Wednesday, March 29, 2006

Spoofing Your Way to the Next Big Thing

I randomly encountered this quote from Markus Frind, creator and owner of PlentyOfFish.com, a free dating site:

I knew the day adsense came out that i would be able to make a lot of money, suddenly here was this revenue stream i could actually build a business on. My site at that point only had a few hundred visitors a day and it was only a few months old. But my growth was steady and I could plot on a graph exactly how much traffic i’d have in 4 or 5 months in the future. This was the same time where i started doing mass anti competitive intelligence, i blocked anyone with the alexa toolbar from signing up and anyone using comscore. I figured if i was to have any chance i would need to stay completely under the radar, if no one knows you exist then no one is going to counter you or clone it.

[full interview at Andrew Johnson’s Web Publishing Blog]

The interesting part is Markus’ “anti competitive intelligence” strategy of blocking access to Alexa, comScore, and presumably other sample-based Internet measurement companies. (Alexa has a toolbar and comScore has some other kind of client-side software, both of which track a user’s Web surfing. That data is sent up to the respective Alexa or comScore mothership where it is aggregated into reports about various sites’ relative popularity.)

Because its reports are free, Alexa has become something of an industry standard. So when a site like MySpace, Digg, TagWorld, or YouTube breaks out of the pack, Alexa graphs are often Exhibit A.

Now, if Markus can easily detect and block users instrumented by these companies, it’s worth asking who is doing the opposite? For example, if a site can detect Alexa, perhaps it could provide those users special incentives to return. Or, inevitably, one can find Alexa-specfic traffic-exchange programs as well as less savory ways of gaming the system.

So let’s say someone builds a new site in a hot area, then manipulates Alexa into reporting the site has explosive growth. Now drop that Alexa graph into the hands of a few hungry bloggers, striving to make the A List by discovering the next big thing. The blogosphere echo chamber kicks in, and before anybody bothers to cross-check the numbers, the buzz in the blogosphere has driven the site’s traffic up for real.

The site’s quality would need to be decent to make this tactic work. But given that, could it work for a site that has no compunction about spoofing the numbers? Or should I say, has it already worked?

Sunday, March 26, 2006

When Counts and Percents Contradict

I’m requesting an immediate dispatch of the Numeracy Police to Phoenix Sky Harbor Airport, Terminal 4, downward escalator to baggage claim—code 319: material contradiction between count and percent, in progress:

The sign says:

1,732 ASU freshmen graduated in the top 10 percent of their high school class. That’s more than Harvard, Princeton, Stanford or Yale. And one more reason to choose ASU.

ASU is Arizona State University. Despite its many merits, ASU is rarely grouped with these other elite schools. So how does it happen here?

According to Wikipedia, ASU has 48,955 undergraduates. That compares to the other colleges mentioned as follows (again, with numbers from Wikipedia):

CollegeUndergraduates
ASU48,955
Harvard6,655
Stanford6,654
Yale5,300
Princeton4,365

I could not quickly find the numbers for each college’s freshman class. So for the sake of simplicity, let’s say that 25% of undergraduates at each college are freshmen. That would be 12,239 freshmen at ASU and an average of 1,436 freshmen at the others.

Recall that the sign said 1,732 ASU freshmen graduated in the top 10% of their high school class. That outnumbers any of the other schools’ entire freshman class. So even if the elite schools’ freshmen classes were entirely comprised of top-10% high schoolers—which is probably close to true—they would each still lose this comparison to ASU, where 14% of the freshmen (1,732 divided by 12,239) are top-10% high schoolers.

The trick is, ASU is using a count but implying a percentage. That’s bad practice if the percentage contradicts what you’re claiming with the count, as is the case here. To illustrate, if we restate the sign using a percentage...

14% of ASU freshmen graduated in the top 10 percent of their high school class. That’s more than Harvard, Princeton, Stanford or Yale. And one more reason to choose ASU.

...it would be false, by a wide margin.

