The Week in Geek™ – Jan. 11, 2011

The AI Revolution Is On
Decades ago folks thought artificial intelligence would create ‘thinking machines’ that replicated brain function. But while the dream of human-like droids doing our bidding isn’t much closer, better-than-human intelligence is now embedded in all sorts of systems that help drive your car, recommend videos for your Netflix queue, identify fraud for your credit card company, accelerate trading for Wall Street (see below), and is even found on social media.

For example, there is an abundance of data found in social media with users providing lots of details about their lives and traits. This can be used by advertisers, promotional companies and even users who are looking to grow their following. An instagram growth service such as https://nitreo.com/instagram-growth-service is able to use AI to carry out hyper-focused targeting to get people more followers and likes. Of course, this AI is also used by businesses looking to target and improve their ads, collecting more data the more ads they produce. While it might sound trivial, there are so many data sets that the AI has to process that a human wouldn’t be able to successfully carry out the same tasks.

Here are some other cool examples. Data Analysis algorithms originally used by NASA are now being tweaked to compare the ones and zeros in a wealth of medical images such as MRIs, CT scans, X-Rays, and ultrasounds. These systems are built to ferret out tumors and other problems far better than a human can. FICO’s Falcon scans 4 billion transactions a month, constantly refining its ability to uncover fraud and adapt to new techniques used by the bad guys. The Chevy Volt has over 10 million lines of code, more than the new F-35 Joint Strike Fighter. Google Goggles is being tweaked to use your phone’s camera lens to identify not only landmarks and barcodes, but also things like plants via their leaf shape. And as a guy with eyesight so bad I can’t get a license, I’m very excited that Sergey and Larry are working on cars that drive themselves.

Algorithms Take Control of Wall Street
If you’re planning a career in finance you’d best geek up. Computer code is now responsible for most of the activity on Wall Street (Wired claims computer-aided high-frequency trading now accounts for roughly 70 percent of all trading volume). That means that market fluctuation is increasingly driven not by human traders, but by algorithms scanning for and acting on the faintest of signals. Berkley, CA-based geek finance shop Voleon Capital Management gives a sense of just how dark a black box some of these systems are. The firm’s CEO says he doesn’t know what the firm’s trading bots are looking for or how they reach their conclusions. “What we say is ‘Here’s a bunch of data. Extract the signal from the noise’… We don’t know what that signal is going to be like.” While this work is classified as artificial intelligence, it isn’t necessarily artificial ‘human’ intelligence. These signals and their responses often aren’t anything a human is capable of processing or producing. We’ve even got news services for code, not people. The customers of the Dow Jones Lexicon news service aren’t humans – they’re programs written by trading houses that accept the Lexicon data and pump this into their own automated trading algorithms. If you wanted to learn more about these algorithms by using one of these softwares, consider checking out Stocktrades. I hear their company reports are informative.

At best, automated trading means efficient markets ruled by precision and mathematics rather than emotion and fallible judgments. But at its worst these systems create “an inscrutable and uncontrollable feedback loop”. In two examples from last year, the May 6, 2010 Flash Crash, shed 573 DJIA points in 5 minutes (see “Finance has a Need for Speed” in our Telecom Chapter), and in September, shares of Progress Energy shed 90 percent of their value. Sometimes the source can be easily found (in Progress’s case, an inaccurately entered order created a heart-stopping cascade of automated trades). But the Flash Crash took months to sleuth out, with the SEC eventually releasing a report claiming the chaos was caused by a large automated trade executing several positions in a short time that fueled a cascade of automated responses, and which quickly produced freakish results. Trades (eventually cancelled) included valuing Accenture shares at a penny and Apple shares at $100,000 each.

Wired offers their definition of a couple terms you should know. Proprietary (or Prop) Trading refers to algorithms to perform the familiar function of discovering, buying, and selling individual stocks. Algorithmic trading breaks up and optimizes massive orders to conceal them from the rest of the market. Predatory trading systems try to listen for subtle signals in the market in order to discover attempts to reveal the large, concealed trade moves. This last category leads to a sort of data driven cat-and-mouse that insiders compare to sub spotting in “The Hunt for Red October”.

