Top Technology events of the year, 2014

It is time again for the best technology events of the year. We have quite a lineup this year, including Sony, Aereo, net neutrality, Home Depot, and a few surprise guest stars.

As with prior years, the winner had to do something in the calendar year. The action had to involve information and communications technology. It had to be notable. And, finally, the award winner has to contain something that deserves a snarky remark. This is nothing to take seriously, and it is all in good fun.

As in past years, The winners of these awards win nothing at all except a little sarcasm and a bit of fleeting attention on this humble blog. There is a symbolic award. It is called a “Sally.” This is named for Sally Fields, who famously blurted out at the Academy Awards “You like me! You really like me!” Why is a technology award named for her even though she has no accomplishments in technology? Well, why not? The stakes are very low.

With no further run-up required, let’s get started.

1. The first Sally is for Original Script. It goes to Sony Studios – and, if you have a taste for the absurd, this story also wins for best dark comedy. No writer could have imagined this plot. This studio had been hacked a few years ago, but, apparently not learning any lesson, it failed to take standard precautions in its IT security – for example, the IT department did not encrypt its email password lists. Hackers released tons of confidential information, including lots of sensitive email. Then in a perverse blurring of the line between gossip and free speech, the Hollywood press pasted the confidential emails all over the online news – which, of course, will encourage another round of hacking of every other Hollywood studio. In a further plot twist, the hackers also included threats about a film being released by Sony, which includes a finale in which the president of North Korea is blown up. (Though in bad taste, this is supposed to be funny. Go figure.) Hey, no threat is too small for this studio! Sony gave theaters permission not to show the movie. After being criticized by many commentators, including President Obama, for letting free speech become the victim of online blackmail, the studio then reversed itself, deciding a few theaters could show the movie. Ah, this clear-thinking executive team then really pulled a good one, and decided to piss off those brave theaters by simultaneously releasing the film online for streaming. (Here is a quiz for moviegoers: where would you rather watch this film, in the safety of your own home or at a theater that might get blown up?) In some cities the patriotic left has rallied and made it their duty to see this second rate comedy in the name of not bowing to terror – what a publicity campaign! I can hardly wait to see what Fox News has to say about it. If that is not weird enough, then it just got plain weird. Somebody – the US government, Anonymous, or some serious hackers with an axe to grind? – did an old fashioned Denial of Service attack on all the servers in North Korea, rendering the Internet broken for the three dozen elite North Koreans who use it. Next thing you know the Cohen brothers will make a movie about all of this.

2. The next Sally is for the Best Supporting Actress in a selfie. The winner is Ellen Degeneres, whose star-studded selfie at the Academy Awards was retweeted two million times in two hours. It included Meryl Streep, Jennifer Lawrence and Bradley Cooper, among others, and the social media world could not get enough of it. This record surpassed Barack Obama’s tweet on election night that said “Four more years.” The volumes were so high that Ellen’s selfie crashed twitter. What a world we live in! Or maybe it is not so novel: after all, this shows, yet again, that the US cares more about its movie celebrities than its presidents. Here is a question for you. Look at the photo closely. How hard is it to find Dory in the photo? Can’t see her? Keep at it. Trust me. Eventually you will learn something by Finding Dory. Still can’t find her? Find Nemo first. Find him and you have found her. (That was way too much work for such a weak joke. Apologies.)

3. Speaking of comic security lapses, this next award is for Best Special Effects by a retailer. The Sally goes to Home Depot. This is also a story of a firm not paying attention and learning lessons from the events around it. Home Depot allowed itself to be the victim of a large credit card fraud – 56 million credit cards in total. Ah, but it was not the largest theft ever, because Target had already been a bigger target, with 70 million stolen. But, hey, why does security matter? Can’t all credit card holders merely pass the costs onto their credit card company? Ah, it is not that simple. Home Depot is in a competitive industry, and customers have a choice. Customers who feel unsafe will take their business to a place that makes them feel safer, such as Lowe’s, Menard’s, Ace Hardware, and plenty of others. Have you been to a Home Depot lately? The lines are so short the place could be renamed Home Alone.