I doubt ASU’s advertising people thought twice about this; they simply wanted a catchy sign. However, I’d like to think that many of this year’s top 10% high schoolers will not be persuaded.

Monday, March 20, 2006

Starbucks and the Meaning of Coffee

I don’t drink coffee, but I’ve always been interested in the rise of Starbucks. Behind the business success there always seemed to be a more profound societal factor at work.

I never gave this topic much thought, but a few paragraphs in an article otherwise about “fair trade coffee” crystallized the point: Starbucks scored the ultimate marketing win by redefining what coffee means in our society.

In the mid-’90s, as Starbucks stores popped up in rapid succession and the image of the overworked exec lost some of its appeal, coffee became associated with epicureans rather than workaholics. The luxury item of a leisure class, coffee was suddenly less speed than valium. “Almost overnight, coffee switched its meaning,” comments Scott Hamrah, a semiotics consultant and expert in the field of brand identity. “It became the opposite of what it meant before. First it was this stuff that you drank that allows you to be a machine. Then it became this moment of serene contemplation.”

Retailers encouraged the switch by providing space for contemplation. As caf├ęs appeared in urban crannies and suburban strip malls, they were stuffed with couches, books, and artwork. Consumers were encouraged to stay, peruse the paper, and ask for a second espresso. The act of ordering became a self-defining ritual; Starbucks developed a faux Italianate patois that made everyone sound like a sophisticate. “It’s amazing to me that these terms have become part of the language,” Starbucks’ Dawn Pinaud confesses in Mark Pendergrast’s coffee history Uncommon Grounds. “A few of us sat in a conference room and just made them up.”

This “second wave” paved the way for the rise of the coffee connoisseur. Java cognoscenti, and the marketers who sought them, started talking varietals and altitudes. Most significantly, they spoke of origin. In place of French Roast and Breakfast Blend, coffee joints were stocking Ethiopian, Sumatran, Jamaican. For producers, the interest in origin is a step toward developing a marketable identity, which is crucial to expanding their market. “Everybody knows that in this world of branding, if you are a coffee farmer and you are anonymous, you are in the buyer’s market,” comments George Howell, a businessman involved with the Cup of Excellence competition.

I don’t know that I buy the distinctions above (epicureans versus workaholics versus serene contemplators), but you don’t need a semiotics consultant to understand that something big changed. Unlike those that came before it, Starbucks didn’t just sell coffee; it redefined what “the coffee experience” meant to millions of consumers and, in many respects, to America at large.

Maybe it’s because I don’t drink coffee, but I had not perceived that particular big picture before.

Sunday, March 12, 2006

Prosper and Zopa Bring the Business Model

An ongoing theme in the Web 2.0 world is concern about the lack of business justification for many new companies’ existence—or as Russell Beattie recently put it, “the complete loss of business perspective.” But despite the occasional missile launched by the likes of Russell, much of the tech blogosphere’s concern feels perfunctory, like the last half-second of a radio ad when the announcer blurts “some restrictions may apply.”

That said, I’m okay with the suspension of disbelief necessary for many Web 2.0 companies. You never know what some of them may figure out along the way, and I salute them all for trying. It’s how innovation happens.

Where I get surprised, though, is when an Internet start-up emerges with the business case front and center, and it doesn’t get much attention. I’m referring here to Prosper, a company that launched in February. Except for a mention on TechCrunch, there is a notable lack of commentary about Prosper from the tech blogosphere A-listers. In fact, I didn’t find out about Prosper from my usual feeds; I heard about it from my wife Jacqueline, who read about Prosper in The Economist.

What is Prosper? It’s a people-to-people marketplace for loans. From the Prosper Web site:

The way Prosper works is intuitive to people who have used eBay. Instead of listing and bidding on items, people list and bid on loans using Prosper’s online auction platform.

People who want to lend set the minimum interest rate they are willing to earn and bid in increments of $50 to $25,000 on loan listings they select. People who lend can easily diversify using “standing orders”, which automatically make many small loans to different borrowers.

