LunchTalk: Netflix CEO Reed Hastings

At the 37th annual ENCORE Award event on September 23, 2014, Stanford Graduate School of Business honored Netflix, and Netflix Founder and CEO Reed Hastings, MS '88. Reed Hastings speaks on the history of the company, the challenges they faced, and how Netflix became the innovative leader it is today.



tags: internet, media, video, streamternet, source, content

Social Media vs TV: kill or be killed

Advertisement dominates business models deployed by social media companies, including Facebook, Google, Twitter, Yelp, and a host of others. Although we think of them as technology growth companies, historically advertising revenues have been flat relative to the GDP *.

Web-based ads — most famously Google AdWords — grew rapidly not because they somehow generated new economic growth in the country, but because they helped TV kill newspapers, Craigslist.com being the early hero.

Now that newspapers are effectively dead, the only way for the ad-supported internet business to grow is to kill TV-based ads. While the TV industry fights it off with YouTube, Facebook, and Twitter, we should expect more video ads on our mobile screens. In the meantime, the likes of HBO and Netflix have to put a strong bet on content quality. Such a bet would be independent of the distribution media and would have a good chance for translating video streams and downloads into real growth.

* also see http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1399613 
tags: internet, video, data, packaged payload, distribution, content, media,

NY Times picking your friends' noses

"You can pick your friends, you can pick your nose, but you can't pick your friends' noses," so an old saying goes. This notion has become largely obsolete in the age of social networking. For example, when you sign up with your Facebook account on a popular website they typically get not only your public profile, but also your friend list.

Imagine now doing real business, e.g. making a purchase or contacting customer service, using your social networking profile as a login. For the price of the transaction the other party gets access to your entire social graph, which (with a little bit of triangulation through other customer logins) provides an incredible wealth of marketing information. As a result, you give up a large chunk of your privacy for free, without even being aware of it.

We used to think about privacy as a trade-off: you get access to free content by giving up your right to stay anonymous, i.e. providing the content distributor with the information about what kind of content you like to read. If the current trend continues, people will be giving away for free not only their own privacy, but also their friends' privacy too.

tags: trade-off, trend, social, networking, composite actor, privacy, internet

Linking users and concepts - a Facebook patent

Facebook continues building up a strong patent portfolio for graph-based technologies. On January 6, 2015 the USPTO awarded the company US 8,930,378 patent on a social-like network between users and concepts. The patent is titled "Labeling samples in a similarity graph", inventors Pierre Moreels and Andrei Alexandrescu.

On the figure above, circles with Us in them mean users and circles with city names mean concepts. The dotted lines show a calculated confidence level that a particular concept is "linked" to a user who is not connected to it directly.
Since the concept can describe anything in the real as well as abstract world, Facebook patented a technology that figures out the user's connection to objects, places, and other stuff based on the user's social connections.

For completeness, here's Claim 1 (click to enlarge):

The claim looks very clever, but it's hard to believe that the idea has not been covered in the prior art. Detecting infringement of the patent would also be quite difficult because an accused piece of software would be embedded deep down in the guts of a server-based implementation.

tags: patent, facebook, graph, social, networking, internet, portfolio

Lunch Talk: Tools for Entrepreneurs - Making Something People Love

Renowned entrepreneur and Reddit cofounder Alexis Ohanian, will inspire you to think of unique ways to connect with your customers, and to build a community of users who want your business to succeed. In this class you'll learn some key branding, marketing, and user experience principles, plus specific tactics and strategies that you can use to create a company people love.



Note emotional vs cognitive appeal of a new product/service in a new market.

tags: lunchtalk, innovation, entrepreneurship, internet, web, creativity, emotion

Facebook patents a tech to provide socially relevant ads - US 8,924,406

On December 30, 2014 the United States Patent Office awarded Facebook a patent titled "Ranking search results using social-networking information" US 8,924,406 ( Inventors: Christopher Lunt, Nicholas Galbreath, Jeffrey Winner).

The patent covers a technology that provides a new way to determine relevant ads and/or additional content shown to the user along the search results. According to the invention, a search engine takes into account the popularity of sponsored links associated with the results. The popularity is calculated based on clicks in the user's social network and a social relevancy threshold (degrees of separation).

From a business perspective, Facebook continues strengthening its challenge to the Google "relevant ads" model created in the early 2000s. Today, some of you may already see sponsored relevant links inserted in your Facebook stream or page. The patent would be a good illustration to the brief discussion "GOOGLE VERSUS FACEBOOK: THE BATTLE FOR THE CONTROL" Max and I outlined in Chapter 22 of our book Scalable Innovation.