SEC Chair Mary Shapiro has suggested humans may need to wrest back more control from machines and last year oversaw new rules such as circuit breakers that kick in at a 10% price fluctuation over five minutes. Tweaks and additional rules are under consideration, including a consolidated audit trail, a transaction tax, and a governor on the size and speed of trades.

Google’s Search for a Digital Wallet
Some are saying 2011 will be the year of NFC. Don’t worry Patriots fans, this isn’t a dig against your football conference, it refers to Near-field Communications, a low-power standard that can transmit information from up to 4 inches away. NFC is increasingly being built into mobile phones, with the thought being that your handheld is about to become your payment card, loyalty cards, and coupon wallet, all in one. Google’s CEO has said that he expects NFC will eventually replace credit cards. In December Google bought a Canadian NFC firm that holds several patents, including one that would enable multiple diners to split a restaurant bill using mobile devices. As part of Google’s Hotpot local merchant effort, the search giant has also begun to distribute NFC-embedded window stickers to local businesses that would allow a passerby with an NFC-equipped phone to swipe the sticker and get coupons, reviews, operating hours, and more. When using NFC an app doesn’t need to be launched, you just wave the device nearby & enter a PIN.

Google’s well positioned to lead with this standard. The latest Android OS supports NFC and some 300,000 new Android devices are activated each day, with Android accounting for more than ¼ of all smartphones shipped in Q3 ’10. Competing with Google in NFC standards is ISIS – a consortium of AT&T, T-Mobile, and Verizon. Visa and eBay also have plans to test NFC, and Apple, a firm that probably already has your credit card via iTunes, has filed a patent to transfer money between phones using NFC (NFC isn’t yet in an iPhone). One analyst quoted in BusinessWeek expects NFC to come on strong – accounting for roughly 1/3 of $1.13 trillion in total worldwide mobile deposit and transactions by 2014.

Products that Play it Smart
For those interested in NFC and all things smart & mobile, Boston College IS Professor Mary Cronin’s new book “Smart Products, Smarter Services: Strategies for Embedded Control” is a must-read. The book looks at “business strategies behind the technology embedded in smart phones, intelligent autos, and medical and energy devices” among others. Be sure to check out this BC Chronicle interview with Prof. Cronin. Congrats, Mary!

Initial Private Offering
The Last WiG discussed that Facebook was pushing up on the 500 investor limit on SEC rules that prompt more financial disclosure, potentially bringing about more incentive for an IPO. Well, now it seems Goldman Sachs and Russian cyber-sugar daddy DST (which is full of Goldman alums and already has a sizeable stake in Facebook) have ponied up $450 million and $50 million respectively in a new Facebook investment round. The move potentially delays the need for additional capital as Zuckerberg grows his masterpiece, and does so in a way that keeps the total number of investors down. The deal values Facebook at $50 billion (yes, that’s with a “b”), about 25x est. ’10 revenues. That’s a big premium, but GigaOm this week said Facebook’s 2011 profits could top $1 billion. As part of the Goldman investment, a preferred, limited roster of Goldman clients will be able to ‘buy into’ Facebook shares, but the ownership in SEC terms is listed as just a single entity – a Goldman-controlled fund. Clients who take advantage of the deal pay GS a 4% placement fee and 5% of investment profits, plus annual maintenance fees – a deal Jay Ritter at USF calls “maximum pay-to-play benefit“. Investors in the Goldman fund need to hold shares ‘til 2013 & keep mum about any non-public disclosure. The SEC is examining the deal to be certain it doesn’t skirt rules designed to protect investors. Facebook, for it’s part, has now stated it will either go public in 2012 or begin disclosing financial information to the SEC. While BW laments that IPOs typically squeeze out the small investor, here’s a thought – wouldn’t Facebook be just the firm to further legitimize, and spur on, the democratization of IPOs by using the WR Hambrecht OpenIPO auction mechanism? As for the stock symbol for Facebook, Vanity Fair has fun speculating – FACE is taken, but POKE is still up for grabs.

