By Michael Copeland

It’s not your 15-year-old daughter’s Internet anymore. On the first full day of the Web 2.0 Expo, that more than anything seemed to be the message from the conference room floor.

Tech stalwarts like Oracle (ORCL), IBM (IBM) and Microsoft (MSFT) were showing off technologies that bring elements of the consumer Internet to the workplace. Startups that last year might have been flogging a consumer video service or photo sharing site, instead were demonstrating web-based technologies to develop better Flash sites for business, a cheaper CRM software or an easier way to collaborate on projects. Dubbed Enterprise 2.0, the movement has been gathering steam for some time, but at the Web 2.0 Expo, business seems to have at last eclipsed the consumer Web.

The usual laptop-covered-in-stickers crowd was present as well, but for the most part this is not a gathering of people breathless over the latest Facebook app or keen on launching a widget that makes it easy to find where your favorite band is playing.

Part of that is by design: The companies that can afford to set up in the Expo hall are companies with money, like IBM, Microsoft, Adobe (ADBE) and others. But that itself is a sign of where Web 2.0 is heading. Last year, consumer Web companies had cash to burn. This year, many of the darlings of the social Web, startups that nailed funding at lofty valuations over the last 12 to 18 months, are holding onto what cash they have in anticipation of tougher times ahead.

It has been harder to monetize the social Web than many have thought, and buyers have become harder to come by, especially at the prices many Web2 companies thought they could command. As a result, companies are switching business models like spent horses. “People are realizing that advertising is not good for everything, that it’s not going to make them the next Google,” says Raju Vegesna, an engineer with online applications developer Zoho. “They are starting to get worried.”

Easy for Vegesna to say - Zoho is going directly after the business world, and makes money from subscriptions for its Web-based software. There is no question, though that smart entrepreneurs are starting to see things the way the Zoho team does, and creating applications and services that cater to business. That’s the good news for the corporate world. It’s about to get a slew of new tools that are informed by the best of the consumer world, but that pack the scaleability, security and customization that business users require. We’ll highlight the best over the next two days. It’s enough to make a 15-year-old girl jealous.

By Michael Copeland

On the eve of the latest and largest Internet gathering this year, O’Reilly’s Web 2.0 Conference and Expo, Forrester Research dropped a report that concludes that companies will spend $4.6 billion on Web2-related technologies by 2013. What that means for you, fellow office dweller, is that Forrester believes the world of wikis, widgets, blogs, mashups and social networks will increasingly find a way into your work life.

The emphasis won’t be entirely on internal collaboration, Forrester analyst G. Oliver Young writes, but will also offer “a fundamentally new way to connect with customers and prospects…By 2013 investment in customer-facing Web 2.0 technology will dwarf spending on internal collaboration software by nearly a billion dollars.”

In other words, you will interact with your customers and prospects the same way you do with friends on Facebook or maybe more likely with colleagues on LinkedIn, and with the same Web-based communication and tracking tools.

It makes sense that companies embrace the same easy-to use Web-based tools that we use increasingly in our social lives. Mark Benioff at Salesforce.com has been preaching that for some time now, both through AppExchange and his latest brainchild Force.com, his so-called platform-as-a-service offering. There are numerous other Web-based services including Jigsaw, BaseCamp, Yahoo’s Zimbra, Zoho, and many others that are already bring a Web2 flavor to the work world. What Forrester is arguing, however, is that for everyone who still thinks AJAX is a cleaner, and Twitter is what birds do, a lot of Web2.0 will come.

Does that mean you will be getting Twitter updates from your customers or your boss? If not actual Twitter updates, than perhaps a more corporate version that can offer the same immediacy and easy access to a list of key people. Much of the consumer Web2.0 stuff that makes it fun won’t make the leap, no doubt, but the ease of use and connectivity will.

Will it be a less exciting and dynamic Web-based world that Forrester anticipates? Clearly. What it might also be, however, is a more profitable one. And that is something that many of the Web2 startups that are piling into San Francisco at the moment will be very happy to hear.

