Trade shares of players and teams on OneSeason

My friends Mike and DJ launched OneSeason about two months ago and have built a very interesting platform for buying and selling synthetic ownership interests in sports teams and players among friends. Think playing cards merged with an online industrial strength trading platform.

Buffett on equities

Great Op-Ed by Warren Buffett in the Times yesterday.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Expert networks and sell-side research analysts

The recent partnership announcement between the Gerson Lehrman Group and Credit Suisse sparked some commentary from research industry insiders who were surprised that GLG was letting sell-side analysts access the GLG network, even for what is sure to be a hefty fee. I was a bit surprised to learn they weren’t doing this already. GLG and other expert networks have tens of thousands if not hundreds of thousands of experts in their networks. Sell-side research operations, while they may be on the decline, still control 75% of the $5.7 billion in trading commissions distributed to research providers annually. At KnowledgeBid, our best customers are firms that sell research and services based on primary research.  Contact us if you’d like to learn more about our network and how we can help you meet your customers’ needs.  We’d love to help.

The classified puzzle

It’s a funny coincidence that Microsoft will be pulling the plug on their little known Live Expo classified service just three days after MySpace announced that they will be ramping theirs up with Oodle. These changes are indicative of the larger trend: the classified game remains elusive for large major new entrants. Facebook‘s classified service has been less than stellar (I can’t even find a link to it right now) and Edgeio has been shuttered while Craigslist and eBay continue to dominate the all-in-one classified scene.

LinkedIn quietly launches Research Network and DirectAds…let the monetization begin.

LinkedIn DirectAds
LinkedIn has quietly launched a beta version of a dynamic CPM text advertising platform called LinkedIn DirectAds. No formal announcement of the launch was made on the LinkedIn blog or elsewhere. According to the DIrectAds FAQ, advertisers will be able to dynamically target ads by age, gender, geography, educational institution, industry, and seniority. Minimum order size for an advertisement is $25, with the minimum number of impressions dependant on the targeting audience chosen by the advertiser. The rate that you pay for a CPM (1000 impressions) changes as you add or remove targeting options from your ad. Apparently the product will give click-through rates to advertisers, but billing will be based on CPM. In a unique twist, ads will also include the advertisers name and a link to their LinkedIn profile in hopes of “increasing transparency and visibility into the advertiser.” Much like the Facebook SocialAds platform, advertisers must have a profile on the network to launch an ad, although LinkedIn says they are limiting advertisers by completeness of profile, number of connections, date of profile creation and a number of other factors. I was unable to access the platform through my profile.

The DirectAds platform will bring LinkedIn closer to Facebook’s Social Ads technology, with these two leaving Bebo, MySpace, Plaxo, Friendster and the rest of the social networking world behind for now. I hope to be able to try the LinkedIn platform soon and give a head-to-head comparison. LinkedIn will continue to extract a premium on their advertising, as it seems they will be setting the price per CPM internally. A true market (e.g. Overture/pre-Panama Yahoo) or partial market (e.g. Google quality score) influence on price would likely result in prices lower than they would like, and they are clearly avoiding a CPC model for a reason since they are measuring CTR anyways. I think this slow transfer is very smart on their end especially considering their pre-IPO status, but as an advertiser I wish they would switch to a free market faster. Their ad margins will likely be lower than what they were getting with their rate card (although perhaps not), but the volume of advertisements will definitely spike upwards as you no longer have to go through a traditional advertising salesperson process to launch a targeted ad on their network.

LinkedIn Research Network
Additionally, on Thursday of last week LinkedIn quietly launched the LinkedIn Research Network, a product the company first mentioned back in February. No formal announcement of the actual launch was made on the LinkedIn blog or anywhere else, but the Research Network product page is live and linked to from the Premium Product footer, along with job, corporate, and upgrade links. Also linked is a 2 page product summary PDF. The product page outlines what is essentially a premium version of InMail (pdf). A Research Network subscriber can send send 20 InMails at once, and no monthly or daily limits are mentioned. Previously, LinkedIn BusinessPlus subscribers had the most InMail access and were limited to 10 InMails per month, so this is a dramatic increase in potential InMail volume. In the past advertisers could send targeted InMail blasts through LinkedIn’s advertising platform at $1 – $5 per recipient.