Another interesting aspect of the patent: it shows the brave new "Me-centric" world of social networking (see Fig 1 above). From a technical and business perspective it indicates a large-scale transition from relational (excel-like rows and columns) representations of data to a graph-based one, with nodes and edges. The patent also provides a good working definition of a social network:

the social-networking system comprising a graph that comprises a plurality of nodes and edges connecting the nodes, each edge between two nodes representing a relationship between them and establishing a single degree of separation between them, wherein the first user corresponds to a first node of the graph.

tags: patent, facebook, innovation, invention, social, networking, search, control, internet

The Internet of Things: malware threat to US energy infrastructure

Destructive "foreign" software is becoming a weapon of choice for covert international operations. For example, according to today's ABC report:

National Security sources told ABC News there is evidence that the malware was inserted by hackers believed to be sponsored by the Russian government, and is a very serious threat.

The hacked software is used to control complex industrial operations like oil and gas pipelines, power transmission grids, water distribution and filtration systems, wind turbines and even some nuclear plants. Shutting down or damaging any of these vital public utilities could severely impact hundreds of thousands of Americans.

In our book, Scalable Innovation, Chapter 3, we discuss in detail one of the system security inventions I made back in 2000, while at Philips Research. The invention, US Patent 7,092,861, aims to detect novel viruses that can target networked equipment in the home, office, or industrial cite (the patent is now owned by Facebook).

More than a decade ago, it was clear to us in the labs that the emerging Internet of Things creates new types of threats. Unless such threats are addressed through a broad, consistent industry and government efforts, our critical infrastructure will be highly vulnerable to vicious attacks that could dwarf in their destructive power the events of 9/11. Ideally, all existing industrial software has to be upgraded - a difficult, but essential task for the next two decades.

Invention of the Day: SGML (Standard Generalized Markup Language)

SGML is the second great invention (that I know of) by an American lawyer; the first one being the Cotton Gin, by  Eli Whitney.

The Cotton Gin (1793) revolutionized the cotton industry in the US and, arguably, triggered the Industrial Revolution in England. Similarly, the SGML, co–invented by Charles F. Goldfarb, revolutionized the way we work with electronic documents. For example, the World Wide Web would be impossible without HTML, a simplified extension of SGML. Another extension of SGMIL is XML, a critically important document format used extensively in modern web and mobile applications.

In 1969, together with Ed Mosher and Ray Lorie, Goldfarb invented the SGML to make electronic documents compatible between different computing systems. Before SGML, a document would have instructions on how to handle it — procedural markup — embedded into the text. Since different IBM computer systems had different command sets, moving documents with procedural markup created a problem, because the same document would not "work" on a different computer. To solve the problem, the inventors came up with a language that could describe the contents of the document independently from the application or computer system that stored or processed it. Here's how Goldfarb wrote about the breakthrough in a 1971 paper:

The principle of separating document description from application function makes it possible to describe the attributes common to all documents of the same type.

20 years later, this feature of SGML turned out to be highly useful for the World Wide Web, a system designed for a seamless exchange of documents from networked computer systems around the world. HTML, a simplified version of SGML, allowed web enthusiasts to put together simple web pages that could be rendered in browsers on all kinds of machines. With the web, the invention turned into a great innovation.

tags: invention, innovation, separation, internet, web, packaged, payload,  

Lunch Talk: Inventions that shook the world (1980s)

DNA profiling is one of the inventions.

tags: invention, innovation, internet, detection

Cloud security: a new kind of an arms race in 2014

To me, the most interesting high-tech trend to watch in 2014 will be the competition between US government agencies, e.g. NSA, and US private high-tech companies, e.g. Google, Facebook, and others. Given the recent court decision, we can easily predict that the US government will continue intercepting, storing, and decrypting private and commercial electronic traffic. On the other hand, cloud companies like Google built their business on user trust and data security. They've already started the process of rethinking system security, including broad use of strong encryption algorithms.

An implicit assumption in the industry is that if the government can break into your data then any skilled hacker can do the same. In short, the deliberate weakening of security standards creates a direct threat to commercial cloud computing. As a result, we should see an arms race between the government and businesses in the area of digital security. Before, arms races were an exclusive domain of rival governments. Today, the global nature of the Internet brings a new category of players into the picture. We should expect exciting innovations ahead. Maybe even quantum computing will become a reality sooner, rather than later.

tags: innovation, internet, cloud, security, battle

Invention of the Day: Relevant Advertisement.

