The Week in Geek – Oct. 6, 2006

Help NetFlix – Earn $1 million
NetFlix wants to give you a million bucks. The catch? You’ve got to improve their current best-in-class Cinematch recommendation engine by 10%. They’re opening up roughly 100 million recommendations in data to allow hackers to tinker. While not a contest for the average Joe, there are world-class mathematicians around the globe who’d love a challenge. I imagine math geeks in the far corners of Romania, India, China, Kenya, and everywhere in between are furiously refining their best algorithms. Brain power is global & the Net is a free market for the Mensa-set! If no one wins within a year, Netflix will award $50,000 to whoever makes the most progress above a 1% improvement. They’ll give away the same amount each year until someone wins the grand prize. Insiders say its money well spent. Even a small uptick in recommendation accuracy could be a boon to increased business and continued advancement of the firm’s top-scoring customer satisfaction rates.

Dot Com Bubble II: Why It’s So Hard to Value Social Networking Sites
Rumor wags say Facebook has been offered $900 million by Yahoo, and some suggest MySpace is on track for a $15 billion valuation in 3 years. MySpace is an A-list advertising magnet, and the $900 million ad deal with Google further underscores its power. MySpace has doubled in size to nearly 100 million users since NewsCorp bought it for $580 million last year. But the future is uncertain – these sites could be fads (remember Friendster?). The MySpace figures (which sound way-optimistic to me) assume LOTS more people use the site and that MySpace figures a way to garner income from this base. This is a big ‘if’ given that many firms are experimenting with MySpace ads and that user behavior toward advertisers may change over time (recall how click-through rates dropped in banner ads). For those not on Facebook, it is truly astonishing how deeply the firm has woven itself into the lives of undergraduates. The firm’s 9 to 11 million users in the ultra-valuable college demographic spend on avg about ½ hour a day on the site. This is face time networks and advertiser salivate over. But it’s unclear if Facebook ads carry value on par with other media. One scenario to look for – that MySpace and Facebook quickly integrate copycat models that are proven in other sites, furthering their hold on Net face time. Facebook’s quick addition of ‘Flickr-esque’ photo sharing and MySpace’s launch of YouTube-like content suggest that these networks will try to expand into new areas, not unlike Amazon’s slow but steady march from Books, Music, and Video into Electronics and other categories. The key to expansion will be rapid innovation and integration of tools that hold & expand user involvement.

Microsoft launches Soapbox, a YouTube like competitor
Microsoft has launched a You-Tube competitor, but it remains to be seen if they’ll have any luck growing the market to challenge Steve Chen & Chad Hurley’s creation. MySpace may have the best shot at YouTube imitation. MySpace hipsters may be anxious to offer ‘funny’ videos on their own page – think 100 million users as distribution channel. And parent NewsCorp owns Fox. Could FamilyGuy, Simpsons, or sports clips run on MySpace pages along with home-made content? Warner is legitimizing YouTube with a recent deal, but Fox can do this with MySpace, too. The read on YouTube is all over the map. Some say YouTube is ‘going down’ given Universal’s claims of copyright violations, while the RedHerring gives three reasons why YouTube will survive. Viva la punditry!

Amazon & TiVo in Talks on UnBox?
It’s a rumor now (reported by the NY Post), but if it proves true, it’d be a coup for Amazon. UnBox received rough early reviews, but if TiVo, with it’s elegant interface & fanatical following, becomes a way to get Amazon movies to your big screen, Unbox could see break-out opportunity. TiVo fans are rabid & the download service (which already has more studios than Apple, offers rental vs. ownership options, and higher-quality than the iTunes Movie Store) would be a significant threat to NetFlix and pose the most legitimate challenge to Apple’s ultra-slick forthcoming iTV.

Disney Sells $1 million+ in Videos the First Week on iTunes Movie Store
DVD downloads are more than proof-of-concept at Apple. Imagine how much demand there’ll be when more studios sign up with iTunes and the content can be elegantly streamed to your set-top. Another interesting wrinkle: Sony doesn’t yet offer movies on iTunes and Apple has yet to introduce BlueRay DVD players on Macs. Apple has a bit of negotiating leverage to bring Sony content into the store.

Dell in the Penalty Box
Fortune’s David Kirkpatrick proves why he’s one of the best tech reporters in the country by cutting through the hype & nailing the real issues with Dell’s troubles. Dell’s profits are down 51% last quarter and the stock is down 25% this year. But the firm will still earn $3 billion in ’07, it owns more of the US market than the next three competitors combined, it’s #1 worldwide, but with less than 13% of the global share, there’s a lot of room left to steal share from rivals, even in a slow growth market. And next year growth is likely to be breakout, with upgrade holdouts snapping up new PCs once Windows Vista ships. The real questions: do Dell’s price-cuts still matter now that prices are so cheap? Can Dell get design and marketing chops (the firm, shockingly, has no one with the title Chief Marketing Officer)? And left out in most coverage is a huge concern: Dell doesn’t manufacture its own laptops – overseas contract manufacturers do. That suggests production advantages in the growing laptop segment won’t be as great as Dell’s vertically integrated desktop biz. At a cheap-by-tech-standards PE of 17, Dell stock looks tempting. 50% of surveyed PC prospective buyers say they favor Dells. Now that horrible service problems have been fixed (Dell previously rewarded reps based on short calls rather than problems solved), the Dell brand may not be as tarnished as exploding batteries & fleeing fund managers suggest. More evidence of an uptick? Michael Dell is buying $70 million shares.