Wondering why Facebook might be worth $50 billion? Check out these compelling charts compiled by JP Morgan Chance (courtesy of AllThingsD).

Why Bing “Likes” Facebook
A massive upgrade of Microsoft’s Bing now leverages Facebook data to provide personal results – offering integration web search and social search into a single interface. If you’ve logged into Facebook, Bing recognizes your Facebook account (look for the little Facebook ‘f’ next to your name in the upper right-hand corner for confirmation). Perform a Bing search and the service will search through and display content that your Facebook friends have recommended when they clicked the “Like” button. Here’s a little promotional video from Bing. The effort potentially has huge implications for Google. Bing hasn’t been able to offer technology valuable enough to make any significant dent in Google’s search market share. But if one assumes Bing’s roughly as good as Google, but can also offer something Google currently can’t (results from my friends whose opinions you may value), then Bing may be positioned to reap the benefits as search goes social. Let’s face it, Microsoft isn’t going to win this war with technology alone – any code it can write, Sergey and Larry’s geeks can copy. But if the alliance with Facebook stays exclusive, then Ballmer’s shop may have a weapon Google can’t match. Says Search Engine Land editor Greg Sterling, the Bing/Facebook alliance “has the potential to make every search results page personal and distinct“.

Google faces its next big challenge: ridding itself of the spammers it created
This is a big deal! Spam is killing Google. Do a search on a simple topic and you’re likely to encounter page after page of “content farms”, and made-for-adsense landing pages that are littered with pay-per-click ads, but that don’t really solve your question. Click on any ad, on purpose or by accident, and the spammer makes a few cents. Multiply that by thousands and there’s a big incentive for the spammers to undermine all that makes Google great. Vivek Wadhwa has lamented in TechCrunch that ” Google has become a jungle: a tropical paradise for spammers and marketers“. The bad-guys have learned to game Google’s algorithms and the efforts are mostly automated by nefarious software that can build the sites and create a network of links to push results to the top. Technology Review’s recent article “Why Google is Chocked with Spam” gives some background (albeit in featuring the Google-competing startup, Blekko). Google has to solve this problem, and quickly, otherwise users will migrate to rivals. I already find myself turning to ‘vertical’ resources like Wikipedia, or Amazon for product search, where I’m more likely to get an answer to key questions. For another recap of the chorus of voices complaining about Google’s SEO spam choke, see Instapaper founder Marco Arment’s “Google’s decreasingly useful spam-filled search“.

Cracking the Code of Facebook’s Newsfeed
Ever wonder why that person you barely knew from the 10th grade keeps showing up in your Facebook feed? Like Google, Facebook refuses to disclose specifics on how it ranks content. But The Daily Beast’s Thomas Weber (formerly of the WSJ) ran a month-long series of experiments that yielded the following “discoveries”.

• A bias against newcomers – newbie updates don’t rank highly in newsfeeds.
• “Most Recent” doesn’t tell the whole story – items rise in ranks when friends click on links (and did you know you’ve got a setting that caps the # of friends shown in the feed?)
• Links are favored over status updates, and photos and videos trump links (presumably because the latter drive engagement within Facebook).
• “Stalking” your friends won’t get you noticed but having friends who stalk ‘you’ will probably boost your popularity.
• You can raise your visibility if friends comment.
• It’s hard to get the attention of “popular kids.” Yes, Facebook really is just like High School.

I’ve got to admit that the narcissistic language of ranking status updates is a real creep out, but given that SEO is now a hugely influential discipline (see Google above) and social search is coming on strong (see the Facebook/Bing article above), cracking this code will be vital for those seeking to leverage the growing power of Facebook.