The LinkedIn Research Network is an attempt to move into the expert network industry and will be sold primarily to hedge, private equity and venture funds. According to a recent Integrity Research Associates report, there are roughly 25 expert networks in existence today. Aside from my company KnowledgeBid, every other expert network service operates on a subscription model. LinkedIn is likely gunning for the fat subscription fees that players like the Gerson Lehrman Group are pulling from investors (+$50k for access to one industry vertical of experts for 6 months), but the product they have launched is far more like the resume search/direct email services offered by Monster, HotJobs, CareerBuilder, Dice, etc. than an expert network. Perhaps down the road LinkedIn will try to facilitate the actual expert matching, but this iteration of the product just enables subscribers to send a large volume of cold emails to potential consultants. Additionally, the product page makes no mention of facilitating consultant payment and the only compliance functionality mentioned is a “research history”. Legal compliance is arguably the largest issue faced by expert networks today, and something that expert network users have come to expert from service providers. It’s possible that LinkedIn is intentionally not involving themselves with payment of experts in an attempt to remove themselves from the chain of liability if their service were to be used to facilitate insider trading or the like.

Congrats to LinkedIn on the product launches. I’m glad to see them competing with Facebook on the advertising technology side of things (let’s see an API guys!) and will certainly be keeping tabs on these products as they mature.

Cloud Consulting + Distributed Professional Services

The Times recently ran an article by Michael Fitzgerald on the red hot cloud computing trend. Fitzgerald defined cloud computing to be “obtaining computing resources . . . from someplace outside your own four walls, and paying only for what you use.” The concept of cloud computing makes perfect sense: instead of paying for massive amounts of computing capacity to be ready for spikes in usage, site owners pay only for what they need, when they need it.

Fitzgerald’s definition illustrates the parallels between cloud computing and what we’re up to at KnowledgeBid as well as, in a larger sense, a growing trend in the professional services space. Like cloud computing services, KnowledgeBid provides services on an as needed basis, the difference being that instead of tapping into a cloud of computational power, KnowledgeBid facilitates access to a cloud of expertise and information.

A new lean breed of professional service companies is maturing with similar operating models, silently taking market share from the incumbent players. These firms have minimal office leases on their balance sheets and aren’t burdened with massive annual partnership payouts. They offer customized, lower priced services and often have broader offerings than their traditional competitors. The management of these firms plays a new and rapidly evolving role, combining matchmaker, headhunter, temp agency, accounting firm, compliance officer, and human resources department.

One of the hottest of these new breed is Axiom Legal Solutions, Inc. Founded in 2000 by Mark Harris and Alec Guettel and backed by Greenhill & Co., Benchmark Capital, and Panorama Capital, Axiom is disrupting the legal world by working closely with the in-house counsel at major corporations to fuel them with niche, qualified attorneys on a contract basis. Axiom “combines the flexibility of outside counsel with the best attributes of a sophisticated corporate law department”, collecting fees on attorney hours but without the weight of partner payouts and massive office leases. Axiom “is not a law firm” and “does not provide legal representation or advice” but does interview attorneys, hire them full-time, then place them directly with clients for specific engagements. Their clients include American Express, Bank of America, Cisco, Dow Jones, Goldman Sachs, Johnson & Johnson, New York Times, Nokia, Sun Microsystems, and Viacom, among others.

The most advanced segment of these new service providers is arguably the web development and design sector. Dominated by oDesk and eLance, these companies give customers access to a global network of developers, designers, and database architects. They don’t hire service providers directly but serve as a platform for clients to screen, interview, monitor and compensate service providers. These companies have seen explosive growth thanks to the web 2.0 boom. The chart above shows the number of hours worked through oDesk by month since 2003.

Running a similar model in the engineering space, Exponent, Inc. hires professionals on full time and staffs them with clients according to their specific needs much like Axiom. Exponent has been around in one form or another since 1967, and has morphed several times. It’s currently a publicly traded company and employs over 500 engineering and scientific professionals, covering 20 practice areas including biomechanics, buildings & structures, civil engineering, construction consulting, ecological & biological sciences, electrical & semiconductors, environmental & earth sciences, health sciences, chemical registration, food safety, epidemiology, biostatistics, computational biology, toxicology, mechanistic biology, exposure assessment, public health, industrial hygiene, industrial structures, mechanical engineering, materials science, statistical & data sciences, thermal sciences, and vehicle analysis. Exponent does have significant lease liabilities (~$5M in ‘07) but most/all is non-premium warehouse and laboratory space. The company saw solid growth vs the S&P last year.

