It's Rishi

Oh how mainstream media has changed over the past decades. Back in the 1960’s, during JFK’s presidency, news outlets wouldn’t publish any stories about the president’s infidelities. News editors had a sense of responsibility towards upholding the values and code of our society. There was no need to blemish the president’s name for little good would have come from it. Back then, news was controlled by a handful of agencies. Not only did these agencies have control over what news was received by citizens across the nation, but also when they received news. There were no 24-hour cable news channels and of course there was no Internet.

The landscape of news exchange/delivery today could not be more different. Major news outlets source and publish news around the clock and around the world. Americans are able to receive news wherever and whenever. News is no longer thought of as a single collection of headlines that you consume at once. Instead, news is a continuous flow of stories and headlines that is streaming whether you’re there to catch it or not. The consumption of news went from being a 30-minute event each morning or evening to being a virtually constant activity. How did this happen? Where is all this news coming from?? From two places:

The world shrank – Digital information networks enables news to efficiently travel across the globe in an instant. Now only can data travel at the speed of light, but there is a connected path from the news source to the news consumer. Often, very little human intervention is involved.

Citizen journalism – Digital cameras/videocams, camera phones, laptops, and wireless connectivity allow every one of us to capture the events of the world. I would venture a guess that the majority of Americans under the age of 30 now have atleast one device capable of digital capture with them at all times. We then take this digital information and disseminate it to the world via social-networking sites, blogs, online photo albums/streams, YouTube, message boards, etc.. An average citizen doesn’t have the reach of NBC or CNN, but as is seen every day on the Web, viral citizen media can spread like wildfire and ultimately achieve the same or greater reach as a mainstream media broadcast.

With so much news being created and so many new ways by which news can be spread, there is tremendous competition for people’s attention. I’m not suggesting that the big media companies are going to be extinct any time soon, but I am suggesting that their role in society is. Let’s face it, NBC was thrilled when Cho’s package arrived in their mailroom. NBC said they spent hours deciding whether to air footage from Cho’s videos on the air. There’s little doubt in my mind that they were going to broadcast it. How could they not? The fact that Cho chose to send the package to NBC affirms NBC’s stature as a dominant media outlet. The only issue that they may have been wrestling with was whether to air it and get a backlash from the public, politicians, or special interest groups who might denounce NBC for sensationalizing the Va Tech shooter. However, if NBC didn’t air the footage, they would have no doubt posted it on their news website, MSNBC.com. I’m sure the NBC execs realized that if they didn’t release it, eventually the material would at some point get leaked and in this case, NBC wouldn’t get the limelight for having the scoop.

If Cho would have simply posted all his videos to a MySpace page or YouTube, he would have demonstrated that the big media companies are simply becoming irrelevant. But, whether he knew it or not, what he did was smart. He knew that NBC would whore out the video footage as much as it possibly could since they would have the exclusive and others would inevitably do the job for him of ensuring that the video got on MySpace, YouTube, etc… The reach of his videos was maximized as a result.

Unlike 40 years ago during JFK’s presidency, the media companies a) can’t afford to ignore stories which will garner them attention and b) simply have little to no control over what stories make it to the public. If they don’t cover a story, someone else will. AOL Time Warner realized this a couple years ago and launched TMZ.com. TMZ.com is a hollywood news/gossip site that basically runs stories that AOL Time Warner couldn’t on their mainstream sites. TMZ.com stories often lack the journalistic integrity that a mainstream news organization would want to uphold. AOL Time Warner knew that this segment of news was too much in demand and too lucrative to ignore. And they were right: TMZ.com has been enormously successful and one of the fastest growing blogs on the Web. Moreover, TMZ.com relies heavily on citizen- captured stories, photos and videos and not a dedicated news team. TMZ.com is an example of an old media giant embracing the fact they are losing control of the news rather than trying to combat this fact. There can be little doubt that other media giants will follow suit with sites of their own which embrace citizen media.

A big part of being a trusted news source is providing comprehensive information. Increasingly, this means relying on sources beyond a dedicated news team. Dedicated news teams simply will not be able to scale to meet the volume of news consumption in the future. News sites like TMZ.com, which rely on citizen journalism, can scale and will be a crucial strategy for the big media companies to maintain their significance.

