OBSERVING ANALYTICS-DRIVEN TRANSFORMATIONS

HP and AUTONOMY: HOW TO LOSE 8.8 BILLION DOLLARS IN 2 YEARS

2013-05-10T09:44:00.001-07:00

from the FINANCIAL TIMES | May 8, 2013 | By Robert Armstrong and Stuart Kirk

Hewlett-Packard appears to be in a difficult position whatever the court rules on its disastrous purchase of the software group

Mike Lynch, CEO of Autonomy

Making $8.8bn disappear is not easy. Hewlett-Packard managed it, and quickly, when it bought the information management software company Autonomy in 2011 for $11.6bn and wrote off 80 per cent of the purchase price a year later.
HP’s history is rife with self-inflicted injury and the Autonomy affair is, in part, a depressingly familiar story: a company in crisis overpaying for an acquisition it can tout as transformative. Heads have already rolled. Léo Apotheker, HP’s boss at the time of the deal, departed almost immediately afterwards and Raymond Lane, the board’s chairman at the time, and two other directors followed him last month.

HP, however, attributed more than $5bn of the writedown to “accounting improprieties, disclosure failures and outright misrepresentations”. It alleges that low-margin hardware sales were disguised as high-margin software sales and that products were sold into the distribution channel when there was no buyer.
Mike Lynch, Autonomy co-founder and former chief executive, argues it is hard to believe that malfeasance on a scale to merit a $5bn writedown could have slipped through the due-diligence process. And so it is. Yet it is equally hard to see how, as Mr Lynch contends, the damage was done in a single year of poor management by HP. Autonomy was run as an independent unit within HP, led by Mr Lynch for the first seven months, and the trouble began soon after the deal was completed. In its last quarter as an independent company, Autonomy reported $250m in revenues. Yet in HP’s second quarter with Autonomy as a subsidiary, HP’s software division, which had been growing nicely on its own, added just $175m in new sales, and Autonomy software sales were down from the year before. (Mr Lynch argues that the drop in revenues is due to a combination of accounting changes and mismanagement by HP.)
Neither is it easy to see why HP’s current CEO, Meg Whitman, on the board at the time of the deal, would make a very serious accusation in which she was not confident.

See you in court
HP shareholders filed a lawsuit, expected to be strenuously contested, against the company’s board and its advisers – Barclays Capital and Perella Weinberg – in a US District Court last week. It alleges that HP ignored warnings of accounting improprieties and weak growth at Autonomy, then ran an abbreviated due-diligence process, and is claiming to have discovered the improprieties only after the fact to cover for its grotesque overpayment.
The issues of overpayment and of the financial impact of the alleged misrepresentations are inextricably linked. A company bought at a fabulous price (HP paid 26 times trailing cash flow for Autonomy) must suffer a big drop in value if expectations for its growth are reduced. If HP expected a 20 per cent medium-term growth rate in Autonomy’s cash flows – which it would have had to expect to justify the price – cutting that expectation to 10 per cent could easily justify a $5bn writedown. To overpay is to wager that high hopes will be met.

So the core question is whether Autonomy’s growth was, in quantity or quality, not what it seemed to be, and whether HP had any reasons to suspect as much. During Autonomy’s latter years as an independent company, a small group of analysts – notably Paul Morland of Peel Hunt and Daud Khan of JPMorgan Cazenove – argued that growth looked overstated. Autonomy responded in detail. That debate takes on new resonance now.

Buy, buy, buy
The first area of contention was acquisitions. From 2004 through to its purchase in 2011, Autonomy reported after-tax cash flows from operations of $1.2bn. It spent $1.9bn on acquisitions over that period. This is striking for a company that described itself as “one of the least acquisitive players in the software universe”. Autonomy reported strong organic growth even in periods following acquisitions but these reports are hard to assess in the standard way because of its unique acquisition model. It would take the acquired company’s products and ram Autonomy’s own technology – the Intelligent Data Operating Layer (Idol) – into them. As a result of this integration, Autonomy argues that it is impossible to show results from acquired businesses separately from the results of the combined group. Furthermore, the parts of acquired businesses that did not fit into Autonomy’s high-margin model (a pure software business with an indirect sales channel and no services component) were promptly discontinued. Thus, organic growth was calculated as total growth minus the discontinued operations of the acquired companies.
Take, for example, Autonomy’s acquisition of US software company Interwoven for $775m in March 2009. Interwoven had $260m in revenue in 2008, a 16 per cent rise in growth compared with 2007. Assuming that Interwoven’s 2009 revenue did not grow, one might expect it to contribute roughly $200m to Autonomy’s sales in the nine months till the end of that year. That would account for about 85 per cent of Autonomy’s 2009 growth, leaving an organic growth rate of under 6 per cent. But Autonomy reported that $66m of Interwoven’s revenue had been discontinued. Organic growth in 2009 was 16 per cent.
It may seem crazy to buy a competitor at a high multiple of earnings only to shut down big parts of the target’s businesses. It makes more sense if, as Autonomy argues, the discontinued operations had low or no margin. And the majority of analysts following the company found the Autonomy acquisition model more than plausible. The market agreed: Autonomy’s share price rose briskly in 2009.

Cash conversion
Questions have also been raised about cash. One of the great features of the software business, as normally structured, is that companies’ cash flows are often equal to, or in excess of, reported profits. Customers generally sign maintenance contracts at the same time as they buy software licences, paying cash up front. The company books only part of that cash as revenue, recognising the rest over the life of the contract. This means that operating profits as reflected on the income statement – in earnings before interest, taxes, depreciation and amortisation – can be surpassed by money the company takes in, as reflected on the cash flow statement.
Yet in 2006 and in 2008, years of strong revenue growth, Autonomy saw no growth in revenue that it deferred on to its books. Instead, deferred revenue grew in big leaps in 2005, 2007 and 2009, all years where the company made acquisitions.
Autonomy’s cash conversion ratio (the measure of operating cash flow generated relative to ebitda) from 2004 to mid-2011 was about 80 per cent, relatively low by the standards of growing software companies. Over that period Autonomy grew from $65m in annual revenues to nearly $900m. Over similar periods of rapid growth Sage Group, for example, converted 85 per cent of ebitda to cash, Adobe 90 per cent and Informatica almost 100 per cent. Low levels of cash conversion raise the concern that a company may be recognising profits aggressively.

Nothing to see here
Autonomy offers a straightforward explanation for the patterns in its deferred revenue account. Over the years leading up to the Interwoven acquisition, it had been moving away from licence sales and towards a software-as-a-service model where customers paid in arrears, generating no deferred revenue. Yes, peers such as Salesforce.com have billing models that generate significant deferred revenues – but these cater to smaller clients. Autonomy’s larger contracts are not suited to pre-payment.
On cash conversion, Autonomy’s explanation is more complex. The company accounts for much of the cash gap by pointing to $172m in working capital deficits that came with the companies it acquired. Autonomy often funded its acquisitions in shares issued at a discount. In order to limit the dilution associated with the share issue, Autonomy would strike an agreement with the target company making it accumulate as much cash on its balance sheet as possible by collecting aggressively from clients and delaying payment to creditors. This accumulated cash in effect helped fund the acquisitions without the dilution associated with selling shares. Ultimately, of course, the negative working capital has to be replaced – but that could be done over several quarters as the newly enlarged Autonomy generated cash from its operations. It is an internally coherent explanation but also a description of a highly unusual form of merger financing.

Water under the bridge?
These controversies – as esoteric as they may seem to non-accountants – could prove as important as HP’s claims about recognition and classification of revenue. Those specific claims have grabbed most of the attention but HP described them as examples and made broader reference to Autonomy’s “core growth rate” and business mixture. Both sets of claims paint a picture of a company unable to sustain high levels of organic growth while keeping up appearances with aggressive accounting.
Autonomy’s accounts and its acquisitive history raise legitimate questions about the quality of its growth. Suggestive patterns are not, however, to be confused with evidence of wrongdoing. And two crucial points cut against HP. First, the longstanding controversy about Autonomy’s growth was played out publicly in analyst reports, company earnings calls, the media and the investment community. HP simply cannot claim to have been taken by surprise by issues involving Autonomy’s organic growth.
Second, HP’s accusations came – or should have come – after a deep due-diligence process where it would have had access to much more than just the publicly disclosed financials. It is hard to believe that sales mischaracterisations and channel stuffing could have survived such a process. The shareholder lawsuit claims that the process was compressed. If that is true, it is a terrible indictment of both companies and the bankers and auditors working for them.
Where does this leave HP? If the UK Serious Fraud Office, or the US Securities and Exchange Commission and Department of Justice, find substance in the accusations, HP will hardly look good. But if the accusations are refuted, it should spell the end of Ms Whitman and raise the prospect of expensive settlements with aggrieved shareholders. It is, ironically, the possibility that no crimes were committed against HP that its investors should fear the most.

DATA DATA EVERYWHERE. LOT'S OF REVENUE IN SIGHT

2013-04-10T07:25:00.000-07:00

The Brutal Truth About 'Big Data'

Marketers Are Constructing Bigger Data Haystacks -- But Where's the Needle?

Simon Dumenco | Ad Age | Published: March 18, 2013

Sure, "big data" -- the catchphrase and the reality of it -- is everywhere, but do you always recognize a big-data moment when you see it? Or, for that matter, when it taps you on the shoulder, spins you around, slaps you in the face and punches you in the stomach?

Last month, Britain's Guardian newspaper published a leaked video on its website from defense contractor Raytheon. In it, a Raytheon staffer casually demonstrated its eerily named RIOT -- Rapid Information Overlay Technology -- system. As The Guardian put it, "Using RIOT, it is possible to gain an entire snapshot of a person's life -- their friends, the places they visit charted on a map -- in little more than a few clicks of a button." RIOT does so by mining public social-media posts and even information hidden in photographs (e.g., some smartphones automatically record the exact location a photo was taken -- latitude and longitude tucked in the "EXIF header data" -- and that embedded information can stay attached to an image indefinitely). Using a pattern-recognition algorithm, RIOT can even parse Foursquare check-ins to predict where an individual might be at any given time. The RIOT revelation was, of course, a big-data moment -- a blatant and easily recognizable one, at that.

Coincidentally, the same day The Guardian posted that leaked video, The New York Times published a review of Tesla Motors' Model S electric car. The reporter who wrote it trashed the vehicle for having inadequate driving range in cold weather, and then Tesla's CEO went ballistic on him, citing data collected by the test car to challenge the reporter's assertions about how he actually handled the vehicle.
The media-feud aspect got all the attention, but at its core the story was about data; we wouldn't have had the fuel for the feud if it wasn't for the fact that products increasingly record astonishing amounts of information. In this case, a car was all too ready to tattle to a marketer (Tesla) about how a consumer (the Timesman) was using it. Tesla's data showed when and how long he charged the car, how fast he drove it, where he was at any given moment, and even how much or how little he cranked up the heat.

The thing about such stories is that they're both vaguely scary and rather misleading. Scary because of the obvious Big Brother subtext (e.g., it's not too much of a stretch to imagine that RIOT could integrate nicely with the Obama administration's drone-assassination program; instead of a "like" button, picture a "kill" button). And misleading because big data rarely works so well. Generally, it's pretty much Too Much Data and/or Useless Data and/or Inaccessible Data and/or Nobody Knows Quite What To Do With It Data and/or ... you get the idea.
Marketers and media people fantasize endlessly about optimizing their relationships with customers by collecting and mining data, but the reality is that truly useful information about consumer desires and behavior is still often hopelessly siloed.
I've been thinking about that reality lately because for weeks now, as I surf the web, I keep noticing ads for the Museum of Modern Art and Pop Shop -- pop-shop.com, which sells Keith Haring merchandise (you know, the "radiant baby" artist from the "80s).

Like everyone, I tell myself that I don't really notice display ads on the web, but I always realize I'm fooling myself when I notice I'm being stalked by ads. In this case, the MoMA ads are getting served up wherever I go because I recently went to its website to check its hours (I live in New York and was trying to plan a visit). As for Pop Shop, I recently bought a cool-looking Keith Haring shower curtain as a housewarming gift for a friend who's a Haring fan; I only thought to do so because it was a featured sale item in a Fab.com email blast I'd received. Because I'm a cheap bastard, I dropped in on pop-shop.com (via a Google search) to make sure that Fab's price was, in fact, a good deal. It was, so I went back and bought it at Fab.com.

The thing is, I'm not going to be buying any more Keith Haring merchandise any time soon, and MoMA already has my money; I renew my membership every year. But my "interest" in both the Pop Shop and MoMA has been duly recorded -- and obviously my web-browser cookies are on high alert -- so both organizations keep pointlessly spending money serving up seemingly "relevant" data-enabled, hyper-targeted ads as I traverse the web.

What I might actually do with my money, what I've done with it in the past (e.g., my personal point-of-sale, credit-card and loyalty-program records), what other artists I'm interested in, what other cultural activities I engage in, what I've tweeted about, what I've liked on Facebook, how much disposable income I have at any given time, what sort of offers I'm most likely to react to -- all of that information, I know, is floating around in the big-data cloud. But it only rarely meshes together in any sort of meaningful way that improves my life (and/or improves anybody's bottom line).
Meanwhile, big data keeps getting bigger and bigger (for starters, just wait until Google Glass and related technologies start recording more and more of what we all do "IRL" -- in real life). Essentially, marketers keep constructing bigger data haystacks without necessarily getting any better at figuring out how to find the needle, or what to do with the needle when they find it.And keep in mind that fresh privacy-breach scandals along the way will likely provoke more and more (justified) consumer paranoia and further fuel the whole do-not-track movement (which, of course, is ultimately futile; just ask Raytheon).
Obviously, one thing to do in the face of the mind-bogglingly complex, all-consuming big-data explosion is panic.

Software that tracks people on social media created by defence firm

Raytheon's Riot program mines social network data like a 'Google for spies', drawing ire from civil rights groups | http://www.guardian.co.uk/world/2013/feb/10/software-tracks-social-media-defence

Ryan Gallagher | The Guardian | 10 February 2013

How Raytheon software tracks you online

A multinational security firm has secretly developed software capable of tracking people's movements and predicting future behaviour by mining data from social networking websites.
A video obtained by the Guardian reveals how an "extreme-scale analytics" system created by Raytheon, the world's fifth largest defence contractor, can gather vast amounts of information about people from websites including Facebook, Twitter and Foursquare. Raytheon says it has not sold the software – named Riot, or Rapid Information Overlay Technology – to any clients.
But the Massachusetts-based company has acknowledged the technology was shared with US government and industry as part of a joint research and development effort, in 2010, to help build a national security system capable of analysing "trillions of entities" from cyberspace.
The power of Riot to harness popular websites for surveillance offers a rare insight into controversial techniques that have attracted interest from intelligence and national security agencies, at the same time prompting civil liberties and online privacy concerns.
The sophisticated technology demonstrates how the same social networks that helped propel the Arab Spring revolutions can be transformed into a "Google for spies" and tapped as a means of monitoring and control.
Using Riot it is possible to gain an entire snapshot of a person's life – their friends, the places they visit charted on a map – in little more than a few clicks of a button.
In the video obtained by the Guardian, it is explained by Raytheon's "principal investigator" Brian Urch that photographs users post on social networks sometimes contain latitude and longitude details – automatically embedded by smartphones within "exif header data." Riot pulls out this information, showing not only the photographs posted onto social networks by individuals, but also the location at which the photographs were taken.
"We're going to track one of our own employees," Urch says in the video, before bringing up pictures of "Nick," a Raytheon staff member used as an example target. With information gathered from social networks, Riot quickly reveals Nick frequently visits Washington Nationals Park, where on one occasion he snapped a photograph of himself posing with a blonde haired woman. "We know where Nick's going, we know what Nick looks like," Urch explains, "now we want to try to predict where he may be in the future."

Riot can display on a spider diagram the associations and relationships between individuals online by looking at who they have communicated with over Twitter. It can also mine data from Facebook and sift GPS location information from Foursquare, a mobile phone app used by more than 25 million people to alert friends of their whereabouts. The Foursquare data can be used to display, in graph form, the top 10 places visited by tracked individuals and the times at which they visited them.

The video shows that Nick, who posts his location regularly on Foursquare, visits a gym frequently at 6am early each week. Urch quips: "So if you ever did want to try to get hold of Nick, or maybe get hold of his laptop, you might want to visit the gym at 6am on a Monday."
Mining from public websites for law enforcement is considered legal in most countries. In February last year, for instance, the FBI requested help to develop a social-media mining application for monitoring "bad actors or groups".
However, Ginger McCall, an attorney at the Washington-based Electronic Privacy Information Centre, said the Raytheon technology raised concerns about how troves of user data could be covertly collected without oversight or regulation.
"Social networking sites are often not transparent about what information is shared and how it is shared," McCall said. "Users may be posting information that they believe will be viewed only by their friends, but instead, it is being viewed by government officials or pulled in by data collection services like the Riot search."
Raytheon, which made sales worth an estimated $25bn (£16bn) in 2012, did not want its Riot demonstration video to be revealed on the grounds that it says it shows a "proof of concept" product that has not been sold to any clients.
Jared Adams, a spokesman for Raytheon's intelligence and information systems department, said in an email: "Riot is a big data analytics system design we are working on with industry, national labs and commercial partners to help turn massive amounts of data into useable information to help meet our nation's rapidly changing security needs.
"Its innovative privacy features are the most robust that we're aware of, enabling the sharing and analysis of data without personally identifiable information [such as social security numbers, bank or other financial account information] being disclosed."
In December, Riot was featured in a newly published patent Raytheon is pursuing for a system designed to gather data on people from social networks, blogs and other sources to identify whether they should be judged a security risk.
In April, Riot was scheduled to be showcased at a US government and industry national security conference for secretive, classified innovations, where it was listed under the category "big data – analytics, algorithms."
According to records published by the US government's trade controls department, the technology has been designated an "EAR99" item under export regulations, which means it "can be shipped without a licence to most destinations under most circumstances".

GCHQ to trawl Facebook and Twitter for intelligence

Civil liberties fears as eavesdropping agency recruits maths, physics and computing experts to analyse social networks

Ryan Gallagher | guardian.co.uk | 31 October 2012

GCHQ: setting up a 'digital fishing net', according to its critics. Photograph: David Goddard/Getty Images

Facebook, Twitter, LinkedIn, Google+, Pinterest: all of them could be the source of valuable intelligence that the UK's intelligence agencies want to know about – and now government eavesdropping and security agency GCHQ is developing new tools to sift through them for nuggets of useful data.
The Cheltenham-based organisation is recruiting maths, physics and computing experts to devise groundbreaking algorithms that will automatically extract information from huge volumes of speech, text and image content gathered "across the full range of modern communications media".
The secretive listening post plans to use the algorithms to help its surveillance systems make sense of human language, training its computers to automatically identify "valuable intelligence" within huge troves of intercepted data. This will enhance the agency's ability to pick out keywords and phrases from phone calls and emails as they are passing over networks in near real-time, enabling government spies to "find meaningful patterns and relationships" between people deemed a threat, such as suspected terrorists.
The revelation has renewed concern over the government's recently announced plans to upgrade its internet surveillance capabilities, with one leading civil liberties group warning that users of social networking sites are increasingly considered "fair game" as part of sweeping online monitoring efforts.

Offering a rare glimpse into the GCHQ's highly classified work, a job vacancy advert posted on its website earlier this month told prospective applicants: "You will be tackling one of the great challenges of our century: how to get computing systems to make sense of human language. Your success will have an immediate impact on our ability to gather and analyse vital intelligence.
"The work involves devising algorithms, testing them and general problem solving in the broad field of language and text processing. This pioneering research work is open to specialist in mathematical/statistics, computational linguists (eg speech recognition and/or language processing) and language engineering."
It added: "Using data-mining techniques, you will help us to find meaningful patterns and relationships in large volumes of data. We are looking for skills across the following areas: data intensive computing ... graph mining (web search, social network analysis), data visualisation and statistical data analysis."
The technology being developed by GCHQ will draw comparisons with snooping tools allegedly used by its American counterpart the National Security Agency (NSA). The NSA has access to monitoring software capable of sifting out information including watch-listed names, keywords and phrases from electronic communications flowing through America's networks, according to a sworn statement made by 32-year NSA veteran William Binney as part of a legal case over the spying, recently blocked by the US supreme court.

