Category Archives: ideas

Betcha loses a battle; Not the war?

That didn’t take long.

Betcha is (was) an honor-based peer-to-peer betting service based in Seattle. On July 9, the Washington State Gambling Commission swept into Betcha’s offices, Gestapo style, confiscating everything, right down to their Programming PHP manual. Founder Nick Jenkins is now staring straight in the face of our country’s unconscionable forfeiture laws: you know, the ones that give law enforcement the right to sell Nick’s stuff on eBay and keep the proceeds, without ever charging him with a crime.

The Seattle Post-Intelligencer reported on the raid. The vast majority of the commenters sided with Betcha, urging Washington State officials to find better uses for their time and tax money, lamenting Washington’s ever-growing “Nanny State” credentials, and decrying the seemingly corrupt and hypocritical gambling politics involved.

To Nick and other Betcha employees and investors: Thank you for taking this risk and putting your stake in the ground, even if the current outcome is not what you’d hoped for. I hope you have the wherewithal to see this through to your day in court so that, if nothing else, we can get some clarity in the law. Here’s to hoping you’ve simply lost a battle and not the war.

Readers: Go to Betcha’s site to sign up for email updates and find out how to help.

Betcha's gambit

Betcha is bold. To say the least. The founder Nick Jenkins is either crazy, brilliant, or, like many founders, both. Betcha is a platform for peer to peer betting not unlike gottabet, betfair, or intrade. Except for two (intimately related) details: (1) all debts are on the honor system, and (2) it’s based in Seattle, WA, UIGEA. Betcha makes no bones about it ( no “wink wink” here): they expect users to bet on anything and everything including sports. But because coughing up is not strictly enforced, the site evades the letter of the gambling laws. To engender trust, Betcha verifies its users’ credit cards and tracks their reputation scores, but in the end all payments are voluntary. The site earns money via listing fees.

I can’t help but admire Jenkins and Co., and I hope their gambit succeeds: my heart is with them even if my head is a step behind. (For more legal discussion see Tom Bell and The Boston Globe.)

And as much as I like the concept, I do have to ding Betcha for one of the most convoluted, head-scratching explainers I’ve heard in a long time:

“As an open, honor-based betting platform, Betcha is like an auction site, Las Vegas, a marketplace of ideas, and The Golden Rule — all rolled into one. [1]

[1] “The Golden Rule” refers to the idea that you should do unto others as you’d have them do unto you. It is the fundamental principle behind most of the world’s major religions. And while we aren’t here to push religion on anyone, doing well by others is a principle we’d like to see more of.

Whaa? Four (weak) analogies plus a long-winded footnote? C’mon, Betcha, please KISS.

Predicting media success

Often, predicting success is being a success. Witness Sequoia Capital or Warren Buffet.

In the media industry (e.g., books, celebs, movies, music, tv, web), predicting success largely boils down to predicting popularity.

Predicting popularity would be wonderfully easy, if it weren’t for one inconvenient truth: people herd. If only people were as fiercely independent as they sometimes claim to be — if everyone decided what they liked independently, without regard to what others said — then polling would be the only technology we would need. A small audience poll would foreshadow popularity with high accuracy.

Alas, such is not the case. No one consumes media in a vacuum. People are persuaded by influencers and influenced by persuaders. People respond in whole or in part to the counsel of critics, peers, viruses, and (yes) advertisers. So, what becomes popular is not simply a matter of what is good. What becomes popular depends on a complex dynamic process of spreading influence that’s hard to track and even harder to predict.

Columbia sociologist (and I’m happy to note future Yahoo) Duncan Watts and his colleagues conducted an artful studydescribed eloquently in the NY Times — asking just how much of media success reflects the true quality of the product, and how much is due to the quirks of social influence. In a series of carefully controlled experiments, the authors tease apart two distinct factors in a song’s ultimate success: (1) the inherent quality of the song, or the degree people like the song if presented it in isolation, and (2) dumb luck, or the extent the song happens by chance to get some of the best early buzz, snowballing it to the top of the charts in a self-fulfilling prophesy. Lo and behold, they found that, while inherent quality does matter, the luck of the draw plays at least as big a role in determining a song’s ultimate success.