Hmm I know I’ve got some more thoughts on this but enough for now… =)

Google introduces PPA

The big news of the week was that Google released a pay-per-action (PPA) advertising product. This has been hinted to for a while by Google. In fact, during their Q2 ‘06 conference call, I noted several references hinting to a future PPA product. Long-term, Google is definately going to increase advertiser’s confidence in Google’s ad networks with PPA. Most importantly, advertisers concerned about click fraud should be very happy about this. I also liked how Google will be ranking ads by profitability per click. It’s a simple and very clever strategy. The big problem with PPA is that you are relying on the advertiser to effectively convert clicks into actions. If Google deliver clicks to the advertiser but the advertiser does a poor job of converting those clicks, then Google would lose. However, by giving advertisers who deliver a higher rate of profitablity to Google, Google, in effect, forces advertisers to focus on conversion.

This focus on ad profitability will also encourage Google AdSense publishers to get on board with PPA ads. With traditional PPC ads, an AdSense publisher depends on Google to deliver relevant ads that will result in good click-thru ratio (CTR). However, with PPA ads, in order for the publisher to get paid, the publisher also depends on the advertiser to convert the click into action. That might be tough to swallow. Ranking ads by profitability should help AdSense publishers trust PPA ads more.

Reduction in the number of ads on search pages
Scoble posted an interesting tidbit about how he had been noticing that search result pages on Google have been showing fewer ads than before. He got confirmation from an unnamed Google employee that Google has in fact reduced the number of ads displayed.

Google has done a lot of research with users and found that fewer ads mean less revenue SHORT TERM. But long term the advertising revenue actually goes up. Why? They found their users started trusting the advertising more and were more likely to click on ads.

Interesting huh? Scoble points out that this change will help users trust ads more. Ads will be seen by users as aiding in their search, rather than introducing noise. As Scoble also points out, it is conceivable that Google’s top-line will take a small hit as a result. However, if you think about it, all they’ve done is set the relevancy bar higher. Only the more relevant ads are being shown. Less relevant ads are simply being removed from the page. Well, by definition, less relevant ads have low CTR, deliver few clicks, and generate small total revenue. I doubt we’ll see an impact at all.

Google (quietly) introduces text link ads

And now for the bad. Along with the announcement of the PPA ad program, Google also slipped in an introduction to a text link ad unit. Text link ads suck on many levels. First of all, they are confusing to the user. Second of all, they encourage publishers to include certain keywords and phrases that would result in lucrative ads. I’m sure Google will take steps to curb this. Plus, if you think about it, if a publisher sticks in random irrelevant words in their copy, users are unlikely to be clicking and the distraction will discourage users from returning to that site. But the real issue is that up until now, Google’s ads have always been clearly separated from page content. With text link ads, this is no longer the case. Ads can now be intertwined with the page content. A couple forum administrators that have implemented text link ads from other ad networks have since removed them due to poor conversion. It’ll be interesting to see how this plays out for Google…

Last week I was channel surfing while eating dinner in front of the TV. After failing to find anything interesting, I gave up and settled on Jeopardy. I used to watch Jeopardy sometimes as a kid and I recall being amazed at how smart the better contestants were. Not only did they have vast amounts of knowledge, but more importantly could recall it in just one or two seconds. While watching the show last week, I found myself equally amazed as before. One particular contestant fired off answers to 15th century European history questions (or more correctly “questions for answers”) so quickly I thought he must have just finished authoring a book on the subject.

By the time the Final Jeopardy round came, I was done with dinner and in front of my laptop. The question (err answer, whatever..) was given and (of course) I had not the faintest clue. For the heck of it, I typed some relevant keywords into Google and bingo! I solved Final Jeopardy. It turned out that two of the three contestants solved it correctly also. Sure, they couldn’t use Google to find the answer, but at the end of the day, in the real world, I would be equally as effective as these two contestants. This realization sparked me to think about the value of knowledge.

What’s the purpose of knowledge? My answer would be that knowledge allows one to perform a task more efficiently. Any task. The task could be conquering the latest shoot-em-up video game, cooking dinner, or solving a complex mathematics proof. Each of these tasks can be performed faster if the individual performing that task has relevant knowledge in the respective domain. The problem though is that for knowledge to be useful, it’s not sufficient that you had once gained that knowledge. Instead, for it to be useful, you not only need to have once gained it, you also must be able to recall it both accurately and in a timely manner. Without speed and accuracy in recollection, having knowledge is useless.