4. And now it is on to the Best Actor in a legal thriller (or the worst if you do not like the outcome). Now that Apple and Samsung have stopped suing one another, high tech legal warriors have had to look outside of patent law, and, instead, look at copyright law! So Aereo gets this Sally. It lost its court case with the Supremes, 6 to 3. What part of Copyright law did they violate? Well, well, well, a typical Mission Impossible movie has a less convoluted explanation than this, so stay with me. This plot involves Aereo’s attempt to receive over-the-air signals of television programs and resell a service to homes. How did this work? Aereo hoped to help users escape their cable firm, where the charges are at a very high level. Aereo tried to find a new delivery method and escape retransmission fees from cable firms to content firms, which find their way into prices… How did it do that? Aereo asked, “Why can’t a firm just tap into that over-the-air signal?” Well, as it turns out, that might be illegal, according to US copyright law…. To avoid violating that law Aereo allocated a specific antenna for every household. Why did it have to be done this way? Um, stay with me… the answer has to do with an obscure part of copyright law that covers the conditions for paying retransmission fees, which the US Congress invented a few decades ago, but nobody actually anticipated that these retransmission fees would become as high as they have become, and Americans must have their football on Sundays, and it is the only reason most households still subscribe to cable, and if they could just find a way to get their sports over the air, then the entire US entertainment system would be toast…..Oh, this is too much! It is too convoluted. I give up! Can Tom Cruise just step into this plot and fix it? Please, please, please, can we change the channel?

5. Every year there is a special Sally reserved for Once-in-a-Lifetime achievement. The winner this year has to be in recognition of the 3 million comments received by the FCC about net neutrality. This is a record for anything the FCC has ever done. Heck, that agency is lucky if anybody other than two dozen lobbyists ever show up for their hearings. So can you imagine it? Three million comments?! What an illustration of participatory democracy! Isn’t that just awesome? Except for one little problem. To whom do we give the Sally? Do we give it to Tim Wu, who coined the term “Net Neutrality,” but could not win his race for Lieutenant Governor of New York? No, he has tenure, so it is not as if he is out of a job. Perhaps it ought to go to Tom Wheeler, the chairman of the FCC, who is bravely conducting this exercise in online democracy in the face of presidential pressure and Congressional opposition. No, because we could just as easily give it to Verizon, who brought the ill-conceived lawsuit that generated this crisis, in spite of the fact that the old net neutrality rules really did not hurt them at all. Or perhaps it ought to go to the intrepid computer linguists who tried to analyze the words in the corpus of 3 million comments. They sought to figure out the fraction of comments which were pro or against net neutrality. No, not them. As if there was any suspense on that question? Duh. I think the Sally really should go to Marty Parker. Who, you may ask, is Marty Parker? Retired engineer, grandfather to my niece and nephew, and all around online maven, Marty believes so much in digital democracy that he personally penned three comments himself for the FCC. He can receive the Sally on behalf of all the online idealists out there. (For the nit picky among you, this does not violate the rules about favoritism towards relatives. He is my brother’s father-in-law, and we are not related by blood. However, he does subscribe to this blog, and I am not above favoring loyal subscribers. So there. Way to go, Marty!)

6. Speaking of Obama, a special Sally this year has to go for most boring sequel. The winner is the Obamacare web site, Healthcare.gov. It went back up and, unlike its predecessor’s debut, it worked. Right away. And it kept working. Millions of people use it now and it just keeps working. No crashing. Just like any other web site. Ah, this is dull, nothing to see here. That is the problem with sequels. Once the story becomes routine it’s boring. Let’s move along.

7. Now it is time for the Sally that rewards the most obnoxious violation of privacy. Sadly, this seems to be turning into an annual award, and once again reminds us that free speech needs to be used responsibly. In other words, the winner (or loser) has to be the hack of the iPhone cloud that leaked naked photos of Kate Upton and Jennifer Lawrence, among others. Look, I just cannot maintain the snarky tone on this one. It is hard enough to be a celebrity, but not everybody is as shallow and attention-hungry as Kim Kardashian, and the online world should not presume everyone is a potential target for an immature joke. Why can’t online society let famous women retain what little of the privacy they have left? Please just leave these people alone.