Today, Google makes billions of dollars a year, by serving ads relevant to user searches. Bill Gross, of IdeaLab, is generally credited with inventing the business model. We use this example in class (Principles of Invention. BUS 74) and Scalable Innovation to illustrate a couple of points:

1. The difference between Invention and Innovation (for more detail see Scalable Innovation, Prologue. Soft Barrier 2: Invention vs Innovation. page xxxi).
2. Breaking, rather than accepting a broadly accepted trade-off, often leads to a major innovation breakthrough. That is, in 2000 when Yahoo dominated the web and used Google search engine to serve user requests, it made money by serving annoying banner ads. In short, Yahoo was locked in a trade-off between making more money and making user experience unbearable (very similar to today's Facebook situation). Google took Bill Gross' original idea and broke the trade-off, by making ads useful (see Scalable Innovation, 2013. Prologue, Internet Advertisement. page xxxvii). As the result, the constraint on revenue and user experience disappeared, making Google the dominant force on the Internet.

New developments in the world of patent litigation show that the concept of relevant ads was invented not by Bill Gross, but by Richard Skillen and Fred Livermore, of Nortel. US Patent 6,098,065 describes a search system that "correlates the received search argument to a particular advertisement." Derived US patents claim multiple aspects of their original idea.

In 2011, Apple, Microsoft, and others bought thousands of patents from bankrupted Nortel for $4.5B. Now, they are suing Google, Samsung, and the rest of the Android universe for patent infringement. The Skillen and Livermore patents are an element of the lawsuit. Of course, the suit will not stop Google from dominating search on the web and mobile. Rather, it is likely to result in a monetary settlement or damages awarded by the courts. The best part of it is that we now know the original inventors of a new powerful business mode. And they are Canadians!

Why Toronto, Canada is not Silicon Valley is another story.

tags: invention, patent, internet, business, model

Lunch Talk: TEDx, the battle for power on the Internet.

Bruce Schneier talks about the problem of control over data on the Internet.



In chapter 22 ("Seeing the Invisible: The System behind the New Internet") of our favorite book, we discuss the mechanism of Control that Internet users delegated to private companies in return for subsidized devices and services. Essentially, the users traded their long-term digital futures for short-term economic and status gains. In economics, it is called Future Discounting. Paradoxically, the original idea that on the web everything is free AND there are no strings attached to the content turned into a familiar trade-off: "free stuff with lots of strings attached." As usual, a recipe for success became a recipe for disaster.

e-mail is a security black hole.

(NYT. Jan 31, 2013) SAN FRANCISCO — For the last four months, Chinese hackers have persistently attacked The New York Times, infiltrating its computer systems and getting passwords for its reporters and other employees. 

Security experts found evidence that the hackers stole the corporate passwords for every Times employee and used those to gain access to the personal computers of 53 employees, most of them outside The Times’s newsroom.

Over the course of three months, attackers installed 45 pieces of custom malware. The Times — which uses antivirus products made by Symantec — found only one instance in which Symantec identified an attacker’s software as malicious and quarantined it, according to Mandiant.

E-mail is a mature technology where bugs and security holes were all supposed to be extinguished. If e-mail servers at a major news institution cannot be protected from outside intruders, the situation with thousands of mobile apps is probably much worse.
The effectiveness of anti-virus software is quite pathetic - 44 our 45 malware pieces not detected.

tags: security, internet, control, mobile, communications

The Web is Dead, a social media edition.

(San Francisco. Jan 30, 2012) Facebook Inc. said its mobile daily active users exceeded its desktop daily active users for the first time in the fourth quarter of 2012.

The trend hasn't touched the enterprise world that much yet - a huge technology opportunity.

P.S. VentureBeat and Yahoo Mail web pages are the worst browser hogs ever. The pages contain sloppy scripts and flash widgets that pull data constantly, even when the the page is not visible in the tab view.

tags: s-curve, internet, web, mobile, social, networking

Trade-off of the Day: Revenue vs User Experience

Yahoo reported 2012 Q4 results that show a company stuck in a 15-year old trade-off between selling more annoying banner ads and improving user experience:

Display ad revenue excluding commissions to other websites in Q4 fell 5%, even though the amount advertisers were willing to pay for ads rose 7%, the company said in an earnings statement.

...the fall in Q4 was also at least partly an effect of Mayer's mission to improve the user experience on some Yahoo properties, including its home page, wrote Cowen and Co. analyst John Blackledge, who rates Yahoo as neutral. Fewer ad impressions in Q4 were "partially a result of an attempt to rein in site clutter and improve user experience," he said.

Yahoo's business model is bound by the Revenue vs Quality trade-off. In contrast, Google provides relevant text ads that improve user experience AND generate more revenue. The difference in business models creates a huge performance gap.

