With all the talk about how Digg, the community social news site, is supposedly worth $200 million, and the ensuing cries of BS, you’d think we were well on the way to Bubble 2.0 instead of web 2.0. Semantics of the “web 2.0” term aside, the current revolution in the web is changing how things are done, and is having an effect on the industry, for better or worse.

It’s all about the advertising

The advent of Internet advertising as a viable income source has been the fuel for this tranformation. Ever since the major players launched huge ad networks (Google’s AdSense and Yahoo’s Publisher Network), it’s becoming easier for sites to “make a quick” buck without apparently selling any service or product. This ad model is what allows you to sign up for a bevy of free services, from webmail to social news sites, and has been the basis for large social networking sites like Facebook. It’s also been a focal point for traditional news services, who not only have been making money off ads on their own sites, but have also bought out sites like MySpace in the further hopes of money from online advertising.

However, it’s also had the effect of making it much easier for “the little guy” to get into the business, sometimes wreaking havoc on established businesses. A great example is Markus Frind, who single-handedly started up a dating site that shook up the entire online dating industry, as he began offering a something for free that typically was a paid service. He made quite a lot of money off of his site, but overall, things were much cheaper for the “customer”. (No fees as opposed to fees)

The long tail

This sort of action by smaller companies is going to change the industry, and Markus himself best sums it up. The basic idea is that smaller startups, entirely self-funded (or at least not venture-capitalized), are taking over sectors, offering services and will be entirely happy making overall, less money than their predecessors. One need only look at TechCrunch on a regular day to see many of these startups being featured.

On the web, things move about ten times as fast, and that includes the launch of new companies and how their services will change and be updated. Where else can a business or service launch, and then suddenly be bought for $2 billion only a scant few years later? The pace at which ideas spread on the web is frightening.

Wag the tail

The best recent example of a typical industry starting to be overtaken by smaller startups is the online job search market. Typically, these areas have been dominated by sites like Monster or Workopolis. These sites are well known and established; however, recently niche job boards like those at 37 signals and TechCrunch have launched, with positive results. The idea behind these job boards seems, at first, the opposite of what would be desired – they are only known by a select group of individuals, typically those who visited the sites before the job board launched.

But that’s just the advantage – not everyone knows, so not just anyone applies to the jobs listed there, producing a higher quality of job applicants. This, in turn, makes it much easier for companies to find good people, thus cutting down on their costs, saving them money. This, of course, reduces the amount of money being pumped into this industry. Take this one comment about the TechCrunch job board (called the CrunchBoard):

We (photobucket) had posted 3 jobs on CrunchBoard and have had a positive experience thus far. We are getting less resume’s than maybe a monster or dice, but the ones we get are much more qualified. I’d be surprised if we don’t fill at least one of these positions in the coming weeks from a CrunchBoard referral. A few hundred bucks sure beats the $20k or so a recruiter will get you for.

Going from spending $20 K to less than $1 K certainly amounts to huge savings, and as more and more companies learn about this, you can bet they’ll be at least partially switching over to this model instead of traditional recruitment practices. This is really the same thing as the typical Internet user benefiting from all the free services out there – they save money, but at the cost of the previous business model suffering decreased revenues.

Whether these new job boards can maintain their level of high-quality applicants is one story, but what is sure to stay, is the fact that traditional industries are going to see their market value decreased because of low-cost Internet startups, for better or for worse.