How useless? The test is this: Your brain or an electronic/digital means, which is faster? Which will give me the info I need faster, more accurately, and more consistently? Nine times out of ten, my answer to this question is the latter. Honestly, I wonder why I even bother remembering anything. Phone numbers? Got my cell. Favorite restaurants? Got Yelp. CS stuff? Google works just fine. Forgot who my friends are? Got my AIM buddy list, MySpace and Facebook. How to get home from work? Got a navigation system. How to spell my name? Outlook auto-corrects it. Ok, I think you get my point…

The thing you need to remember is that all the electronic information sources I just mentioned came very recently. You think finding this information is easy now? Trust me, it’ll get easier. I’m just waiting for Google to announce a search plugin for your brain. Sounds ridiculous but is it really that crazy to imagine such a device might be available in my lifetime?

Now, you might argue that humans are capable creatures because of our intelligence, not simply our knowledge. Intelligence implies not just semantic knowledge but the ability to combine building-blocks of knowledge into composite forms of knowledge and, ultimately, to innovate. Innovation, after all, is a hallmark of human civilization. Innovation implies a certain higher level of thought which only a human can perform. You could say that freeing our minds of the burden of knowledge management will allow our mind to focus on innovation and other forms of higher-level thought.

But this implies that computers cannot perform high-level thought. Computers can be given “intelligence”. It is very common today to program computers to make sophisticated decisions based on input data. Due to complexity, or other limitations, many of such decisions were once thought impossible for a computer to make. A classic example is chess. A couple hundred years ago, the thought of a chess-playing machine was just a big joke. Ten years ago, IBM’s Deep Blue computer beat the greatest chess player of our time.

But can computers innovate? If you look up the word “innovation”, the word “new” is mentioned repeatedly: new ideas, new dimensions, something new, etc. Convention has it that computers cannot think “outside of the box”. While computers can perform sophisticated logic and are able to “learn” patterns, they can’t really form new thought . A recent example of this is an article I was reading about Monitor110. They have developed some proprietary technology that allows their software to scour niche information sources on the Web (blogs, message boards etc.) and pick out potentially market-moving news before it hits the mainstream. So, their software can pick out the bits of signal from the noise, but it cannot determine if and how to act on information to bring financial reward and, moreover, outperform the rest of the market (the common term is “generate alpha” in the alternative-investment world). The formation of a unique investing strategy can only be performed by the human investor staring at the computer screen. The investor may utilize computer-based modeling tools to aid in development of the strategy, but the high-level strategy still is up to him to devise.

Will computers one day be able to innovate? Maybe. If and when scientists are better able to model the human brain, it may turn out that deep-down, it is, in fact, a deterministic system. If that is the case, it may be possible to model the human brain electronically.

Until this day, though, I do think, on the basis of the test I put forth earlier, that much of the knowledge in people’s brains is truly useless. Instead of just giving students knowledge, it is more important to teach them how to efficiently find knowledge when the situation demands it.
“Give a man a piece of knowledge and you feed him for a day. Teach a man to locate knowledge and you feed him for a lifetime.” Yeah I know..I’m a dork.

Ok, it’s way past my bedtime again. Maybe I’ll continue this thought in a later post…

I’ve gained incredible amounts of knowledge from the Web. Being a self-described “knowledge whore”, I’ve spent countless hours on sites like Wikipedia and howstuffworks.com as well as other sources of knowledge like blogs, newsgroups, and forums. Almost without fail, though, every time I find myself digging deeper into a topic, I quickly realize that the topic is WAY more complex than I had imagined it to be. Try it sometime. Pick a topic and Google it. For even the most obscure topic, the sheer vastness of relevant information on the Web is mind-boggling.

I realized today that even though the Web has given me volumes of knowledge and wisdom, above all, the Web has taught me this:

You don’t know what you don’t know.

The Web bombards us with this lesson because it’s so damned efficent at information retrieval. In minutes we can open gateways to knowledge sources that might have taken hours or days before. More importantly, though, the highly-linked nature of the Web supports a breadth-first search pattern of knowledge gathering. You might be reading about sub-topic A and in the middle of a paragraph follow a link to sub-topic B and so on. I’m sure you’ve done this plenty of times. While your initial intent may have been to perform a linear search to ascertain information on a specific topic, before you know it, you’ve spent an hour reading about 10 different sub-topics. In one hour, you’ve gotten a broad, but relatively shallow understanding of several sub-topics.