Prosper follows a UK-based company, Zopa, with the same idea. (By the way, for a great example of an effective corporate blog, check out Zopa’s.)

The core concepts for Prosper and Zopa are:

  • They are lighter weight, more efficient middlemen than institutional lenders, enabling better rates for lenders and borrowers.
  • By directly connecting lenders and borrowers—making them real to each other—Prosper and Zopa are lowering the risk of default while attracting investors who want to add meaning to where they put their money (helping start a particular person’s small business, for example).
  • With Prosper, borrowers can affiliate into groups, which have incentives to attract new Prosper members and thus they become Prosper’s vir(tu)al marketing team.
  • Both companies charge a small commission on each loan: 1% to the borrower.

Whether these concepts work in practice has yet to play out, although Zopa seems to have made solid progress in its first year. The real test on risk and fraud issues will be when the services become popular enough that they routinely attract, and hopefully defeat, bad or malicious users.

But the unknowable future aside, the interesting thing about Prosper and Zopa today is they are innovating in the business model first, technology second. Given the amount of talk about start-ups with those priorities reversed, you’d think that Prosper and Zopa would merit more attention, especially considering the potential parallels to what eBay did for person-to-person selling.

And speaking of eBay, one of Prosper’s board members is Bob Kagle of Benchmark Capital, an early investor in and current board member of eBay. Oddly, Benchmark also lists Zopa as one of its portfolio companies. Another Prosper investor is Omidyar Network, the investment group established by eBay founder and board member Pierre Omidyar. So if either Prosper or Zopa gets traction, look for eBay to buy it faster than you can say “Skype.”

In the meantime, I love the idea behind what these companies do, and I wish them luck executing their plans.

Saturday, March 4, 2006

How Not To Use Numbers: High Schools Withhold Student Rankings

A recent New York Times article, Schools Avoid Class Ranking, Vexing Colleges, illustrates how not to use numbers.

The core problem is this: Grade point averages are subjective and minimally standardized. Some high schools give out “A”s easier than other high schools. This causes colleges to request not only a student’s grade point average but also the student’s class rank. The rank provides a reference point for what the student’s grade point average is worth at the student’s school.

But if we learn from student rankings that a school has double the percentage of “A” students as the average, should the lower half of those “A” students’ achievements be devalued? Maybe the school just has more smart students than average. The usual problems with using averages aside, many high schools’ argument boils down to: “My school’s 85th-percentile-ranked student might be better than another school’s 95th-percentile student.”

So far we have reasonable points on both sides. But where you’d think both sides would be working to agree on more and/or better measurements, an increasing number of high schools have concluded they should just withhold student rankings.

The schools have two justifications, both weak:

  • Withholding rankings will cause colleges to evaluate the “total child.” Ignoring the Orwellian aspects of withholding information in the name of the total child, the article states that most colleges end up compensating for the lack of information by either attempting to estimate the student’s rank or by adding emphasis to standardized test scores like the SAT. In other words, the colleges end up doing more of what the high schools are trying to prevent.
  • Withholding rankings will protect children from feeling bad. As a high school co-principal put it, “Only one person is happy when you hand out rank—the person who is No. 1.” I won’t argue the pros or cons of this point, because it’s a distraction: Withholding rankings from students is not the same as withholding rankings from colleges. The article notes that some high schools keep confidential rankings that are available to institutions that “absolutely” require them. If kids’ self esteem was the crux of the matter, high schools and colleges could no doubt expand the practice of conveying confidential rankings.

I don’t mean to imply that students should be evaluated only by numbers. Rather, in a world where college admissions are part qualitative and part quantitative, fixing the rankings issue should be about making the quantitative part better. Instead, high schools that withhold rankings undermine the quantitative part, in many cases hoping to make the numbers less important.

It’s not working, and students are the losers. Although a “distinct minority” of colleges are okay without rankings, the article suggests that most are not, citing the following data point near the end: “[A]n internal review showed that the admission rate at Vanderbilt was highest for students with a class rank, and lowest for those whose schools provided neither a rank nor general data about grades.”