8. Speaking of tasteless, now it is time for the Sally for the Worst Horror Movie of the year, and this year they get a special Red Queen award for taking “off-with-their-heads” too far and too literally and without enough makeup. Yes, this award goes to the losers at ISIS – or ISIL or the Islamic State or whatever they call themselves. They did something truly horrific, filming their beheadings and pasting them on YouTube for the world to see. Quite a few commentators have noted the irony of using modern Internet video technology to publicize such a barbaric action, marrying the best and worst of human invention.  Look, once again, it is difficult to maintain sarcasm on this topic. I think I speak for most civilized people in saying it would be ok if YouTube decided to ban beheadings in its terms of service.

(Ah, let’s lighten it up again, and change the tone. For a moment there I was becoming preachy. Yes, now and again, even your truly wishes we lived in a better place.)

9. Now it is time for matters of commerce, and every year a Sally has to go to the most interesting deal of the year. There were many candidates (e.g., Whatsapp or Nest). We are living in a boom time and the bubble has not yet burst, so there are surely more to come. But this year the Sally goes to… Markus “Notch” Persson, who had founded Mojang, along with Jakob Porser and Carl Manneh. Notch was the lead designer for Minecraft, Mojang’s big hit, which was recently sold to to Microsoft for $2.5 billion. Notch is widely admired online for his creativity and independence, and he has inspired a big online following. Quite a few users have admired the way Minecraft combined a zombie game with a sandbox creative game, and left it open ended enough so it appealed both to new users and experienced users (which is NOT an easy thing to pull off). Notch gives inspiration to programmers everywhere – if a company run out of Sweden can make it big, so can a company from anywhere. If that that is not enough, however, Notch gets the award for what he did next. He bought the most expensive house in Beverly Hills for $70 million, outbidding Jay-Z and Beyonce. Who knew? Even Swedish programmers prefer L.A.’s winter over Stockholm’s. Ah, California dreaming on such a winter’s day. Now there is a pretty little song for you.

10. Let’s end on an even more sarcastic note. Here is the Sally for the worse song of the year. It goes to Justin Bieber for being the second person to have a YouTube video downloaded more than a billion times, joining the Gangum Style video, which was the first to achieve this feat. Justin gets it for the song “Baby.” You may be wondering, “Why give it to Justin? Isn’t he a publicity hungry and spoiled rich little cutesy who is close to outstaying his welcome in the hearts of preteen girls?” Yes, but I think I speak for all parents of young daughters when I say that I am grateful to hear anything other than the songs from the movie, Frozen.  Thank you Justin. May pictures of your many pretty little cheeky punim continue to appear in the online gossip pages, and may it help to distract kids from singing a Disney song. (But, hey, come to think of it, yes, I do want to go build a snowman. It would be nice to get outside.)

Well, that is it for this year. Comments are welcome. Surely some notable events were missed.

And *sigh* now that I mentioned it, I cannot get those stupid little songs out of my head. Argh, we all just want to let it go.

 

Baking the Data Layer

The cookie turned 20 just the other day. More than a tasty morsel of technology, two decades of experimentation have created considerable value around its use.

The cookie originated with the ninth employee of Netscape, Lou Montulli. Fresh out of college in June 1994, Montulli sought to embed a user’s history in a browser’s functions. He added a simple tool, keeping track of the locations users visited. He called his tool a “cookie” to relate it to an earlier era of computing, when systems would exchange data back and forth in what programmers would call “magic cookies.” Every browser maker has included cookies ever since.

The cookie had an obvious virtue over many alternatives: It saved users time, and provided functionality that helped complete online transactions with greater ease. All these years later, very few users delete them (to the disappointment of many privacy experts), even in the browsers designed to make it easy to do so.

Montulli’s invention baked into the Web many questions that show up in online advertising, music, and location-based services. Generating new uses for information requires cooperation between many participants, and that should not be taken for granted.