The role of GCHQ is focused heavily on monitoring overseas communications, gathering intelligence to inform foreign policy and military operations. However, it can intercept domestic communications with ministerial authorisation when doing so is judged to be in the interests of national security, safeguarding economic well being, or to prevent and detect serious crime. GCHQ declined to answer specific questions from the Guardian about whether its projects involve intercepting any communications or analysing social networking profiles of individuals located in the UK, with a spokesman saying only that its analysis techniques "are fully aligned with GCHQ's functions as described in the Intelligence Services Act 1994".
Nick Pickles, director of civil liberties group Big Brother Watch, questioned whether GCHQ was effectively trying to "create a search engine" enabling it to go on "massive fishing trips" to mine communications.
"We accept that GCHQ needs power and technology in order to protect the public," Pickles said. "But there's a big difference between pursuing investigations using technology and using technology to go on massive fishing trips, in the process treating anyone using a mobile phone or social media sites as fair game to drag through its digital fishing nets."
In 2009, GCHQ was revealed to have initiated a programme called Mastering the Internet, a £1bn project to help monitor online communications. But analysing massive volumes of data passing through Britain's networks has proven difficult for the intelligence agency due to advances in internet and mobile technology. In a speech earlier this month, GCHQ director Iain Lobban told an audience at the University of Leeds that its biggest challenges today have come from "the explosion in the volume of communications as well as the relentless increase in new ways of accessing and processing it".
Representatives from the National Technical Assistance Centre, a sub-unit of GCHQ, have attended recent meetings with telecom firms – organised by industry body the European Telecommunications Standards Institute – where they have discussed how to upgrade surveillance capabilities to keep pace with new technologies. The government is currently conducting pre-legislative scrutiny of its communications data bill, dubbed the "snoopers' charter" by critics, which is intended to vastly enhance how the authorities are able to monitor internet communications.

GCHQ, which employs more than 5,000 people, has had difficulty finding skilled new recruits as it has struggled to compete with salaries offered in the private sector. The parliamentary Intelligence and Security Committee reported (PDF) in July that GCHQ was "losing critical staff with high-end cyber technology skills at up to three times the rate of the corporate average." In a bid to attract fresh talent, the agency is taking a more proactive public role. It launched a cybersecurity competition in September, and last week showcased the work of its "young apprentices" at Manchester Science Festival, demonstrating code-cracking cyber games to mark the centenary of second world war codebreaker Alan Turing.
GCHQ declined to comment on how much interest the data mining vacancy had attracted. A spokesman said: "We do not give out information regarding the number of applications for posts."

Turning Data Crude Into Real Revenue

Quest Will Spur Epic Tussle Over Ownership, Monetization

Kate Kaye | Adverrtising Age | March 18, 2013

Brad Rencher believes that one day data will be listed as an asset on the corporate balance sheet. The senior VP-general manager of digital marketing at Adobe may be dreaming, but his prognostication is inspired by a very real premise: The value of data is on the rise. And, like any other raw material, its value is directly correlated with the desire for protection and control of that material -- setting up an epic tussle over ownership and monetization.

Boundaries are being drawn in the data-control war. Brands and website publishers are taking steps to maximize the worth of the information they glean about their customers and site visitors. Social-media platforms are reining in access to their data. And consumers are being given more options to restrict access to their data as tensions escalate between privacy advocates and the ad industry.

Twitter and Facebook have gone to court to seize their precious data, shutting off access to some third-party partners. Google's been forced by the Federal Trade Commission to cede data control to less formidable foes. And the biggest digital-ad trade group called a recent move by Firefox maker Mozilla, blocking access to online consumer data, akin to atomic warfare -- or, specifically "a nuclear first strike against [the] ad industry," per a tweet from Mike Zaneis, senior VP-general counsel of the Interactive Advertising Bureau. And it's only one of many battles in the continuing war over who owns the data.

Drill, baby, drill
Perched at the intersection of the brands looking to acquire data and the firms that want to get paid to divulge it is Venture Development Center. The company evaluates whether there is a market for the data sets its clients are considering unloading. "There are more and more companies out there looking to monetize data assets that they have," said Matt Staudt, president and chief operating officer. "The data they have is a derivative of their core business."

Matt Staudt, VDC

Forbes is one of countless publishers that has taken its data to the digital-ad market. The company's data is branded with the Forbes name in BlueKai's data exchange, and categorized into audience segments like "business investors" and "entrepreneurs." However, at this stage, Forbes isn't exactly swimming in data cash; it's a "blip on the screen" within the firm's digital revenue, said Mark Howard, senior VP-digital advertising strategy at Forbes Media.

A premium digital publisher selling directly could tack on targeted-audience data to boost its CPM rate from $20 to $25 or $30, said Doug Pollack, director of client strategy and business development at data-management platform and data seller Lotame. If a firm like Lotame were to sell publisher audience data at a $1 CPM -- an entirely separate revenue stream for a publisher than direct media sales -- the publisher would earn around 50 cents, he added.
"I do know there is a business that's going to emerge out of this for us. ... It will be a core driver of our business," said Mr. Howard. That belief drove Forbes's decision to work with Krux, which provides a tag-management system that essentially secures data collected on the Forbes site from being distributed to parties the publisher would rather not have it. The ability to ward off data leakage is "the big reason we were comfortable getting into the data business," said Mr. Howard.
Another premium publisher recently approached Forbes, telling Mr. Howard it had been purchasing Forbes-branded data through BlueKai and was interested in partnering to co-create audience segments. Without the tag-management system in place, suggested Mr. Howard, Forbes data could have become overly commoditized by spilling into exchanges without the company's approval.

Don't commoditize me
"It's really hard to say, "Is a publisher getting paid for the value they're creating?'" said Adobe's Mr. Rencher. Adobe's Omniture analytics tracking tags are ubiquitous online.
Sometimes unbeknownst to website publishers and even some of their partners, data are transferred or leaked from one company to another. In 2012 just 45% of the tracking tags disseminating data were added to publisher sites directly. The rest were spawned by their partners and their partners' partners and so on, according to Evidon, another firm with a tag-management product.
Data leakage is less of a problem than some believe, argued Ramsey McGrory, president-CEO of social-sharing platform AddThis. "It's not someone yelling "Fire!' in a crowded theater. It's a guy standing outside the theater and blowing smoke into the theater."

Donnovan Andrews, Bazaarvoice

Publishers and other data dealers don't always know whether cookie-spawning leads to the sowing of actual consumer data or is merely part of the cookie-syncing process performed to match a cookie ID in one system to an ID in another for ad targeting. But many publishers are not willing to take the risk "because they don't want their audiences bought elsewhere," said Mr. Pollack. Data commoditization is a concern for the new crop of information merchants. For years, online-review platform Bazaarvoice has been collecting data on consumers who visit product pages and evaluate goods. Now it is building a division pumping out that detailed consumer-profile data. But don't expect Bazaarvoice data to hit the ad exchanges anytime soon. "If we put it into the exchanges, we give up control of it," said Donnovan Andrews, VP-Bazaarvoice Media Labs. Another drawback of an exchange would be the potential for advertisers to use Bazaarvoice data to conquest their rivals by targeting ads on pages featuring a competitor brand's products.
Brands are especially averse to the risk of competitors accessing their information. It's no wonder large retailers and product brands keep the bulk of their customer data locked in secure servers housed in the Fort Knox-esque facilities of data firms such as Acxiom, like so much gold bullion.

Tightening the data spigot
VDC's Mr. Staudt said he's been approached by would-be data providers that have harvested their information legitimately via APIs (application-programming interfaces), but whose rights to sell it are questionable.
Just about every brand, from Sears to ESPN, offers APIs for developers to build online and mobile tools based on their data. The department-store giant, for instance, hopes that by exposing its data for use in apps, it can capture shoppers seeking local deals or information about certain products.
However, as APIs proliferate, some popular data providers are restricting access to them in order to better control who can use their data and how. "There's dynamism around terms of service around the API," said Erick Huddleston, exec VP-product and chief technology officer of social-media marketing firm Dachis Group.
Facebook, which offers several APIs for various purposes, won a case against Power Ventures, which operated a platform that showed Facebook user-profile data it scraped to give its own users access to their Facebook friend information on Power.com, arguably grabbing users away from the Facebook platform itself.

Eric Goldman, Santa Clara University School of Law

Twitter has had less luck in its battle against PeopleBrowsr, a Twitter-analytics firm that relies on and pays for the full Twitter firehose of tweet data. Twitter attempted to sever ties with the firm, hoping to push PeopleBrowsr toward one of its data resellers -- intermediary firms that offer a more limited set of Twitter data. These authorized resellers, DataSift, Gnip and Topsy, help companies like Twitter better manage and control how much information other companies can pull from them, and how often. A ruling earlier this month lets PeopleBrowsr maintain its full firehose access. Twitter snatched its tweet-data feed from Google's Realtime search in 2011. Twitter's efforts to better monetize its so-called data firehose is "why Twitter and Google broke up," said Eric Goldman, an internet and advertising law professor at Santa Clara University School of Law.

Fighting in the data war room
One of the world's largest data collectors, Google itself has attempted to hold on to as much of its data as possible, but hasn't always been successful. It is now required under a Federal Trade Commission settlement to allow competing ad platforms to access data from its ad campaigns for optimization and measurement. "We are seeing consistently antitrust-style challenges against the keepers of good data," said Mr. Goldman.
Media buyer VivaKi and WPP-owned Group M are both knee-deep in constructing technology infrastructure to manage and parse data for cross-platform ad targeting. "It's super-critical for us that we get access to data ... that differentiates us," said Pradeep Ananthapadmanabhan, chief technology officer of ViviaKi, a Publicis-owned digital division. As client brands themselves recognize the value of their own customer data, their agencies are building facilities to refine their client-data crude, raising questions as to who owns the refined data. It's another battleground we can expect these data armies to occupy.
Meanwhile, the consumers -- the laborers in this data-production scenario -- toil with little incentive besides the promise of more relevant advertising and offers. A handful of services has sprouted in the mission to compensate consumers for their data with money or free stuff. Still, it's no wonder a privacy cold war has been waged in recent years between the data-hungry ad industry and consumer advocates hoping to guard personal data privacy and security.
Now it looks like the chilly diplomacy could turn radioactive. The Interactive Advertising Bureau earlier this month sent a letter to its members opposing the recent decision by Firefox browser maker Mozilla to block third-party cookies by default, arguing that the move would harm the ad-supported internet, which is reliant on third-party cookies for consumer-behavioral-data collection, ad targeting and site and advertising measurement and analytics.

Easy Math: Digital Data + Marketing-Mix Models = Big Insights

Don't Make the Mistake of Viewing Valuable Data Streams in Isolation

Nancy Smith | Adage | March 20, 2013

As digital-data tracking and availability has evolved, marketing-mix modeling techniques and depth of insights have also evolved, allowing marketers knowledge of consumers they only once dreamed of. Pixel and cookie tracking by ad servers (such as DoubleClick or Atlas) reveal a vast amount of details about online consumers. Pixel tracking provides information such as IP address (which reveals geographic locations of users), as well as time and date stamps. Cookies tell us what consumers clicked on, how much time they spent on the site and more.

But looking at these as isolated data points, and without linking them to incremental outcomes, only scratches the surface of what can be accomplished. Integrating this digital data into marketing-mix models provides the complete picture of the marketing landscape and the relative performance of marketing vehicles and tactics.

More data from more sources, like Omniture, DoubleClick DART, Google Analytics, ComScore, Facebook and Twitter, enables more channels to be incorporated within marketing-mix models with more granular detail. Marketing-mix models are ideal for analyzing these disparate sources of data because evaluating such data streams in isolation risks errors such as last-click attribution errors.

Case Study: Choice Hotels
Choice Hotels International, one of our clients, provides an example of how marketing-mix models can help. The company has a history going back to 1939—you can't get much more bricks-and-mortar than a hotel chain. However, Choice Hotels recognized early on in the digital revolution that Choice's digital presence was becoming almost as important as its real-estate presence. Anyone who has used a site like TripAdvisor to research hotels, or Expedia or Kayak to research rates and book rooms, knows the importance of digital to the hospitality industry. As such, Choice Hotels endeavored to leverage marketing-mix models that integrate digital data to give a full picture of the marketing landscape.

Consumers are spending more time online and with mobile, and therefore, individuals are being targeted across multiple online channels in addition to traditional media channels. Without the implementation of a program that measures digital at a granular level, Choice Hotels would only be able to analyze campaign performance within simplified, distinct silos. Therefore, Choice Hotels sought to implement marketing-mix models that incorporate both online and offline attribution.

Last-View Attribution Errors
One particular problem of traditional digital analytics is last-view or last-click attribution error. This happens when a consumer action or purchase is attributed only to the last ad impression he saw, rather than others he was exposed to in multiple channels before that. Consider the case of a hotel chain. Even if the consumer discovered the hotel on TripAdvisor and came across its social-media efforts or search, if the last thing she clicked on before purchasing was a banner ad, last-click attribution would assume all the credit for the sale goes to the display ad.

Implementing complex digital data in marketing-mix models allows a host of questions to be raised—and answered. What is the optimal allocation between offline and online marketing efforts? What is the optimal allocation for online media (search, display, email and social media)? What are the more granular aspects of digital media that can be optimized? (Keywords, creative, ad size and placement, day of the week, mobile, social?) What are the interactions between our offline and online spending? Is offline media improving our online efforts, and by how much?

Better Decisions
Answering those business questions allows a company to fine-tune its media mix to enhance overall marketing performance. And in Choice Hotels' case, with last-click attribution errors out of the way, it was able to make better strategic and tactical decisions to improve marketing effectiveness and sales performance.

The internet has fundamentally changed the way consumers learn about, interact with and shop for the brands that they enjoy. Savvy marketers have incorporated the successive waves of digital data into traditional marketing-mix modeling. As we move forward, more complex marketing-mix models will reflect the reality of that changing marketing landscape, and allow marketers to take advantage of the results that come from effectively coordinating multiple media channels.

How Sears Got Into the Data-Services Game

Retailer Makes Name For Itself in Hadoop

April 01, 2013 | http://adage.com/article/dataworks/sears-data-services-game/240635/

Would you hire Sears to manage your data strategy? Philip Shelley, CEO of MetaScale

The troubled retailer known for brands like Kenmore and Craftsman is promoting a business-to-business brand called MetaScale that does just that. Around three years ago, Sears embarked on an internal initiative to make its legacy data systems faster and able to offer more cost-efficient analyses for things like pricing and targeted offers. At the heart of that project was Hadoop, the file system employed by just about every company looking to transform traditional data operations to enable speedier access and analysis.

Like many large department stores, Sears has a slew of customer data. It has "well over 100 million customers that we know details about," said Philip Shelley, chief technology officer of Sears, who serves as CEO of MetaScale, while speaking at the 2012 Hadoop Summit last June. Mr. Shelley is one of a few execs who hold dual Sears/MetaScale roles. The others shall remain nameless for fear they could be snapped up by competitors, he said.

"We've had one or two people poached already," said Mr. Shelley.

It might seem curious that Sears' data-management systems are sought after considering the company is under intense scrutiny as it shutters stores amid weak sales. Sears Holdings reported a $930 million loss in 2012, with sales falling $1.7 billion. The year before that, the company lost $3.1 billion as sales slid $1.1 billion.

But since unveiling MetaScale about a year ago, Sears seems to be making a more positive name for itself -- at least in the burgeoning Hadoop-focused data community.

The company was among a handful of firms chosen by around 6,000 Hadoop users to run a conference track at the 2013 Hadoop Summit in San Jose, Calif., in June. Among others were Netflix and Yahoo.

So, why would a nearly 130-year-old company venture into an emerging data-services sector? It was a natural progression. Sears was "leading edge in terms of the use of these big-data tools," said Mr. Shelley, who increasingly found himself sharing knowledge with other large companies seeking advice about how to modernize their data systems.

"They asked how they could use some of the same techniques. I used to do that on a voluntary basis on a phone call," he said. "We said, "This looks like a commercial opportunity here.'"

Today, MetaScale serves clients in financial services and health care, though it would not reveal any client names or the numbers of its clients and employees.

MetaScale customers typically host data in their own facilities, though Sears warehouses some client data for backup and redundancy purposes. Sears' own data resides in its Michigan data facility. The retailer provides its people and knowledge for its clients, but its own data and systems are kept separate, Mr. Shelley said.

Though MetaScale competes on some levels with data-platform companies Cloudera and Hortonworks, Mr. Shelley said he believes there's a lot of room for additional players. "There's a huge need there," he said. "It's only just emerging."

Sears Hopes Big Data Can Generate Big Revenue

April 30, 2012 | http://mobile.blogs.wsj.com/cio/2012/04/30/sears-hopes-big-data-can-generate-big-revenue/

Sears is certainly not the first retailer to try applying advanced business analytics to create more targeted marketing to its best customers. But it may be the first retailer to turn that activity into a service it will sell to companies in other industries.

On April 24, Sears launched MetaScale, a new big data subsidiary. For the last couple of years, Sears CIO Keith Sherwell has been using open source software called Hadoop that lets the retailer search through reams of information to better understand its business. For example, Sears discovered that many people who go into its stores to buy jewelry also buy tools.

Sherwell realized as he was providing services to other divisions of Sears internally that other businesses might also benefit from the expertise Sears had built with Hadoop. MetaScale is selling managed Hadoop services that will be customized and implemented in a matter of weeks. MetaScale will target customers with revenue in the range of $1 billion to $10 billion in industries such as healthcare and entertainment. MetaScale will avoid selling services to its competitors, said Sherwell. The day-to-day operations of MetaScale will be run by Sears CTO Phil Shelley.

These services can be used to better target offers to customers. For example, Hadoop software can search through raw transactional data from each cash register and online purchases at the item level to glean insights about a specific customer’s preferences.

“It’s not a broad-brushed advertising campaign, it’s not a press release, it’s targeted to you as an individual,” CIO Keith Sherwell told CIO Journal. “We want to treat you as an individual,” he said, adding that those efforts will go hand in hand with its membership reward program called Shop Your Way Rewards.

Sears isn’t the only brick and mortar retailer to use big data – and Hadoop – to better tailor marketing messages. Wal-Mart Stores division @WalmartLabs is using Hadoop and other software to search through Twitter posts and Facebook updates in an effort to use information gleaned from social media to target specific customers. And in a well-reported incident, Target used customer purchase histories to tailor advertising to customers they deduce are pregnant. Both companies want to better compete with Amazon, which has honed its targeted online marketing skills over the years.

“We believe the retailers who best use technology to integrate the customer experience across all channels will be the ones who win,” said CEO Louis D’Ambrosio during a conference call with investors on February 23. D’Ambrosio spent 16 years with IBM and also previously served as CEO of telecom equipment company Avaya. The hope is that big data analytics, when used with Sears membership rewards program, can yield higher sales. “If each of our Shop Your Way Reward members visited just one more time within the year and purchased an average transaction, we would generate more than a billion dollars of additional margin,” said D’Ambrosio said on that same call.

When Sears stockholders meet Wednesday, they’ll likely want to hear how the ailing retailer is getting a shot in the arm after one of its worst years on record. This may be just what the doctor ordered.

Facebook boosts ad targeting with partner categories

With 500 unique categories, such as cereal buyers and frozen food buyers, the social network creates more ways for advertisers and agencies to specifically target users' online buying habits.

Ever amping up new ways for advertisers to engage with users, Facebook began rolling out a new feature today that doubles down on the social network's use of ad targeting.
Dubbed "partner categories," Facebook's new feature aims to target ads to more categories of people. These categories use data from third parties, such as Acxiom, Datalogix, and Epsilon, to glean information about what users buy on the Web.
Facebook announced partnerships with third-party data providers including Acxiom, Datalogix and Epsilon, to let advertisers target people on Facebook using those companies' compiled audience segments, such as home improvement buyers or affluent baby boomers. The tool marries what Facebook already knows about people's friends and "likes" with vast troves of information from third-party data marketers such as Datalogix Inc.,Acxiom Corp. and Alliance Data Systems Corp.'s Epsilon. That includes data on the Web pages that consumers visit, the email lists they have signed up for, and the way they are spending money online and offline.