If you had been performing research thru offline methods, you would have found an information source (a book, news article, thesis, etc.) on a single sub-topic and digested it thoroughly before continuing on to the next source. This pattern of information gathering is more similar to depth-first search. Using this method, in the same time as above, you may gain relatively complete knowledge of 2 sub-topics, but not even realize the existence of the 8 other sub-topics that you would have encountered if you had followed a breadth-first search pattern. In other words, you’ll know more about less. With the Web, you’ll know less about more. The curse of the latter is that you will have learned of the existence of many more topics which only further increases the magnitude of how little knowledge you have.

Anyway, it’s late and it’s likely that I’m just rambling, so I’ll cut this post off now. In conclusion, even though the Web has given me tons of knowledge, the most valuale knowledge it’s given me is the realization of how little knowledge I actually have. My guess is that by the time I’m an elderly man, instead of feeling old and wise, I’m going to feel old and dumb. Very humbling…

A friend pointed me to www.screenvader.com which uses a very slick Flash-based UI for navigation. While the 3D-axis isn’t very natural to manipulate with a mouse, which of course is limited to a 2D plane, one can imagine that this would be quite natural if human hand movement could be used as the control mechanism. In fact, this immediately reminded me of so many sci-fi movies, like Minority Report, in which users interface with their computing environment using their hands.

We’re already seeing a trend towards UI’s with 3D perspective such as the “Flip 3D” window-switching feature of Microsoft’s new Aero interface in Vista. In a sense, a 3D is more space efficient since the “depth” of a user’s screen can better be utilized.

While browsing around tonight I stumbled upon a discusson thread about imeem. The thread starter was “addicted” to the site even though he was never into other social networks like MySpace. Seeing the imeem name caught my surprise. It’s been atleast 18 months since I’d last heard heard anything new from the company. Apparently they have completely re-strategized and launched a new site with a new focus:

IMEEM is an online community where people and groups can upload, share, tag, and playlist the media they care about.

The new imeem is a very nicely done site. The site design, flash widgets, and profile customization tools are beautifully done. As the quote above suggests, the core of the site is that users can upload music and video (and photos of course) and directly share them on their profile. With imeem’s embedded flash players, you can stream music and video directly through your browser. You can also create your own playlist containing any songs and video you find on the site. As you would expect, there is an imeem flash widget which is embeddable into any other webpage (MySpace pages are the obvious one but I have a hunch this will get blocked by MySpace since this directly competes with MySpace’s own music and video widgets).

The first click I made on imeem was to view the most played songs of this week. As you might expect, songs from hot artists like Nelly Furtado and Justin Timberlake were in the top 10. Not too surprising right? Well I wasn’t surprised that those artists were amongst the most viewed, but then I looked at who uploaded those songs. As you might have suspected, it wasn’t the artist or label. It was just random users who uploaded the mp3’s of those songs. My first thought was “holy crap! if this is legal it’s pure genius!”. After all, imeem already has a impressively large library of popular songs that has been uploaded by users. In addition, unlike iTunes and other music services, you get to listen to the full song, not 30-second previews. All of this for free.

I dug a little deeper on the site and sure enough on the upload page, I saw this message: “Only upload your own music and video, or stuff you have permission to share. Uploading media that you do not own can be a violation of the artist’s copyrights and against the law if you do not have legal permission from the copyright owner. Your account may be shut down if you don’t follow the imeem terms of service.”

In the site’s Terms of Service, a statement to the same effect is found including this: “Uploading copyrighted media or content without the explicit consent of the copyright owner will result in cancellation in any and all of your accounts.” Judging by the countless number of users that have uploaded commercial music and whose accounts remain active, it’s clear imeem is not enforcing this.

And, really, why should they? As YouTube’s story proves, it’s best to just give your users what they want – free access to commercial content – and place the burden on copyright holders to enforce their rights over the content that’s uploaded to the site. As is now well-known, according to the DMCA Title II: OCILLA, as long as online services promptly remove infringing material upon notification by the copyright holder, the service has a safe harbor against copyright liability. As you can see from the Alexa graph above (both Quantcast and Compete.com show a similar pattern), this strategy is working great. imeem’s traffic stats have blown up in just the past four months.