The cookie’s evolution

Although cookies had been designed to let one firm track one user at a time, in the 1990s many different firms experimented with coordinating across websites in order to develop profiles of users. Tracking users across multiple sites held promise; it let somebody aggregate insights and achieve a survey of a user’s preferences. Knowing a user’s preferences held the promise of more effective targeting of ads and sales opportunities.

DoubleClick was among the first firms to make major headway into such targeting based on observation at multiple websites. Yet, even its efforts faced difficult challenges. For quite a few years nobody ever targeted users with any precision, and overpromises fueled the first half-decade of experiments.

The implementation of pay-per-click and the invention of the keyword auction—located next to an effective search engine—brought about the next great jump in precision. That, too, took a while to ripen, and, as is well known, Google largely figured out the system after the turn of the millennium.

Today we are awash in firms involved in the value chain to sell advertising against keyword auctions. Scores stir the soup at any one time, some using data from cookies and some using a lot more than just that. Firms track a user’s IP addresses, and the user’s Mac address, and some add additional information from outside sources. Increasingly, the ads know about the smartphone’s longitude and latitude, as well as an enormous amount about a user’s history.

All the information goes into instantaneous statistical programs that would make any analyst at the National Security Agency salivate. The common process today calculates how alike one individual is to another, assesses whether the latest action alters the probability the user will respond to a type of ad, and makes a prediction about the next action.

Let’s not overstate things. Humans are not mechanical. Although it is possible to know plenty about a household’s history of surfing, such data can make general predictions about broad categories of users, at best. The most sophisticated statistical software cannot accurately predict much about a specific household’s online purchase, such as the size of expenditure, its timing, or the branding.

Online ads also are still pretty crude. Recently I went online and bought flowers for my wedding anniversary and forgot to turn off the cookies. Not an hour later, a bunch of ads for flowers turned up in every online session. Not only were those ads too late to matter, but they flashed later in the evening after my wife returned home and began to browse, ruining what was left of the romantic surprise.

Awash in metadata

Viewed at a systemic level, the cookie plays a role in a long chain of operations. Online ads are just one use in a sizable data-brokerage industry. It also shapes plenty of the marketing emails a typical user receives, as well as plenty of offline activities, too.

To see how unique that is, contrast today’s situation with the not-so-distant past.

Consider landline telephone systems. Metadata arises as a byproduct of executing normal business processes. Telephone companies needed the information for billing purposes—for example, the start and stop time for a call, area codes and prefix to indicate originating and ending destination, and so on. It has limited value outside of the stated purpose to just about everyone except, perhaps, the police and the NSA.

Now contrast with a value chain involving more than one firm, again from communications, specifically, cellular phones. Cell phone calls also generate a lot of information for their operations. The first generation of cell phones had to triangulate between multiple towers to hand off a call, and that process required the towers to generate a lot of information about the caller’s location, the time of the call, and so on.

Today’s smartphones do better, providing the user’s longitude and latitude. Many users enable their smartphone’s GPS because a little moving dot on an electronic map can be very handy in an unfamiliar location (for example). That is far from the only use for GPS.

Cellular metadata has acquired many secondary values, and achieving that value involves coordination of many firms, albeit not yet at an instantaneous scale suggestive of Internet ad auctions. For example, cell phone data provides information about the flow of traffic in specific locations. Navteq, which is owned by the part of Nokia not purchased by Microsoft, is one of many firms that make a business from collecting that data. The data provide logistics companies with predictable traffic patterns for their planning.

Think of the modern situation this way: One purpose motivated collecting metadata, and another motivated repurposing the metadata. The open problem focuses on how to create value by using the data for something other than its primary purpose.

Metadata as a source of value

Try one more contrast. Consider a situation without a happy ending.

New technologies have created new metadata in music, and at multiple firms. Important information comes from any number of commercial participants—ratings sites, online ticket sales, Twitter feeds, social networks, YouTube plays, Spotify requests, and Pandora playlists, not to mention iTunes sales, label sales, and radio play, to name a few.