At the end of the day these companies all provide value by making connections and managing relationships. As the world becomes more and more connected, I think this trend will continue. The professional services cloud will become more accessible, and the companies that facilitate access to it will gain market share at the cost of traditional professional service providers.

Investment Research + Massive Industry Shift

I had the opportunity to present KnowledgeBid at the Investorside Alternative Research conference in New York last week (conference agenda), attended by an interesting mix of independent alternative investment research providers and buy-side folks. The investment research industry has undergone massive change in the last 10 years, much of which is a result of the information technology explosion, Regulation FD, and unbundled commissions. The dominant groups at the conference last week primarily fell into three categories: 1) expert networks, 2) data mining, and 3) research management. Very few, if any, new players are producing traditional research reports with buy/sell recommendations or general industry analysis. Even fewer are associated with particular trading desks, something that never would have been seen 10 years ago. The recent explosion of the alternative research space has in large part been at the expense of traditional sell side research.

The sell side and other large financial service players are now actively partnering with, investing, and acquiring alternative research operations. There has been an explosion of activity in the space in the last six months, part of a larger trend that has been emerging since Reg FD was passed eight years ago. I’ve aggregated major announcements and milestones below (let me know if I missed anything interesting).

• 10.23.2000: Regulation FD Ratified by the SEC
• 3.2001 – 11.2001: US Economic Recession
• 10.15.2001: FirstRain $11M Series A
• 4.28.2003: $1.43B Global Analyst Research Settlement
• 7.15.2003: FirstRain $8M Series B
• 7.21.2003: BNY launches Jaywalk initiative
• 2.2004: Bessemer Ventures invests in Gerson Lehrman Group
• 3.4.2005: Standard & Poor’s acquires Vista Research
• 2.6.2006: Goldman Sachs invests in Investars
• 3.2006: UBS announces partnership with ASSET4
• 6.2006: Goldman Sachs launches Hudson Street initiative
  
• 6.29.2006: GS / Hudson Street invests in ASSET4
• 9.7.2006: DFJ invests in Monitor110 $5M Series B
• 10.30.2006: DFJ invests in Monitor110 $11M Series C
• 12.20.2006: Morgan Stanley partnership with Tamale Software
  
• 2.9.2007: GS / Hudson Street invests in Connotate Technologies
• 3.29.2007: BNY / Jaywalk announces alliance with Code Red
• 4.5.2007: GS / Hudson Street invests in iSuppli
• 5.2.2007: Evalueserve acquires Nitron Advisors
• 5.8.2007: GS / Hudson Street invests in Medley Global Advisors
• 9.10.2007: GS / Hudson Street invests in Lusight
• 9.27.2007: Merrill Lynch announces partnership with ASSET4
• 12.19.2007: Silver Lake invests +$200M in Gerson Lehrman Group
• 1.14.2008: Oak Partners invest in $13.6M FirstRain Round (Series C ?)
• 1.25.2008: RiskMetrics $245M IPO
• 2.11.2008: GS / Hudson Street invests in TrimTabs
• 2.27.2008: BNY / Jaywalk announces alliance with Tamale Software
• 3.6.2008: UBS invests in Integrity Research Associates
• 3.21.2008: GS / Hudson Street invests in QSG
  
• 3.27.2008: Morgan Stanley partnership with Gerson Lehrman Group
• 4.7.2008: Standard & Poors / CapIQ announces alliance with FirstRain
• 4.9.2008: Merrill Lynch launches Open Minds with Asset 4; Audit Integrity; Cypress Group; Decision Resources; Global Media Intelligence; HPDI and Primary Source
• 4.17.2008: Instinet exclusive relationship with Norbury Financial

NYSE Panel on Expert Networks

The morning the New York Stock Exchange hosted a panel entitled “Expert Networks: Issues and Opportunities for Public Companies”. The session was moderated by Keith Ackerman, who is Global Head of Next Generation Research at Thomson Financial. On the panel were Howard Dicker, Partner at Weil, Gotshal; Jonathan Glick, Director of Research Operations at the Gerson Lehrman Group; Michael Lynch, Managing Director, Global Commission Management at Merrill Lynch; and Michael Mayhew, Chairman & Co-CEO at Integrity Research. The video of the panel can be found here. The group had a very interesting discussion focusing on the trends within the expert network space.  I’ve posted my thoughts on the discussion over on the KnowledgeBid Blog.

