When I first heard the term Web 2.0 about two years ago, I thought, “maybe that’s some kind of faster Internet technology.” I have to admit my ignorance and that I truly believed it was just a gimmick to promote Internet companies. I could not have been more wrong. Being a person that is fascinated with growing trends, I am currently mesmerized by the very real and significant impact that the so called Web 2.0 is having on our lives. Whereas the first incarnation of the Internet linked together information primarily, the new web is linking people, empowering individuals, and organizing the information in a democratic fashion. The current shift taking place is no less significant on communications than the transition from telegraph to telephone. Sure, we have had the Internet for many years and it has already brought significant change but there is something much bigger developing right now. In the United States, the five most trafficked sites are 1. Google, 2. Yahoo, 3. Myspace, 4. YouTube, and 5. Facebook (the results are similar globally). The fact that the three on that list that are not search engines and did not even exist 3 years ago highlights this new phenomenon rather starkly.

There are vast implications to this new development but given that we are in an important election season, I thought it would be appropriate to comment on how this new media fits into the election process and how significant it is. This is the first time these new websites have had any chance to flex their muscle in U.S. presidential elections and mainstream media has repeatedly underplayed and underestimated their significance (aside from CNN’s foray into “YouTube debates”) for several reasons not the least of which is that traditional media may feel threatened. On some fronts, it almost seems as though there is a war between the old media and the new media because of how differently the world is perceived within each realm and how each side tries to defends its credibility by attacking the other.

One of the reasons the traditional media has overlooked or dismissed political support on the Web is that the majority of people that traffic these new websites are of the younger generation, which on average have not been very active in politics in the past. Therefore, it is believed that this support is superficial and will not manifest itself into actual votes or campaign contributions. I would argue that the engaging and empowering nature of the Internet today is drawing a lot more young people into the political arena in a very real way, more so than more passive efforts in the past such as “MTV Rock the Vote.”

National poll statistics have strongly diverged from indicators on the Web on many recent occasions. The traditional media outlets tend to explain this as a result of the unscientific nature of the Web and that it is vulnerable to hackers. However, there are also problems with traditional polling methods which have not been adequately addressed. One rapidly growing problem regarding the accuracy of “scientific” national polls is that they make their “random” calls to registered land-line telephones. According to various sources, the number of households not using a land-line has increased to approximately 15% and for the age group 18-29 that number is closer to 30%. Many of these unaccounted people are exactly the types of tech savvy people that would be frequenting the web the most, and would therefore provide some explanation as to the divergence in the poll statistics; they are measuring the preferences of two groups with distinctly different ideologies. The traditional polls also do not account for the growing number of American citizens and military living abroad.

In addition, using the web as an indication of popularity has been discounted by some because of its unfiltered nature. Extremest from all sides are drawn to the web (in addition to the majority of normal people) which some believe destroys its credibility. I am not so concerned with this, in fact I think its healthy to have a wide range of peaceful debate and allows for all voices to be heard. As people become used to this, they will find that it is not as threatening as it seems.

No other presidential campaign embodies the dramatic conflict between old and new media more than the Congressman of Texas, Ron Paul. Paul gained a lot of online buzz (more than any other candidate) with a deluge of discussion on blog sites, MySpace, Facebook, Meetup and videos on YouTube. Yet, for a while, traditional national polls were only registering at 1-2%. Now his polls are at 5% and rising. In defiance of the natural laws of politics, this candidate has risen from complete obscurity to cult phenomenon to top 4 contender for the Republican Nomination in just a matter of a few months. By my estimates, he will have raised well over $20 million dollars by the end of the year (total). Paul’s supporters have shown considerable organization (made possible by the Internet) and passion and I expect a larger percent of them to show up at the polls compared to the supporters of the other candidates. This should lead to a higher higher voting results for Paul than the current polls indicate, especially in states with low turnout rates. The reason is because pollsters generally determine who are “likely” voters simply by asking the respondents. Approximately 90% of those called say they will be voting in the primaries but, in reality, only a small fraction end up actually going. Therefore, a candidate with a higher percentage of ardent supporters may have national poll statistics that do not accurately reflect the percentage of final votes.

Some people compare the candidacy of Ron Paul to Ross Perot’s but Ross Perot was able to use his own deep pockets to fund his campaign. Howard Dean had a similar grassroots campaign strategy in the 2004 race and also raised impressive cash but there are some important distinctions. Dean had served 10 consecutive years as Governor of Vermont (2nd longest in VT history) and also had many wealthy connections in New York where he was raised. Even though Howard Dean was seen as a relative long-shot in the early stages of the campaign, he eventually gained the front-runner status in the Democratic Party before the Iowa Caucus and the New Hampshire Primary, which further helped fuel financial support. In contrast, Ron Paul was not discussed at all in the mainstream media and is still considered a long-shot late into the campaign for his party’s nomination. Actually, most of the Republican Party leaders despise him, yet the rate of his campaign contributions and support in the polls is accelerating. The fact that Ron Paul is not a governor, senator, mayor, billionaire, or celebrity but is an older humble congressman from Texas (hes not even a great speaker) yet has gained the support of a spontaneous political organization that will most certainly affect how the 2008 presidential race plays out and politics beyond, speaks volumes about how powerful this new type of Internet can be and will become.

While Paul remains a long shot, I think a new political movement and shift in power has begun regardless of the final election results. He will continue to gain support in the coming weeks and months and the mainstream press will continue to be shocked by this, which will increase the coverage and debate on the range of issues which Paul brings to the table, particularly those regarding foreign policy, monetary policy, and fiscal policy. Hopefully, the mainstream media will begin asking the question why they had ignored his online support for so long in the first place and why there was such a discrepancy. In the end, it’s “the economy stupid” and with the dollar in free fall and the economy in recession (based in dollar terms and a more realistic CPI), Paul’s long held Austrian and libertarian philosophies are beginning to resonate strongly with a lot more people, even if they disagree with some of his positions or are turned off by some of the fringe elements that are attracted to his anti-establishment campaign.

On the Democratic side, Barack Obama seems to be gaining momentum and I expect he could do better than the scientific polls indicate because of a greater percent of younger supporters on the web that are missed in the traditional polls. If Paul drops out early, which is highly unlikely, Obama may get some of Paul’s anti-war supporters in open primary states. The Democrats have the clear advantage overall but the primary elections are going to be a very close on many fronts.

How could this possibly relate to the world of business and finance? Is there something in this story that has not already been priced into the market? It is not easy to determine. However, it seems the traditional political establishment is beginning to lose some control. While still extremely powerful, the United States military industrial complex could be facing some headwinds in the somewhat distant future. I would not exactly be selling short military stocks as Hillary is still the front-runner but I do not see the overwhelming value in buying them anymore. It is also difficult to recommend companies that benefit from these new web technologies given their astronomical valuations. I have always believed that the Internet does wonders to fight and expose corruption in politics. We are now seeing Web 2.0 take this fight to the next level, which should have a very positive impact on the global economy and provide more stability to emerging markets. I am not here to say that Web 2.0 is going to save the world but it has been well exceeding the hype so far.