The music market faces the modern problem. This metadata has created a great opportunity. The data has enormous value to a band manager making choices in real time, for example. Yet, the entire industry has not gotten together to coordinate use of metadata, or even to coordinate on standard reporting norms.

There are several explanations for the chaos. Some observers want to blame Apple, as it has been very deliberate about which metadata from iTunes it shares, and which it does not. However, that is unfair to Apple. First, they are not entirely closed, and some iTunes data does make it into general use. Moreover, Apple does not seem far out of step with industry practices for protecting one’s own self-interest, which points to the underlying issue, I think.

There is a long history of many well-meaning efforts being derailed by narrow-minded selfishness. For decades, merely sampling another performer’s song in any significant length led to a seemingly trivial copyright violation that should have been easy to resolve. Instead, the industry has moved to a poor default solution, requiring samplers to give up a quarter of royalties. With those type of practices, there is very little sampling. That seems suboptimal for a creative industry.

Composers and performers also have had tussles for control over royalties for decades, and some historical blowups took on bitter proportions. The system for sharing royalties in the US today is not some great grand arrangement in which all parties diplomatically compromised to achieve the greater good. Rather, the system was put there as a consent decree after settling an antitrust suit.

If this industry had a history of not sharing before the Internet, who thought the main participants would share metadata? Who would have expected the participants to agree on how to aggregate those distinct data flows into something useful and valuable? Only the most naive analyst would expect a well-functioning system to ever emerge out of an industry with this history of squabbling.

More generally, any situation involving more than a few participants is ripe for coordination issues, conflict, and missed opportunity. It can be breathtaking when cooperation emerges, as in the online advertising value chain. That is not a foregone conclusion. Some markets will fall into the category of “deals waiting to be done.”

 

The systems are complicated, but the message is simple. Twenty years after the birth of the cookie, we see models for how to generate value from metadata, as well as how not to. Value chains can emerge, but should not be taken for granted.

More to the point, many opportunities still exist to whip up a recipe for making value from the new data layer, if only the value chain gets organized. On occasion, that goal lends itself to the efforts of a well-managed firm or public efforts, but it can just as easily get neglected by a squabbling set of entrepreneurs and independently minded organizations, acting like too many cooks.

Copyright held by IEEE. To view the original, see here.

Did the Internet Prevent all Invention from Moving to one Place?

The diffusion of the internet has had varying effects on the location of economic activity, leading to both increases and decreases in geographic concentration. In an invited column at VoxEU, Chris Forman, Avi Goldfarb and I presents evidence that the internet worked against increasing concentration in invention. This relationship is particularly strong for inventions with more than one inventor, and when inventors live in different cities. Check out the post here.

 

The Irony of Public Funding

Misunderstandings and misstatements perennially pervade any debate about public funding of research and development. That must be so for any topic involving public money, almost by definition, but arguments about funding for scientific research and development contain a unique and special irony.

Well-working government funding is, by definition, difficult to assess, because of two criteria common to subsidies for R&D at virtually all western governments: specifically, governments seek to fund activities yielding large benefits, and these activities should be actions not otherwise undertaken by the private sector.

The first action leads government funders to avoid funding scientific research with low rates of return. That sounds good because it avoids wasting money. However, combining it with the second criteria does some funny things. If private firms only fund scientific R&D, where the rate of return can be measured precisely, government funding tends to fund activities where returns are imprecisely measured.

That is the irony of government funding of science. Governments tend to fund scientific research in precisely the areas where the returns are believed to be high, but where there is little data to confirm or refute the belief.

This month’s column will illustrate, with a little example, the server software Apache. As explained in a prior column (“How Much Apache?”), Apache was borne and invented with government funding. Today, it is rather large and taken for granted. But how valuable is it? What was the rate of return on this publically funded invention? It has been difficult to measure.

How Much Apache?

Almost with inexorable momentum, the Internet hurls itself into new territory. Some time ago, more than two billion humans had adopted at least one Internet-enabled device in some form, and nobody doubts that another two billion will accrue soon. New webpages increasingly find ways to inform readers, as more information in a variety of formats continues to be layered on the basic system of data internetworking.