Liftopia: Discount lift tickets online

My good friend Evan Reece started the innovative company Liftopia a few years back with his friend and then co-worker Ron Schneidermann. Both previously worked at Hotwire and decided to take the idea of liquid prices and markets to the ski world and create a web-based market for discount lift tickets. Liftopia had 7 resorts on board last year and are heading into this season with 50 resorts signed up…solid growth by any measure. I know skiers across the country will love this service, especially in regions like Northern California, Utah, Colorado, the Pacific Northwest, and the Northeast where weekend skiers have a variety of resorts to choose from. Logic and market theory dictate that fixed prices don’t make any sense in situations like these. Skiers should get cheaper tickets the further out in advance that they buy them (time value of money + risk they incur from not knowing conditions in advance) and resorts should slash prices when conditions are poor and they want to get people to the resort. One challenge the guys are going to face is getting resorts to constantly jigger their prices, although it seems that need for revenue (and maybe even off the shelf pricing algorithms) would take care of this…

Liftopia got some great press in the Boston Globe yesterday.

Corporate branding: The Bloomberg B-Unit

I’ve written a little about corporate branding in the past, but I recently stumbled upon a real gem. The Bloomberg B-Unit.

The BLOOMBERG B-UNIT™ is a state-of-the-art biometric security device that provides BLOOMBERG ANYWHERE™ subscribers with enhanced identity protection and gives access to the BLOOMBERG PROFESSIONAL service.

How awesome is that. A state-of-the-art biometric security device to see commodity prices? What about logins and passwords? Or if you want to get really crazy, digital tokens? This thing is pure branding, and I’m sure it works. Give a B-Unit to a commodities trader and he’ll instantly think more highly of the info he accesses with it.

Bloomberg is not new to the corporate branding game, and in some ways they may have even fallen prey to being too progressive with corporate branding…if such a thing is possible. Bloomberg terminals have rocked the colored keyboard since the company’s founding in the early ’80s. They’ve stuck with it, and to this day Bloomberg keyboards are lit up like Christmas trees. Meanwhile in 2007, no one else on the planet needs a colored keyboard except your kid cousin that is learning to play their new synthesizer. Not even the craziest ninja programmers need colored keys to keep their heads straight. But bond traders? They need a colored keyboards “to save time”. I’m sure the colored keyboard was the coolest thing since sliced bread when it hit the market in ’82…and the cutting edge bond traders that started using them back then still want the colored keys today. And get this…some of the keyboards even have thumbprint sensors too:

The BLOOMBERG® keyboard conserves desk space while providing extra functionality and it empowers the user with time-saving, customized keys. The integrated sensor utilizing biometric technology provides an added level of security.

Of course at the end of the day, the Bloomberg hardware and UI may look ridiculous, but they’re still able to charge $1,500 a month per user.  However, that’s a huge pricetag to be paying for data.  If I were Bloomberg I would ditch the colored keyboard, grab as many of those fat fees as you can, and keep on the lookout for competition moving in on your turf.

Inkling Markets

Prediction markets have gotten more and more mainstream over the past several years with companies like Tradesports.com leading the charge. I posted a while back about the recent trend in web applications towards harnessing crowd wisdom. Somehow I missed Chicago based Inkling Markets in that post. Inkling is a YCombinator participant (Winter 2006) that allows users to create customized predictive markets. I recently got a good look at the Inkling product through the Chicago GSB New Venture Challenge, where one of the participants organized a market through Inkling where participants could place bets on who would win the competition. It wasn’t an ideal setting to see the power of predictive markets because every participant had an incentive to jack the price of their own stock to improve the perception of their team and product. Markets like these work best when knowledge about a result or situation is dispersed through a large group of people and the only incentive participants have within the market is to guess the eventual result. However, it was very cool to see that a tool like Inkling is out there and easy to set up.