If so, Big Media might be forgiven for their notoriously poor record of picking winners. Over and over, BM hoists on us stinkers like Gigli and stale knockoffs like Treasure Hunters. (In prediction lingo, these are false positives.) At the same time, BM snubbed (at least initially) some cultural institutions like Star Wars and Seinfeld. (False negatives.)

So, are media executives making the best of a bad situation, eking out as much signal as possible from an inherently noisy process? Or might some other institution yield forecasts with fewer false-atives?

I think you know where this is going. Prediction markets for media!

Media Predict is exactly that: a new prediction market aimed at forecasting media success. I’d like to congratulate founder Brent Stinski on a spectacular launch done right. Media Predict sprinted out of the gates with a deal with Simon & Schuster’s Touchstone Books and a companion piece in the NY Times, spawning coverage in The Economist and NPR. (Also congrats to Inkling Markets, the “powered by” provider.) More importantly, the website is clean, clear, complete (enough), and ready for launch.

I first met Brent Stinski in 2006 at Collabria’s NYC Prediction Markets Summit and his concept impressed me. Among the flury of recent play money PM startups, Media Predict’s business plan seems one of the most credible. The site taps simultaneously into the wisdom of crowds ethos, the user-generated content explosion, artists’ anti-establishment streak, and the public’s ambivalence toward Big Media. (The latter two factors are epitomized no more vehemently and eloquently than in an essay by Courtney Love, and stoke the fires of sites like Garage Band, Magnatune, Creative Commons, Lulu, Kinooga, and even MySpace, not to mention mashup fever, open source, anti-DRM-ism, etc.)

The New York publishing world is ridiculing Simon & Schuster for ceding its editorial power to the crowd. (In fact, S&S reserves the right to choose any book or none at all.)

Time will tell whether prediction markets can be better than (or at least more cost effective than) traditional media executives. One thing is for certain: one way or another, the power structure in the publishing world is changing rapidly and dramatically (no one sees and explains this better than Tim O’Reilly). My bet is that many artists and consumers will emerge feeling better than ever.

Betting on Sirius and XM to … die

One of the great things about intrade (recently split from TradeSports) is that they are open to suggestions from wide-eyed academics. For example, at Justin and Eric‘s urging, intrade listed several simple combinatorial markets, including baskets of states (e.g., “FL+OH”) in the 2004 US Presidential election and an October surprise market probing for a statistical correlation between Bush’s 2004 reelection and bin Laden’s capture.

Recently, again at Eric and Justin’s request, intrade launched a Sirius-XM merger market to predict whether the two satellite radio companies’ wedding vows will be blessed by the U.S. Department of Justice and the Federal Communications Commission.

The picture of XiriuM as a powerful monopoly threatening consumer choice is, to put it bluntly, laughable.

why would I pay for satellite programming when I can simply hop onto Internet radio?

If the DOJ nixes this merger, it can be due only to a horrible misunderstanding of the march of communications technology. One by one, nearly every communications medium is converging to operate “over IP”: data, voice, music, print, TV, video, you name it. Audio in your car should be no exception. Does anyone doubt that sooner rather than later every car (indeed every person) will be connected to the Internet? Then why would I pay extra (a good deal extra if the naysayers are to be believed) for one-size-fits-all satellite programming when I can simply hop on the Internet and tap into my personalized Lauchcast radio or my iTunes account? Orbital space machinery must weigh a little more heavily on the balance sheet than rack space in Quincy: how will XiriuM possibly compete once Internet radio has equal access into consumers’ cars?