A data broker like Datalogix, for example, aggregates information about which items and brands a consumer buys through sources like loyalty-card programs. Through software that obscures users' identifying information such as email addresses and phone numbers, Datalogix and Facebook can combine their databases, and group users based on their offline purchases. Then, through the "partner categories" tool, brands can select which groups should see their advertisements.

For instance, a review of the "partner categories" tool by The Wall Street Journal found that categories often apply to tens of millions of people—for instance, there are some 20 million U.S. users who are heavy juice buyers on the social network.

As it broadens its network of data partners, Facebook is creating an increasingly detailed composite of their behavior, from what products they're buying at the drugstore to sexual preferences and predicting what big purchases they may be contemplating.

Facebook would seem to be an ideal ad vehicle for small local businesses. But it's never lived up to its promise. Until maybe now.

To date, a mom-and-pop dress shop may not have be able to justify advertising against a broad audience segment like "18-54 year-old women." That same store could always add Facebook-specific filters—think"18-54 year-old women who live in zip code X (same as the shop's location) and like dress brands Diane von Furstenberg and BCBG"—to help zero in a more precise target. But that approach can yield small audiences that garner a lot of demand, and high costs.

"What happens is the segments with data attract people bidding on those segments. Obviously segments' prices go up a lot until, like with any keyword, people bid up the price until it gets too high," said Optimal CEO Rob Leathern. That means local brands often need alternatives. For deep-pocketed advertisers, that's often meant working with third-party data providers to model their ideal audience profiles, figuring out that many people who live in zip code Z actually shop at high-end retail stores and drive a BMW, so the advertiser could target that zip code on Facebook. The mom-and-pop dress shop didn't have access to that kind of insight—until now.

Initially only marketers who were customers of those data providers could cross-reference their audience segments with Facebook’s user base, but Facebook today rolled out the segments as Partner Categories available through its self-serve Power Editor ad creation tool and through its ad API partners. This allows U.S. advertisers to layer in the 500-plus new segments in addition to the standard Facebook ad targeting criteria.

Now advertisers can create ad-targeting parameters such as "home owners who are retired, own a Ford pick-up truck, buy over-the-counter allergy relief medication and take cruises." They can also target "dentists who live alone, own a BMW and buy big-and-tall clothes and diet foods." Or “people who live in a million-dollar home housing four people including a military veteran.” Or “mortgage borrowing homemakers who own a minivan and buy baby food.”

A caveat: creating a highly filtered Venn diagram such as the ones mentioned above would likely work against an advertiser because they'd be too specific and counterintuitive for brands attracted to Facebook because of its billion-user scale.

The use of third-party data for ad targeting is obviously valuable since many advertisers would otherwise have little idea how to reach Ford truck owners other than to canvass actual neighborhoods. However not all third-party data can be trusted. Just because someone clicks on MotorTrend.com doesn't mean they’re in the market for a car. Facebook has brought some transparency to Partner Categories, letting advertisers using the Power Editor tool to click and see how a segment was compiled.

For example, Epsilon's group of 8,312,900 people who work in a small office is based on addresses classified as a small office that are sourced through purchase transaction data and "compiled sources." Datalogix’s group of 12,665,900 people who are most likely to buy golf and tennis products is based on purchase data from "people who have historically spent heavily in golf clubs, golf and tennis apparel, shoes and tennis rackets" as sourced across 1,200 U.S. online and physical retailers.

Here's more from a Facebook blog post:

For example, a local car dealership can now show ads to people who are likely in the market for a new car who live near their dealership. To date, advertisers have been able to show ads to people based on their expressed interests on Facebook. Now with partner categories, they can also show ads to people on Facebook based on the products and brands they buy across both desktop and mobile.

Example of the cereal buyers partner category.

Facebook swears that no personal information is shared with the social network, third parties, or advertisers. It says that companies have used this type of targeting off of Facebook for years and that "partner categories work the same way all targeting on Facebook works." Just last month, the social network began testing a dicey advertising feature that let advertisers and agencies use Facebook Exchange (FBX) to serve retargeted ads on users' News Feeds. These retargeted ads take into account people's browsing behavior outside Facebook, as captured through cookies, with the aim of offering up messages about products they've already shown interest in.

While FBX on News Feed is great for advertisers and fantastic for Facebook, especially as it's under pressure to boost revenue, it's a risky maneuver that could remind users that they're always being watched. Consumer retargeted ads have been around for years, but it's the prime News Feed real estate that could throw some users off. It's unclear if ads using partner categories will also be displayed in users' News Feeds. So far, Facebook says that partner categories already include more than 500 unique groups, such as car buyers, cereal buyers, and frozen food buyers.
"Ads that are well targeted benefit the advertisers who run them by driving higher return on investment and are a better experience for people who see more relevant ads," Facebook wrote.

"What this will do is democratize ad targeting a bit more," said Nanigans COO Marc Grabowski.

By giving all advertisers access to third-party audience segments in addition to the standard Facebook targeting criteria, Facebook is indirectly rewarding advertisers that more narrowly define their targets. "Those who target more will end up winning more inventory than those who target less because they'll be able to value it at a higher rate," said Grabowski.

Theoretically more advertisers paying for more targeted (read: pricier) ads will lead to higher overall ad rates for Facebook. "It should drive up the price of the whole. Not double or triple off the bat, but incremental increases over time," Grabowski said. That should accelerate as data providers like Epsilon introduce new Partner Categories attractive to any hold-outs. Epsilon's evp of online solutions Eric Stein said the company would like to add new segments with specific verticals in mind like retail.

Media buyers might initially gripe at the higher prices resulting directly or indirectly from Partner Categories. That is, until they reap new benefits, such as better refine their target audiences and improving ROI. For example, "It may be great to know based on Acxiom data that these folks are in market and have a high propensity to buy a product or associate with a brand, but then you layer on what individuals have the most friends and get a multiplier effect if they choose associate themselves with the brand on Facebook," said Geoff Amborn, Acxiom's director of partner development.

If the time-worn advertising axiom of "right person, right place, right time" holds, Partner Categories should result in better ad performance. That could create a cycle of more Facebook ads being targeted through Facebook data and Partner Categories, to the point that all Facebook ads are so narrowly targeted that fewer and fewer impressions are wasted.

Which brings us to Twitter. The social platform has been very strict with the ads it allows into users' streams, limiting overall ad volume and even pulling ads if they’re not performing.

Thus, advertisers have to stay on top of their Twitter campaigns. But theoretically, with the inclusion of third-party audience segments along the lines of Facebook's Partner Categories, could result in much more effective and manageable Twitter campaigns.

Asked if Epsilon would bring its third-party data to Twitter or other social platforms to augment ad targeting, Stein said, "we'd love to circle back as those things come to fruition."

Facebook makes risky bet on News Feed ads that track you

The social network's latest attempt to goose revenue exposes an elephant in News Feed: advertisers are always watching.

Jennifer Van Grove |March 28, 2013 | CNET |The social network is doing just that by opening up its News Feed to retargeted ads, eerily aware messages that marketers love and members won't be able to miss.

Facebook announced that it had started a small test to let advertisers and agencies use Facebook Exchange (FBX) to serve retargeted ads -- specifically called "Page post link ads" -- to your News Feed, which, of course, is Facebook's prime real estate. These ads take into account people's browsing behavior outside Facebook, as captured through cookies, with the aim of offering up messages about products they've already shown interest in.
Previously, Facebook was only letting advertisers pitch members with these types of ads, which link out to landing pages and allow for conversion-tracking, in the oft-ignored right-hand sidebar of the site. Now that the ads are running in News Feed, Facebook members can't ignore them. That's great for advertisers, fantastic for Facebook, especially as its under pressure to boost revenue, but it's a risky maneuver that reminds people that they're always being watched.

It's not that consumers are unfamiliar with retargeted ads. These types of units, which follow people as they browse the Web, have been around for years, and are a particular favorite with display advertisers -- primarily because they work. Rather, Lieb cautions, it's the coupling of personal data with prominent placement in News Feed, an unmistakable zone, that could be off-putting and sound the creepy alarm. The ads are low-hanging fruit: so easy to harvest that Facebook can't help itself even though they may leave a sour taste.
"You looked at that laptop. You looked at that purse. You looked at those shoes. And there they are in your News Feed," Lieb said. "There are still plenty of consumers who don't understand how this works and might find this a little jarring ... not that it hasn't happened to them before, but because it happens in their Facebook News Feed."
The placement is further amplified by the twice-as-big size of advertisements running in Facebook's redesigned News Feed.
Creepy though the ads may be, they bring with them the promise of higher returns for advertisers and more immediate revenue for Facebook.
By December 2012, Facebook said FBX served nearly one billion impressions and supported more than 1,300 advertisers each day, which means demand was already high prior to the retargeted ads appearing in News Feed. Adobe's advertising customers running retargeting campaigns through FBX noticed 70 percent higher conversion rates than the average rate from all eight supply sources studied, according to results published in February. "This is a quicker revenue win for Facebook," Lieb said.
These retargeted units, unlike Facebook's Sponsored Story unit, are far from nuanced. Instead of garnering more "likes," shares, and comments, advertisers can buy the right to sell you something they know you checked out, and they'll know, not infer, whether the message worked. As such, Lieb believes Facebook can charge a higher premium for the units and sell more. The company is speaking to advertisers in a language they understand, she said.
Facebook, by adding retargeted ads to News Feed, appears to be talking in a dialect that investors can better interpret as well.

FBX-delivered ads in News Feed are a potential stopgap -- a Plan B revenue-growth strategy that appeases advertisers and investors as the company figures out how to profit from units that are more native to the Facebook experience. While Facebook educates advertisers on more complex, more customized products -- a.k.a. content marketing in the form of Sponsored Stories linked to status updates -- FBX-delivered Page post link ads in News Feed offer advertisers a highly targeted, but not highly customized product, Lieb said.
Facebook's biggest challenge will be proceeding cautiously enough so as not to scare people away but expeditiously enough to grow revenue by large enough margins that satisfy investors, a bunch that has proven fickle in its favor for the company's business.

Red Bull Eyes “SoLoMo” Software to Grow Business

http://mobile.blogs.wsj.com/cio/2012/04/30/red-bull-eyes-solomo-software-to-double-business/

Red Bull hopes to double sales of its caffeine-fueled beverages to bars and convenience stores using iPad tablet computers and social and location-based mobile applications. This technology combination will help sales people learn more about how their product is performing at specific distributors, and ultimately help store managers better attract consumers to Red Bull products, said Mark Schneider, the director of IT for Red Bull’s U.S. region.

With a 40% market share, privately-held Red Bull is one of the leading makers of energy drinks in the world, selling 4.5 billion cans each year. But it faces competition from Rockstar, Venom Energy, and Monster Beverages. The industry is also ripe for consolidation. Coca-Cola is reportedly eyeing Red Bull rival Monster Beverages, the Wall Street Journal reported Monday.

One way Red Bull is countering these challenges is by providing sales reps with mobile hardware and software applications that can enable them to close deals faster, and ensure distributors are in compliance with their agreements. The company has deployed 240 iPads to sales representatives in the U.S., and plans to outfit 126 more reps with the tablets this year. Analytics reports and marketing strategies are fed through the iPads to help sales reps keep abreast of inventory and to pitch clients on purchasing the company’s beverages.

For example, Red Bull sends data about how best to position coolers in each store to improve sales. From the iPad, the rep can show a store manager data on how rivals sell more product by positioning their coolers a certain way. “When the sales rep is sitting across the store table from the store manager,” he can convince the store manager to purchase more or new products, said Sameer Joshi, manager for application development at Red Bull in the U.S.

Reps can also use the iPads to receive detailed information about Red Bull’s contracts with beverage distributors, and check whether the store has arranged Red Bull coolers according to the terms of their contract. Contracts with distributors may also be drawn up and signed right on premise, thanks to proprietary mobile applications that take in information from the company’s data-crunching and business intelligence software from SAP, IBM and from Microsoft.

Schneider and Joshi said they are they are also taking steps to bolster sales by strengthening Red Bull’s connections with consumers. The company is looking to funnel social media and location-based data from the likes of Facebook and Twitter to its existing sales applications. For example, if Red Bull figures out that a Red Bull fan who follows the company on Facebook also likes to eat at Applebee’s restaurants, it could offer that fan a free Red Bull cocktail at an Applebee’s on a given night.

Red Bull is also developing an application that consumers can download on their mobile phone to receive alerts about Red Bull promotions and sales when they walk into stores. This approach would extend to Red Bull events, where the company could send a text to attendees inviting them to come backstage. This software would use the GPS data on a user’s mobile phone to detect their proximity to the Red Bull display case.

Researcher Flurry, which calls this intersection of social, mobile and location-based software “SoLoMo,” said usage of social networking apps on mobile devices increased 60% from a year ago.

However, not everyone agrees that these approaches actually help the company’s bottom line. Brad Fay, market researcher and co-author of the forthcoming book “The Face-to-Face Book: Why Real Relationships Rule in a Digital Marketplace,” said social media won’t necessarily boost Red Bull’s business much because energy drink consumption is already a highly social activity among teenagers and twenty-somethings.

Red Bull generates about 1.2 million consumer conversations every day, Fay said. Of those, 84% occur face to face. Some 3% happen in social media, with 6% happening via a phone. “Social media does help reach and engagement, but it has limited ability to scale when you’re selling a type of product,” Fay said. He said businesses should use social media to extend the reach of marketing, not as a replacement for traditional marketing and advertising.

Who's Grabbing Consumer Data from Publishers?

Cool interactive tool shows where the data is traveling from popular sites.

Kate Kaye | AdAge | March 20, 2013

Tracking tags are bits of code that enable ad serving, site analytics, audience-segmentation, and social sharing tools on websites. In other words, tags are what make the web tick. By the end of last year there were nearly 1,000 different tracking tags floating around the top 500 websites. That was over 50% more than the 645 unique trackers found in the first quarter of 2012, according to Evidon.

Those tags are pretty active, too. In many cases, one tracking tag installed directly by a site publisher might spawn others, and those still additional tags, and so on. Publishers and other data providers don't always know whether tag spawning leads to the dissemination of actual consumer data gathered on their sites, or if it is merely part of the cookie-syncing process performed to match a cookie ID in one system to an ID in another for ad targeting purposes.

While some argue these tag hops aren't a big problem, many publishers worry that tag proliferation happening behind-the-scenes actually leaks consumer data from publisher sites to places they'd rather it didn't go. Another concern: site latency. All those additional tags can slow down site load time.

Tracking helps the digital marketplace work better. It just needs to be fully transparent so you can manage it effectively.

Marketing technology companies have proven that they can drive better results for buyers and sellers online. Those companies need to collect data to make their technologies work. You just need to see all of that tracking, and how it got on your site, in order to manage it effectively.
The Evidon TrackerMap, part of Evidon Encompass, reveals:

all of the tracking across a website
how it got there via the “redirect chain”
each entity’s impact on site performance

When you know, you can maintain control of your data, keep your pages loading quickly, and protect your customers’ privacy in the process.

The Evidon TrackerMap above displays all of the invisible third party tracking activity on a single page of a publisher’s website, how those third party tracking companies got there and the overall impact their presence may have on general site performance. It is created based upon publicly available information that is accessible through any browser. This information is coupled with Evidon’s proprietary Ghostery® technology, which enables a thorough analysis of the invisible activity on the website. The Evidon TrackerMap latency view is a measurement of the time that elapses between when the browser requests the tracker and when it is fully loaded, which is calculated through the available event latency API in Chrome.
(http://www.evidon.com/trackermap)Evidon's analysis of tracking tags for several popular sites.

Push for Better Monetization Leads to Dramatic Rise in Technologies Collecting Data Online

Kate Kaye| Adage | February 18, 2013

The labyrinthine maze of data-collecting technologies that makes the web hum became even more complex in 2012. A Global Tracker report by privacy-services firm Evidon measured sites across the internet and found 987 web-tracking tags from ad servers, analytics companies, audience-segmenting firms, social networks and sharing tools. That's up 53% from the 645 unique trackers found in first quarter.

The 10 most-prevalent technologies come from some of the biggest online players, including Google, Facebook and Twitter, as well as less-familiar names, including Quantcast, Omniture and AddThis. As the number of tracking technologies embedded on websites grows, so too does the risk of publishers losing control of the data they're collecting. According to Evidon, only 45% of the tracking tools were added to sites directly by the publisher. The rest were spawned by the publisher's partners, their partners' partners, and so on.

What happens -- sometimes unbeknownst to publishers and even some of their partners -- is that data is being transferred from one company to another in a series of data "hops" as prolific as rabbits. For example, when Evidon studied Amazon-owned IMDB.com, it discovered that a DoubleClick tag on the site sent data to two other companies that collect it for various purposes -- Rubicon and Casale Media, representing a "hop." In a subsequent hop, Casale transferred the IMDB data to BlueKai, Optimax and Brandscreen, while Rubicon pushed it to TargusInfo, RocketFuel, Platform 161, Efficient Frontier and the AMP Platform. AMP then sent the data on to AppNexus and back to DoubleClick.

In its study of more than 500 websites, Evidon found nearly 29% of tracking technologies were deployed in two hops, around 13% in three, and nearly 10% were deployed four times.
"With each hop, new scripts are deployed on the site -- meaning a new company has access to a wealth of data about the user and the page on which it has been placed," states the report. Each hop to another intermediary could reflect value for the seller of the data -- ultimately the publisher.

"The industry is really, really hungry for new ways to monetize this data and ... not spending a ton of time thinking about the consequences," said Andy Kahl, director of data analysis at Evidon and a lead researcher for the report.
Evidon has a stake in this game; the firm offers services that help publishers manage the tags on their sites and control where their data flows. However, data leakage and site latency is enough of a problem that the industry's largest trade group, the Interactive Advertising Bureau, released a draft Site Tagging Best Practices guide in December.

Meet the Gatekeepers to Twitter and Facebook Data

Cotton Delo | Adage | March 18, 2013

Gnip, DataSift and Topsy are sanctioned tweet resellers while Facebook keeps its conversations under wraps. Social data is the nectar all brands want to drink, but tapping into the source can be a costly and arduous undertaking.

Consider Facebook and Twitter, the suppliers with the most scale to offer. They have drastically different approaches when it comes to meting out access to the millions of conversations occurring daily on their platforms. And in Twitter's case, the approach seems subject to constant change.

Chris Moody, chief operating officer of Gnip

"My standard canned response to clients is, "I can only see what Facebook lets me see, and that depends on each individual user's setting and what their API feels like giving me at the time,'" said Golin Harris Director of Insights Eric Swayne.

The social network has no agreements in place with data resellers, so in theory an individual who knows how to code can get just as much out of Facebook's data conduit—its Graph API—as an enterprise-level service. (API stands for application-programming interface; it's a set of rules that enables third parties to interact with platforms and services.) In practice, of course, the infrastructure that social-listening companies have built up makes them better equipped to handle the available data.

There's a broad consensus among marketers that Facebook furnishes rich data insights on a one-off basis to high-spending media partners. (Facebook declined to comment.) If and when the social network decides to make enhanced data insights into a product that advertisers can pay for—offering a view into how many mentions of a brand are trending across the network, for example—it could have a robust new revenue stream.

"It would be a pretty valuable tool, one that people would be willing to pay for," said Tim Fogarty, lead strategist for the social-media agency M80.

Twitter, on the other hand, is already realizing the value of its 400 million daily tweets. It has three authorized resellers—Gnip, DataSift and Topsy—which can provision companies that need Twitter data to fuel a service, like Gnip customer Klout, or listening platforms and business-intelligence firms.

