senior executives. Whether used to address customer concerns in a blog or to share contacts or other potentially sensitive material with co-workers, Web 2.0 technologies don’t generally fit well with a command-and-control management approach.

Li says companies may have little choice but to change. “Employees and customers are taking control whether you like it or not,” she says. Many Web 2.0 technologies are already creeping into companies in much the same way that instant messaging did — imported by employees who have grown accustomed to them at home.

Web 2.0 already has a large footprint within the business world. A 2007 survey by McKinsey & Co. found that 70 percent of respondents were using some combination of Web 2.0 technologies to communicate with customers, while 75 percent were using Web 2.0 internally to improve the ways in which employees collaborate and share knowledge.

Web 2.0 technologies get a boost by being relatively cheap. Li says that a sophisticated blogging system costs no more than $20,000, while an enterprisewide wiki might run in the low six figures.

Bandwagon, Pass By

Not everyone is enamored with the promise of Web 2.0. Deri Jones, CEO of UK-based Web design firm SciVisum, predicts that 2008 will usher in the demise of Web 2.0 — at least to a degree. Its “cool factor” as a form of customer connection will diminish, he says, as companies that have rushed to create some sort of “user-generated content” area on their Websites realize no one is using it. “Giving [customers] more control is good,” he says, “but if you expect them to make your site more content- rich and build a community for you, it won’t always work.”

Li and colleague Josh Bernoff advise companies to first understand the “social technographics” of their customers — six broad classifications of Web fluency — and map those to company objectives and strategies before considering any specific technologies to deploy.

Companies that do that increase their odds of keeping pace with Web 2.0 as it evolves. Which raises the question: Is there such a thing as Web 3.0? Yes, but that’s a topic for another day — perhaps one best addressed in a podcast or RSS feed.

Scott Leibs is a deputy editor at CFO.

The ABC’s of 2.0

While Web 2.0 can be hard to define, it’s often used as a blanket term for a handful of specific technologies, including:

Blogs. Officially “weblogs” (although using that term will draw blank stares), blogs can be online diaries but more often take the form of a running conversation between a site owner and people who visit that site. They often focus on a specific topic or issue, and some Websites may feature many blogs.

Mash-ups. A combination of content from various sources that results in something new, such as a map combined with photos, restaurant listings, weather reports, and so on.

Peer-to-peer networks. A method of sharing files on the Internet or private networks that distributes content across many machines.

Podcasts. Downloadable audio/video content meant to be played back on portable media players (like Apple’s iPod) or PCs.

Social networking. Online communities that allow members to share contacts and other information. Can be public (Facebook, MySpace, LinkedIn) or private (run by a company or other organization, with membership limited).

RSS. Really Simple Syndication, a way to subscribe to online news, podcasts, and so on, often with a means of viewing them in the aggregate.

Wikis. Collaborative content-creation systems that allow for multiple authorship, with Wikipedia being perhaps the best-known example.