By Josh Quittner

Why did Penthouse Media Group plop down $500 million for a bunch of social networks owned by Various — including the X-rated AdultFriendFinder?Because it’s so “sticky,” Penthouse CEO Marc Bell told Fortune Wednesday. He wasn’t being gross.

We’ve been working on this transaction for about one year, he said, pointing out that AdultFriendFinder had been on Penthouse’s radar forever, but more prominently in recent years as it became the largest adult site in the world.”If you’re going to buy something, why not start with the largest?” he said.

A social networking site is a perfect complement to Penthouse’s content, he added, because, “you create a sense of online community. It’s much more sticky than just serving up content to people. With social networking you now have a user interaction that you can’t get otherwise.

Indeed, 1.2 million of AdultFriendFinder’s members pay on the order of $25 a month for “premium” services on the social network. The privately held company claimed $200 million in annual revenue and reportedly averaged 40 percent growth for the past decade. In all, Various will add $340 million in revenue to Penthouse, making it the largest porn company in the world.

The porn business has aways been at the forefront of the technology industry. So it’s not surprising then that AdultFriendFinder was launched 10 years ago by a Stanford-educated PhD in engineering named Andrew Conru — around the time that Facebook’s Mark Zuckerberg was in middle school. It was one of many social networks — including a religious dating site called bigchurch.com — that Conru built out, and collectively called Various.

Bell said that Penthouse plans to keep all of Various’s social networks intact. “We picked up a slew of traditional dating sites that have nothing to do with adults,” he said. “We’re not selling anything at this point.”That said, the acquisition of AdultFriendFinder will help Penthouse conquer what Bell calls the next great porn frontier: adult-oriented social networking on your cellphone. “We have some very interesting applications,” he chuckled, declining to elaborate.

By Josh Quittner

Yesterday, I considered opting out of Beacon on my Facebook account. I pulled up the Privacy page, and looked at the tick box, which would turn off the controversial feature that broadcasts a user’s purchases at participating websites everywhere. But I didn’t pull the trigger. It was still on an open tab in my browser this morning.

Partly, I didn’t do it because I was too busy dealing with e-mail and phone calls from people about my recent Facebook rant. John Perry Barlow once said that “the media is a blunt instrument” — somehow my column was being used as a sledge hammer, and suddenly, I was the Jerry Lewis of the Facebook Hate-A-Thon. Nearly 200,000 people had swung by fortune.com to read that piece in the first day it was up. One of them was my colleague at Fortune, David Kirkpatrick, who, not surprisingly, wrote an excellent rebuttal. (I say “not surprisingly” because David wrote, as far back in October 2006, the first story I had read that convincingly explained why Facebook mattered.) With his counter-point now online, I also had to spend a part of the day yesterday fending off the excitable editors in New York who wanted me and David to argue our positions via video for the site. (One of them suggested I wear a luche libre suit.)

I am not that stupid. Nor do I look good in a Speedo. If I could do video, why would I waste my time with the other low-paid mutts in the print world? No, there is, sadly, a reason my medium is words. David is far better looking than me and infinitely more charming (though I think I have better legs.) And besides, the thing that had gotten me riled up in the first place — Facebook’s ongoing contempt for its users — had been addressed by the time David weighed in. Facebook CEO Mark Zuckerberg had issued a mea culpa and made it simple for anyone to opt out of Beacon.

But beyond all that, I didn’t want to be forced into the position of being a Facebook hater, mainly because I don’t hate it. I use the thing a dozen times a day to play Scrabulous, Texas Hold ‘Em, and to harry my daughters, wife and friends. And that’s why, in the end, I decided not to opt out of Beacon. Facebook is a great social experiment and I want to see how it turns out.

Besides, the idea of Beacon doesn’t really bug me. Reid Hoffman says that “privacy is an old man’s concern” and I tend to agree with him. I had reached the same conclusion when writing a cover story for Time about online privacy many years ago. The joy of a social network is the shared experience — the give and take among friends. I like the peripheral view I get of my friends when I log in, and I don’t mind publishing personal artifacts in exchange. Further, I’d argue that most of us get a kick out of sharing personal details within our networks. That’s what humans do in real life. It makes sense that we should crave it online, too.