The problem I see for XiriuM is that one-way purely broadcast technologies are nearing extinction. Even if some media don’t directly utilize the Internet or even TCP/IP, they will almost surely use a two-way communications link of some kind. Why? Ostensibly, because consumers want personalization and interactivity. Perhaps more to the point, because publishers and advertisers want better targeting and performance metrics.

The only “way out” I see for XiriuM is to actually become an Internet service provider for cars, much like the (formerly broadcast-only) cable companies did, for example by bundling high speed satellite downloads with a low bandwidth cellular uplink. Even so, I imagine that latency would be a serious problem, as with HughesNet (formerly Direcway) satellite Internet service, meant for use in rural areas with no broadband alternatives.

So, although I have no idea how DOJ will rule, and thus have no advice for intrade bettors, I do know how DOJ should rule: “sure, knock yourselves out”. Plus I have some throw away advice for SIRI and XMSR shareholders:… Sell!

Lance Fortnow, 2002-2007


0000

0001 Recently

0010 Lance Fortnow

0011 retired from blogging.

0100 Computer scientists everywhere mourn.

0101 Was one of the first.

0110 Still is one of the best.

0111 At one time topped search “web log”!

1000 A great voice a great craftsman, search great theoretician

1001 Goodbye blogger Lance your wit and wisdom sorely missed

1010 Goodbye blogger Lance your pagerank link juice refer power withdrawn

1011 Update: Twain Jobs Favre now Fortnow: return! Demise reports exaggerations great

Bix's American Idol prediction market

When one corporate fish swallows another, a lot can happen. Sure, temporary indigestion, remorse, culture clash, layoffs, posturing, Borg assimilation, chaos, panic, flight, or even disaster may ensue. More likely the carnivore hiccups and life moves on. But, in rare cases, the kid fish just so happens to be a visionary thinker and kickbutt coder with exactly the right skills and temperament to turn mama into a bigger, badder, better, and youthier fish, newly invigorated for survival in the pond. Witness Microsoft’s Ray Ozzie and Yahoo!’s Flickr-ization.

Now Yahoo! has a new Bixation.

I recently had the pleasure of visiting Bix at their (old) headquarters in the heart of downtown Palo Alto. These folks are impressive. Simply put, they build cool stuff, fast. The typical product cycle?: Two weeks. They grok the rinse and repeat development cycle of the new web world and, more importantly, have the experience and talent to pull it off. Oh, and this can never hurt: they’re supremely smart.

Case in point: Two supremely smart Bixies — John Hayes and Mike Speiser — developed a supremely cool prediction market from the ground up in about two weeks of spare cycles. (To predict the American Idol winner, of course: what else?) Check out the brilliantly simple one-page UI, powered by ajax-ian magic. The attention to detail is clear, from the inline sparkline graphs, to the minimalist yet clear descriptions.

Bix American Idol Prediction Market Screenshot -- Doolittle

Under the hood, the site is running independent Hanson market makers for each contestant. The payoff structure is designed to predict a full ranking, projecting the eventual winner as well as the expected losers each week. Play around with it and see what you think. John and Mike would love your feedback — to a large extent user reactions will drive where this project goes next.

Challenge: Low variance craps strategy

This is the first of a series of challenge posts. I’ll pose a problem in the hopes of convincing the wise Internauts to come forth with solutions. I intend the problems to be do-able rather than mind boggling: simply intriguing problems that I’d love to know the answer to but haven’t found the time yet to work through. Think of it as Web 2.0 enlightenment mixed with good old fashioned laziness. Or think of it as Yahoo! Answers, blog edition.

Don’t expect to go unrewarded for your efforts! I’ll pay ten yootles, plus an optional and unspecified tip, to the respondent with the best solution. What can you do with these yootles? Well, to make a long story short, you can spend them with me, people who trust me, people who trust people who trust me, etc. (In lieu of a formal microformat specification for yootles offers, for now I’ll simply use the keyword/tag “yootleoffer” to identify opportunities to earn yootles, in the spirit of “freedbacking”.)


dice So, on with the challenge! I just returned from a pit stop in Las Vegas, so this one is weighing on my mind. I’d like to see an analysis of strategies for playing craps that take into account the variance of the bettor’s wealth, not just the expectation.