What I find most strange is the company’s VP Marketing is a guy by the name of Steve Jang who, prior to joining imeem, was Director of Digital Business Development at EMI Music. So I think it’s safe to assume imeem’s management is well versed in digital rights. Which leads me to wonder what the heck is going on then? I was hoping to find some recent news articles about imeem but found none. With imeem’s tremendous growth of late, there is bound to be some buzz soon. Hopefully, along with the buzz there will be a conversation about the copyright issues concerning imeem. Until then, I’m confused…

NOTE: I should point out that just like YouTube, imeem does have plenty of legitimate content as well. In fact, the #1 played song in the past month, with over 1.6m plays, is Body Rock by Mike Relm. In this case, Mike Relm himself uploaded the song onto his own imeem profile page. There are other songs by independent artists which have made the most played chart. So clearly imeem, like MySpace, is a proven venue for artists to promote their music.

Cna yuo raed tihs? Olny 55% of plepoe can.

I cdnuolt blveiee waht I was rdanieg. Due to the phaonmneal pweor of the hmuan mnid, aoccdrnig to a rscheearch at Cmabrigde Uinervtisy, it dseno’t mtaetr in waht oerdr the ltteres in a wrod are. The olny iproamtnt tihng is taht the frsit and lsat ltteer be in the rghit pclae. The rset can be a taotl mses, and you can sitll raed it whotuit a pboerlm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef but the wrod as a wlohe. Azanmig, huh? And I awlyas tghuhot slpeling was ipmorantt!

– tkean from a psot on Tim Ferris’ bolg.

Waht I am egaer to unrsedatnd is wyh smoe poelpe cna raed tihs adn smoe poelpe cna’t. I gsues I wlil need to dgi up teh sduty to laren mroe.

It has been estimated that over 50% of the total Internet bandwidth (~2 terabit) in the world is consumed by BitTorrent traffic. It has also been estimated that about 50% of BitTorrent traffic is video. That’s a whole lot of video. In fact, that’s 2tb/sec / 8bits x.0.5 x 0.5 * 3600sec = 225 terabytes of video files downloaded every hour! From my experience, virtually all video files are DivX/Xvid avi files (I have yet to see a video torrent that isn’t) that seem to average about 7-10MB/minute. This means that every hour, about 20-30 million minutes of video are downloaded. Based on these numbers, it is very reasonable to conclude that tens and possibly into the hundreds of millions of people around the world are illegally downloading video via BitTorrent.

Don’t get me wrong now, I’m not writing this to incriminate anyone. BitTorrent has been very good to me also. It has essentially saved me the cost of a Tivo every month. Any TV show I want, I have in a matter of minutes and with a little RSS magic, what I want is automatically fetched for me as it becomes available. Of course, a significant percentage of this video is movies, not TV. But let’s put that aside for now and focus on TV.

My roomate and I pay about $60 to Comcast every month just for cable television. I personally feel like that’s a good amount of coin and as such I don’t necessarily feel that horrible when I download torrents of shows that I miss. Without a doubt Comcast is getting hurt by BitTorrent. If the estimate is correct, half of their bandwidth is being used up by BitTorrent traffic so they have surely had to pay hefty amounts to accelerate the upgrading of their capacity. However, my guess is that very few consumers have cancelled their cable TV subscription due to the availability of TV content through BitTorrent. So, while the impact of BitTorrent on Comcast’s ISP business may be significant, I doubt their cable TV business has been affected much.

So who’s the big loser? The TV networks of course. Torrents of TV shows have all the commercials stripped from them to make the file smaller in size and for the downloader’s viewing pleasure. As of last fall, ABC’s Lost had an average 30-second spot rate of $328k (Ad Age chart). At that time, Lost had about 10m viewers. Back in October ‘06, it was measured that over a span of a week, torrents of the latest episode of Lost had been downloaded over 500k times and as much as 1m times. That represents 5-10% of Lost’s total viewership. A 1-hour show like Lost has about 30 30-second paid ads which at the rate of $328k per ad, ABC brings in almost $10m per episode in ad revenue. For the sake of simplicity, let’s say that the ad rate is directly proportional to the audience size. In the absence of BitTorrent, if half of those 5-10% of downloaders would have watched the regular broadcast of the show, that would haev added about $.25-.5m in ad revenue per episode. For a 20 episode season run that’s $5-10m per season in lost revenue for ABC from the show Lost alone.