What I adored about Facebook, and blathered on about endlessly, was that it gave us near-perfect control over our online relationships. (e.g. You can block jerks.) The few people I loathe, or who have spammed me, can no longer contact me on Facebook. The creation of the Innernet was an important step in the evolution of the social web: Now I can define not only who I am online, but who I want to hang out with. That’s why Facebook grew so quickly. At 50 million people, it’s about the size of South Korea and ought to overtake the UK in population within the year — if the current growth rate holds.

It won’t grow, though, if Facebook messes with its users’ right to control their social graph. It’s tough to build something this big and takes a fair amount of finesse. But it’s far easier to lose it all. Facebook’s response to the events of the past few weeks has mainly been, If you don’t like it, leave. That kind of customer service was also found on Delphi, Prodigy and AOL. If I were Zuck, I’d craft a simple Bill of Rights guaranteeing members that they own their own relationships. With Facebook’s users in control, the company is free to try anything it wants.

Well, I’m running out of time. Nurse is here for my shot, then it’s time for a nap. Have a nice weekend.

On Wednesday, Fortune’s David Kirkpatrick weighed in on the latest controversy surrounding Facebook and its new advertising system. While some critics in the media say the social networking site is doomed based on its own mistakes, Kirkpatrick argues that the site will not only survive concerns about violations of members’ privacy, but will continue to thrive. What do you think? Are you a Facebook fan or foe?

By Josh Quittner

A lot of people say that Facebook has jumped the shark. That’s flat out wrong. In fact, Facebook is now being devoured by the shark. There’s so much blood in the water, it’s attracting other sharks. And if Facebook’s not careful, one of them is bound to come along and finish it off. I’ve never seen anything like it in the annals of fast-rising tech companies that fail.

The really weird part of this story is that there’s absolutely nothing wrong with Facebook. It works as well as it ever has, and many of the people who use it (my kids for instance) are unaware of the worsening situation about its privacy-invading Beacon social ads scheme that tracks people’s web-surfing habits even when they’re not on the site. That’s bound to change. The market is fickle, something better is in the wings, and as soon as it arrives, the alienated and angry mob will race to it. Delphi’s errors begat Prodigy and its errors begat AOL, which was crushed by the Web.

What’s surprising here is the speed with which this thing is coming undone — and the ease with which it could have been avoided. What’s harming Facebook - perhaps to a terminal degree - is enormously bad PR. For a social media company, these folks don’t understand the first thing about communication; they have alienated the press by being arrogant, aloof and dishonest. Their idea of press relations is sending a stupid message to a What’s New at Facebook Group that directs you to another website for a canned statement.

And it is killing them. That bad press extends from the blogosphere to mainstream media. No one who writes about Facebook likes it anymore. And while that might seem insidery — who cares what the press thinks? — it’s having dire repercussions. For one thing, advertisers care what the press thinks. Bad press is causing advertisers to jump ship. And that’s begetting even more bad press. It’s the opposite of a virtuous circle; it’s an economy being undone.

It could have all been avoided with a smart adult running things. Facebook has no old hands in its corner, no advisers to tell the kids how to behave. Netscape had its Jim Barksdale, Google (GOOG) its Eric Schmidt. This company has no one babysitting it. And watching it now is like watching an unattended child play with a pack of matches in a wooden house.

Facebook’s problems are well known. They started when young Zuckerberg stood up and made preposterous statements to Madison Avenue — who let him say that stuff? What genius wrote those immortal lines and had such a tin ear for how it would play? The situation worsened when the company compounded its hubris with lies. Its ongoing contempt for the press and disregard for the First Amendment doesn’t help. And now, it has no one in its corner that anyone in the media trusts.

Facebook has turned all the people who rooted for it into a lynch mob. In the space of a month, it’s gone from media darling to devil. The most interesting thing about Facebook right now is who will replace it.