As Twitter data have become more sought after, the company has moved to clamp down on access. Last fall it tried to cut out the social-analytics firm PeopleBrowsr, but the company won a temporary restraining order and then earlier this month prevailed over Twitter's attempt to have the case adjudicated in federal court.

An order by the U.S. District Court for the District of Northern California moving the proceedings back to state court reads: "The fact that the removal shortly followed the state court's issuance of a [temporary restraining order] suggests that Twitter's decision to move this case was born out of a desire to find a more sympathetic forum."

PeopleBrowsr claimed it had been spending upward of $1 million annually on the firehose and that pulls from Gnip or DataSift couldn't substitute for the full access its business was modeled on.

Twitter-data pulls from Gnip or DataSift can get expensive, but some agencies have little choice but to buy in. WCG Director of Analytics Chuck Hemann said his team is tasked with building custom platforms using social data, and pulling Twitter results from the Radian6 API now yields only links to tweets. Twitter is making the full body of tweets that are needed for sophisticated analytical work available exclusively through the resellers."It's definitely an expensive proposition," he said. "[But] it's becoming incumbent on agencies or corporate partners to develop relationships with a DataSift or a Gnip to get content in any meaningful form."

The Verdict for Brands in PeopleBrowsr vs. Twitter

A Warning For Analytics Startups Attempting to Build Businesses on Twitter

David Berkowitz | Ad Age | November 30, 2012

Twitter has made plenty of enemies this year, but one just took Twitter to court and won an opening battle. As tempting as it is to root for the underdog in PeopleBrowsr vs. Twitter, the only crime Twitter may be guilty of is false advertising. PeopleBrowsr, a social media analytics company, has paid for full access to Twitter's "fire hose" – its entire database of tweets – since 2008. Twitter cut off access, claiming it did so with the 30 days' notice required by its contract. PeopleBrowsr was not amused, so it took Twitter to court and won a restraining order that temporarily requires Twitter to keep the fire hose flowing to its longtime customer.

Twitter's move to cut off access to another business is hardly surprising. It has spent this year evolving from an open platform to one that is sealed off and tightly controlled. The only surprise is that it has taken another company this long to file a lawsuit, and then blog about its crusade.
In its blog post on the matter, PeopleBrowsr's CEO and founder Jodee Rich said, "We relied on Twitter's promise of openness when we invested millions of dollars and thousands of hours of development time." The blog adds, "Earlier this year, Jack Dorsey said at the DLD conference in Munich, 'Twitter is an information utility.'" This argument will likely resonate better on emotional levels than legal ones.

PeopleBrowsr's case is that Twitter claimed it would be open and marketed itself as a utility, so PeopleBrowsr invested a lot of time and money into building a business around it. PeopleBrowsr's biggest problem is buying into Twitter's marketing. Just because Twitter's team claimed it's a utility doesn't make the claim true. As early as 2007, Facebook described itself as a "social utility" because Mark Zuckerberg wanted to differentiate it from other social networks. It's hard to imagine many people wishing that the government regulated Facebook.
Technology companies are not utilities. Companies constantly adapt as they aim to generate returns for their shareholders. Facebook was once so open that Zynga built a business on it and went public, but Zynga's investors can't be thrilled with that approach anymore. Microsoft is now selling Surface tablets and promoting the Windows Store for buying apps, angering many companies selling Windows-centric products. Before Apple launched Passbook, a slew of other iOS wallet apps had looked promising, but now most are irrelevant.

When companies build their businesses around another, it's always risk. That's true whether the business is built around Twitter, Toyota, or Tupperware. While many developers have abandoned dreams of making fortunes off of Twitter, there's always another target on the horizon. A new wave of companies has emerged to offer brands opportunities to tap into Pinterest, such as TripleLift, Curalate, Pinbooster, and Pinpuff. As Pinterest comes out with its own business model and sets rules for developers, a few of the third parties will adapt quickly enough to survive, a few may earn enough to please investors before folding or pivoting, and then most others will fade away. Meanwhile, Tumblr named Union Metrics its "preferred analytics partner" and recommends it to marketers, but in time Tumblr could compete with it. Plus, there's no guarantee that Pinterest and Tumblr will last past 2013.

Marketers need to place bets. For marketers that want to run ads that integrate with Pinterest or access enhanced analytics for Tumblr, there are few options, and pilots with startups can prove to be invaluable learning experiences. Yet the landscape constantly changes. How many times have marketers needed to adjust the size of their page's main Facebook photo or their approach to optimize sites for Google's search index? Marketers, like developers, must adapt; neither brand managers nor software developers are granted tenure.

Returning to PeopleBrowsr's blog, the company writes, "Robert. G Harris…, an expert witness in the case, said in an affidavit, 'Twitter promoted its "open ecosystem" to encourage third parties to risk their time and money building businesses that depended on Twitter to survive.'" The key word there is "risk." There is no certainty. There shouldn't be certainty. There will always be risk. As PeopleBrowsr learned, few bets are riskier than believing every claim a brand makes.

How Anonymous Is Your Data?

So, Should You Be Worried That We're on a Fast Track to Mass Privacy invasions?

Matt Creamer | Advertising Age | March 18, 2013

One of the biggest big-data challenges for marketers is how to take the vast amounts of customer information accumulated in the offline world and translate it into bits and bytes for use in the world of online advertising. This process of CRM retargeting, as it's sometimes called, marries the age-old practice of customer-relationship management with the new and sometimes creepy technique of retargeting, best known as the process by which ads for things you thought about buying chase you around the web.

In the CRM version, instead of your browsing history shaping your online-ad experience, it's your purchase history and other business-critical information collected by a particular company that's doing the work. This is a powerful -- and touchy -- business.

Industry standards require marketers to be very diligent about scrubbing the data used in online ads free of personally identifiable information. But Google "data anonymity" and you'll find a vast landscape of skepticism about just how effective data-anonymization practices are. Much of the suspicion comes from an academic community that has long been pondering the feasibility of data anonymity. A 2010 paper called "Broken Promises of Privacy: Responding to the Surprising Failure of Anonymization" concluded that the faith put in anonymization practices was overstated. Its author, Paul Ohm, now works for the Federal Trade Commission, the government agency that late last year asked nine data brokers for more information on what data they're collecting and what they do with it. It could be the prelude to the sort of legal restrictions the online ad industry is trying to fend off through its own self-regulatory efforts, run by bodies like the Network Advertising Initiative and Digital Advertising Alliance.

So, should you be worried that we're on a fast track to mass privacy invasions? It's a reasonable question given the steady flow of headlines about data breaches and hacks, proof that corporate handling of consumer data is far from a zero-risk endeavor. The answer, after surveying the technical processes and practices and the regulations controlling them: not especially.

What a data firm is allowed to do with a particular consumer's data is limited by whether or not the consumer has a relationship with the brand, said Matt Mobley, chief marketing technology officer at Merkle. Relationship in this context is typically defined as having made a transaction. For consumers in the wild, as Mr. Mobley described those who have no relationship and are mere prospects, "PII and non-PII will never go together." Each group's data are kept on a different set of servers in a different geographical location than are the data on customers who have brand relationships.
For customers who have that relationship, Mr. Mobley said this: Marketers are "trying to create a map of the identity. "They are trying to construct the set of events a consumer will have with a brand, so they can then plan their marketing around it."

This often begins with the use of a third-party data onboarder like LiveRamp, whose role is to create matches between online and offline customer profiles. LiveRamp works with hundreds of websites that require login information -- dating sites, social networks and e-commerce sites -- which send it hashes of that information that are then matched against CRM data. Imagine this scenario: When Joe Smith logs into Desperate Hearts, an anonymized version of that is passed to LiveRamp's system, which might find that email address amid some CRM data from First National Savings Trust Bank and conclude that it makes sense to put Joe in a segment that's receiving a credit-card offer from that bank. An anonymous cookie is created that's shared with the platform that's activating the data. The industry average for matches is 30% to 40% of a CRM file, according to a paper from LiveRamp and BlueKai.

Travis May, VP-product at LiveRamp, pointed to what information the company is not using as it creates these matches. The list of no-nos includes online behavioral data that describes what kind of websites a user is visiting -- all these data from the publishers is discarded. Nor does LiveRamp store sensitive data, defined by the NAI as Social Security, financial- and insurance-account numbers, precise and real-time geographic information, and medical and health history.

"One of the key privacy aspects of onboarding is that there is a one-way flow of data: We take offline data and enable it to flow online," said Mr. May. "What we don't do -- and no one that I know of does -- is the opposite, which is to take what people are doing online and tie that to someone's name and address."

This is the fear of reidentification that was captured effectively in the case studies presented in Mr. Ohm's paper. In 2006, Netflix sought ways to improve its recommendation engine by offering anyone the chance to play with its data. But in making 100 million or so records public, it allowed researchers to begin to understand the privacy implications of these massive data dumps. A pair from the University of Texas found that knowledge of the precise ratings given to six obscure movies yielded an 84% chance of reidentification of the person. Knowledge of when a person rated any six movies, regardless of their obscurity, yielded a 99% chance. The same year, Mr. Ohm noted, AOL released a bunch of supposedly anonymized search queries that ended up being anything but nameless when The New York Times was able to tie real people to their actual queries.

Here there are harsh lessons about the risks of doing these big-data public-crowdsourcing experiments, which is not something most companies in the online-data space are engaged in. In fact, it's much the opposite.

Like LiveRamp, Epsilon emphasizes the one-way flow of data and employs layers of security to ensure anonymity. In working with third parties, Epsilon, the data giant that endured a 2011 breach of non-PII, uses a one-way algorithm that encodes match keys that are used to associate PII with cookies. "Only the partner tokens and the coded client data are passed on to the onboarding partners," wrote a spokeswoman in an email. "The client data does not leave the walls of Epsilon."
Another layer of Epsilon security is the obfuscation of segments that are passed through the online ad ecosystem's many intermediaries. Said the spokeswoman, "We want to make sure they don't get access to the data by distributing a recognizable data attribute, so we use meaningless names and values in the whole onboarding and online distribution process."
So how well does this all work? It might be easier to tell once the FTC does its information-culling. In the meantime, we have anecdotal and self-reported evidence. For instance, the NAI's 2012 compliance report found that its members are good about not collecting PII or sensitive data for advertising purposes.

"Nothing is fail-safe, but they're pretty darn effective," said one industry executive. "The issue is not so much whether a researcher at Stanford who has access to hardcore computing power can figure out how to correlate unrelated data points and get back to you. What matters is: Could a business deanonymize this data at scale and use it to target directly to you knowing it's you and use it for things beyond just marketing -- in particular, eligibility" for financial services or health insurance?

Reverse-engineering PII is the Orwellian nightmare vision. Imagine the health insurer denying coverage or charging higher premiums based on a user's online bacon obsession that foretells of future clogged arteries. That's the real risk that seems to be understood by the online-data community, even if it might not make economic sense as a business strategy.
"It's very, very, very hard to track data back to you in any scalable way," said the industry executive who wants to remain anonymous. "Academics and anti-advertising advocates can spend three months with a team of grad students unpacking this stuff and the cost of identifying a single individual could be $100,000. That'll never scale."

Q and A with Tim Suther

Tim Suther is Acxiom’s Chief Marketing and Strategy Officer. Tim joined Acxiom in 2005 and is responsible for the company’s global marketing, strategy and business development activities. Previously, he led the Company’s worldwide digital, agency and multichannel marketing services business. He has more than 30 years of experience at the intersection of data, marketing and technology.I had a chance to sit down with Suther, half of the “math man vs. mad man” keynote hot seat at the iMedia Agency Summit in Austin this May, and ask him a few questions about the increased importance of data for today’s marketers in a digital world, and about the new innovations in Acxiom’s offerings.

1. What would you say are the primary ways media buyers and other marketers are leveraging Acxiom data?

More than $500 billion in advertising is spent globally, most of it mistimed, misplaced and mis-messaged. Today, nearly 40% of advertising dollars are wasted, up from 37% five years ago. So, the problem is actually getting worse, not better.

The source of the problem is largely found in the “disconnects of marketing:” online disconnected from offline, advertisers’ data disconnected from publishers’, awareness campaigns disconnected from performance marketing, and marketing disconnected from customer experience. Worse yet, untold amounts of consumers’ time and mental energy are also wasted in the process. Everyone loses when marketing is disconnected.

Globally, Acxiom creates and uses data and analytics to strengthen connections between people, businesses and their partners. Better connections enable marketing that is more effective, drives greater customer value and improves margins. We help our clients:

Connect and analyze online, offline, customer and partner data to help organizations better KNOW their customers.
Connect and customize customer experiences — across channels and partners, and over time — to help organizations better ENGAGE.
Connect partners via a safe haven and create software to help organizations OPTIMIZE customer value.

2. How do you intend to affect this change at the onset?

Better connections are fueled by better data. No single source of data provides all the answers but instead depends on a robust fusion of digital and traditional, behavioral and inferred, structured and unstructured, first-party data and third.

Increasingly, consumers expect connected interactions — seamless and personalized experiences across the channels they choose. They want to be treated with the respect of familiarity and preference. It’s a whole new way of doing business and it has the power to change everything.

While other providers solve for individual media or channels, our focus is completely different. It’s all about helping solve for customer value — regardless of channel, media or predisposition. Our goal is to leverage our client’s data, a vast network of partner data, and the best possible external data to help marketers drive better ROI, publishers better yield, agencies better value, and most importantly, more meaningful and resonating experiences for people.

3. How does this play out with regard to privacy?

Acxiom is the original Big Data company. We know data and its intricacies. We have decades of experience and insights in practically every industry involving almost every imaginable use of data. Call it wisdom you can trust. And speaking of trust, we’ve been a pioneer in privacy throughout our history. Acxiom created the first Chief Privacy Officer position in 1991, whose sole purpose ever since has been working with state and local governments to craft policies and industry standards that protect consumer data and ensure its responsible use.

Today, we review between 50,000 and 70,000 privacy policies a year. Many of the industry’s “privacy by design” principles were conceived by Acxiom. Acxiom is regularly consulted by policy makers around the world on privacy best practices.

4. Does Acxiom connect offline & offline data?

We power 54 trillion transactions/year and 15,000 databases for 7,000 clients around the world. These transactions unify all kinds of data sets, connect the online to the offline world, facilitate sharing between trusted business partners in ways that protect consumers, and form seamless bridges between traditional channels/media and constantly evolving new ones — all with the goal of helping our clients delight their customers and exceed their expectations.

5. How about the your recent announcements with Facebook? And your recent Abilitag & Audience Propensities announcements? What can you tell us about these?

More than a year ago, we announced a major investment in new products. We hired Phil Mui, the godfather of Google Analytics, and more than 150 engineers to help him. They’ve all been busy.

In late February, we announced Abilitag, which helps publishers better understand and monetize their traffic. Publishers know a lot about visitors, but very little about people. Abilitag solves that problem. Additionally, Abilitag makes it easier for a publisher to use an advertiser’s data to select an audience and measure performance. That enables a much tighter, higher performing relationship between advertiser and publisher. As an advertiser, I’d want all my publishing partners to have Abilitag on their site, so I could use my own data to target and measure performance.

A few weeks ago, we announced our relationship with Facebook where Custom Audiences and Syndicated Audiences can be powered by Acxiom data or our clients’ data. An advertiser can now leverage the power of their own data, with the social graph, to drive higher performing Facebook experiences. That’s revolutionary.

We’ve been working hard to build out the number of publishers that can accept an Acxiom client’s data. That list now includes 4 of the 6 largest digital publishers, 3 of the largest mobile advertising networks, and 3 addressable TV networks. No one can offer more reach to aN advertiser’s proprietary data than Acxiom.

Finally, two weeks ago we announced Audience Propensities, a portfolio of over 3,000 statistically-validated propensities for 13 industries, that enable marketers to more scientifically select media and more efficiently reach their intended audience. Most big data solutions have focused on “what was”… we wanted to answer “what’s likely to happen.” Mined from a broad cross-section of data, Audience Propensities offers rich insight into potential spending, in-market timing, brand affinity, media consumption and shopping behavior – all tuned to specific vertical markets. While other big data analytics focus on what was, Audience Propensities focuses on what is likely to be. The result is more effective marketing, higher profitability and a superior customer experience.

6. Tie all this together for me.

Like never before, data has the potential to create more satisfaction for consumers, healthier bottom lines for companies and a better world all around. Acxiom is committed to serving progressive organizations that realize that there has never been more opportunity to connect more deeply with their customers than right now, and in the process drive results like never before.

Acxiom is passionately focused on making a better world through the responsible use of data. We believe that by creating intelligent connections between data of all kinds – online and offline, publisher and advertiser, branding and performance campaigns, and marketing and customer experience – there is opportunity to create better life experiences for people and better marketing for the companies who serve them.

LEVERAGING VISUAL ANALYTICS AT PROCTOR & GAMBLE

2013-04-06T12:29:00.001-07:00

How 'P&G' Presents Data to Decision-Makers

Thomas H. Davenport is a visiting professor at Harvard Business School, and a senior adviser to Deloitte Analytics. He is the author of several books on management. Most recent is Judgment Calls: Twelve Stories of Big Decisions and the Teams That Got Them Right.

Those of us who believe that managers make better decisions when key data are presented visually tend to get very excited about all the innovation going on in the graphical display of information. However, if you work in a large organization and want it to make better use of data visualization, I'd argue that commonality is more important than creativity. If you can establish a common visual language for data, you can radically upgrade the use of the data to drive decision-making and action.

The best case I can cite for this argument is Procter & Gamble, which has institutionalized data visualization as a primary tool of management. Working with visual analytics software vendor Tibco Spotfire, P&G has put visual displays of key information on desktops — over 50,000 P&G employees now have access to a "Decision Cockpit" .

In addition to the desktop displays, P&G has built meeting spaces that it calls "Business Spheres" in over 50 locations where management information is displayed for review and decision-making by groups. Some of these rooms, like the one at P&G's Cincinnati headquarters shown below, actually are spherical in shape, though most are conventional rectangular meeting rooms freshly outfitted with large screens on the walls.

Around the world, P&G managers are conferring in such rooms, with embedded analysts from P&G's Information and Decision Solutions group aiding their deliberations with Spotfire-enabled visuals.

Some of the displays are quite cool — I particularly like, for example, the "heatmap" showing where P&G's products stand in their respective markets. (See below.) But their purpose is not, of course, to dazzle managers with coolness and creativity. The real goal is to help them understand quickly what's going on in the business, and to decide what to do about it. P&G's CIO Filippo Passerini calls it "getting beyond the what to the why and the how." If decision-makers have to spend too much time with the data figuring out what has happened in an important area of operations, they may never get to why it happened, or how to address the issue. Good visual displays keep the focus on managing the business by exception, and direct management attention to where it is most needed.

Take the heatmap shown here (click to see a larger version), for example, which is a typical one for P&G in Europe. Simultaneously it shows all the markets in which P&G products compete and their relative share (red indicating low market share and green indicating high market share), and also puts in clear perspective the importance of growing the share of any one of those markets. Guy Peri, an IT Director at P&G who until recently was in charge of business analytics, explained why that perspective is useful:

Historically, we used to celebrate businesses or initiatives being "green" or spend time on businesses/initiatives that were red — when in comparison to the broader portfolio, those businesses/initiatives were relatively immaterial to the overall performance. With visual analytics, we are able to quickly focus business decision makers on the businesses issues that are material.

Having such displays in common use is especially important to P&G because it is an extremely global company, and prefers to develop managers by moving them regularly from one brand and geographical market to another. Consistent data visualization across the corporation reflects and supports that strategy. Step into a Business Sphere in Cincinnati, Singapore, or Geneva and you'll see the same charts and graphs projected. Sit down at a desk in any P&G location, and the Decision Cockpit works the same way. P&G tries to make its graphics and colors "Apple simple" to ensure that managers can focus on the important business issues wherever they are in the world.

It's also important, of course, that not only the displays but the information itself is common across the organization. At P&G, there are a set of seven "business sufficiency models" that specify what information is used to address a particular problem domain. If you're focused on supply chain issues, for example, the sufficiency models specify the key variables, how they should be displayed visually, and (in some cases) the relationships between the variables and forecasts based on the relationships.

