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A standing-room-only crowd of 800 entrepreneurs, executives, software developers, and journalists were in attendance on Wednesday, October 6, as O’Reilly Media CEO Tim O’Reilly and former Industry Standard editor-in-chief John Battelle kicked off the second annual Web 2.0 conference in San Francisco.

At least in the two tech gurus’ minds, “Web 2.0” stands for the idea that the Internet is evolving from a collection of static pages into a vehicle for software services, especially those that foster self-publishing, participation, and collaboration. (See O’Reilly’s recent essay, ‘What is Web 2.0?’).

User-centered Web phenomena such as blogging, community photo-sharing (exemplified by Flickr), collective editing (Wikipedia), and social bookmarking (Delicious), they argue, are disrupting traditional ideas about how software is built and how information is generated, shared, and distributed on the Internet.

With almost half a million Wikipedians contributing and editing articles, 90 million people running the open-source Mozilla Firefox browser, and 18.9 million people now publishing blogs (according to blog search engine Technorati), the case goes, it’s hard to dispute that users’ attention is gradually shifting away from the products of traditional publishers, media companies, and software makers.

A year ago, this was a provocative argument. Big software and Web companies like Microsoft and Yahoo seemed far from embracing the transformation O’Reilly and Battelle perceived.

The news this time around is that after a year of observation and experimentation, many of the same companies are jumping into the game unreservedly – either by acquiring smaller companies exemplifying “Web 2.0” principles or building their own Web-based communities and services.

“Last year we made the argument that, to use a phrase coined by Sun Microsystems, ‘the network is the computer,’” O’Reilly said. “Now we’re starting to see real evidence of that.”

For perhaps the biggest example, Yahoo has spent the past six months trumpeting its enthusiasm for community and user-generated content. In March 2005, the company launched a blogging and content-sharing system called Yahoo! 360 and simultaneously acquired Flickr, where people upload their photographs and share them with friends – and strangers – by tagging them with keywords that make them easier to find.

“We think the big change on the Internet is not just about getting more and more unique users, but, as we go forward, it’s all about deeper engagement,” said Yahoo CEO Terry Semel during a Thursday morning interview with Battelle.

He pointed to Flickr and to the user reviews and ratings on Yahoo! Local as examples of services that hinge on user participation. “You’ll see many more examples in the next 6-12 months,” Semel said. “All of our content is starting to be on platforms that take advantage of community.”

Microsoft, where PC-based operating systems and productivity software are still the main source of revenue, is also catching the Web 2.0 wave. Microsoft executives who took the stage Wednesday evening admitted that the company’s recent reorganization was devised in part to adapt to the new importance of Web-based services.

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