Every idiot knows the best strategy to minimize the casino’s edge in craps: bet the pass line and load up on the maximum odds possible. The odds bet in craps is one of the only fair bets in the casino, so the more you load up on odds, the closer the casino’s edge is to zero. But despite the fact that craps is one of the fairest games on the casino floor, it’s also one of the highest variance games, meaning that your money can easily swing wildly up or down in a manner of minutes. So on a fixed budget, craps can be exceedingly dangerous. What I’m looking for is one or more strategies that have lower variance, and are thus less risky.

So that this challenge is not vague and open ended, let me boil this overall goal down into something fairly specific:

The Challenge: Suppose that I walk into a casino with $200. I arrive at a craps table that has a $5 minimum bet and allows 2X odds. I’m looking for a strategy that:

  1. Has at least some chance of making a profit (otherwise, why bother?), and
  2. Maximizes the expected amount of time (number of dice rolls) that my $200 will last.

I prefer if you ignore the center bets in your analysis. Bonus points if you examine what happens with different budgets, table limits, and/or allowed odds. Another way to motivate this is as follows: I have a small fixed budget but want to hang around a high-limit table for as long as possible, because I get a better atmosphere, more drinks, and a glimpse of life as a high roller.

As an example, here is a strategy that appears to have very low variance: On the come out roll, bet on both the pass line and the don’t pass line. If the shooter rolls 2, 3, 7, or 11 you break even. If the shooter rolls 4, 5, 6, 8, 9, or 10, you’re also guaranteed to eventually break even. The only time you lose money is when the shooter rolls a 12 on a come out roll, in which case you lose your pass line bet and keep your don’t pass bet (i.e., you lose half your total stake). There’s only one problem with this strategy: it’s moronic. You have absolutely no possibility of winning: you can only either break even or lose. One thing you might add to this strategy to satisfy condition (1) is to take or give odds whenever the shooter establishes a point. Will this strategy make my $200 last longer on average than playing the pass line only?

For bonus points, I’d love to see a graph plotting a number of different strategies along the efficient frontier, trading off casino edge and variance. Another bonus point question: In terms of variance, is it better to place a single pass line bet with large odds, or is it better to place a number of come bets all with smaller odds?

To submit your answer to this challenge, post a comment with a link to your solution. If you can dig up the answer somewhere on the web, more power to you. If you can prove something analytically, I bow to you. Otherwise, I expect this to require some simple Monte Carlo simulation. Followed of course by some Monte Carlo verification. 🙂 Have fun!

Addendum: The winner is … Fools Gold!

Blogomediasphere

DictionaryIf a Frenchman with a jolly name can coin a term, sick then so can I. And so I did. In a previous post:

…no matter how surprised industry watchers were at the blogomediasphere’s glowing reception of the [iPhone]…

As it turns out, nurse it looks like at least three others have already coined the term independently, to me a positive sign that it has a certain natural ring to it. What does it mean? A shorthand for “blogosphere and traditional media” that reflects the increasingly blurry lines between them, and the symbiotic echo chamber than has grown to encompass both.

Whiners who detest the words blog and blogosphere will hate this one even more. I personally like it (enough to place a small, good-natured wager). Who wants to write the Wikipedia entry? 😉

Time's Person of the Year: Kudos and gripes

Time 2006 Person of the Year coverI finally read Time Magazine’s 2006 Person of the Year issue (as usual, I’m a month behind this guy). By now you know that the Person of the Year is “You”, meaning Internet users, meaning that user-generated content (UGC) is King.