P&G's dedication to common and well-understood data displays shows what is possible when senior managers are able to stop spending so much time discussing whose data is correct, what data should really be used, and how it should best be displayed. They can spend that much more time devising ways to address the problems and opportunities. It's the creativity that is exercised on those fronts that really drives the success of businesses.

THE EXTRAORDINARY SCIENCE OF ADDICTIVE JUNK FOOD

2013-02-27T13:27:00.000-08:00

Salt Sugar Fat:
How the Food Giants Hooked Us

This article is adapted from “Salt Sugar Fat: How the Food Giants Hooked Us,” published by Random House. Michael Moss is an investigative reporter for The New York Times. He won a Pulitzer Prize in 2010 for his reporting on the meat industry.

On the evening of April 8, 1999, a long line of Town Cars and taxis pulled up to the Minneapolis headquarters of Pillsbury and discharged 11 men who controlled America’s largest food companies. Nestlé was in attendance, as were Kraft and Nabisco, General Mills and Procter & Gamble, Coca-Cola and Mars. Rivals any other day, the C.E.O.’s and company presidents had come together for a rare, private meeting.
On the agenda was one item: the emerging obesity epidemic and how to deal with it. While the atmosphere was cordial, the men assembled were hardly friends.
Their stature was defined by their skill in fighting one another for what they called “stomach share” — the amount of digestive space that any one company’s brand can grab from the competition.

James Behnke, a 55-year-old executive at Pillsbury, greeted the men as they arrived. He was anxious but also hopeful about the plan that he and a few other food-company executives had devised to engage the C.E.O.’s on America’s growing weight problem. “We were very concerned, and rightfully so, that obesity was becoming a major issue,” Behnke recalled. “People were starting to talk about sugar taxes, and there was a lot of pressure on food companies.” Getting the company chiefs in the same room to talk about anything, much less a sensitive issue like this, was a tricky business, so Behnke and his fellow organizers had scripted the meeting carefully, honing the message to its barest essentials. “C.E.O.’s in the food industry are typically not technical guys, and they’re uncomfortable going to meetings where technical people talk in technical terms about technical things,” Behnke said. “They don’t want to be embarrassed. They don’t want to make commitments. They want to maintain their aloofness and autonomy.”

A chemist by training with a doctoral degree in food science, Behnke became Pillsbury’s chief technical officer in 1979 and was instrumental in creating a long line of hit products, including microwaveable popcorn. He deeply admired Pillsbury but in recent years had grown troubled by pictures of obese children suffering from diabetes and the earliest signs of hypertension and heart disease. In the months leading up to the C.E.O. meeting, he was engaged in conversation with a group of food-science experts who were painting an increasingly grim picture of the public’s ability to cope with the industry’s formulations — from the body’s fragile controls on overeating to the hidden power of some processed foods to make people feel hungrier still. It was time, he and a handful of others felt, to warn the C.E.O.’s that their companies may have gone too far in creating and marketing products that posed the greatest health concerns.

The discussion took place in Pillsbury’s auditorium. The first speaker was a vice president of Kraft named Michael Mudd. “I very much appreciate this opportunity to talk to you about childhood obesity and the growing challenge it presents for us all,” Mudd began. “Let me say right at the start, this is not an easy subject. There are no easy answers — for what the public health community must do to bring this problem under control or for what the industry should do as others seek to hold it accountable for what has happened. But this much is clear: For those of us who’ve looked hard at this issue, whether they’re public health professionals or staff specialists in your own companies, we feel sure that the one thing we shouldn’t do is nothing.”

As he spoke, Mudd clicked through a deck of slides — 114 in all — projected on a large screen behind him. The figures were staggering. More than half of American adults were now considered overweight, with nearly one-quarter of the adult population — 40 million people — clinically defined as obese. Among children, the rates had more than doubled since 1980, and the number of kids considered obese had shot past 12 million. (This was still only 1999; the nation’s obesity rates would climb much higher.) Food manufacturers were now being blamed for the problem from all sides — academia, the Centers for Disease Control and Prevention, the American Heart Association and the American Cancer Society. The secretary of agriculture, over whom the industry had long held sway, had recently called obesity a “national epidemic.”

Mudd then did the unthinkable. He drew a connection to the last thing in the world the C.E.O.’s wanted linked to their products: cigarettes. First came a quote from a Yale University professor of psychology and public health, Kelly Brownell, who was an especially vocal proponent of the view that the processed-food industry should be seen as a public health menace: “As a culture, we’ve become upset by the tobacco companies advertising to children, but we sit idly by while the food companies do the very same thing. And we could make a claim that the toll taken on the public health by a poor diet rivals that taken by tobacco.”

“If anyone in the food industry ever doubted there was a slippery slope out there,” Mudd said, “I imagine they are beginning to experience a distinct sliding sensation right about now.”

Mudd then presented the plan he and others had devised to address the obesity problem. Merely getting the executives to acknowledge some culpability was an important first step, he knew, so his plan would start off with a small but crucial move: the industry should use the expertise of scientists — its own and others — to gain a deeper understanding of what was driving Americans to overeat. Once this was achieved, the effort could unfold on several fronts. To be sure, there would be no getting around the role that packaged foods and drinks play in overconsumption. They would have to pull back on their use of salt, sugar and fat, perhaps by imposing industrywide limits. But it wasn’t just a matter of these three ingredients; the schemes they used to advertise and market their products were critical, too. Mudd proposed creating a “code to guide the nutritional aspects of food marketing, especially to children.”

“We are saying that the industry should make a sincere effort to be part of the solution,” Mudd concluded. “And that by doing so, we can help to defuse the criticism that’s building against us.”

What happened next was not written down. But according to three participants, when Mudd stopped talking, the one C.E.O. whose recent exploits in the grocery store had awed the rest of the industry stood up to speak. His name was Stephen Sanger, and he was also the person — as head of General Mills — who had the most to lose when it came to dealing with obesity. Under his leadership, General Mills had overtaken not just the cereal aisle but other sections of the grocery store.

The company’s Yoplait brand had transformed traditional unsweetened breakfast yogurt into a veritable dessert. It now had twice as much sugar per serving as General Mills’ marshmallow cereal Lucky Charms. And yet, because of yogurt’s well-tended image as a wholesome snack, sales of Yoplait were soaring, with annual revenue topping $500 million. Emboldened by the success, the company’s development wing pushed even harder, inventing a Yoplait variation that came in a squeezable tube — perfect for kids. They called it Go-Gurt and rolled it out nationally in the weeks before the C.E.O. meeting. (By year’s end, it would hit $100 million in sales.)

According to the sources I spoke with, Sanger began by reminding the group that consumers were “fickle.” (Sanger declined to be interviewed.) Sometimes they worried about sugar, other times fat. General Mills, he said, acted responsibly to both the public and shareholders by offering products to satisfy dieters and other concerned shoppers, from low sugar to added whole grains. But most often, he said, people bought what they liked, and they liked what tasted good. “Don’t talk to me about nutrition,” he reportedly said, taking on the voice of the typical consumer. “Talk to me about taste, and if this stuff tastes better, don’t run around trying to sell stuff that doesn’t taste good.”

To react to the critics, Sanger said, would jeopardize the sanctity of the recipes that had made his products so successful. General Mills would not pull back. He would push his people onward, and he urged his peers to do the same. Sanger’s response effectively ended the meeting.

“What can I say?” James Behnke told me years later. “It didn’t work. These guys weren’t as receptive as we thought they would be.” Behnke chose his words deliberately. He wanted to be fair. “Sanger was trying to say, ‘Look, we’re not going to screw around with the company jewels here and change the formulations because a bunch of guys in white coats are worried about obesity.’ ”

The meeting was remarkable, first, for the insider admissions of guilt. But I was also struck by how prescient the organizers of the sit-down had been.

Today, one in three adults is considered clinically obese, along with one in five kids, and 24 million Americans are afflicted by type 2 diabetes, often caused by poor diet, with another 79 million people having pre-diabetes. Even gout, a painful form of arthritis once known as “the rich man’s disease” for its associations with gluttony, now afflicts eight million Americans.

The public and the food companies have known for decades now — or at the very least since this meeting — that sugary, salty, fatty foods are not good for us in the quantities that we consume them. So why are the diabetes and obesity and hypertension numbers still spiraling out of control? It’s not just a matter of poor willpower on the part of the consumer and a give-the-people-what-they-want attitude on the part of the food manufacturers. What I found, over four years of research and reporting, was a conscious effort — taking place in labs and marketing meetings and grocery-store aisles — to get people hooked on foods that are convenient and inexpensive. I talked to more than 300 people in or formerly employed by the processed-food industry, from scientists to marketers to C.E.O.’s. Some were willing whistle-blowers, while others spoke reluctantly when presented with some of the thousands of pages of secret memos that I obtained from inside the food industry’s operations. What follows is a series of small case studies of a handful of characters whose work then, and perspective now, sheds light on how the foods are created and sold to people who, while not powerless, are extremely vulnerable to the intensity of these companies’ industrial formulations and selling campaigns.

I. ‘In This Field, I’m a Game Changer.’

John Lennon couldn’t find it in England, so he had cases of it shipped from New York to fuel the “Imagine” sessions. The Beach Boys, ZZ Top and Cher all stipulated in their contract riders that it be put in their dressing rooms when they toured. Hillary Clinton asked for it when she traveled as first lady, and ever after her hotel suites were dutifully stocked.

What they all wanted was Dr Pepper, which until 2001 occupied a comfortable third-place spot in the soda aisle behind Coca-Cola and Pepsi. But then a flood of spinoffs from the two soda giants showed up on the shelves — lemons and limes, vanillas and coffees, raspberries and oranges, whites and blues and clears — what in food-industry lingo are known as “line extensions,” and Dr Pepper started to lose its market share.

Responding to this pressure, Cadbury Schweppes created its first spinoff, other than a diet version, in the soda’s 115-year history, a bright red soda with a very un-Dr Pepper name: Red Fusion. “If we are to re-establish Dr Pepper back to its historic growth rates, we have to add more excitement,” the company’s president, Jack Kilduff, said. One particularly promising market, Kilduff pointed out, was the “rapidly growing Hispanic and African-American communities.”

But consumers hated Red Fusion. “Dr Pepper is my all-time favorite drink, so I was curious about the Red Fusion,” a California mother of three wrote on a blog to warn other Peppers away. “It’s disgusting. Gagging. Never again.”

Stung by the rejection, Cadbury Schweppes in 2004 turned to a food-industry legend named Howard Moskowitz. Moskowitz, who studied mathematics and holds a Ph.D. in experimental psychology from Harvard, runs a consulting firm in White Plains, where for more than three decades he has “optimized” a variety of products for Campbell Soup, General Foods, Kraft and PepsiCo. “I’ve optimized soups,” Moskowitz told me. “I’ve optimized pizzas. I’ve optimized salad dressings and pickles. In this field, I’m a game changer.”

In the process of product optimization, food engineers alter a litany of variables with the sole intent of finding the most perfect version (or versions) of a product. Ordinary consumers are paid to spend hours sitting in rooms where they touch, feel, sip, smell, swirl and taste whatever product is in question. Their opinions are dumped into a computer, and the data are sifted and sorted through a statistical method called conjoint analysis, which determines what features will be most attractive to consumers. Moskowitz likes to imagine that his computer is divided into silos, in which each of the attributes is stacked. But it’s not simply a matter of comparing Color 23 with Color 24. In the most complicated projects, Color 23 must be combined with Syrup 11 and Packaging 6, and on and on, in seemingly infinite combinations. Even for jobs in which the only concern is taste and the variables are limited to the ingredients, endless charts and graphs will come spewing out of Moskowitz’s computer. “The mathematical model maps out the ingredients to the sensory perceptions these ingredients create,” he told me, “so I can just dial a new product. This is the engineering approach.”

Moskowitz’s work on Prego spaghetti sauce was memorialized in a 2004 presentation by the author Malcolm Gladwell at the TED conference in Monterey, Calif.: “After . . . months and months, he had a mountain of data about how the American people feel about spaghetti sauce. . . . And sure enough, if you sit down and you analyze all this data on spaghetti sauce, you realize that all Americans fall into one of three groups. There are people who like their spaghetti sauce plain. There are people who like their spaghetti sauce spicy. And there are people who like it extra-chunky. And of those three facts, the third one was the most significant, because at the time, in the early 1980s, if you went to a supermarket, you would not find extra-chunky spaghetti sauce. And Prego turned to Howard, and they said, ‘Are you telling me that one-third of Americans crave extra-chunky spaghetti sauce, and yet no one is servicing their needs?’ And he said, ‘Yes.’ And Prego then went back and completely reformulated their spaghetti sauce and came out with a line of extra-chunky that immediately and completely took over the spaghetti-sauce business in this country. . . . That is Howard’s gift to the American people. . . .

He fundamentally changed the way the food industry thinks about making you happy.”

Well, yes and no. One thing Gladwell didn’t mention is that the food industry already knew some things about making people happy — and it started with sugar. Many of the Prego sauces — whether cheesy, chunky or light — have one feature in common: The largest ingredient, after tomatoes, is sugar. A mere half-cup of Prego Traditional, for instance, has the equivalent of more than two teaspoons of sugar, as much as two-plus Oreo cookies. It also delivers one-third of the sodium recommended for a majority of American adults for an entire day. In making these sauces, Campbell supplied the ingredients, including the salt, sugar and, for some versions, fat, while Moskowitz supplied the optimization. “More is not necessarily better,” Moskowitz wrote in his own account of the Prego project. “As the sensory intensity (say, of sweetness) increases, consumers first say that they like the product more, but eventually, with a middle level of sweetness, consumers like the product the most (this is their optimum, or ‘bliss,’ point).”

I first met Moskowitz on a crisp day in the spring of 2010 at the Harvard Club in Midtown Manhattan. As we talked, he made clear that while he has worked on numerous projects aimed at creating more healthful foods and insists the industry could be doing far more to curb obesity, he had no qualms about his own pioneering work on discovering what industry insiders now regularly refer to as “the bliss point” or any of the other systems that helped food companies create the greatest amount of crave. “There’s no moral issue for me,” he said. “I did the best science I could. I was struggling to survive and didn’t have the luxury of being a moral creature. As a researcher, I was ahead of my time.”

Moskowitz’s path to mastering the bliss point began in earnest not at Harvard but a few months after graduation, 16 miles from Cambridge, in the town of Natick, where the U.S. Army hired him to work in its research labs. The military has long been in a peculiar bind when it comes to food: how to get soldiers to eat more rations when they are in the field. They know that over time, soldiers would gradually find their meals-ready-to-eat so boring that they would toss them away, half-eaten, and not get all the calories they needed. But what was causing this M.R.E.-fatigue was a mystery. “So I started asking soldiers how frequently they would like to eat this or that, trying to figure out which products they would find boring,” Moskowitz said. The answers he got were inconsistent. “They liked flavorful foods like turkey tetrazzini, but only at first; they quickly grew tired of them. On the other hand, mundane foods like white bread would never get them too excited, but they could eat lots and lots of it without feeling they’d had enough.”

This contradiction is known as “sensory-specific satiety.” In lay terms, it is the tendency for big, distinct flavors to overwhelm the brain, which responds by depressing your desire to have more. Sensory-specific satiety also became a guiding principle for the processed-food industry. The biggest hits — be they Coca-Cola or Doritos — owe their success to complex formulas that pique the taste buds enough to be alluring but don’t have a distinct, overriding single flavor that tells the brain to stop eating.

Thirty-two years after he began experimenting with the bliss point, Moskowitz got the call from Cadbury Schweppes asking him to create a good line extension for Dr Pepper. I spent an afternoon in his White Plains offices as he and his vice president for research, Michele Reisner, walked me through the Dr Pepper campaign. Cadbury wanted its new flavor to have cherry and vanilla on top of the basic Dr Pepper taste. Thus, there were three main components to play with. A sweet cherry flavoring, a sweet vanilla flavoring and a sweet syrup known as “Dr Pepper flavoring.”

Finding the bliss point required the preparation of 61 subtly distinct formulas — 31 for the regular version and 30 for diet. The formulas were then subjected to 3,904 tastings organized in Los Angeles, Dallas, Chicago and Philadelphia. The Dr Pepper tasters began working through their samples, resting five minutes between each sip to restore their taste buds. After each sample, they gave numerically ranked answers to a set of questions: How much did they like it overall? How strong is the taste? How do they feel about the taste? How would they describe the quality of this product? How likely would they be to purchase this product?

Moskowitz’s data — compiled in a 135-page report for the soda maker — is tremendously fine-grained, showing how different people and groups of people feel about a strong vanilla taste versus weak, various aspects of aroma and the powerful sensory force that food scientists call “mouth feel.” This is the way a product interacts with the mouth, as defined more specifically by a host of related sensations, from dryness to gumminess to moisture release. These are terms more familiar to sommeliers, but the mouth feel of soda and many other food items, especially those high in fat, is second only to the bliss point in its ability to predict how much craving a product will induce.

In addition to taste, the consumers were also tested on their response to color, which proved to be highly sensitive. “When we increased the level of the Dr Pepper flavoring, it gets darker and liking goes off,” Reisner said. These preferences can also be cross-referenced by age, sex and race.

On Page 83 of the report, a thin blue line represents the amount of Dr Pepper flavoring needed to generate maximum appeal. The line is shaped like an upside-down U, just like the bliss-point curve that Moskowitz studied 30 years earlier in his Army lab. And at the top of the arc, there is not a single sweet spot but instead a sweet range, within which “bliss” was achievable. This meant that Cadbury could edge back on its key ingredient, the sugary Dr Pepper syrup, without falling out of the range and losing the bliss. Instead of using 2 milliliters of the flavoring, for instance, they could use 1.69 milliliters and achieve the same effect. The potential savings is merely a few percentage points, and it won’t mean much to individual consumers who are counting calories or grams of sugar. But for Dr Pepper, it adds up to colossal savings. “That looks like nothing,” Reisner said. “But it’s a lot of money. A lot of money. Millions.”

The soda that emerged from all of Moskowitz’s variations became known as Cherry Vanilla Dr Pepper, and it proved successful beyond anything Cadbury imagined. In 2008, Cadbury split off its soft-drinks business, which included Snapple and 7-Up. The Dr Pepper Snapple Group has since been valued in excess of $11 billion.

II. ‘Lunchtime Is All Yours’

Sometimes innovations within the food industry happen in the lab, with scientists dialing in specific ingredients to achieve the greatest allure. And sometimes, as in the case of Oscar Mayer’s bologna crisis, the innovation involves putting old products in new packages.

The 1980s were tough times for Oscar Mayer. Red-meat consumption fell more than 10 percent as fat became synonymous with cholesterol, clogged arteries, heart attacks and strokes. Anxiety set in at the company’s headquarters in Madison, Wis., where executives worried about their future and the pressure they faced from their new bosses at Philip Morris.

Bob Drane was the company’s vice president for new business strategy and development when Oscar Mayer tapped him to try to find some way to reposition bologna and other troubled meats that were declining in popularity and sales. I met Drane at his home in Madison and went through the records he had kept on the birth of what would become much more than his solution to the company’s meat problem. In 1985, when Drane began working on the project, his orders were to “figure out how to contemporize what we’ve got.”

Drane’s first move was to try to zero in not on what Americans felt about processed meat but on what Americans felt about lunch. He organized focus-group sessions with the people most responsible for buying bologna — mothers — and as they talked, he realized the most pressing issue for them was time. Working moms strove to provide healthful food, of course, but they spoke with real passion and at length about the morning crush, that nightmarish dash to get breakfast on the table and lunch packed and kids out the door. He summed up their remarks for me like this: “It’s awful. I am scrambling around. My kids are asking me for stuff. I’m trying to get myself ready to go to the office. I go to pack these lunches, and I don’t know what I’ve got.” What the moms revealed to him, Drane said, was “a gold mine of disappointments and problems.”