The Inkling guys spent a lot of time on their UI design (everything looks really nice) but I was forced to do a lot of calculations on my own to figure out if I should buy or sell. The math is generally straight forward (e.g.: User #1 bought stock A at $X, it is now at $Y, if #1 sells they will get $Z) but things can get extremely complex when users short stocks (which they have to be able to do for the market to be accurate) and when they buy and sell the same stock at multiple prices. I’m guessing this is what the Inkling guys are working on. A big decision they need to make is whether to show gains/losses relative to recent changes in stock price or relative to the purchase price…which is again complicated when you have multiple purchase prices and purchase times…

I think predictive markets are here to stay and their potential uses have yet to be fully discovered. One of my professors recently wrote this interesting paper about possible uses of predictive markets in corporate governance scenarios. Who knows if this is an area where markets will spring up, but many, many companies use prediction markets internally to monitor anything from product launch timelines to option prices. However, many of these uses never see the light of day since the markets can predict bad results which the companies generally want to control/spin. Anyways, good luck to the guys at Inkling! Their blog is here if you want to stay up to speed on their progress…

Fine Violins Fund looking for $50m

From the FT:
A hedge fund investing in old violins has been pledged $11m (£5.5m) in the latest sign of investor willingness to put money into offbeat assets that were previously the exclusive domain of collectors and enthusiasts. Florian Leonhard, a London-based violin dealer and restorer, is aiming to start investing the Fine Violins Fund once it has raised $50m, with a target of returning 8 per cent to 12 per cent a year. The fund is perhaps the strangest in a series of new asset classes being created by investors trying to avoid stocks and bonds. Hedge funds have been set up specialising in wine, art, shipping and even football players, demonstrating the appeal of assets that historically have not been correlated with financial markets.

Wow. That guy better get some good insurance. Joshua Bell’s violin is nearly 70 years older than the United States and is worth $3.5m. Lots of questions come to mind:

1. How many uber expensive violins are out there?
2. If this is going to work, why stick with violins?
3. Is this guy is going to buy violins and just lock them up? Or let artists use them and get lots of insurance?
4. What impact will this have on the violin market? The market may be small enough where supply is noticeably cut and prices inflate…also very doubtful the actors are rational…
5. How liquid is the market? If I remember correctly, Bell’s violin has been owned by less than 10 people.
6. At what point is something just a crazy idea and not a hedge fund?

Powered by Shopatron

My good buddy George, who works for a mid-sized independent ski manufacturer, just told me about an interesting company called Shopatron. Shopatron runs the e-commerce transactions behind branded manufacturer websites like Callaway, Brooks, and Diadora…companies that run the risk of upsetting retail partners by selling directly to consumers and cutting retailers out of the loop. Shopatron runs transactions from partner sites, “sells” items to the consumers at the manufacturer suggested retail prices, then puts items out to bid via the web to retailers within the consumer’s region. The retailer that is in the consumers region that has the item in stock and is willing to sell it at the highest price gets to make the sale. If no retailers have the item in stock or want to sell, the manufacturer sells the item directly to the consumer.

For example, Spy makes sunglasses and ski goggles…they sell goggles and glasses on their site, but the transactions are processed by Shopatron. If I buy a pair of ski goggles for $150 via spy.com, Shopatron processes my order and puts it out to bid to Spy retailers in the Chicago area. If none of them pick it up, I get the item directly from the manufacturer.

Very cool idea and Shopatron has a very solid portfolio of companies.

100 billion cookies

Seth Goldstein posted, in his usual bizarre fashion, about the billions of cookies that lie behind the billions of dollars which make up the recent ad network acquisitions. Seth’s venture AttentionSoft is trying to empower users to take control of their “attention” (embodied in cookies) because, as these acquisitions show, their attention is very valuable.

While I admire Seth’s unique take on the market for attention, I think the more interesting issue in play here is the fact that these networks thrive on the fragile world of cookies. Banner advertisements generally have miserably low CTRs, although the networks that serve banners argue that they can increase clicks by “targeting” ads served to users. This targeting is done through cookies. If a user navigates to a site that contains a banner ad from one of these networks, the ad “sees” the cookies in the users browser, and if it recognizes any of them it can use that data to serve up a relevant ad. For example, if a user is shopping for a car, he may visit several car manufacturer sites. If Ford is using an ad network, they may try to plant a cookie in the users browser so that when the user navigates to a site that serves ads from the network they run ads in (NYTimes.com, whatever), the site will see that the user has been to the Ford site recently and will serve up an ad for Ford. Additionally, some ads themselves can plant cookies. These ads analyze the content of the page a user has navigated to and plant a cookie that contains information about the ad and the context the user saw it in. You likely have hundreds of cookies in your browser right now – to see them go to Preferences and then look under Privacy or something similar. Some of these cookies are useful and enable autofill or autologin features you likely agreed to, but the majority are likely not.