By Josh Quittner

One of the rallying cries of the Web 2.0 movement, during its sensational rise over the past five years, is openness. Open systems (Linux, Wikipedia, any phone you can hack from T-Mobile) are good. Closed systems (Windows, The Wall Street Journal Online, any locked-down cell phone you buy from Verizon) are bad.

The basic idea is that the Web itself, that Shiva of the business world, is built on HTML and Javascript — code that’s as open and free from any one company’s control as, say, the United Nations. Smart companies are Zen-like: They give away the store and yet manage to make fortunes. Google, (GOOG) which opens up everything from its data streams (Google Maps, for instance) to the bidding process for advertising keywords is the typical example. Google is Web 2.0 and Yahoo, which has had a tortured time trying to accommodate itself to the new social web, is considered very Web 1.0 — and on the ropes because of it.

Amazon.com has always embraced openness. Launched in 1994, it’s a classic Web 1.0 company by definition. And yet it’s also at the forefront of the social web. It allowed its customers to write reviews of products before anyone else, its enormous affiliate program lets everyone sell its products and it was among the first to make its APIs (application programming interfaces) available to developers.

So it was fun, therefore, to watch some of the smartest Web 2.0 thinkers make sense of Amazon’s (AMZN) move to a closed, proprietary world last week with the launch of its e-book reader, Kindle. This was a rollout that, on first blush anyway, made the Microsoft Zune look downright innovative in its openness. (At least you can play MP3s on the Zune. For free.)

What’s going on here?

Here’s my guess: Emboldened by Apple’s (AAPL) success, some of the most innovative companies in the tech world are starting to shift back toward closed systems.

Apple, of course, is about as closed a company as we’ve ever seen. It is what makes the company great and what makes it a horror show. It’s why people love and hate it. On the one hand, Apple products are typically so far beyond those of the competition, a visitor from another planet might think that the former is made by humans and the latter by monkeys. (A techie pal, upon picking up his new iPhone some months ago, waved it at me and gushed, “This is like something from the distant future.”) On the other hand, virtually nothing about Apple is transparent and open, from it’s ghastly press relations to the way it handles customer complaints. The recent incident with the tech pundit Robert Scoble is a great example. He downloaded an Apple update to OS 10.4 and couldn’t restart his computer. I had exactly the same problem when I updated my laptop last week. So did many, many other people, judging from the thousands of views at the relevant area of Apple’s own support site. Yet, talk to Apple support and they deny there’s even a problem. It’s about as open as North Korea.

And yet, its success speaks volumes. The stock is up over 100% during the past 52 weeks. The company maintains such tight control over the products it sells you that you aren’t even allowed to use them in unauthorized ways. Remember the whole episode when some people tried to unlock their phones, Apple updated its software and bricked the rebel phones? Talk about closed systems…

Steve Jobs has become something of the alpha pack leader of the CEOs in Techland. While many people point to the similarities between Mark Zuckerberg and Bill Gates — affluent suburbanites, both dropped out of Harvard to pursue their big-picture tech dreams — its clear that Zuck’s role model is Jobs. (Zuck uses a Mac, dresses in his own Jobsian uniform, and tends to make grandiose statements about launching movements whenever Facebook holds an event.) While Zuckerberg’s most famous move was opening up Facebook to developers (”Today, we’re starting a movement…”) so far, he’s resisting Google’s call to create a truly open platform. Developers writing applications for Facebook must use its own proprietary language, called FBML. Google, and the rest of the OpenSocial alliance of competing social networks, use HTML and Javascript.

And really, why should he? Just because it’s open?

Apple is successful because Apple is Jobs. And Jobs believes in an almost pathological control. That is, after all, how a visionary gets results.

Will that work for Amazon and Facebook?

In Amazon’s case, if Kindle flames out, it’s not a big deal. The project is an ambitious experiment, and as Tim O’Reilly points out, even if the device itself fails, Bezos could well have jump started an industry that Amazon, with its enormous collection of e-books, is perfectly positioned to dominate.