He assembled a team of about 15 people with varied skills, from design to food science to advertising, to create something completely new — a convenient prepackaged lunch that would have as its main building block the company’s sliced bologna and ham. They wanted to add bread, naturally, because who ate bologna without it? But this presented a problem: There was no way bread could stay fresh for the two months their product needed to sit in warehouses or in grocery coolers. Crackers, however, could — so they added a handful of cracker rounds to the package. Using cheese was the next obvious move, given its increased presence in processed foods. But what kind of cheese would work? Natural Cheddar, which they started off with, crumbled and didn’t slice very well, so they moved on to processed varieties, which could bend and be sliced and would last forever, or they could knock another two cents off per unit by using an even lesser product called “cheese food,” which had lower scores than processed cheese in taste tests. The cost dilemma was solved when Oscar Mayer merged with Kraft in 1989 and the company didn’t have to shop for cheese anymore; it got all the processed cheese it wanted from its new sister company, and at cost.

Drane’s team moved into a nearby hotel, where they set out to find the right mix of components and container. They gathered around tables where bagfuls of meat, cheese, crackers and all sorts of wrapping material had been dumped, and they let their imaginations run. After snipping and taping their way through a host of failures, the model they fell back on was the American TV dinner — and after some brainstorming about names (Lunch Kits? Go-Packs? Fun Mealz?), Lunchables were born.

The trays flew off the grocery-store shelves. Sales hit a phenomenal $218 million in the first 12 months, more than anyone was prepared for. This only brought Drane his next crisis. The production costs were so high that they were losing money with each tray they produced. So Drane flew to New York, where he met with Philip Morris officials who promised to give him the money he needed to keep it going. “The hard thing is to figure out something that will sell,” he was told. “You’ll figure out how to get the cost right.” Projected to lose $6 million in 1991, the trays instead broke even; the next year, they earned $8 million.

With production costs trimmed and profits coming in, the next question was how to expand the franchise, which they did by turning to one of the cardinal rules in processed food: When in doubt, add sugar. “Lunchables With Dessert is a logical extension,” an Oscar Mayer official reported to Philip Morris executives in early 1991. The “target” remained the same as it was for regular Lunchables — “busy mothers” and “working women,” ages 25 to 49 — and the “enhanced taste” would attract shoppers who had grown bored with the current trays. A year later, the dessert Lunchable morphed into the Fun Pack, which would come with a Snickers bar, a package of M&M’s or a Reese’s Peanut Butter Cup, as well as a sugary drink. The Lunchables team started by using Kool-Aid and cola and then Capri Sun after Philip Morris added that drink to its stable of brands.

Eventually, a line of the trays, appropriately called Maxed Out, was released that had as many as nine grams of saturated fat, or nearly an entire day’s recommended maximum for kids, with up to two-thirds of the max for sodium and 13 teaspoons of sugar.

When I asked Geoffrey Bible, former C.E.O. of Philip Morris, about this shift toward more salt, sugar and fat in meals for kids, he smiled and noted that even in its earliest incarnation, Lunchables was held up for criticism. “One article said something like, ‘If you take Lunchables apart, the most healthy item in it is the napkin.’ ”

Well, they did have a good bit of fat, I offered. “You bet,” he said. “Plus cookies.”

The prevailing attitude among the company’s food managers — through the 1990s, at least, before obesity became a more pressing concern — was one of supply and demand. “People could point to these things and say, ‘They’ve got too much sugar, they’ve got too much salt,’ ” Bible said. “Well, that’s what the consumer wants, and we’re not putting a gun to their head to eat it. That’s what they want. If we give them less, they’ll buy less, and the competitor will get our market. So you’re sort of trapped.” (Bible would later press Kraft to reconsider its reliance on salt, sugar and fat.)

When it came to Lunchables, they did try to add more healthful ingredients. Back at the start, Drane experimented with fresh carrots but quickly gave up on that, since fresh components didn’t work within the constraints of the processed-food system, which typically required weeks or months of transport and storage before the food arrived at the grocery store. Later, a low-fat version of the trays was developed, using meats and cheese and crackers that were formulated with less fat, but it tasted inferior, sold poorly and was quickly scrapped.

When I met with Kraft officials in 2011 to discuss their products and policies on nutrition, they had dropped the Maxed Out line and were trying to improve the nutritional profile of Lunchables through smaller, incremental changes that were less noticeable to consumers. Across the Lunchables line, they said they had reduced the salt, sugar and fat by about 10 percent, and new versions, featuring mandarin-orange and pineapple slices, were in development. These would be promoted as more healthful versions, with “fresh fruit,” but their list of ingredients — containing upward of 70 items, with sucrose, corn syrup, high-fructose corn syrup and fruit concentrate all in the same tray — have been met with intense criticism from outside the industry.

One of the company’s responses to criticism is that kids don’t eat the Lunchables every day — on top of which, when it came to trying to feed them more healthful foods, kids themselves were unreliable. When their parents packed fresh carrots, apples and water, they couldn’t be trusted to eat them. Once in school, they often trashed the healthful stuff in their brown bags to get right to the sweets. This idea — that kids are in control — would become a key concept in the evolving marketing campaigns for the trays. In what would prove to be their greatest achievement of all, the Lunchables team would delve into adolescent psychology to discover that it wasn’t the food in the trays that excited the kids; it was the feeling of power it brought to their lives. As Bob Eckert, then the C.E.O. of Kraft, put it in 1999: “Lunchables aren’t about lunch. It’s about kids being able to put together what they want to eat, anytime, anywhere.”

Kraft’s early Lunchables campaign targeted mothers. They might be too distracted by work to make a lunch, but they loved their kids enough to offer them this prepackaged gift. But as the focus swung toward kids, Saturday-morning cartoons started carrying an ad that offered a different message: “All day, you gotta do what they say,” the ads said. “But lunchtime is all yours.”

With this marketing strategy in place and pizza Lunchables — the crust in one compartment, the cheese, pepperoni and sauce in others — proving to be a runaway success, the entire world of fast food suddenly opened up for Kraft to pursue. They came out with a Mexican-themed Lunchables called Beef Taco Wraps; a Mini Burgers Lunchables; a Mini Hot Dog Lunchable, which also happened to provide a way for Oscar Mayer to sell its wieners. By 1999, pancakes — which included syrup, icing, Lifesavers candy and Tang, for a whopping 76 grams of sugar — and waffles were, for a time, part of the Lunchables franchise as well.

Annual sales kept climbing, past $500 million, past $800 million; at last count, including sales in Britain, they were approaching the $1 billion mark. Lunchables was more than a hit; it was now its own category. Eventually, more than 60 varieties of Lunchables and other brands of trays would show up in the grocery stores. In 2007, Kraft even tried a Lunchables Jr. for 3- to 5-year-olds.

In the trove of records that document the rise of the Lunchables and the sweeping change it brought to lunchtime habits, I came across a photograph of Bob Drane’s daughter, which he had slipped into the Lunchables presentation he showed to food developers. The picture was taken on Monica Drane’s wedding day in 1989, and she was standing outside the family’s home in Madison, a beautiful bride in a white wedding dress, holding one of the brand-new yellow trays.

During the course of reporting, I finally had a chance to ask her about it. Was she really that much of a fan? “There must have been some in the fridge,” she told me. “I probably just took one out before we went to the church. My mom had joked that it was really like their fourth child, my dad invested so much time and energy on it.”

Monica Drane had three of her own children by the time we spoke, ages 10, 14 and 17. “I don’t think my kids have ever eaten a Lunchable,” she told me. “They know they exist and that Grandpa Bob invented them. But we eat very healthfully.”

Drane himself paused only briefly when I asked him if, looking back, he was proud of creating the trays. “Lots of things are trade-offs,” he said. “And I do believe it’s easy to rationalize anything. In the end, I wish that the nutritional profile of the thing could have been better, but I don’t view the entire project as anything but a positive contribution to people’s lives.”

Today Bob Drane is still talking to kids about what they like to eat, but his approach has changed. He volunteers with a nonprofit organization that seeks to build better communications between school kids and their parents, and right in the mix of their problems, alongside the academic struggles, is childhood obesity. Drane has also prepared a précis on the food industry that he used with medical students at the University of Wisconsin. And while he does not name his Lunchables in this document, and cites numerous causes for the obesity epidemic, he holds the entire industry accountable. “What do University of Wisconsin M.B.A.’s learn about how to succeed in marketing?” his presentation to the med students asks. “Discover what consumers want to buy and give it to them with both barrels. Sell more, keep your job! How do marketers often translate these ‘rules’ into action on food? Our limbic brains love sugar, fat, salt. . . . So formulate products to deliver these. Perhaps add low-cost ingredients to boost profit margins. Then ‘supersize’ to sell more. . . . And advertise/promote to lock in ‘heavy users.’ Plenty of guilt to go around here!”

III. ‘It’s Called Vanishing Caloric Density.’

At a symposium for nutrition scientists in Los Angeles on Feb. 15, 1985, a professor of pharmacology from Helsinki named Heikki Karppanen told the remarkable story of Finland’s effort to address its salt habit. In the late 1970s, the Finns were consuming huge amounts of sodium, eating on average more than two teaspoons of salt a day. As a result, the country had developed significant issues with high blood pressure, and men in the eastern part of Finland had the highest rate of fatal cardiovascular disease in the world. Research showed that this plague was not just a quirk of genetics or a result of a sedentary lifestyle — it was also owing to processed foods. So when Finnish authorities moved to address the problem, they went right after the manufacturers. (The Finnish response worked. Every grocery item that was heavy in salt would come to be marked prominently with the warning “High Salt Content.” By 2007, Finland’s per capita consumption of salt had dropped by a third, and this shift — along with improved medical care — was accompanied by a 75 percent to 80 percent decline in the number of deaths from strokes and heart disease.)

Karppanen’s presentation was met with applause, but one man in the crowd seemed particularly intrigued by the presentation, and as Karppanen left the stage, the man intercepted him and asked if they could talk more over dinner. Their conversation later that night was not at all what Karppanen was expecting. His host did indeed have an interest in salt, but from quite a different vantage point: the man’s name was Robert I-San Lin, and from 1974 to 1982, he worked as the chief scientist for Frito-Lay, the nearly $3-billion-a-year manufacturer of Lay’s, Doritos, Cheetos and Fritos.

Lin’s time at Frito-Lay coincided with the first attacks by nutrition advocates on salty foods and the first calls for federal regulators to reclassify salt as a “risky” food additive, which could have subjected it to severe controls. No company took this threat more seriously — or more personally — than Frito-Lay, Lin explained to Karppanen over their dinner. Three years after he left Frito-Lay, he was still anguished over his inability to effectively change the company’s recipes and practices.

By chance, I ran across a letter that Lin sent to Karppanen three weeks after that dinner, buried in some files to which I had gained access. Attached to the letter was a memo written when Lin was at Frito-Lay, which detailed some of the company’s efforts in defending salt. I tracked Lin down in Irvine, Calif., where we spent several days going through the internal company memos, strategy papers and handwritten notes he had kept. The documents were evidence of the concern that Lin had for consumers and of the company’s intent on using science not to address the health concerns but to thwart them. While at Frito-Lay, Lin and other company scientists spoke openly about the country’s excessive consumption of sodium and the fact that, as Lin said to me on more than one occasion, “people get addicted to salt.”

Not much had changed by 1986, except Frito-Lay found itself on a rare cold streak. The company had introduced a series of high-profile products that failed miserably. Toppels, a cracker with cheese topping; Stuffers, a shell with a variety of fillings; Rumbles, a bite-size granola snack — they all came and went in a blink, and the company took a $52 million hit. Around that time, the marketing team was joined by Dwight Riskey, an expert on cravings who had been a fellow at the Monell Chemical Senses Center in Philadelphia, where he was part of a team of scientists that found that people could beat their salt habits simply by refraining from salty foods long enough for their taste buds to return to a normal level of sensitivity. He had also done work on the bliss point, showing how a product’s allure is contextual, shaped partly by the other foods a person is eating, and that it changes as people age. This seemed to help explain why Frito-Lay was having so much trouble selling new snacks. The largest single block of customers, the baby boomers, had begun hitting middle age. According to the research, this suggested that their liking for salty snacks — both in the concentration of salt and how much they ate — would be tapering off. Along with the rest of the snack-food industry, Frito-Lay anticipated lower sales because of an aging population, and marketing plans were adjusted to focus even more intently on younger consumers.

Except that snack sales didn’t decline as everyone had projected, Frito-Lay’s doomed product launches notwithstanding. Poring over data one day in his home office, trying to understand just who was consuming all the snack food, Riskey realized that he and his colleagues had been misreading things all along.

They had been measuring the snacking habits of different age groups and were seeing what they expected to see, that older consumers ate less than those in their 20s. But what they weren’t measuring, Riskey realized, is how those snacking habits of the boomers compared to themselves when they were in their 20s. When he called up a new set of sales data and performed what’s called a cohort study, following a single group over time, a far more encouraging picture — for Frito-Lay, anyway — emerged. The baby boomers were not eating fewer salty snacks as they aged. “In fact, as those people aged, their consumption of all those segments — the cookies, the crackers, the candy, the chips — was going up,” Riskey said. “They were not only eating what they ate when they were younger, they were eating more of it.” In fact, everyone in the country, on average, was eating more salty snacks than they used to. The rate of consumption was edging up about one-third of a pound every year, with the average intake of snacks like chips and cheese crackers pushing past 12 pounds a year.

Riskey had a theory about what caused this surge: Eating real meals had become a thing of the past. Baby boomers, especially, seemed to have greatly cut down on regular meals. They were skipping breakfast when they had early-morning meetings. They skipped lunch when they then needed to catch up on work because of those meetings. They skipped dinner when their kids stayed out late or grew up and moved out of the house. And when they skipped these meals, they replaced them with snacks. “We looked at this behavior, and said, ‘Oh, my gosh, people were skipping meals right and left,’ ” Riskey told me. “It was amazing.” This led to the next realization, that baby boomers did not represent “a category that is mature, with no growth. This is a category that has huge growth potential.”

The food technicians stopped worrying about inventing new products and instead embraced the industry’s most reliable method for getting consumers to buy more: the line extension.

The classic Lay’s potato chips were joined by Salt & Vinegar, Salt & Pepper and Cheddar & Sour Cream. They put out Chili-Cheese-flavored Fritos, and Cheetos were transformed into 21 varieties.

Frito-Lay had a formidable research complex near Dallas, where nearly 500 chemists, psychologists and technicians conducted research that cost up to $30 million a year, and the science corps focused intense amounts of resources on questions of crunch, mouth feel and aroma for each of these items. Their tools included a $40,000 device that simulated a chewing mouth to test and perfect the chips, discovering things like the perfect break point: people like a chip that snaps with about four pounds of pressure per square inch.

To get a better feel for their work, I called on Steven Witherly, a food scientist who wrote a fascinating guide for industry insiders titled, “Why Humans Like Junk Food.” I brought him two shopping bags filled with a variety of chips to taste. He zeroed right in on the Cheetos. “This,” Witherly said, “is one of the most marvelously constructed foods on the planet, in terms of pure pleasure.” He ticked off a dozen attributes of the Cheetos that make the brain say more. But the one he focused on most was the puff’s uncanny ability to melt in the mouth. “It’s called vanishing caloric density,” Witherly said. “If something melts down quickly, your brain thinks that there’s no calories in it . . . you can just keep eating it forever.”

As for their marketing troubles, in a March 2010 meeting, Frito-Lay executives hastened to tell their Wall Street investors that the 1.4 billion boomers worldwide weren’t being neglected; they were redoubling their efforts to understand exactly what it was that boomers most wanted in a snack chip. Which was basically everything: great taste, maximum bliss but minimal guilt about health and more maturity than puffs. “They snack a lot,” Frito-Lay’s chief marketing officer, Ann Mukherjee, told the investors. “But what they’re looking for is very different. They’re looking for new experiences, real food experiences.” Frito-Lay acquired Stacy’s Pita Chip Company, which was started by a Massachusetts couple who made food-cart sandwiches and started serving pita chips to their customers in the mid-1990s. In Frito-Lay’s hands, the pita chips averaged 270 milligrams of sodium — nearly one-fifth a whole day’s recommended maximum for most American adults — and were a huge hit among boomers.

The Frito-Lay executives also spoke of the company’s ongoing pursuit of a “designer sodium,” which they hoped, in the near future, would take their sodium loads down by 40 percent. No need to worry about lost sales there, the company’s C.E.O., Al Carey, assured their investors. The boomers would see less salt as the green light to snack like never before.

There’s a paradox at work here. On the one hand, reduction of sodium in snack foods is commendable. On the other, these changes may well result in consumers eating more. “The big thing that will happen here is removing the barriers for boomers and giving them permission to snack,” Carey said. The prospects for lower-salt snacks were so amazing, he added, that the company had set its sights on using the designer salt to conquer the toughest market of all for snacks: schools. He cited, for example, the school-food initiative championed by Bill Clinton and the American Heart Association, which is seeking to improve the nutrition of school food by limiting its load of salt, sugar and fat. “Imagine this,” Carey said. “A potato chip that tastes great and qualifies for the Clinton-A.H.A. alliance for schools . . . . We think we have ways to do all of this on a potato chip, and imagine getting that product into schools, where children can have this product and grow up with it and feel good about eating it.”

Carey’s quote reminded me of something I read in the early stages of my reporting, a 24-page report prepared for Frito-Lay in 1957 by a psychologist named Ernest Dichter. The company’s chips, he wrote, were not selling as well as they could for one simple reason: “While people like and enjoy potato chips, they feel guilty about liking them. . . . Unconsciously, people expect to be punished for ‘letting themselves go’ and enjoying them.” Dichter listed seven “fears and resistances” to the chips: “You can’t stop eating them; they’re fattening; they’re not good for you; they’re greasy and messy to eat; they’re too expensive; it’s hard to store the leftovers; and they’re bad for children.” He spent the rest of his memo laying out his prescriptions, which in time would become widely used not just by Frito-Lay but also by the entire industry. Dichter suggested that Frito-Lay avoid using the word “fried” in referring to its chips and adopt instead the more healthful-sounding term “toasted.” To counteract the “fear of letting oneself go,” he suggested repacking the chips into smaller bags. “The more-anxious consumers, the ones who have the deepest fears about their capacity to control their appetite, will tend to sense the function of the new pack and select it,” he said.

Dichter advised Frito-Lay to move its chips out of the realm of between-meals snacking and turn them into an ever-present item in the American diet. “The increased use of potato chips and other Lay’s products as a part of the regular fare served by restaurants and sandwich bars should be encouraged in a concentrated way,” Dichter said, citing a string of examples: “potato chips with soup, with fruit or vegetable juice appetizers; potato chips served as a vegetable on the main dish; potato chips with salad; potato chips with egg dishes for breakfast; potato chips with sandwich orders.”

In 2011, The New England Journal of Medicine published a study that shed new light on America’s weight gain. The subjects — 120,877 women and men — were all professionals in the health field, and were likely to be more conscious about nutrition, so the findings might well understate the overall trend. Using data back to 1986, the researchers monitored everything the participants ate, as well as their physical activity and smoking. They found that every four years, the participants exercised less, watched TV more and gained an average of 3.35 pounds. The researchers parsed the data by the caloric content of the foods being eaten, and found the top contributors to weight gain included red meat and processed meats, sugar-sweetened beverages and potatoes, including mashed and French fries. But the largest weight-inducing food was the potato chip. The coating of salt, the fat content that rewards the brain with instant feelings of pleasure, the sugar that exists not as an additive but in the starch of the potato itself — all of this combines to make it the perfect addictive food.

“The starch is readily absorbed,” Eric Rimm, an associate professor of epidemiology and nutrition at the Harvard School of Public Health and one of the study’s authors, told me. “More quickly even than a similar amount of sugar. The starch, in turn, causes the glucose levels in the blood to spike” — which can result in a craving for more.

If Americans snacked only occasionally, and in small amounts, this would not present the enormous problem that it does. But because so much money and effort has been invested over decades in engineering and then relentlessly selling these products, the effects are seemingly impossible to unwind. More than 30 years have passed since Robert Lin first tangled with Frito-Lay on the imperative of the company to deal with the formulation of its snacks, but as we sat at his dining-room table, sifting through his records, the feelings of regret still played on his face. In his view, three decades had been lost, time that he and a lot of other smart scientists could have spent searching for ways to ease the addiction to salt, sugar and fat. “I couldn’t do much about it,” he told me. “I feel so sorry for the public.”

