3:15 pm - 4:00 pm: A group of Internet luminaries - Bradley Horowitz (Yahoo!), Steve Berkowitz (Microsoft) and Kevin Rose (Digg, pictured at left) - discussed how to bring innovative new Internet offerings to the mass market. Moderated by Business 2.0 veterans Om Malik and Erick Schonfeld, the panel discussed the most innovative Internet trends, why they’re important, and how companies can leverage these new opportunities.

To lead off the discussion, Erick Schonfeld explained the Web 2.0 phenomenon in layman’s terms. It is no longer a “static” Web. Instead, Web 2.0 is a “dynamic” Web. Within Web 2.0, there are certain key themes. It’s all about people and the power of the users (e.g. Digg, Yahoo! Answers); about the evolution of the Webtop (= Desktop + Web); and the emergence of the Web as an important publishing medium (e.g. YouTube.com).

How do you bring the Next Net to the masses and how do you find the new opportunities?

Horowitz: Yahoo! touches half a billion people a month. The key is lowering the barrier to participation. In a world where everyone thinks they’re Steven Spielberg, how do you create valuable metrics? At Flickr (now a Yahoo! property), one attempt has been the concept of “interestingness.”

Berkowitz: “The audience is the key.” If want to sell advertising, you need to aggregate the audience. As a result, Microsoft is attempting to turn everything into platforms that can be syndicated. It’s about building a monetization platform and building an analytics platform. The goal is to build out a set of platforms. “IT is about community + content.”

Kevin Rose: There are only 17 people at Digg, all trying to do one thing really great. We’re taking a traditional news model and taking power out of the editor’s hands and giving it to the community.

Om Malik: The proliferation of broadband is critical. When bandwidth goes up, things change. One example is YouTube.com. Think of the cell phone as a computer in a pocket. 1.5 billion people have cell phones in world, but all of these do not have computers.

How do you spread out to the masses?

Kevin Rose: We’re trying to expand Digg from technology to other news areas. We actually receive more submissions now on non-tech stories rather than tech stories. It is part of a shift from a tech-only focus to things like sports & politics — two topics where “people get very fired up”.

How are leading-edge services bleeding into the mainstream?

Horowitz: All of the growth at Yahoo is organic. This is the right way. Yahoo is #1 or #2 in 17 different Internet categories. Every site will benefit from community. As a thought experiment, what would “social weather” look like? Maybe I’m in New York for this conference, and my friend is in California. When we’re talking about weather, there’s a social aspect to that.

Berkowitz: The Web has moved from technology to “technology enabling an experience.” We must think of Web 2.0 from a consumer perspective. It’s going to be about the desktop AND the Web, not EITHER/OR. We currently have 30 million Windows Live home pages.

Om Malik: There are now two generations that have grown up with the Internet. In 5 years, two generations will have experienced broadband.

Horowitz: My Yahoo has been extraordinarily successful. A user can put GigaOm right next to the Wall Street Journal. Yahoo recently purchased an online karaoke company (Bix). Yahoo must empower people with the power to make choices, such as by using a “Wisdom of crowds” technology. Maybe if you see a huge upsurge in Flickr uploads, you can see that it resulted from a U2 concert in a certain city.

As consumers become users, companies become “transparent.” How do you let go and make money?

Berkowitz: “We are the retail space of the mall.” Our brand (Microsoft) is the best location for people to go to. Trust & reliability are key factors.

Horowitz: The issue of transparency is key. In the Flickr community, when a new user from Philly enters the site, the user is told that three other Philly users are online. This is powerful. We have to take Web 2.0 to the extreme; Stewart Butterfield says reciprocity important, even if it might hurt your site in the short-term. As an example, consider the example of Flickr, which faced potential criticism over whether users should be allowed to “slurp” over Flickr photos to another rival site. The final solution was based on reciprocity: you can move the Flickr photos to another site, but only if that other site has a similar policy.

Who owns the data? If I can take my data anywhere, how do I make money as a company in the tech sector?

Horowitz: There is no need to create a walled garden to keep users in.

What is your competitive advantage then? What is the barrier to entry?

Kevin Rose: Right now, there are 300-400 clones of Digg. In order to deal with this reality, we are working on Digg Labs. Some features will fail, others won’t. If your site has new features, you can keep your users. (here, Rose demonstrates a cool Digg Swarm feature to the audience, which sees stories aggregating to each other like viruses in real-time).

(question from the audience) Community is a critical success factor. What was conscious about building the Digg site. If you build it, will they come? Or do you need to market it? How do you reach a critical mass?