That growth has been measured in a variety of dimensions. Today I would like to report on some research to measure one aspect of the Web’s growth, which I did with Frank Nagle, a doctoral student at Harvard Business School. We sought to figure out how much Apache served web surfers in the United States.

That is not a misprint. Apache is the name for the most popular webserver in the world. It is believed to be the second most popular open source project after Linux.

Why do this? Measuring Apache is a key step in understanding the underlying economics. Because it’s free, Apache’s value is easy to mismeasure, and that makes its economics easy to misunderstand.

The On Line Honesty Box

Many vendors give away free services, but usually there is a catch. For example, while Google has given away search services for more
than a decade, no user has any illusions as to why. Advertising buys space and tries to reach readers. As another example, for many years US cellular carriers came close to giving away handsets to customers (until expensive smartphones reduced the practice). Buyers knew these subsidies came with two-year commitments, and buyers could anticipate giving the carrier high service fees.

Free services without any apparent catches are rare, but it seems to happen with “honesty boxes.” It has always been so with street musicians. A listener can walk away or give any amount into an open hat—from nothing to any denomination of bill. Public campsites have relied on honesty boxes for years, letting campers fill out their permits, paying on their
honor. Office coffee pools frequently use honesty boxes as well.

What about the online world? There have been experiments with online honesty boxes. The lessons are quirky, but too interesting to ignore. Today’s column describes two—one from Radiohead, and another from Cards Against Humanity.

Consumer Surplus in the Online Economy

The Economist sponsors a blog called Free exchange. This week Free exchange solicited posts to complement an article in the magazine that discusses challenges measuring the consumer surplus generated by the internet. They invited experts in the field to comment on the piece and on related research. I made a contribution explaining the challenges in measuring consumer surplus of a free product.

Check it out.

 

 

Does Google get a good ROI in KC?

What in the world is Google doing with its high speed network in Kansas City? Does Goggle expect the revenue to exceed the costs of building the network? Dave Burstein has some numbers to illuminate the question.

Dave Burstein is a communications junky for the major communications junky. He covers many topics in communications markets, and he obsesses over finding the true facts, not merely the sound bites. Last week he provided an outline of the basic economic parameters behind Google’s investment in high speed broadband in Kansas City, and his notes make for interesting reading about the project.

I would guess that most readers of this space are not junkies. I know how to read what Burstein writes. The purpose of this post is to provide a translation.

The range of Linus’ Law

After more than a decade of successful growth, Wikipedia continues to defy easy characterization. It receives more than 400 million viewers per month. Close to four million articles grace its web pages in English alone. Volunteers built the entire corpus of text.

This experience suggests that Wikipedia has done something right, but begs the question: Which actions mattered, and which ones were merely incidental? Answering that question is the key to finding general lessons for countless other web sites that aggregate user-generated content.

Many Wikipedians believe that Linus’ Law is an important ingredient in their sauce. Coined by Eric Raymond, this law is less legal precept than slogan—namely, “Given enough eyeballs, all bugs are shallow.”

Few people know that it is actually a pert and terse restatement of a quote from Linus Torvalds, who originally said, “Given a large enough beta-tester and co-developer base, almost every problem will be characterized quickly and the fix obvious to someone.” Raymond’s restatement drops all the qualifiers, vesting the proposition with more certitude and making it more egalitarian by extending it to nonexperts.

Wikipedia’s experience suggests Raymond was onto something. Let’s consider when the Law works and why it sometimes fails at Wikipedia.

Wikipedia, Mitt, Barack, and a Hand Over the Heart

It was just a little skirmish, a mere tit-for-tat in the presidential race. It made headlines for a day and it also made Wikipedia just a little bit better.

To be sure, Romney and Obama infrequently appear in the same sentence as Wikipedia, so this is worth a look. How did the-encyclopedia-that-anyone-can-edit get mixed up with a verbal spit-spat between Mitt Romney and Barack Obama? More to the point, how does this little story illustrate why Wikipedia works, and why it works so well?

Ah, therein lies a tale.