IV. ‘These People Need a Lot of Things, but They Don’t Need a Coke.’

The growing attention Americans are paying to what they put into their mouths has touched off a new scramble by the processed-food companies to address health concerns. Pressed by the Obama administration and consumers, Kraft, Nestlé, Pepsi, Campbell and General Mills, among others, have begun to trim the loads of salt, sugar and fat in many products. And with consumer advocates pushing for more government intervention, Coca-Cola made headlines in January by releasing ads that promoted its bottled water and low-calorie drinks as a way to counter obesity. Predictably, the ads drew a new volley of scorn from critics who pointed to the company’s continuing drive to sell sugary Coke.

One of the other executives I spoke with at length was Jeffrey Dunn, who, in 2001, at age 44, was directing more than half of Coca-Cola’s $20 billion in annual sales as president and chief operating officer in both North and South America. In an effort to control as much market share as possible, Coke extended its aggressive marketing to especially poor or vulnerable areas of the U.S., like New Orleans — where people were drinking twice as much Coke as the national average — or Rome, Ga., where the per capita intake was nearly three Cokes a day. In Coke’s headquarters in Atlanta, the biggest consumers were referred to as “heavy users.” “The other model we use was called ‘drinks and drinkers,’ ” Dunn said. “How many drinkers do I have? And how many drinks do they drink? If you lost one of those heavy users, if somebody just decided to stop drinking Coke, how many drinkers would you have to get, at low velocity, to make up for that heavy user? The answer is a lot. It’s more efficient to get my existing users to drink more.”

One of Dunn’s lieutenants, Todd Putman, who worked at Coca-Cola from 1997 to 2001, said the goal became much larger than merely beating the rival brands; Coca-Cola strove to outsell every other thing people drank, including milk and water. The marketing division’s efforts boiled down to one question, Putman said: “How can we drive more ounces into more bodies more often?” (In response to Putman’s remarks, Coke said its goals have changed and that it now focuses on providing consumers with more low- or no-calorie products.)

In his capacity, Dunn was making frequent trips to Brazil, where the company had recently begun a push to increase consumption of Coke among the many Brazilians living in favelas. The company’s strategy was to repackage Coke into smaller, more affordable 6.7-ounce bottles, just 20 cents each. Coke was not alone in seeing Brazil as a potential boon; Nestlé began deploying battalions of women to travel poor neighborhoods, hawking American-style processed foods door to door. But Coke was Dunn’s concern, and on one trip, as he walked through one of the impoverished areas, he had an epiphany. “A voice in my head says, ‘These people need a lot of things, but they don’t need a Coke.’ I almost threw up.”

Dunn returned to Atlanta, determined to make some changes. He didn’t want to abandon the soda business, but he did want to try to steer the company into a more healthful mode, and one of the things he pushed for was to stop marketing Coke in public schools. The independent companies that bottled Coke viewed his plans as reactionary. A director of one bottler wrote a letter to Coke’s chief executive and board asking for Dunn’s head. “He said what I had done was the worst thing he had seen in 50 years in the business,” Dunn said. “Just to placate these crazy leftist school districts who were trying to keep people from having their Coke. He said I was an embarrassment to the company, and I should be fired.” In February 2004, he was.

Dunn told me that talking about Coke’s business today was by no means easy and, because he continues to work in the food business, not without risk. “You really don’t want them mad at you,” he said. “And I don’t mean that, like, I’m going to end up at the bottom of the bay. But they don’t have a sense of humor when it comes to this stuff. They’re a very, very aggressive company.”

When I met with Dunn, he told me not just about his years at Coke but also about his new marketing venture. In April 2010, he met with three executives from Madison Dearborn Partners, a private-equity firm based in Chicago with a wide-ranging portfolio of investments. They recently hired Dunn to run one of their newest acquisitions — a food producer in the San Joaquin Valley. As they sat in the hotel’s meeting room, the men listened to Dunn’s marketing pitch. He talked about giving the product a personality that was bold and irreverent, conveying the idea that this was the ultimate snack food. He went into detail on how he would target a special segment of the 146 million Americans who are regular snackers — mothers, children, young professionals — people, he said, who “keep their snacking ritual fresh by trying a new food product when it catches their attention.”

He explained how he would deploy strategic storytelling in the ad campaign for this snack, using a key phrase that had been developed with much calculation: “Eat ’Em Like Junk Food.”

After 45 minutes, Dunn clicked off the last slide and thanked the men for coming. Madison’s portfolio contained the largest Burger King franchise in the world, the Ruth’s Chris Steak House chain and a processed-food maker called AdvancePierre whose lineup includes the Jamwich, a peanut-butter-and-jelly contrivance that comes frozen, crustless and embedded with four kinds of sugars.

The snack that Dunn was proposing to sell: carrots. Plain, fresh carrots. No added sugar. No creamy sauce or dips. No salt. Just baby carrots, washed, bagged, then sold into the deadly dull produce aisle.

“We act like a snack, not a vegetable,” he told the investors. “We exploit the rules of junk food to fuel the baby-carrot conversation. We are pro-junk-food behavior but anti-junk-food establishment.”

The investors were thinking only about sales. They had already bought one of the two biggest farm producers of baby carrots in the country, and they’d hired Dunn to run the whole operation. Now, after his pitch, they were relieved. Dunn had figured out that using the industry’s own marketing ploys would work better than anything else. He drew from the bag of tricks that he mastered in his 20 years at Coca-Cola, where he learned one of the most critical rules in processed food: The selling of food matters as much as the food itself.

Later, describing his new line of work, Dunn told me he was doing penance for his Coca-Cola years. “I’m paying my karmic debt,” he said.

Behind the Cover Story: Michael Moss on Addictive Foods and What He Eats for Breakfast

By RACHEL NOLAN | NYT

Michael Moss, a Pulitzer Prize–winning investigative reporter for The Times, wrote a cover article on the processed-food industry. The article is adapted from his book, “Salt Sugar Fat: How the Food Giants Hooked Us,” which will be published in March.

What first brought your attention to this topic?
I had been writing for the paper about contaminants in food — like salmonella in peanuts and E. coli in hamburger — and the industry scientists I met in the course of reporting said to me, “Michael, as tragic as these E. coli cases are, if you want to see something that makes a lot more people sick, look at the stuff the food giants are adding intentionally to their products.” They were mostly involved in meat production, so they were alarmed by enormous quantities of salt added to processed meats. As I continued reporting, it became clear that salt, fat and sugar together formed the holy grail for the processed-food industry. We all knew that these were in heavy use, but one of the things I was curious about was how the industry was wrestling with the issue. The whole idea was to go inside the industry and see how it was dealing with reports of enormous levels of obesity and diabetes. I was stunned by how many senior officials had over the years become alarmed about the effects of these products. Certainly having thousands of pages of insider documents helped get people to talk, but I was surprised how many were willing to tell the story. What a lot of them had created in the ’80s had meanwhile morphed into something else, something more problematic.

And that change in the food industry carries a whiff of conspiracy in your story.
Well, these are companies after all. Their main purpose is to make money. If they elevate health concerns to the top of their agenda, Wall Street and their competitors are waiting to eat them alive. As I describe in the book, some of the biggest companies did choose to do the right thing by consumer health at various points. But these were unilateral moves, and they were beaten by competitors.

Do you see the only way forward as promoting regulations, or is an agreement among food giants possible?
It’s hard to disagree with the growing number of people who see government regulation as the way to deal with this. And adjusting regulations to give other products, like fruits and vegetables, a more even playing field with products, like corn, that are used in processed foods could be another step. But the $1 trillion a year food industry and its lobby still dominates the Department of Agriculture. Still, I was struck by the former C.E.O. of Philip Morris saying that he’s no friend of government regulation but that what you are seeing in the processed-food industry is that there is no way any one company can make tremendous progress. The industry collectively won’t decide to do it, and at a minimum government regulation would give these industries cover from the huge pressure they have from Wall Street to keep their profits up.

You report that a big concern among food-industry heads was to keep processed food from being compared to cigarettes. But if processed foods became as maligned as cigarettes have, might that be the best thing from a public-health standpoint?
Conceivably. Remember that Philip Morris was the only cigarette company to embrace government regulation as a means of self-preservation. They were worried about losing everything. But at that moment they expanded into noncigarette products. The other grain of salt with the Philip Morris strategy is that it embraced more regulation in this country as it was expanding its market abroad. And in the last decade the processed-food industry is spending more time exporting and marketing these foods abroad, and it is now a problem that the world must deal with. Part of it is the saturation of the American market but also its increasing fears here. But usually the industry has been flexible in its responses to consumer concerns. Sugar was an issue in the ’80s, so you would see low-sugar products; fat was an issue in the ’90s, so you’d see low-fat products. Now salt is more of an issue. But the low-fat products and low-salt products are high in sugar, and the low-sugar products are high in fat. They’ll dial down one ingredient but dial up the others. From the companies’ perspective it is understandable: they want to make as popular a product as possible. But collectively the whole industry is responsible for our heightened collective craving.
Aren’t appetites for salt, sugar and fat natural human cravings?
Every one of our 10,000 taste buds is wired for sugar. But we aren’t born liking salt — we develop a taste for it at about 6 months. There has been some recent science indicating that our liking for salt and our craving is hugely dependent on our exposure to processed foods. Scientists at the Monell Center in Philadelphia, which is partly financed by the food industry, recently did a study where they dumped children into two categories, those who were exposed to processed foods and those who weren’t, starting at 6 months. The first category, by the time they were in preschool, were practically licking the salt shakers. Companies are experimenting with replacing sodium chloride with potassium chloride, because most of the health problems come from sodium. It works for some products, but if you diminish the amount of sodium, people want sugar and fat instead. In Britain, the country as a whole has managed to dial down doses of salt, and that may help address high blood pressure, but obesity continues to rise.

After working on this book, do you live in some pristine otherworld of quinoa and salad?
My family is dependent on processed foods. We have two boys, ages 8 and 13. My wife, Eve, and I both work outside the home. There’s no way with our lifestyle that we can lose all of that dependency. That said, Eve arbitrarily set a limit on the kids of five grams of sugar in cereal — even before I started reporting on the subject. Oatmeal is easy to make, but maybe kids don’t want it. Five grams still leaves choices like basic Cheerios and Total. And it gives them choice and engages them in a discussion. The boys may have to reach low, or I may have to reach high to get the cereal, because Fruit Loops are displayed at eye-level. Eve pulled five grams out of thin air. There is no federal guideline for sugar. It is the one big thing missing from nutrition facts because the F.D.A. has declined to set a number.

Did reporting on this topic change your habits at all?
Yes, to a certain extent. It turns out convenience foods are not all that convenient. Oatmeal, I mentioned, is easy, and making tomato sauce for pasta has about two steps. But as a culture, we have lost the will but also the knowledge to make these. One reason that we eat processed foods is the decline of home economics. Restarting home economics classes is one of the key things we could do to get this issue moving.

What has the response been like to your article so far?
I haven’t had time to go through the thousand-plus comments yet. I’ve been responding to e-mails, from people saying their families are struggling with diet issues and that having the information is empowering for them, but also from company executives. I got calls from doctors saying if you want to see something really deplorable, look at hospital cafeteria food. People from the White House got in touch, to talk to me but also to get in contact with Jeff Dunn, the Coca-Cola former president who is now trying to market baby carrots as junk food. They are interested in his strategies. The response has been enormous.

And Now, From I.B.M., Chef Watson

STEVE LOHR | New York Times

I.B.M.’s Watson beat “Jeopardy” champions two years ago. But can it whip up something tasty in the kitchen?

I.B.M. plans to serve a breakfast pastry devised by Watson and the chef James Briscione at its meeting on Thursday.

That is just one of the questions that I.B.M. is asking as it tries to expand its artificial intelligence technology and turn Watson into something that actually makes commercial sense.

The company is betting that it can build a big business by taking the Watson technology into new fields. The uses it will be showing off to Wall Street analysts at a gathering in the company’s Almaden Research Center in San Jose, Calif., on Thursday include helping to develop drugs, predicting when industrial machines need maintenance and even coming up with novel recipes for tasty foods. In health care, Watson is training to become a diagnostic assistant at a few medical centers, including the Cleveland Clinic.

In San Jose, I.B.M. plans to serve the assembled analysts a breakfast pastry devised by Watson, called a “Spanish crescent.” It is a collaboration of Watson’s software and James Briscione, a chef instructor at the Institute of Culinary Education in Manhattan.

I.B.M. researchers have watched and talked to Mr. Briscione as he works, selecting ingredients and building out dishes. Watson has read those notes, 20,000 recipes, data on the chemistry of food ingredients, and measured ratings of flavors people like in categories like “olfactory pleasantness.”Watson’s assignment has been to come up with recipes that are both novel and taste good. In the case of the breakfast pastry, Watson was told to come up with something inspired by Spanish cuisine, but unusual and healthy. The computer-ordered ingredients include cocoa, saffron, black pepper, almonds and honey — but no butter, Watson’s apparent nod to healthier eating. Then, Mr. Briscione, working with those ingredients, had to adjust portions and make the pastry.

“If I could have used butter, it would have been a lot easier,” said the chef, who used vegetable oil instead. Michael Karasick, director of I.B.M.’s Almaden lab, had one of the Spanish crescents for breakfast recently. “Pretty good” was his scientific judgment.

The new Watson projects — some on the cusp of commercialization, others still research initiatives — are at the leading edge of a much larger business for I.B.M. and other technology companies. That market involves helping corporations, government agencies and science laboratories find useful insights in a rising flood of data from many sources — Web pages, social network messages, sensor signals, medical images, patent filings, location data from cellphones and others.

Advances in several computing technologies have opened this opportunity and market, now called Big Data, and a key one is the software techniques of artificial intelligence like machine learning.

I.B.M. has been building this business for years with acquisitions and internal investment. Today, the company says it is doing Big Data and analytics work with more than 10,000 customers worldwide. Its work force includes 9,000 business analytics consultants and 400 mathematicians.

I.B.M. forecasts that its revenue from Big Data work will reach $16 billion by 2015. Company executives compare the meeting in San Jose to one in 2006, when Samuel J. Palmisano, then chief executive, summoned investment analysts to I.B.M.’s offices in India to showcase the surging business in developing markets, which has proved to be an engine of growth for the company.

I.B.M. faces plenty of competitors in the Big Data market, ranging from start-ups to major companies, including Microsoft, Oracle, SAP and the SAS Institute. These companies, like I.B.M., are employing the data-mining technology to trim costs, design new products and find sales opportunities in banking, retailing, manufacturing, health care and other industries.

Yet the Watson initiatives, analysts say, represent pioneering work. With some of those applications, like suggesting innovative recipes, Watson is starting to move beyond producing “Jeopardy” style answers to investigating the edges of human knowledge to guide discovery.

“That’s not something we thought of when we started with Watson,” said John E. Kelly III, I.B.M.’s senior vice president for research.

I.B.M.’s Watson projects are not yet big money makers. But the projects, according to Frank Gens, chief analyst for IDC, make the case that I.B.M. has the advanced technology and deep industry expertise to do things other technology suppliers cannot, which should be a high-margin business and give I.B.M. an edge as a strategic partner with major customers. And the new Watson offerings, he said, are services that future users might be able to tap into through a smartphone or tablet.That could significantly broaden the market for Watson, Mr. Gens said, as well as ward off potential competition if question-answering technology from consumer offerings, like Apple’s Siri and Google, improve.

“It will take years for these consumerized technologies to compete with Watson, but that day could certainly come,” Mr. Gens said.

John Baldoni, senior vice president for technology and science at GlaxoSmithKline, got in touch with I.B.M. shortly after watching Watson’s “Jeopardy” triumph. He was struck that Watson frequently had the right answer, he said, “but what really impressed me was that it so quickly sifted out so many wrong answers.”

That is a huge challenge in drug discovery, which amounts to making a high-stakes bet, over years of testing, on the success of a chemical compound. The failure rate is high. Improving the odds, Mr. Baldoni said, could have a huge payoff economically and medically.

Glaxo and I.B.M. researchers put Watson through a test run. They fed it all the literature on malaria, known anti-malarial drugs and other chemical compounds. Watson correctly identified known anti-malarial drugs, and suggested 15 other compounds as potential drugs to combat malaria. The two companies are now discussing other projects.

“It doesn’t just answer questions, it encourages you to think more widely,” said Catherine E. Peishoff, vice president for computational and structural chemistry at Glaxo. “It essentially says, ‘Look over here, think about this.’ That’s one of the exciting things about this technology.”

I.B.M. researchers began working with Thiess, a large contract mining company, in Australia last year. Thiess operates an equipment fleet worth $3 billion, mostly very large machines. Its hauling trucks, for example, have 12-foot diameter tires, and carry 250 tons in a single load.

Technology-enhanced predictive maintenance on machinery, like jet engines, has been developing for years. But the Thiess project seems to push things further to cover mine operations as a whole. The data include not only information from the 200 sensors on a truck that monitor trips, load weights, speed and driving styles, but also weather, terrain and economic models of mine operations.

Watson has been able to deliver complex predictive analytics, said Michael Wright, an executive vice president at Thiess. Data-driven changes in operations are being adopted, and savings will be measured over the next six months, he said.

HOW NETFLIX LEVERAGES BIG-DATA TO DESIGN ITS VIEWER EXPERIENCES

2013-02-14T09:55:00.000-08:00

The Netflix CEO wants his streaming video service to become the next HBO, but without the hassle of a cable subscription. It’s a bold plan, and if Netflix can pull it off, it’ll change the way you watch TV. Netflix is gunning for the HBO original-content legacy. Its first exclusive series, Lillyhammer, debuted in January 2012. Critically acclaimed sitcom Arrested Development is being resurrected for an exclusive run on Netflix. Plus the first episode of the Kevin Spacey vehicle House of Cards will be directed by David Fincher.

All of this is big news for a company that started off by shipping DVDs to customers too lazy to return rentals to brick-and-mortar stores before incurring late fees. Netflix doesn’t just want to compete head-to-head with the established television networks with exclusive content. It wants to do it by using something that traditional networks don’t have: Access to your viewing habits and preferences. It knows who watches what and it’s making huge bets that their algorithm will help it determine which shows will be hits.
All of this is big news for a company that started off by shipping DVDs to customers too lazy to return rentals to brick-and-mortar stores before incurring late fees. Netflix doesn’t just want to compete head-to-head with the established television networks with exclusive content. It wants to do it by using something that traditional networks don’t have: Access to your viewing habits and preferences. It knows who watches what and it’s making huge bets that their algorithm will help it determine which shows will be hits. Plus, by delivering an entire season at once, the company would be putting all the power in the hands of viewers and could destroy “Event TV.”
While networks traditionally order a show based on whether it likes a pilot, Netflix ordered two full seasons (26 episodes) of House of Cards without seeing a single scene. It reportedly bid more than $100 million to secure first rights to the show, outbidding HBO and AMC because it is utterly convinced the show will be a big hit.

As they shift into content production and with such vast knowledge of their users, Netflix can make FAR more intelligent and informed decisions about what to make than just about any company (save for Amazon) out there. Compared to the traditional studios that have absolutely no feedback loops with their customers other than tickets sold and DVDs rented, Netflix is years ahead of the curve. When Netflix now chooses to make a show or movie, they don’t have to GUESS what their customers want and don’t have to base their decisions off the hunch of programming executives. Instead, they can see, DOWN TO THE ZIPCODE, what genre of shows and starring what actors their customers are already watching. If they see that 10% of their customers devour Arrested Development’s 2 seasons in their entirety, it’s a no brainer for them to make season 3 – and at a budget that takes into account the actual numbers they can expect to see.

