The Week in Geek – Sept. 17, 2008
Old News Item Causes $1 billion run on United Stock
For a peak at how algorithms (along with some error and chance) can impact Wall Street, check out what happened to United Airlines stock last week. In the wee hours of Sunday morning, a single reader visiting the Orlando Sentinel’s website viewed a 2002 article on the bankruptcy of United Airlines. The hit during this low-traffic time was enough for the Sentinel’s website to call the article one of its ‘most popular’. Google picked the article up, fed it into Google News, and a Florida investment firm found the story on Monday morning, assumed United had yet again filed for bankruptcy, then posted a summary on Bloomberg. Trigger happy investors jumping on any shred of early news dumped UAL stock. Blame the computers again, the plunge caused trading algorithms to kick in (computer-automated trading was responsible from some 30% of trades last year). UAL stock plummeted from $12 to $3. All this because no one (and code) checked the date on a story. Welcome to the new world of paying attention!
Time to Rethink Offshoring?
Five years ago, when oil was $20 a barrel, the cost of shipping product to the US from overseas was like a 3% tariff. With today’s oil prices, it’s as if we’re now facing the equivalent of an 11% import tariff. It now costs more to ship iron from Brazil to China than the iron itself is worth. Chinese wages are on the rise too, up 19% vs. 3% in the US. Mexican workers used to make 2x their Chinese counterparts. Now it’s just 1.15 times. McKinsey offers some fascinating examples of how the economics of offshore production are shifting. Used to be, if you built a server in Asia and shipped it to the US, you enjoyed a $64 total cost advantage for every $100 you’d spending the US. Now that number has turned negative – Chinese production will cost $16 more than the domestic option! With that said though, this can change at any time and offshoring may become more cost-effective once more. Quality issues with Asian products are also becoming a thing of the past thanks to during production inspections by third-party quality controllers becoming more mainstream. In the end, only time will tell the future of offshoring production. Will it stay or will it go (back home)?
In Google’s Doghouse
More on Google’s influence: So what happens when you’re too successful? Success & influence seems to be why the decidedly un-evil Google has caused the US (and perhaps European) Justice Depts. to perk up. The firm dominates search, dominates search advertising, and if the Yahoo partnership goes through the two firms will have a staggering 90% of search ads. Google is the new Yellow Pages – the go-to source for a generation weaned on tech. And this influence will only continue to grow. If your ads aren’t in search results, and if you don’t show up early in organic search results, to most users it’s as if you’re not even in the phone book (note to marketing majors – learn to leverage Google or you’re out of the game).
Google’s algorithms wield tremendous power and the Times shows what happens when a tweak of the algorithm impacts a business. Sourcetool, a free online directory listing for industrial parts, built its business via Google. The site would buy key words (e.g. ‘ball bearings’) on Google search, paying the firm for each click that attracted customers (that expense, around $500,000/month). Then the site would run Google ads on its own site, with Google sharing its take whenever anyone clicked on an ad (which happened enough to generate about $650,000 / month). After some other expenses, Sourcetool brought in over $100,000 in monthly profits on a business that practically ran itself – a pretty sweet gig! But when Google changed the ‘landing quality’ algorithm that ranked Sourcetool below other bidders and instituted a minimum bid price well above the few pennies Sourcetool paid, the gig was up. Joe Nocera is convinced Google’s math is pure and unbiased, and Sourcetool’s business seems dicey to me. This is an ad arbitrage game where the site bought cheap ads from Google, then ran what were more expensive ads on its site in hopes to collect coin from visitor clicks. Efficient markets don’t like arbitrage. Rely on a model that stresses the edges of a gamed system, and the model may collapse with a few well-intentioned geek tweaks from the giant.
Swords into Diapers
Los Alamos and Sandia have seriously burly supercomputing and they’re partnering with industry to help develop nextgen products & speed development cycles. Once the province of simulating nuclear explosions, Goodyear’s breakout seller, the Assurance Triple Tread, was designed with supercomputing from the government’s Sandia Labs. Now virtual tire design cuts across all products. Only one prototype is created, design cycles are trimmed to 8 months, and the R&D budget for testing and building molds has dropped from 40% to 15%. Goodyear says the product design improvements and costs savings were critical to the firm’s turnaround. P&G estimates its computer simulation partnership with Los Alamos has saved the firm over $1 billion. Simulations are helping the firm create products with new eco-friendly materials. Silicon is the lab!
Alibaba Shows Stamina in BW Asia 50
Jack Ma’s China eBay killer surprised investors with a 136% jump in earnings in Q2. BusinessWeek ranks the firm #3 in the Asia BW 50.
Lehman = Pan Am
Andy Kessler points out tech even played a role in Lehman’s collapse. “Inevitably, too many players and a bit of technology in the form of electronic trading squeezed the profitability of Wall Street’s bread-and-butter businesses,” writes Andy Kessler in Forbes. “Wall Street will soon (hurry up, dammit!) rid themselves of the mad-cow-infested subprime loans and won’t dabble in mortgages ever again or in five years, whichever comes first.”
Don’t Buy That Textbook: Download It Free
Flat World Knowledge (my publisher) gets some more press, this time in the New York Times, as it attempts to crush the $175-$200+ price for most college textbooks. And for those curious, just hours after releasing a collection of draft chapters from my book, faculty checked in from locales as far away as United Arab Emirates, Australia, and Denmark to send kind words regarding the content. Let’s hope we have a hit that changes the market. Thanks to all for supporting the project at https://gallaugher.com/chapters. Faculty, please be sure to e-mail me to let me know what you think!
Scanning the News for Slant and Cant
Web 2.0 can fuel partisan blogs and enable narrowcast news that further narrows opinions, but might other Web 2.0 tools help cut bias? A new non-partisan effort called SpinSpotter.com attempts to enlist legions and leverage the wisdom of the crowds operating with a common ethics code to identify bogus claims on both sides of the political aisle.
Getting Inside the Customer’s Mind
Edwina Dunn and Clive Humby’s firm, dunnhumby, is crunching data from credit card transactions and loyalty programs to provide deeper insight to Kroeger, Home Depot, Macy’s, and others. Among the findings – customers with different body types actually shop at different times of the season. Implications for product offerings, store design, and items featured in catalog all cascade from what the data shows.
End Runs Around Vista
HP has created a group to quietly work on code that would bypass Vista features. HP, which relies on imaging and photos to differentiate its products, worries Vista’s media features are too cumbersome for most users. And if Apple enters the market with a sub $1,000 notebook, HP could take a hit. Meanwhile Intel is pushing Linux for sub-notebooks using the Atom processor. Dell has a mini-laptop shipping with Linux and is rumored to be considering Linux for portable media players.
The Business Case for More Women Managers
McKinsey’s new study finds that firms with a high numbers of female senior executives and stronger financial performance. McKinsey also offers advice in “Centered Leadership: How Talented Women Thrive“.
BC among Most Wired
Hurray for the Heights! BC ranked sixth in this year’s Most Wired Colleges survey in PC Magazine. BC watchers may be curious to note that Gasson Tower is back. The spires were put on earlier this month and it looks glorious. You can see the new tower from the Higgins Stairs webcam. My new office has a view of the tower & quad, but the lower half of Gasson will remain wrapped until 2011, as renovations continue.