It is important to point out that at the time of measurement, Lost was the most downloaded TV show on BitTorrent. Also, looking at the chart, Lost’s $328k 30-second ad rate is amongst the highest in primetime. With these two factors combined, the revenue impact of Lost is probably an order of magnitude higher than the typical show. Overall, though, I can definitely see a major network like ABC losing out on about $25m of ad revenue across all of its shows this year. And that is $25m of pure top line since the cost of that additional revenue is essentially zero.

So what can the networks do about this? Plenty. Moreover, just as p2p has sparked tremendous growth in the long-tail of the music industry and created new opportunities, the same is happening in TV and film. I’ll talk about what the networks and new industry players have been up to and sort out some of my thoughts in my next post.

I was reading this post by Paul Kedrosky talking about how Amazon’s gross profit margins have been consistently declining since 2001, which sort of contradicts the company’s claim, since its inception, that massive scale will make the business more profitable.

I realized that I wasn’t exactly sure of the the definition of gross profit margin versus operating profit margin. I googled it and found this Income Statement Analysis guide on About.com. Before I knew it, I had spent a good half an hour going through most of it. I found it to be a very practical crash course.

Some interesting things I learned:

1. For asset-intensive businesses, how the company accounts for depreciation is a really important thing to consider. Depreciation methods, rates, and salvage values can make big differences in a company’s bottom-line. More specifically, they can be easily played with to make the company’s earnings look better.
2. EBITDA is BS. Creditors demand interest payments, the IRS demands tax payments, and depreciation and amortization are absolutely real costs of earnings. EBITDA is sexy but really misleading.
3. Comparing operating margin versus gross margin across many competitors in the same industry can tell you a lot about each company’s business models. Like this post that talks about Tim Hortons vs. Starbucks.
4. If a company owns a minority stake (< 20%) of another business, it only reports the actual cash (dividends) it receives and NOT the % portion of earnings that the owning company is entitled to. This profit that the owning company is entitled to but doesn't report is referred to as "look-through" earnings. In one famous example, Berkshire-Hathway, actually had it's look-through earnings exceed it's own earnings, so Berkshire's actual earnings report was a horrible understatement of the company's performance.
5. “Record earnings” don’t necessarily mean jack. ROE (return on equity) is the number to look at. After all, a company which generates the exact same operating income every year, but sticks all its earnings in a 5% interest bank account, will consistently have record earnings simply because of the increased interest income on increased equity. Shareholders can put their own money in the bank and earn that interest. They don’t need a company to do it for them.

Anyways, I would highly recommend you at least browse through this guide if you aren’t already familiar with these concepts. I was somewhat familiar with many of these concepts, but this guide really tied everything together nicely. Thanks Joshua Kennon!

Universal Studios apparently has a large MySpace marketing budget for the upcoming movie Smokin’ Aces. So large that during my last session, I repeatedly got served three Smokin’ Aces ad placements on the same page. Of course, everybody knows that MySpace has a huge ad inventory surplus, so it seems likely to me that Univeral Studios got a pretty sweet deal on such a bulk purchase. The question I ask is whether three ad placements are more effective than one? My first instinct was no, but I must say being bombarded with Smokin’ Aces imagery really did get me to stop and take notice.

UPDATE: Found an article from AdWeek that talks about Universal’s online efforts to market the film. Apparently there is a Smokin’ Aces action game & sweepstakes on Second Life and a widget that allows you to include the Smokin’ Aces trailer on your blog, profile, etc. I love the widget idea. It’s cheap to make and I’ll guess that 1 widget placement by a user brings better conversion than even 100 ad impressions on the same page. I say this because profile pages on social network sites follow a standard layout (except for heavily customized MySpace profile pages), so our eyes are easily trained to focus on the page content and ignore the ads in the layout. However, if a user places the widget on their profile, it’s much more likely to get noticed because it’s in the “line of sight”. Kudos to Universal for experimenting with these new forms of marketing. I’m sure other studios will follow with their own efforts. It’ll be interesting to see what works.