 

tags: tradeoff, business, internet, model, constraint, 

A total war, the 21st century edition.

A white paper from Symantec (h/t CNet) details an ongoing large-scale e-spionage effort they call "The Elderwood Project." The company researchers believe that the same group, which (successfully) attacked Google through its China offices in 2009, is behind the current attacks,

The scale of the attacks, in terms of the number of victims and the duration of the attacks, are another indication of the resources available to the attackers. Victims are attacked, not for petty crime or theft, but for the wholesale gathering of intelligence and intellectual property. The resources required to identify and acquire useful information—let alone analyze that information—could only be provided by a large criminal organization, attackers supported by a nation state, or a nation state itself.

The report describes a specific technique they call "watering hole," when the attacker infects a target site and waits, as if in an ambush, until target users access the site.

Saving Yahoo, act 6.

NYT adds another detail to the story of Yahoo's demise:

[Marissa Mayer] said Yahoo was “one of the best brands on the Internet.”She recalled that when she first started at Google, the company would conduct user surveys and “people didn’t understand the difference between Yahoo and the Internet.”

At the turn of the century, Yahoo owned the web, had unrestricted access to Google's search technology, and was one of the largest e-mail providers in the world. And they managed to blow the lead.

As she hashes out Yahoo’s strategy, Ms. Mayer said she was intent on leveraging the Internet company’s strong franchises including e-mail, finance and sports. She also hopes to do more with its video broadband and its mobile businesses.

Let's do a reality check. Youtube dominates Internet video; GMail dominates e-mail (e-mail is dead anyway); Google and Apple share leadership in mobile; Apple gates access to Yahoo finance on the mobile. Facebook and Google are buying technology at the pace of a couple of startups a month. It will be a miracle if Ms Mayer pulls an upset using Yahoo's sports properties.

tag: s-curve, innovation, business, internet, web

Lunch Talk: Internet and the brain.

(7/9/12. Newsweek.) The brains of Internet addicts, it turns out, look like the brains of drug and alcohol addicts. In a study published in January, Chinese researchers found “abnormal white matter”—essentially extra nerve cells built for speed—in the areas charged with attention, control, and executive function. A parallel study found similar changes in the brains of videogame addicts. And both studies come on the heels of other Chinese results that link Internet addiction to “structural abnormalities in gray matter,” namely shrinkage of 10 to 20 percent in the area of the brain responsible for processing of speech, memory, motor control, emotion, sensory, and other information. And worse, the shrinkage never stopped: the more time online, the more the brain showed signs of “atrophy.”

tags: 10x, internet, payload, niche construction, psychology, brain, social

Invention of the Day: Social Networking.

As also realized by the inventors, if an individual can register with the database, for example, by providing professional and personal data, and perhaps other selected criteria common to all (or significant numbers of the users), the user consequently can be linked to a plurality of other such individuals who have similarly provided information based on defined linking relationships.

This quote is not from a LinkedIn or Facebook business plan. Neither company was around in January, 1997 when Andy Weinreich and 12 other members of six degrees, inc of New York, NY submitted a patent application for a "viral" e-mail database (click on the figure below to enlarge).

In 2001, Weinreich and his co-authors got US Patent 6,175,831, but their invention was made into a successful innovation by other people, including Mark Zuckerberg. I wonder how much of it was pure luck on Zuckerberg's part.

tags: invention, innovation, internet, social, networking

Invention of the Day: the Political Cookie.

From the June 27 MIT Review:

Cookies are short bits of code that identify a person's browser. With the help of advertising exchanges and media partners, a political campaign can use cookies to serve specific ads to, for example, all registered 50- to 60-year-old male Democrats in Pennsylvania's 6th district who are frequent voters and care about the environment. A campaign could even see whether specific individuals click on the ad and what they do once on its landing page.

The firm gathers publicly available voter files from all 50 states and supplements this with records of political donations and other profiles purchased from commercial data brokers, says CEO Jeff Dittus. Then, working with about 100 high-traffic websites that register their users, they can match the offline data to the online identities of individuals.

TV ads are expensive because
a) broadcasters have to buy content to attract viewers;
b) the ads also poorly targeted because they don't necessarily know who is watching what.

The Political Cookie solves this problem because
a) on the web the content is cheap due to the fact that users create it themselves;
b) the ads are precisely targeted because sites and apps know exactly who's is watching what.

As the result, the politicians get the best of both worlds. Now, we need to figure out what the voters get.

tags: problem, solution, trade-off, internet, control, aboutness