During the last two decades the retailing industry is finding itself in a state of constant evolution and transformation. Globalization, mergers and acquisitions, and technological developments have drastically changed the retailing landscape. The explosive growth of the Internet has been one of the main catalysts in this process. The effects of the Internet have been mostly felt in retail sectors dealing mainly with intangibles or information products. But these are not likely to be limited to these sectors; increasingly retailers of physical products realize that the empowered, sophisticated, critical and well-informed consumer of today is essentially different to the consumer they have always known. The web, and particularly what is known as Social Media or Web 2.0, have given consumers much more control, information and power over the market process, posing retailers with a number of important dilemmas and challenges. This article explains what the new face of the Internet, widely referred to as Web 2.0 or Social Media, is, identifies its importance as a strategic marketing tool and proposes a number of alternative strategies for retailers. Implementing such strategies will allow retailers not only to survive, but also create competitive advantages and thrive in the new environment. EUROPEAN RETAIL RESEARCH Vol. 22, 2008, pp. 1-28 2 European Retail Research Vol. 22, pp. 1-28 Keywords IntroductionFifteen years after its commercial launching, the Internet has become the second most important distribution channel (after high street retailing) and a major source of customer information and empowerment (Urban 2003(Urban , 2005Constantinides/Fountain 2008). A number of recent developments in this field threaten to further weaken the role of traditional retailing in a number of sectors where retailers and intermediaries have always played an important role. Music, entertainment, press, printing/publishing and traditional travel agents are some of the branches that have already felt the negative effects of Internet-enabled disintermediation. The web has made possible the direct contact between producers and consumers, making the physical retailer of information-based products or intangibles redundant.These developments are widely seen as effects of the Internet evolution and have been extensively discussed and debated. However, over the last three years, a new generation of online tools, applications and approaches such as blogs, wikis, online communities and virtual worlds, commonly referred to as Web 2.0 or Social Media, are increasingly attracting the attention of practitioners and, recently, of academics. As often happens when revolutionary innovations become booming business, research and theoretical underpinning on the Web 2.0 issue is still very limited and there is not even a generally accepted definition. What most people would agree though is that a fundamental element of Web 2.0 is what is widely known as Customer-Generated Content (CGC): besides extracting value, users also add value to W...