Facebook, though, is at a more critical juncture. If it stays closed and starts to stultify as a result, members could easily pack up their tents and move to the next big thing. But if it manages to fight off OpenSocial? Look for more closed systems.

By Josh Quittner

It’s not exactly news that Web has slowly been killing off traditional media. Over the past decade, the music, publishing and video-broadcast industries have been scrambling to find a perch in a new world where consumers expect to get everything for free online.

But here’s an alarming thought for those of us who still draw paychecks from traditional media companies (and hope to send all three kids to college some day): The end could come much sooner than anyone thinks.

That’s the theory anyway, of a pal I had dinner with last week in Palo Alto. My buddy is someone who’s been involved in many of the Valley’s more interesting deals during the past decade, so he knows, intimately, his history. He pointed out what should have been obvious to me: That Web 2.0 companies are doing to Web 1.0 companies what Web 1.0 companies are doing to traditional media companies. According to my friend: Think of traditional media as kind of the top layer. The Web came along and settled in just beneath it, where it began to erode old media’s foundations—subscription, pay for play, traditional advertising, etc. But during the last five years, with the rise of the social web and Web 2.0 companies, many of the companies who formed the vanguard of the Web, are themselves at risk. And if they disintegrate, the old media companies that so tenuously rest upon them, could collapse.

Yahoo (YHOO) is a great example, my friend said. Aside from its acquisition of Flickr, in 2005, Yahoo hasn’t adjusted particularly well to the social web. By contrast, everything about Google (GOOG) — from its advertising model to its creation of the OpenSocial alliance, pretty much defines the social web.

It’s telling, actually, that Facebook isn’t gunning for Google so much as it is trying to take out Yahoo, whose search engine has long been sputtering and wheezing. With it’s foray into social ads last week, Facebook may well have jumped the shark, as some are suggesting. But if social ads work and Zuck & Co. harness the power of friend-to-friend recommendation—you can bet that online advertising money will flow like the Nile into Facebook. Why would anyone continue to advertise on Yahoo?

And that’s where the end comes sooner for traditional media companies, who for years have been relying on traffic deals with Yahoo. Yes, I know that traditional media companies still derive the lion’s share of their revenue from traditional advertising and subscription models. But the rate of decline is advancing, even as many of these companies look for support from their Web 1.0 partners. And if the venerable Web 1.0 companies collapse? Then the old media companies that rest on their seemingly strong shoulders, must, too. Unless of course, they start embracing the social web.

By Josh Quittner

Marc Andreessen for president. Seriously, I love watching him think. Even when I disagree with his conclusions, I always learn something worthwhile. His heart is in the right place and his brain is without peer. Would someone please start a Facebook group for this?

In today’s post, he argues that if the Hollywood studios don’t capitulate to the writers they will effectively destroy their business — and perhaps, spark a revolution in the business model that creates video entertainment. Marc suggests that the film industry is ripe for overhaul: the big, centralized studio model ought to be replaced by the smaller, decentralized Silicon Valley-style startup model where VC funding is abundant. The compelling part of Mark’s argument is that the two main reasons the studio system worked — marketing and distribution — no longer matter. When everything is digital, distribution is virtually free, and old-style marketing doesn’t work very well anymore. The rise of the social web allows good stuff to spread virally.

I believe most of that (though VCs HATE the content game, which is hit-based and utterly unpredictable.)

The bigger problem with his scenario is the same issue that has plagued the content-creation business since the advent of the web: The creators can’t make a decent living here yet.

Those guys walking picket lines make very healthy six-figure salaries. (As they should! Writers ought to be among the highest-paid people on the planet!) Can they do that online, alone? No way. And not in the near future. No one has yet found a way to create the kinds of revenue streams from online content that would match what a pro makes working for traditional media.

Yes, we have a few one-man brands who are currently making at least as much money online as they could working for The Man. But so far, they are bloggers for the most part, with virtually no overhead — most of the success stories, in fact, work from home. Until someone figures out a better way to generate revenue than display ads, this medium won’t be able to attract the top talent.

Marc, please solve that one asap.