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Does you company have a blog? Do you know what social media is? Do you have any idea why it’s crucial for you to get to grips with Web 2.0?

If the last paragraph scared you, you’re not alone. The vast majority of small -and large- business owners don’t understand the new online business. So, here’s a short primer (starting from the back of the list) to help you understand what you’re missing out on.

1. Web 2.0

Web 2.0 is a phrase coined by Tim O’Reilly in 2004. At the time, a lot of people thought this meant we were all going to have to start surfing on a second Internet. But Web 2.0 is simply a new definition of the way people use the Web to communicate.

In Web 1.0 days (if ever there was such a thing), businesses used the Internet to have one-way conversations with their customers. A corporate website told the prospective customer what they needed, and suggested they either make contact, or purchase online.

Web 2.0 is different. It’s a two-way street. Companies are having honest conversations with their customers using social media and blogs (I’m getting to those below). And customers are using the same channels to rate companies and products. In the Web 2.0 world, word of mouth and customer referrals have become far more important than the size of a company’s advertising budget. The Web 2.0 Internet has become a social platform for business rather than just a way to display pictures and text.

While millions of people have embraced this new way of doing business online, Web 2.0 still has a lot of work to do in the small business world. Having spend thousands of dollars on relatively unsuccessful online marketing campaigns, a lot of people are hesitant to start all over again. They think Web 2.0 is just a buzz-word. It’s not. Web 2.0 is the new web. And those not embracing it are in for a tough time online.

2. Social media

In 2008, the web is driven by social media. Ordinary people are using social media as a soap-box to tout their opinions on anything from Britney Spears to buying earthmoving equipment. They’re starting conversations about your company, your products and your people. And they need to be listened to.

Social media sites abound. A huge percentage of the online community can be found on Myspace, Facebook, Linkedin or any of the other social media platforms, telling it like it is, or at least how they’d like it to be. Being talked about through social media works both ways. Today, your company might be the darling of your industry. Tomorrow they’ll slaughter you. It’s up to you as a business owner to decide whether you want to let people form their own opinions without your input, or to be part of their decision making process.

3. Blogs

Ahh, blogs. Simply put, blogs are websites. This page was written in a blog editor. I didn’t enter a single string of code to post this article. I simply typed and clicked ‘publish’. Blogs make it easy for normal people to run websites. Originally built as online journals, most blogging software has morphed into a cross between a really simple web publisher and a full suite of online marketing tools.

For example, the moment I clicked on the publish button for this post, the people who subscribe to my RSS feed could decide whether or not to read it. I also sent a bunch of pings out to search engines to let them know I’d written something new. And I created an online resource for people to check back on in a week, a month or a year. No fighting with spam protection. No email bounces. And no duplication of work. One click and everyone knows what’s going on.

And the thing I love the most is that once I’ve clicked that button, a chain of events starts to happen. Someone will probably disagree with my opinion and post a comment. Someone else will suggest an alternative idea and post a comment. And before you know it, I’m having a valuable conversation with the very people I’ve traditionally spent a fortune advertising to, without spending a cent.

In conclusion, all you really need to know is that no matter what business you’re in, you could benefit from the Web 2.0 philosophy. It’s new, and it’s scary, but you’ll be better off starting now than having to catch up when Web 3.0 rolls around.