Ad.ly: The Art of Advertising on Twitter
LA-based Ad.ly is pioneering the micro-endorsement (see graphic Twitter Twitter Little Stars). For $1K to ~$50K/tweet, celebrities ranging from Snoop Dogg to the actress who played Punkie Brewster will pitch your product to their followers. Ad.ly tweets are identified (FTC rules require such disclosure) and editorial is typically approved by advertisers and celebs. The firm has crafted some 20,000 endorsements for 150 brands, including top-drawer clients Sony, Best Buy, and Old Navy. The Toyota Sienna (my wife’s ride) got 140 character shout-outs from Snoop (“these homies know the deal”) and Mark Cuban (“Looks like I need to invest in a fleet of Sienna minivans”), so next time I’m riding shotgun while she chauffers the kids I’ll be sure to feel a bit of that West Coast Rap/Dallas Mavericks cred. After I tweeted about this story, the kind folks from ad.ly offered to come visit BC during the Spring semester to discuss their business. Looking forward to it!

TED Curator Chris Anderson on Crowd Accelerated Innovation
If you’re not snacking on the amazing TED conference videos you’re really missing out. Videos from TED (for Technology, Entertainment, Design) regularly inspire, motivate, educate, challenge, and give goosebumps (our last WiG featured a TED Talk by Facebook COO Sheryl Sandberg, and this summer the WiG featured a TEDxBoston talk by BC Information Systems student MacCalvin Romain. The TEDmaster Chris Anderson (not to be confused with the other Chris Anderson who is a Wired editor and wrote FREE & Long Tail) says that by putting TED video online, talks get increasingly excellent via what he calls “crowd accelerated innovation”. Two things happen: 1) there’s an archive of truly excellent talks and 2) presenters are inspired to do their absolute best since a passionate worldwide audience follows TED. Community cultivators & social media mavens should note Anderson’s taxonomy of the necessary roles within a thriving crowd: “The trend-spotter, who finds a promising innovation early. The evangelist, who passionately makes the case for idea X or person Y. The superspreader, who broadcasts innovations to a larger group. The skeptic, who keeps the conversation honest. And the general participants, who show up, comment honestly, and learn.” By the way – if you have an iPod or iPad, be sure to check out the excellent (and free) TED app.

Commentary: The classroom and TED audience are clearly different, however when reading the Anderson piece I noted how lessons of TED and crowd accelerated innovation are ones that can be applied to education. Many of us at Boston College have found that by using wikis and other forms of social media for our courses we are also able to similarly provide examples of excellence and greater motivation to do one’s best work. While typical classes might discard student projects, many of us keep past projects and assignments online, allowing students to see where the bar of excellence is and motivating them to overshoot and continually raise that bar. And since earlier work lives online, students can leverage contributions of earlier classes to more quickly scale the learning curve and push the boundaries of what can be learned in a semester. This is particularly true of seminar classes (such as TechTrek and our other field studies) where theory topics studied remain largely consistent, but developments and details constantly change.

Spotify: the Coolest Music Service You Can’t Use
If you’re in the US, Wired declares “Spotify is perhaps the biggest, coolest, greatest piece of software you’re not allowed to use“. Spotify lets users listen to and share just about any song by any artist instantly and for free. Napster/KaZaa it ain’t – Spotify is perfectly legal in seven European countries (UK, Sweden, France, Germany, Italy, Norway, and Spain) where rights to broadcast and stream music are negotiated with a national association in each country. The US is the world’s biggest music market, so you’d think Spotify would be here. Problem is, in the US there is no such central rights-granting authority. Unlike radio broadcast (which requires broadcasters pay a predetermined fee), on-demand online streaming services require specific licensing from those who control copyrights.

The labels are concerned about free streaming. Warner Music CEO Edgar Bronfman has said “Free streaming services are clearly not net positive for the industry”. But Spotify’s 20-something Swedish founder Daniel Ek (pronounced ‘eek’) disagrees, claiming his service will catalyze music sales by allowing artists to be discovered socially, free from the limited playlists of radio. Ek thinks the music industry, valued at $17 billion in 2010, could be worth upwards of $50 billion with the right discovery mechanisms (such as Spotify) in place.