There are some high points. Brian Williams, an old-media icon, clearly gets how his industry is changing, though his main point — that society is splintering into information silos where people “consume only what [they] wish to see and hear” — feels overblown: is the silo effect really any worse than it used to be when information was less accessible? Another op ed by Steven Johnson argues that UGC is largely filling a new niche rather than displacing professional content, and I tend to believe him. The YouTube creation story is fascinating, and seems more carefully done than the typical tales, which apparently leave out one of the three co-founders. The most entertaining piece is by Joel Stein about his foray into Second Life: hilarious!

My main complaint lies in Time’s choice of exemplars of the new world order. While YouTube is a no-brainer selection, a wonderful service, and a global phenomenon accelerated by Google’s name and $1.65 billion, Time appoints YouTube the protagonist and crown jewel, to the point where it feels like YouTube, not You, is the real Person of the Year. Meanwhile, MySpace and Yahoo! actually serve more videos to more people. Although these numbers reflect all videos, not just user-generated videos, the most popular items on YouTube are mainly not user-generated either. And it’s too early to judge YouTube’s monetize-ability and legal standing. Time even declares NetFlix a representative company. While NetFlix is certainly a great LongHighNew TailTechMedia company (I’m a subscriber), it’s not exactly indicative of UGC.

Flickr and del.icio.us are highlighted, though I don’t believe either is explicitly identified as a Yahoo! company (whereas the GooTube marriage figures prominently). In fact, I don’t recall Yahoo! being mentioned by name at all in the issue. (At this point readers may chalk up my complaint as a petty defensive gripe, and I don’t blame you: it’s certainly partly that.) So is Yahoo! failing in its publicly avowed strategy to embrace UGC and social media in a big way?

I don’t believe so. The *.yahoo.com family (still the #1 web property worldwide) is brimming with UGC: Answers, Finance, GeoCities, Groups, Local, Movies, Music, My, MyWeb, 360, Video, etc.

Yahoo! Answers by itself is now the 100th most visited web domain, capturing a 96% share of Q&A services, a growth area that already dominates traditional web search in some Asian countries. Yahoo!’s UGC strategy is perhaps most clear in its acquisitions: Flickr, del.icio.us, Konfabulator, JumpCut, Bix, MyBlogLog, etc. Mix in Yahoo!’s developer network, RSS fanaticism, and open spirit, and I find it hard to think of a company more representative of the user-genera-nation.

Irrefutable evidence of inefficient markets

I’m a big believer in the efficient market hypothesis, but IMHO Wall Street’s rapture following Steve Jobs’s sermon and the ensuing iPhone idol worship cannot possibly be explained by rational behavior. Take a look at this graph (via Midas Oracle via Silicon Valley Watcher via ValleyWag courtesy Yahoo! Finance — long live remix!):

Annotated graph of Apple's stock price during Steve Jobs's first unveiling of the iPhone, Jan 2007

Overall, Apple’s stock was up over 11% in the two days following the iPhone announcement. C’mon: no matter how closely Apple guarded the iPhone’s specs, no matter how persuasive Jobs’s rhetoric, no matter how surprised industry watchers were at the blogomediasphere’s glowing reception of the gadget, Jobs’s speech could not possibly have revealed over $8 billion in previously undisclosed information. Certainly non-insiders knew some of the details of the iPhone. Almost everyone knew that Apple would announce some sort of cell phone / iPod combo device. Moreover, the thing is not even going on sale until the summer, and then with a single carrier at a price point sure to discourage mass consumption. I’m an Apple fan, an Apple Computer Inc. investor, a Mac user for decades (and an Apple II user before that), and I’m drooling along with the rest of you over the iPhone. But still, some of that sudden $8 billion re-assessment of Apple’s worth surely stems from irrational exuberance, herding, and/or good old fashioned religious fervor.

Readers may challenge me to put my money where my mouth is and (short) sell Apple. Since I’m not doing that, take all of this with a grain of salt.