This system hinges on the cookies making it into the users browser in the first place. Different browsers have different default options for cookie acceptance. Firefox currently only has one option: “Accept cookies from sites.” A user with this option selected will see targeted advertising as they navigate around the web while someone who doesn’t select it will see no targeted advertising. Safari’s options are: “Always,” “Never,” and “Only from sites you navigate to (for example, not from advertisers on those sites) .” Internet Explorer has a scope of options from “Low” to “High” to “Block All Cookies.”

The way in which these options are framed has a large impact on how users choose between them (i.e.: the fact that the “Block All Cookies” is past the “High” security setting may make a user feel like an extremist for selecting it). Similarly, the default security setting on a browser like Internet Explorer, which tends to be used by less savy web surfers, will have a huge impact on how cookies are logged. Now that Microsoft has acquired aQuantive, which relies heavily on cookies to target ads, you can bet that the default IE option will be to allow cookies.

Comscore has done lots of interesting research on user cookie deletion from the perspective of traffic measurement systems. Their study states that 3 in 10 internet users delete their cookies every month. This seems quite high to me. At the end of the day, for the vast majority of internet users the default configuration of a browser has the most impact on cookie acceptance and retention, and with browser makers moving into the advertising world, you can bet that default browser settings are going to become more and more cookie friendly.

Human Computation, Game Design, and Behavioral Economics

The philosophies generally associated with the University of Chicago usually orbit around free markets, rational actors, and economic efficiencies. These were generally borne out of the Friedman & Stigler cohort and the Chicago School of Economics which reached its peak during the mid-80′s still is a dominant force in economics, politics, and law today.

An interesting spin-off of the classic Chicago school of thinking here has been the Behavioral Finance movement piloted by Richard Thaler in the GSB and by Cass Sunstein in the School of Law. The behavioralists generally think that free markets are all well and good, but that people simply don’t always act in perfectly rational ways. They try to and categorize ways in which people generally deviate from rational behavior so that modeling and predictive techniques can be formed around how people DO act, as opposed to how they SHOULD act. One of the classic models that has emerged from this school of thinking is the Prospect Theory, which models the fact that humans are generally more adverse to losses than they are to gains, i.e., a normal person would feel more pain from loosing $100 than joy they would feel from gaining $100, while a perfectly rational actor would give the same slope coefficient to losses as they would to gains.

Another interesting model that has come from this school of thought is the impact the framing of a question or situation has on the response it generates. For example, people are likely to not be neutral between a 25% chance to win $50 and a 50% chance to win $25, even though the expected payouts are the same ($12.50). Similarly, studies have shown that people tend to anchor expectations to numbers they have recently heard or seen. Smart attorneys attempt to use this heuristic in their closing arguments by referencing numbers near where they would like the jury award to fall, e.g. a attorney who wants a hundred million dollar reward in a pharmaceutical trial would be smart to talk about the hundreds of millions of people who could have been potentially hurt by a drug, thus anchoring the jurors’ minds around numbers of that size.

Anyways, what got me thinking about this whole subject was a reference to the Mechanical Turk on Guy Kawasaki’s blog. Now Guy was a little late to the Mechanical Turk party, as the comments to his post point out, but one thing I noticed in the comments were several references to the Mechanical Turk being a failure. I hadn’t given it much thought before I watched the video below. The classic Mechanical Turk task is paying users $0.005 to tag , or describe, a photo with text. Until a photo has been tagged, a computers currently have no way of telling if the picture is of a boy, a dog, or a airplane. There are some people that will tag photos for pennies, but it isn’t terribly rewarding and it’s not a great way to make any money. But, as you’ll hear in the video, if you frame the same task in the context of a game, you end up having to cut people’s playing time off after fifteen hours because they like it so much.

The video is long, but basically this guy Luis Von Ahn designed the ESP Game and Peekaboom which tagged more photos for free than the Mechanical Turk will ever even come close to seeing. Some recent posts on the Lightspeed Ventures blog have also piqued my interest about game design and its place in social networking and web applications in general. One of the posts is about Yelp harnessing game design to get users to do what they want them too (create listings, contribute reviews, etc.). I think LinkedIn has done a fabulous job of this as well. I still love making connections on LinkedIn but never once have I really gotten any real benefit from it…I just like watching my counter go up. Yahoo! Answers and Amazon’s Askeville are also great examples of game design getting people to do things. Every day on thee sites thousands of people answer questions posed by complete strangers to accrue millions of points that have no more value than a video game score. Nutty.

