What businesses learned in 2007 about the digital race

From rampant rats to ranting CEOs, digital media took 2007 by storm. Corporate America raced to keep up with the changing digital landscape known as Web 2.0 – blogs, social-networking websites such as MySpace, video-sharing sites such as YouTube, virtual worlds such as Second Life, and so on. Some companies crossed the victory line, others fell short, and some never left the gate. Here's our list of the good, the bad, and the ugly in 2007.

The good...

Dell takes service online: Jeff Jarvis started complaining about a new Dell computer on his popular Buzzmachine blog in 2005. The company ignored Mr. Jarvis at first, but aggravated customers didn't. Dell answered the criticism by adding more call centers, improving training for reps, and increasing service spending by 35 percent. The company now hosts IdeaStorm, a blogging space where consumers can post feedback and suggestions and it employs a team that reaches out to consumers online.

Niche is nice: For marketers and content distributors, the Web 2.0 world enables concentrated messages to reach niche audiences. These targeted audiences allow companies to experiment on smaller budgets.

The exponential growth of online television series, for instance, is substantial. Original online hits such as LonelyGirl15 are joined by videos from brands such as Procter & Gamble's "Tide" to indie productions such as "The West Side" to clips from World Wrestling Entertainment. These series may not be "hits," but the trend proves that proliferation of content and trial and error breed innovation.

... the bad...

The danger of overhype: There is such a thing as too much good publicity, particularly when the publicity creates unrealistic expectations. Media fascination with Linden Lab's virtual world Second Life was followed in 2007 by skepticism about the value of brand presence in a virtual world. The overhype of Second Life led to scores of companies investing in presence in the world with little planning or unrealistic expectations, only to be surprised by the underwhelming response. Myriad marketing and brand-building opportunities exist in Second Life, but only if carefully planned and appropriately scaled.

FanLib controversy: Major tension arose online this year between fan fiction writers who share their work online at LiveJournal.com and the owners of FanLib, a company that provides visibility for fiction based on media properties such as characters or narratives from television shows or films. FanLib's attempts to commoditize fan fiction were seen by many as distorting the communal and noncommercial nature of sharing stories. Fans responded by dissecting and criticizing content on the FanLib site and eventually forming their own site dedicated to archiving and protecting fan fiction, called the Organization for Transformative Works.

The takeaway? Companies need to understand what motivates audiences before creating business models around them.

... and the ugly

Rats take it national: Few things travel faster than bad news and rats. In February, at a KFC in Greenwich Village, New York, nearly a dozen rodents were videotaped running around the restaurant. When the ensemble made their national debut on YouTube, what might have been a local incident for one franchise of the chicken chain became a national PR nightmare.

Had a crisis plan been in place, could KFC have stopped the bad press? Not a chance. However, it might have at least gotten some credit for its positive response among the more than 1,000 blogs that cited the story that day alone.

Sockpuppeting and deception: Transparency on the Internet has proved to be key. Yet people consistently fall victim to the perceived anonymity of the Web, throwing caution, and ethics, to the wind. The collective intelligence of online sleuths discovered that Sony was behind the creation of the "All I Want for Xmas Is a PSP" campaign to promote the PlayStation Portable, a Sony game console.

Likewise, Whole Foods Chief Executive John Mackey was nailed by some eagle-eyed bloggers for posting comments about rival Wild Oats on a Yahoo chat forum under the screen name "Rahodeb." As a result, all executives and directors at Whole Foods are banned from posting messages about the company, its competitors, or its vendors on Internet forums not sponsored by the retailer.

Through the good, the bad, and the ugly, we've found three guiding principles to live by in a Web 2.0 world: Local is now global; transparency is essential; the road map is constantly changing through trial and error.

Companies hoping to make the most of Web 2.0 should pay attention to the mistakes that others have made, online and elsewhere, or they will be doomed to repeat them.

Steve Cody is managing partner and co-founder of Peppercom, Inc., a strategic communications firm. Sam Ford is project manager of the Convergence Culture Consortium at the Massachusetts Institute of Technology and an adviser of Customer Insights with Peppercom, Inc.