Should you embrace the Web 2.0 business model?

It is always interesting to try to integrate two trends that seemingly do not have much in common at a first look. I got the idea for this blog posting when I was reading the very detailed article by Tim O'Reilly on The Web 2.0. On page four, he refers to an investment thesis on Web 2.0 by Paul Kedrosky. What he writes in his thesis is the following:

Another way to look at it is that the successful companies all give up something expensive but considered critical to get something valuable for free that was once expensive. For example, Wikipedia gives up central editorial control in return for speed and breadth. Napster gave up on the idea of "the catalog" (all the songs the vendor was selling) and got breadth. Amazon gave up on the idea of having a physical storefront but got to serve the entire world. Google gave up on the big customers (initially) and got the 80% whose needs weren't being met.

Now let's get back to April 2005, when I blogged about Microsoft and Open Source. Now, 6 months later, not much has changed on the MSFT / OS situation. There is still some intiatives from the Open Source community to create tooling for .NET, but it remains doubtful whether the combo of MSFT and open source will ever really take off, as there is so much cultural differences between OS developers and MSFT developers, and there is a lack of Microsoft focus in the higher education research, traditionally a cradle of many OS initiatives / innovations. Not much news here then.
What has changed though, is that Web 2.0 is in the center of attention, and that for the first time in a long period Microsoft is not the dominant player it once was and they admit/know it. Could they turn the tide by fully open-sourcing the C# language for instance? Should they give the full .NET framework to the IT / OS community? Have they investigated this possibility? MSFT's arch rivals (when it comes to development) Sun have taken the strategy to open-source all their new products / initiatives, so you could say that they have embraced the Web 2.0 business model. The same goes to a certain extent for IBM, who are actively participating in OS initiatives, although they still make a lot of money on licences for WebSphere for instance.

IT companies should ask themselves two key questions:

1. Should we adopt the Web 2.0 business model (in which the open source business model fits to a certain degree), where we give up something expensive but considered critical, hoping to get something valuable for free that was once expensive? (take into consideration that this could be a huge risk!)
2. If we do so, just exactly what should we give up? Is open-sourcing one of our products (maybe all?) enough, or should we come up with something different, as more and more companies are open sourcing their offerings.

This in fact could be one of the main challenges for CEO's and CIO's of IT companies / vendors in the next couple of years, and it goes beyond the open source discussion.