Edit: Thanks to Jeremy Liew at Lightspeed for the shout out about this post.

Webkinz = traffic

Check out the traffic explosion I got from my post on Webkinz yesterday (Saturday, from FeedBurner):

It will be interesting to see what happens today! I’m pretty sure these are all people hitting Google to try to figure out how to buy Webkinz for their kids. A commenter on my previous post indicated that the Webkinz site is free for a year and it stays free if you buy more Webkinz…but what if you can’t find any Webkinz? Genius!

This is a really great example of viral marketing. Adding a site where you can buy things for your toy is great, but allowing kids to interact online through their toys is even better. At the end of the day, this is a chat room/social network for kids, and the subscription fee is buying a Webkinz toy. It’s cool that Ganz, a family owned toymaking company based in Toronto, figured this out, and not an entrepreneur in the Valley.

A history of home values

I saw this on the Freakonomics blog…pretty interesting stuff. Click the image to see a larger readable version.

Webkinz = genius

A couple of months ago, a professor of mine was talking about his kids’ obsession with something called “Webkinz” and how he and all the other parents of kids his age in his town would rush to the store when word got out that a new batch of Webkinz had come in. At the time I didn’t think much of it, other than laughing at the thought of my professor having to burn over to the local mom & pop toy store to get his kids new plush toys.

This was my introduction to Webkinz, and the last time I thought about them until today when I was reading a post over at the Lightspeed Ventures blog about the recent ComScore numbers. According to ComScore, Webkinz.com gets the 28th most monthly visits per user on the web. After digging around on Webkinz.com a bit, I now see why this is the case. When you buy a Webkinz stuffed animal, you can then “adopt” the animal online via the Webkinz site. This creates a virtual world for your pet, complete with Happy, Health, and Hunger meters which decrease if you don’t exercise or feed your pet in “Webkinz World”…which obviously costs money. Imagine all the five year olds out there waking their parents up on Sunday morning telling them that Scruffy’s Hunger meter is low and that they need to buy him a cheeseburger in Webkinz World. Genius!

Webkinz is owned by the privately held Ganz company based in Toronto…

ODesk: 750,000 hours and $10 M in ’07

TechCrunch is reporting that ODesk, the tech outsourcing platform, has channeled $10 M and 750,000 hours in ’07 already. That averages to $13.33/hour. Not too bad if you are a developer in India or Russia, which is where the majority of the ODesk contractors reside…and not too bad if you are looking to hire a tech contractor for cheap…but not so good for the domestic tech folks, although they seem to have more work than they can shake a stick at these days.

Home price index negative for first time since ’94

“The S&P/Case-Shiller Metro Area Home Price Indices are designed to be a reliable and consistent benchmark of housing prices in the United States. Their purpose is to measure the average change in home prices in a particular geographic market. They cover ten major metropolitan areas (Metropolitan Statistical Areas or MSAs), which are also aggregated to form a national composite. The indices measure changes in housing market prices given a constant level of quality. Changes in the types and sizes of houses or changes in the physical characteristics of houses are specifically excluded from the calculations to avoid incorrectly affecting the index value.”

For young renters like myself, this data is bittersweet. Obviously a bad sign for the economy and my heart goes out to those loosing value in their homes…but the housing market is ridiculously overpriced and needs to come down. I don’t want to rent forever!

Marshall Wace & TOPS

A post by Roger Ehernberg on Information Arbitrage led me to Marshall Wace, a hedge fund that, according to Wikipedia, is one of the biggest funds in Europe and accounts for 3 or 4 percent of equities traded in London (their logo actually looks pretty cool on their site). For several years, the fund has generated solid returns from the TOPS system (“Trade Optimized Portfolio System”), which “collects and evaluates investment ideas generated across the securities industry, so as to create optimised (sic) portfolios which have historically delivered attractive risk-adjusted returns.” It seems like they track sell-side research performance, put money on who’s hot, and pay the sell-side for performance. Although it seems like a simple concept, apparently MW is on the cutting edge with this and remains so today – no other fund advertises using such a system. However, the performance trackability seen in social web 2.0 sites Yardbarker and SocialPicks, which I have posted about before, seems to be similar. Like MW, these sites cut through the “noise” and allow individual investors & gamblers to put their money on the backs of those that are hot.