Google / Intuit Pair Up Against a Foe
Google will offer a bunch of tools to the 1.5 million users of Intuit’s league-leading QuickBooks accounting software, including integrated help for firms wishing to post ads on Google, links to Google Maps, and automated postings to Google Base. This will offer Google access to a huge number of small businesses that have yet to dip a toe into the firm’s revenue-generating services. The Intuit deal is critical effort to lock up more distribution channels for Google, and follows similar pacts with Adobe and Dell. Salesforce.com and NetSuite will also incorporate Google AdWords into online customer-management applications. Smart moves given that Windows Vista will favor MSN Search as a default throughout the OS. Intuit’s Chair and former CEO is former BC Asst. Football Coach Bill Campbell. “The Coach of Silicon Valley“, Campbell also serves as a Google advisor & Apple board member.

Click Fraud – The Dark Side of Online Advertising
Net ads are growing faster than any other sector in the ad industry & spending in the US is expected to grow from $12.5 billion last year to $29 billion in by 2010. But the BusinessWeek cover story on click fraud highlights the threat that could derail pay-per-click growth (which makes up roughly half the industry). Click fraud may comprise 10% or more of pay-per-click ads. The piece’s coverage of the ‘click-to-read’ (CTR) space is particularly intriguing. Firms set up sites that run ads from Google, Yahoo, or a third party, then hire individuals to visit these sites & click ads. Google pays the site operators for the clicks on site, then the fraudulent site operators pay the ‘click-to-read’ participants. If using PPC ads, using a Pay Per Click (PPC) management company can help make sure that your ads are safe, and easily distinguishable from the fraudulent ads. Since CTR users are spread around the world and are instructed not to repeatedly visit the same sites multiple times, it’s particularly difficult to detect this form of ‘enriching’ click-fraud. But BusinessWeek did some weak reporting in other areas. Google does not (as the article seems to imply) directly pay those who click on ads that it serves to third parties. The CTR is simply a variant of ‘click farming’ a phenomenon reported more accurately in Wired’s story from January. And the BW reporters don’t seem to understand the pay-per-click ad market. Google ads aren’t ‘recycled’ (what editor let that phrase through?). The truth is a separate Google advertiser option named AdSense allows advertisers to run ads not just on Google, but on third-party sites (there are AdSense ads on this site as well as the NY Times, USA Today, and others). Advertisers choose AdSense as a way to gain broader ad distribution. And authors refer to ‘domain parking’ as if it’s something unique to click fraud, but nearly every website has a third-party host that runs its servers. Many people end up looking into an alternative to clickguardian, which is one of the main programs used to defend against this, after suffering an attack from Click Fraudsters, and this can be very effective in countering this issue. Surprising BusinessWeek let sloppiness slip through – the firm’s tech reporting is usually spot-on.

China’s High-Tech Market: A Race to the Middle
McKinsey claims Chinese tech firms are growing 3 times faster than multinationals. Foreign firms are sticking too rigidly to specs & high pricing, while domestic Chinese firms are nimbly servicing the needs of the local market. It’s estimated that by 2010 Chinese companies will hold as much as 80 percent (about $260 billion) of China’s high-tech market, up from 67 percent in 2004. Acquisition of Chinese firms is rarely an option without the backing of Beijing pols. And acquisition doesn’t make sense to many Western firms since shareholders demand higher margins. Chinese companies are used to operating leaner than the Nasdaq set can handle: last year the top 1,000 electronics companies in China had an average net margin of only 2.5 percent.

Intel Laser Chip Could Transform Data Centers
“Imagine a little chip in a server sending data at a minimum of 1,000 times faster than today… Imagine loading movies in seconds, practically in real time.” That’s the promise of a new Intel technology that replaces electronic interconnects with lasers. Estimated to be just four years from commercialization, the technique should cost just $1 per interconnect, but blast data between chips, boards, or even servers at rates of 1 terabit per second. Smokin’!

Great Timing for Carly’s Memoir
The HP Scandal hit the cover of Newsweek – that’s about as ‘mainstream news’ as you can get. HP Chair Patty Dunn is now gone and the brilliant HP turnaround by current CEO Mark Hurd is tainted. If there’s a silver lining for anyone in this mess, it’s rehab for former HP CEO (and Fortune’s former #1 ‘Most Powerful Woman in Business’), Carly Fiorina. A tidbit – the first line in her forthcoming memoir “Tough Choices” reads: “in the end, the board did not have the courage to face me.” And this was written before the scandal!

Three Year Old Buys Car in eBay
Mom & Dad saved their eBay password in the browser. Little Jack Neal took a liking to the Barbie pink roadster he saw online, and, with a couple clicks, placed the winning bid at £9,000. Tyke wakes up the next day and announces proudly “I’ve bought a car!” Parents of youngsters, beware!

BC’s Gips to be Honored with Gates
A top prize for Eagles Eyes! The EagleEyes Project, led by IS Department Chair and Eagan Professor, Jim Gips, was named a 2006 “Technology Award Laureate” by the Tech Museum of San Jose, CA. The EagleEyes Project, along with the 24 other Laureates, will be honored at the black-tie Tech Awards Gala in San Jose, CA., on Wednesday, Nov. 15 . Prof. Gips is in good company – among the 24 other Laureates attending will be Bill Gates, honored with this year’s Global Humanitarian Award.

BC’s Barry Makes the Grade
More BC faculty kudos! Finance Prof. Mike Barry is recognized as BC’s favorite Carroll School professor and one of the best professors in the country by BusinessWeek. Way to go Prof. Barry!