While the numbers may be in dispute, there are anecdotes that suggest that Spotify discovery fuels sales. For example, British band Northern Kind claims that their first album, not on Spotify, has seen iTunes sales trickle off, but the second album, which is on Spotify, has seen iTunes sales continue strong and steady. While the service is free, about 5 percent of customers pay for premium services, such as ad-free streaming and the ability to store songs on a phone, iPod, or tablet. Sean Parker, the Napster co-founder and Facebook backer played by Justin Timberlake in “The Social Network”, has backed Spotify with $15 million of his own coin. Parker sees Spotify’s switching costs as key – find the songs you want for free, then you’re going to want these tunes everywhere “you get addicted to it… you’re going to have to become a subscriber”.

US competitors offer on-demand music streaming exist, but none offer the freemium model that Spotify does. There are subscription-based competitors. Rhapsody has deals with all the major labels. Three labels have an ownership stake in MySpace Music. And even the once-RIAA-hated KaZaa (and Skype) guys, Nik Zenstrom and Janus Friis, have managed to convince all four major labels to cut a 7 million+ song on-demand streaming deal for their effort called Rdio by offering a subscription-based model. Even wildly popular Pandora says it can’t afford the kind of licensing needed for free, on-demand play, and Last.fm was forced to drop its free, on-demand service after it was clear the economics just didn’t work out. After canceling repeated announcements of an impending US deal, many in the trade press have begun to question where a US freemium Spotify launch will ever happen.

Understanding the Strategic Value of IT
McKinsey says that one of the reasons that many M&A deals fail, or are poorly valued, is that IT and operations execs are often not included in the due-diligence process, limiting their key, valuable input on “the costs and practical realities of integration“. As we’ve pointed out several times in the WiG, mergers and acquisitions are on the rise as industry giants are armed to the teeth with huge cash hoards. But if the M&A team doesn’t understand the role of tech in bringing firms together, then their advice isn’t much more than a weakly educated guess. Yet another reason why anyone hoping for a career in investment banking should study information systems, too. McKinsey advises that tech-savvy execs shouldn’t just be involved in due diligence, an acquisition platform should be part of a firm’s IT infrastructure.

Social Media and Dialog Management at Starbucks
Those interested in a framework for understanding how firms engage in social media might be interested in a paper Prof. Ransbotham and I recently published in the MIS Quarterly Executive. The paper presents a 3-M framework (Megaphone, Magnet, and Monitor), which can provide a structure for understanding the opportunities and risks presented by social media. The paper also offers an in-depth case study of Starbucks, a firm widely regarded as one of the best at leveraging social media. Using the 3-M framework, we identify the challenges social media introduce and offer case-based examples of how to manage these challenges. The paper also proposes guidelines that can assist firms in navigating the evolving environment of social-media-based customer dialog. Sorry I can’t offer a link to a free version, MISQE has access limited to subscribers, but those of you in academic settings or with good electronic library access can likely find it online. Oh yeah – and that logo in the upper left hand corner? It’s gonna change.

SavvyShoes, Moglo, Nutrition2Go Take Home Cash at BCVC Elevator Pitch Contest
One of the greatest privileges I get from teaching at BC is in being able to draw attention to our exceptional students. BostInnovation offers an excellent recap of the winners of the November 2010 BCVC Elevator Pitch Competition – all of them undergraduates. Keep your eye out for the victorious women of SavvyShoes (kids’ shoes that can be accessorized) and third-place finisher Nutrition2Go (advice to help you eat more healthy), and of course second-place team Moglo, which is about to launch their first app – a map-driven, real-world location-based game that hearkens to Risk, but which allows you to take over real spaces. As the developers say “the world is your playground”.

And finally The Week in Geek was just named one of the Top 50 Blogs by Business Professors – w00t! Thanks for the support, folks!