Kevin Rose: We’ve never spent a dollar on marketing. It grew organically. One Webmaster noticed that, “Hey, I got a big spike in traffic from Digg.” That led others to the site, and it spread informally like that. Users become evangelists with skin in the game. What can you do to encourage that?

Day 1, 4:30-4:45 pm: Stanley Bing, a columnist for FORTUNE who writes the “While You Were Out” column that regularly appears on the last page of the magazine, offered a hilarious send-up of the business innovation trend, complete with PowerPoint slides and impeccable comic timing. As best as possible, I’ve tried to capture some of his presentation below, but as with any comedy, you really have to be there to understand the absurdity of a corned beef sandwich or Rubber Ducky graphic on a PowerPoint slide about innovation…

Consider the basic equation: Innovation = Constant Change = Pain. There are various sources of this pain — meetings where nothing gets done, the constant demand for ideas, the competition for mental shelf space, creativity (”this is a pain”), initiative, the obnoxious pressure for gratuitous change and… consultants. Innovative organizations are over-run by consultants, but consultants always come with body bags.

Innovation takes an emotional toll — anxiety/depression; feelings of inadequacy; triumph of shallow change agents; disrespect for process; idiotic disregard for tradition; promotion of wrong people; marginalization of true experts. “If don’t buy the flavor of the day, you’re a Luddite.” “If you don’t adopt the newest innovation, you’re all going to die!” According to the media, all innovation is going to kill the existing business model.

Take a look at the great innovators throughout history… Hannibal, Gutenberg, Galileo, George Washington (”invented guerilla warfare, which led to the Vietnam War”), Louis Pasteur (”invented germs”), Albert Einstein (”invented the theory of relativity, which led to the atomic bomb”), and Bill Gates.

What is the true value of innovation? Like any new toy, the value, both real and perceived, declines over time. With innovation, there are benefits as well as liabilities. The liabilities include creativity, dysfunction and stupidity, and change for change’s sake. There are alternatives to harmful and pointless innovation: pleasant stasis, gradual change, periodic invention of helpful things, knowing where everything is located all the time; a business plan that is comprehensible to everybody and… a corned beef sandwich.

The conclusion: Innovation has its place (i.e. “around San Francisco”). “Innovation leads to organizations run by children and idiotic crazies.” Any questions?

4:45 pm - 5:20 pm: In the final session of the day, Bradbury Anderson, Vice Chairman and CEO of Best Buy, shared his views and insights about innovation in a one-on-one interview with Geoffrey Colvin of FORTUNE.

Best Buy is under pressure from competitors like Wal-Mart and Dell, so how is it still thriving?

The key for Best Buy is finding the “latent data in the system” and using it for innovation. For example, Best Buy has been very successful in using a proprietary customer segmentation strategy that enables it to customize its stores to meet certain customer needs. According to Best Buy, there are five key customer segments that must be served (e.g. young males who like to hang out with their buddies; women with children). No store serves more than two customer segments.

Best Buy has also been receptive in listening to the suggestions of its front-line workers in the retail stores. (NOTE: See the Gary Hamel presentation for an earlier example, when one employee suggested a new, more accurate forecasting system). There is more worry at HQ than at the stores about innovating with the suggestions of these workers. The classical view has senior management as the “good sons who stayed home” and the innovators at the grassroots level as the “prodigal sons.” By listening to the grassroots, there is the risk of causing tension here. There is, at times, a “passive resistance” that gums up the works and slows down innovation.

At the end of the day, though, “retail is a place where you see the most innovation.” The status quo just doesn’t work

How is Best Buy leveraging the power of its front-line employees?

Best Buy has educated its front-line people about how the business works. The goal is to eliminate the “tremendous waste of human capital” that takes place at other companies. After all, a 57-year-old CEO has no idea what customers want, but young employees do

What are some examples of experimental retail concepts at Best Buy?

Some of the five customer segments mentioned above just don’t fit. Specifically, Best Buy has experimented with a “Studio D” concept store for older females intimidated by technology. It has also experimented with “Escape,” a very fashion-oriented, trend-oriented store for youth who love fashionable gadgets,

For the holiday season, Wal-Mart is cutting prices on consumer electronics across the board. Wal-Mart is also adopting a customer segmentation strategy that mirrors the strategy at Best Buy. Is that a threat?

Yes, that’s an aggressive move. If the name of the store is “Best Buy,” it means that we must actually be the “Best Buy.” In terms of the new customer segmentation strategy at Wal-Mart, “I wish they didn’t do it, but, yes, I was flattered when they did it.”