I like this trend towards performance tracking. I hate to say that its is a feature of web 2.0, but ever since PPC carried the day, there seems to be an increasing premium placed on noise reduction and compensation for value. This is definitely a good thing for those that add value and a bad thing for those that don’t.

Peer-to-peer lending…or not.

Prosper.com bills itself as a peer-to-peer lending network where borrowers post the amount of money they are looking to lend, the term of the loan they desire, and the max interest rate they want to pay. Prospective lenders then bid an amount and rate they are willing to pay, the lowest of which are pooled to grant the loan. Loans can be made in increments of $50 to $25,000 and borrowers create loan listings for up to $25,000 and set the maximum rate they are willing to pay a lender. Prosper charges a 1% fee on the loans made to borrowers and a 0.5% annual loan servicing fee to the lenders.

The concept is an interesting one, and the company, funded by Benchmark Capital and eBay founder Pierre Omidyar and piloted by Chris Larsen of E-Loan, has made nearly $40M in loans during the past 12 months. Tangentially, the site illuminates how comfortable people have become in transactions with strangers.

However, all loans on the site are unsecured, and Prosper is less clear about the fact that lenders deposit their funds into a Wells Fargo account and that Prosper actually makes the loan to the borrower and then immediately resells it to the “winning” lender…so it’s not really peer-to-peer lending at all. While lenders do get pretty good rates, Prosper sits in the middle and retains rights to dish the loan when borrowers default, and while this gets around the inevitable collective action problem that would arise with en mass lending, it can also leave lenders holding the bag on bad loans. It will be interesting to see how Prosper fares down the road.

Washington Post on Prosper: “Want to Loan Me Money? Here’s a Picture of My Dog.“

HBR on Two-Sided Markets

The October ’06 Harvard Business Review had a great article entitled “Strategies for Two-Sided Markets” ($6.00, also available via Lexis, etc.), which I found through the Lightspeed Venture Partners blog. The authors dig into the big picture structural issues that face two-sided market platform providers like eBay and Craigslist, including subsidization/pricing, winner-take-all dynamics, and competitive envelopment. It’s the best summation of the structural strategic challenges that face market platform providers that I have seen, but while it does a good job of addressing the structural issues, it glosses over the challenge of generating traffic in the first place, which is the largest challenge that these systems face.

To mix overused metaphors: if you build it well, will they come…or will you be a well built tree falling in a forest with no one around to hear you?

Markets, markets, everywhere…

In the last 2 weeks or so, there has been a flurry of interesting niche sites on TechCrunch that have piqued my interest.

• Farecast: Airline price insurance
• Price Protector: Price protection alerts
• PicksPop: Pop culture betting
• PicksPal: Sports betting
• SocialPicks: Stock picking
• Gottabet: Bet on anything
• Weatherbill: Bet on the weather
• My Currency: Crowd home & property valuations
• SccopLive: Paparazzi photos

These sites let users either cash in on what they know, or protect themselves from what they don’t. They allow bets and hedges to be placed on outcomes that are difficult to predict and inherently create markets for information.

I have been thinking a great deal recently on the commoditization of information in the Google age. Information that is in the public domain is extremely useful, but also “worthless” in the sense that doesn’t really generate alpha. Roger Ehrenberg of Monitor110 and Information Arbitrage has had quite a few interesting posts on the value of unique information and the commoditization of information within the public domain. He has also based his business around harvesting and, in a sense creating, unique information.

As more and more information becomes free and accessible, more and more value will be placed on information that remains unknown. The sites above create a marketplace for slices of the 99% of the world’s information that is not searchable via Google. Some of these sites may face some rough sledding because their business models require volume and liquid markets to generate accurate and efficient prices. That said, the market value of anything is whatever someone else is willing to pay for it. Services that link parties that have placed disparate values on the same item (a la eBay) are the ones that create effective markets and generate real value for end users.

weatherbill

TechCrunch had a post on an interesting company a while back. Weatherbill will apparently let people bet on the weather. I guess this will give the online gambling community something to do when the gambling execs come back to the US from the Bahamas to visit their moms and they get arrested.