HOW NETFLIX IS TURNING VIEWERS INTO PUPPETS :

I hit the pause button roughly one-third of the way through the first episode of “House of Cards,” the political drama that premiered on Netflix Feb. 1. By doing so, I created what is known in the world of Big Data as an “event” — a discrete action that could be logged, recorded and analyzed. Every single day, Netflix, by far the largest provider of commercial streaming video programming in the United States, registers hundreds of millions of such events. As a consequence, the company knows more about our viewing habits than many of us realize. Netflix doesn’t know merely what we’re watching, but when, where and with what kind of device we’re watching. It keeps a record of every time we pause the action — or rewind, or fast-forward — and how many of us abandon a show entirely after watching for a few minutes.
Netflix might not know exactly why I personally hit the pause button — I was checking on my sick son, home from school with the flu — but if enough people pause or rewind or fast-forward at the same place during the same show, the data crunchers can start to make some inferences. Perhaps the action slowed down too much to hold viewer interest — bored now! — or maybe the plot became too convoluted. Or maybe that sex scene was just so hot it had to be watched again. If enough of us never end up restarting the show after taking a break, the inference could be even stronger: maybe the show just sucked.

In 2012, for the first time ever, Americans watched more movies legally delivered via the Internet than on physical formats like Blu-Ray discs or DVDs. The shift signified more than a simple switch in formats; it also marked a major difference in how much information the providers of online programming can gather about our viewing habits. Netflix is at the forefront of this sea change, a pioneer straddling the intersection where Big Data and entertainment media intersect.
With “House of Cards,” we’re getting our first real glimpse at what this new world will look like.

For at least a year, Netflix has been explicit about its plans to exploit its Big Data capabilities to influence its programming choices. “House of Cards” is one of the first major test cases of this Big Data-driven creative strategy. For almost a year, Netflix executives have told us that their detailed knowledge of Netflix subscriber viewing preferences clinched their decision to license a remake of the popular and critically well regarded 1990 BBC miniseries. Netflix’s data indicated that the same subscribers who loved the original BBC production also gobbled down movies starring Kevin Spacey or directed by David Fincher. Therefore, concluded Netflix executives, a remake of the BBC drama with Spacey and Fincher attached was a no-brainer, to the point that the company committed $100 million for two 13-episode seasons.
“We know what people watch on Netflix and we’re able with a high degree of confidence to understand how big a likely audience is for a given show based on people’s viewing habits,” Netflix communications director Jonathan Friedland told Wired in November. “We want to continue to have something for everybody. But as time goes on, we get better at selecting what that something for everybody is that gets high engagement.”

The strategy has advantages that go beyond the assumption of built-in popularity. Netflix also believes it can save big on marketing costs because Netflix’s recommendation engine will do all the heavy lifting. Already, Netflix claims that 75 percent of its subscribers are influenced by what Netflix suggests to subscribers that they will like.
“We don’t have to spend millions to get people to tune into this,” Steve Swasey, Netflix’s V.P. of corporate communications, told GigaOm last March. “Through our algorithms we can determine who might be interested in Kevin Spacey or political drama and say to them, ‘You might want to watch this.’”
And maybe we will. Early reviews for “House of Cards” are promising. It will be fascinating to find out how many people gorge themselves on all 13 episodes this upcoming weekend. (Netflix data shows that’s how we like to consume our TV series now — in great gulps and marathons — so that’s how it will give them to us.) But one does end up wondering: What will the Big Data approach mean for the creative process? If Netflix perfects the job of giving us exactly what we want, when and how will we be exposed to things that are new and different, the movies and TV shows we would never imagine we might like unless given the chance? Can the auteur survive in an age when computer algorithms are the ultimate focus group? And just how many political dramas starring Kevin Spacey can we stand, anyway?

The scope of the data collected by Netflix from its 29 million streaming video subscribers is staggering. Every search you make, every positive or negative rating you give to what you just watched, is piped in along with ratings data from third-party providers like Nielsen. Location data, device data, social media references, bookmarks. Every time a viewer logs on he or she needs to be authenticated. Every movie or TV show also has its own associated licensing data. The logistics involved with handling every bit of information generated by Netflix viewers — and making sense of it — are pure geek wizardry.

Netflix doesn’t just know that you are more likely to be watching a thriller on Saturday night than on Monday afternoon, but it also knows what you are more likely to be watching on your tablet as compared to your phone or laptop; or what people in a particular ZIP code like to watch on their tablets on a Sunday afternoon. Netflix even tracks how many people start tuning out when the credits start to roll.
Correlating the raw numbers of Kevin Spacey fans who also like David Fincher and have a fondness for British political dramas is just the beginning. Netflix knows enough about what you are watching to judge specific aspects of content as well. Last summer senior data scientist Mohammad Sabah reported at a conference that Netflix was capturing specific screen shots to analyze in-the-moment viewing habits, and the company was “looking to take into account other characteristics.” What could those characteristics be? GigaOm’s report of the Sabah presentation speculated that “it could make a lot of sense to consider things such as volume, colors and scenery that might give valuable signals about what viewers like.”

Netflix chief content officer Ted Sarandos has said that all that data means that Netflix has a very “addressable audience.” Unlike the traditional broadcast networks or cable companies, Netflix doesn’t have to rely on shoveling content out into the wild and finding out after the fact what audiences want or don’t want. They believe they already know.
Of course, data-centric decisions don’t guarantee hit-making success. Kevin Spacey’s participation isn’t bulletproof (see “Fred Claus”) and even David Fincher can’t claim a perfect record. (“Alien 3,” anyone?) Netflix’s ambition to challenge HBO as a destination for quality original programming will require fabulous craftsmanship to go along with the Big Data filters.

All the Big Data in the world can’t rule out, once and for all, the possibility of a bomb.
But that goes without saying. The interesting and potentially troubling question is how a reliance on Big Data might funnel craftsmanship in particular directions. What happens when directors approach the editing room armed with the knowledge that a certain subset of subscribers are opposed to jump cuts or get off on gruesome torture scenes or just want to see blow jobs. Is that all we’ll be offered? We’ve seen what happens when news publications specialize in just delivering online content that maximizes page views. It isn’t always the most edifying spectacle. Do we really want creative decisions about how a show looks and feels to be made according to an algorithm counting how many times we’ve bailed out of other shows?
For years Netflix has been analyzing what we watched last night to suggest movies or TV shows that we might like to watch tomorrow. Now it is using the same formula to prefabricate its own programming to fit what it thinks we will like. Isn’t the inevitable result of this that the creative impulse gets channeled into a pre-built canal?

It’s certainly possible to overstate the case here. One could argue that Netflix’s strategy is only a slightly more sophisticated version of what’s already been in place for, well, forever. We wouldn’t be seeing teenage vampires or zombies every time we turn on the TV if the money that bankrolls the content creation business hadn’t already decided that’s what we want to see. Actors who have the fortune to appear in hit movies or TV show get more parts to play. So what else is new?
But there’s a level of specificity made possible by Big Data that suggests we’re headed into new territory. “House of Cards” is just one symptom of a society-wide shift. The Obama campaign used the same kind of number crunching to target voters with more accuracy than any political campaign had ever accomplished before. Online advertisers are also gathering vast amounts of detailed information about us from our smartphones, our Facebook likes and our Google searches.

The sheer amount of data available to crunch is already phenomenal and is growing at an extraordinary rate. Last summer, at a panel discussion that included several significant players in the emerging Big Data universe, Michael Karasick, a V.P. at IBM Research, estimated that there is “a thousand exabytes of data on the planet anywhere.” An exabyte is one quintillion bytes, or one billion gigabytes. That’s a lot of ones and zeroes all by itself, but the mind-boggling part of the equation is that Karasick predicted that just two years from now there will be 9,000-10,000 exabytes of data on the planet.
The companies that figure out how to generate intelligence from that data will know more about us than we know ourselves, and will be able to craft techniques that push us toward where they want us to go, rather than where we would go by ourselves if left to our own devices. I’m guessing this will be good for Netflix’s bottom line, but at what point do we go from being happy subscribers, to mindless puppets?
Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21

Breakthrough Year For Online Movies
Signaling the beginning of the end for physical media, Americans will likely spend more on legal, Internet-delivered movies than they spend on DVDs and Blu-ray Discs for the first time in 2012, according to IHS Screen Digest Research. “After more than 30 years of buying and renting movies on tapes and discs, this year marks the tipping point as U.S. consumers now are making a historic switch to Internet-based consumption, setting the stage for a worldwide migration from physical to online,” says Dan Cryan, senior principal analyst at IHS. Indeed, online movies are coming on strong, with paid consumption in the U.S. expected to jump to 3.4 billion views or transactions, up from 1.4 billion in 2011; the online figure includes electronic sell-through and movies streamed via on-demand and subscription video services such as Netflix and Amazon Prime, which accounted for 94 percent of all paid online movie consumption in the U.S. last year.
Even though IHS predicts a steady rise in online movie viewing through 2016 as disc sales decline slightly, physical media’s prospects are not as gloomy as they may seem. Owing to multiple viewings of favorite titles, movies on disc are expected to command 4.3 billion hours of viewing time this year compared with 3.2 billion hours for online movies. And when it comes to the revenue that keeps Hollywood humming, the disparity is even greater, with online movies expected to bring in $1.7 billion, or about one sixth of the $11.1 billion physical media will generate.
IHS expects this pattern to hold through 2016, when revenue for online transactions is projected to account for 17 percent of all video transactions while physical media captures 75 percent and pay TV 8 percent. On the whole, our appetite for watching movies at home is robust. “The growth in online consumption is part of a broader trend that has seen the total number of movies consumed from services that are traditionally considered home entertainment grow by 40 percent between 2007 and 2011, even as the number of movies viewed on physical formats has declined,” Cryan says.

Will Netflix Flourish Where Hollywood Failed?

So does Netflix have an edge? Is there any reason to think they can flourish where so many have failed? The apparent answer is data. Netflix has lots and lots of data. They know what we watch, when we watch, where we stop watching, where we repeat a scene, where we reach for the fast-forward button, and most critically, when we break off and move on. They know which movies sell well at 8:00 on a Friday night and which ones we like to watch on Sunday afternoon. They can surmise which directors, writers, and stars produce the most watchable entertainment. They have magnificent data.
And that's a tragedy. Netflix has so much data that they are going to be tempted to climb into the creative tent and start offering "advice." I mean, what is all that data (and power) for, if it doesn't let you call some shots? They can claim to know exactly what works and what does not. Well, sorry, no. Knowing that something works leaves us a long way from knowing why something works. And this leaves us a long way from knowing how to reproduce it in another movie. The only thing this data can be absolutely sure to produce is arrogance. We have seen this mistake before.

HBO CEO Richard Plepler explained recently during a Harvard Business School Entertainment and Media Summit, it's important to give talent creative freedom. "What happened to us, which is very instructive for any company or any business, is that we fell in love with what we were doing. We got elected to the top of the entertainment firmament and we liked it there. We forgot the insurgent voice and we got arrogant...We lost the very DNA which helped us get where we were, which is that talent wanted to be in our house." HBO had stopped being a place "where painters could paint."
Plepler is right. There is a larger issue here, especially as every enterprise learns to speak to a dynamic, sometimes chaotic world with a new order of creativity and innovation. Everyone, not just Netflix, has to learn how to manage "painters."
This means that whatever the data say, Netflix cannot tell a director, "We need a fight scene here." And it really can't say, "We need a fight scene at the 14-minute mark." Doing so, will not only drive creatives away, but viewers as well. As Henry Jenkins has said, viewers are newly sophisticated and critical. They can see formula a long way off. They can see plot mechanics the second they hit the screen. And the moment this happens, they are off.
Netflix, therefore, will have to temper their itch to intervene. Naturally, we are not talking carte blanche here. We are not saying that we take any artist and turn them loose. Because we know a great deal of capital has been squandered by creatives keen to prove how artistic and avant garde they are. No, what we need are culture producers who are — in the language of Goldilocks — "just right." They need to be able to tell a story and obey some of the story-telling conventions even as they do new and interesting things to break and bend those conventions. Only then will painters paint and patrons watch.

Netflix accounts for 33 percent of peak streaming downloads, according to network traffic tracker Sandvine Inc. Its closest competitor, Amazon, accounts for 1.8 percent. That’s a comfortable lead, but even Hastings realizes the company must differentiate itself and keep ahead of the pack.

Video streaming

In Europe, YouTube represents more than 20% of peak period downstream traffic on mobile networks
Netflix dominates North American fixed networks accounting for 33% of peak period downstream traffic
Other video services on North American fixed networks include Amazon (1.8% of peak period downstream traffic), Hulu (1.4%) and HBO Go (0.5%)

“Audio and video streaming account for 65% of all downstream traffic from 9pm-12am and half of that is Netflix traffic [on North America fixed networks]. Prioritizing real-time applications like live audio and video is critical to maintaining a high quality of experience. Sandvine’s video quality metrics, including display and transport quality, will be key to understanding the impact of major events like the 2014 World Cup which will likely be the most streamed event in Internet history,” said Mr. Caputo.

P2P File sharing

BitTorrent continues to decline in application-share, accounting for 16% of total traffic in Europe and is slightly smaller in North America, accounting for 12%
In Asia-Pacific, where there are fewer paid over-the-top video services available, BitTorrent accounts for 36% of total traffic

Netflix stores 50 different files for every viewable media asset, including 3 copies of every movie, ten years of user ratings, extensive user account info and metadata including complex licensing rights for everything. Audio files, log files, subtitles, etc. 2 years ago the fast-growing consumer service saw its own data centers melt down under the weight of all that data. The company is now focused on expanding to 43 countries in Latin America and then going world-wide. Expanding to 43 new countries means a 43X metadata explosion.
A significant amount of the company's data remains in its own data centers, but it's quickly moving as much as possible into the cloud. Credit card data, for example, is stored in-house, but Netflix is working closely with security compliance specialists to safely move that data onto the cloud. Everything the company does is duplicated in three different buildings.
The videos themselves get copied three times and sent to the content delivery networks: Akamai, LimeLight and Level3. Those companies then distribute the videos out to the Internet service providers who serve them up to the customers.
Worldwide placement of cloud data centers for minimum latency, authentication data for customers, data about which test cell each of us are in and what devices our accounts have activated. Bookmarks, personalization, genre preferences. The list goes on and on and none of these types of data are trivial to deal with.
"We're seeing localization as a space more people are paying attention to, because no one wants to be just US- or Europe-focused," says Sarah Novotny, OSCON co-chair. "That leads to a data explosion. Multiple languages, formats, everything multiplies. Looking at ways to localize data is probably a big opportunity, especially if you're not a big international team. Simply the language space is an enormous challenge, not to mention content, addresses and all the other data. There are all sorts of complexities involved and any update in one space has to be updated in N Spaces."

http://youtu.be/oGcZ7WVx6EI

http://siliconangle.tv/video/cube-hadoop-summit-2012-mohammad-sabah\

But Capturing data Is Easy. Making Predictions Are Hard. Netflix’s algorithms for recommending movies to customers might not be perfect, but it isn’t for lack of trying. As Netflix Senior Data Scientist Mohammad Sabah described at a Hadoop Summit recently, the company is capturing and analyzing an incredible amount of data to try and figure out what you want to watch next. It’s important work: already, Sabah said, 75 percent of users select movies based on the company’s recommendations, and Netflix wants to make that number even higher.Here’s a taste of what Netflix is collecting, and how much:

More than 25 million users
About 30 million plays per day (and it tracks every time you rewind, fast forward and pause a movie)
More than 2 billion hours of streaming video watched during the last three months of 2011 alone
About 4 million ratings per day
About 3 million searches per day
Geo-location data
Device information
Time of day and week (it now can verify that users watch more TV shows during the week and more movies during the weekend)
Metadata from third parties such as Nielsen
Social media data from Facebook and Twitter

However, Netflix’s most-interesting use of data might be its attempts to actually analyze what’s going on in movies themselves. Sabah said it already captures JPEGs and notes the exact time that credits start rolling, and it’s looking to take into account other characteristics. It could make a lot of sense to consider things such as volume, colors and scenery that might give valuable signals about what viewers like.

But even with all this data, figuring out what users want to watch is hard. Sabah illustrated this using one of Netflix’s many personalization algorithms that tries to predict what users will watch next by figuring out what movies normally follow other movies. A very simplified example of one would be that if 30 people watched The Fighter and 24 of them followed it by watching Mad Men, the transition probability between those two pieces of content is .80.

Of course, it’s not that simple, Sabah explained. In some cases, for instance, a popularity bias will arise that artificially skews a recommendation toward popular movies or TV shows rather than what’s really relevant based on a viewer’s interests. Terminator might be followed by Big Daddy followed by Family Guy followed by Hot Tub Time Machine — four pieces of content for which the most-prominent linking factor is their overall popularity. Popularity does matter when recommending movies, though, so Netflix must account for it by factoring it into the transition algorithm.
Complicating things even more is that, contractually, movies are only available for streaming and only show up on the landing page for certain periods of time. So, recommendations not only have to be relevant, they also have to be available.
Sabah said the ultimate goal is to show Netflix customers content they’ll view to completion and then recommend the next thing they’ll view to completion (opposed to, presumably, the current collection of lists displaying “More like …” or “Top 10 for …”). But, clearly, it’s not there yet.

THE DAY THE LOUVRE LOST THE "MONA LISA"

2013-01-16T22:07:00.002-08:00

STEALING THE MONA LISA

The shocking theft of the Mona Lisa, in August 1911, appeared to have been solved 28 months later, when the painting was recovered. In an excerpt from their new book, the authors suggest that the audacious heist concealed a perfect—and far more lucrative—crime. by Dorothy and Thomas Hoobler

The four bare hooks on the Louvre wall that once held the Mona Lisa. From the Mary Evans Picture Library/The Image Works.

It was a Monday and the Louvre was closed. As was standard practice at the museum on that day of the week, only maintenance workers, cleaning staff, curators, and a few other employees roamed the cavernous halls of the building that was once the home of France’s kings but for centuries had been devoted to housing the nation’s art treasures.

Acquired through conquest, wealth, good taste, and plunder, those holdings were splendid and vast—so much so that the Louvre could lay claim to being the greatest repository of art in the world. With some 50 acres of gallery space, the collection was too immense for visitors to view in a day or even, some thought, in a lifetime. In the Salon Carré—the “square room”—alone could be seen two paintings by Leonardo da Vinci, three by Titian, two by Raphael, two by Correggio, one by Giorgione, three by Veronese, one by Tintoretto, and—representing non-Italians—one each by Rubens, Rembrandt, and Velázquez.
But even in that collection of masterpieces, one painting stood out from the rest. As the Louvre’s maintenance director, a man named Picquet, passed through the Salon Carré during his rounds on the morning of August 21, 1911, he pointed out Leonardo’s Mona Lisa, telling a co-worker that it was the most valuable object in the museum. “They say it is worth a million and a half,” Picquet remarked, glancing at his watch as he left the room. The time was 7:20 a.m.
Shortly after Picquet departed the Salon Carré, a door to a storage closet opened and at least one man—for it would never be proved whether the thief worked alone—emerged. He had been in there since the previous day—Sunday, the museum’s busiest. Just before closing time, the thief had slipped inside the little closet so that he could emerge in the morning without the need to identify himself to a guard at the entrance.
There were many such small rooms and hidden alcoves within the ancient building; museum officials later confessed that no one knew how many. This particular room was normally used for storing easels, canvases, and art supplies for students who were engaged in copying the works of the old masters. The only firm anti-forgery requirement the museum imposed was that the reproductions could not be the same size as the original.
Emerging from the closet in a white artist’s smock, the intruder might have been mistaken for one of these copyists—or, perhaps, for a member of the museum’s maintenance staff, who also wore such smocks, in a practice intended to demonstrate that they were superior to other workers. If anyone noticed the thief, he would likely be taken for another of the regular museum employees.
As he entered the Salon Carré, the thief headed straight for the Mona Lisa. Lifting down the painting and carrying it into an enclosed stairwell nearby was no easy job. The painting itself weighs approximately 18 pounds, since Leonardo painted it not on canvas but on three slabs of wood, a fairly common practice during the Renaissance. A few months earlier, the museum’s directors had taken steps to physically protect the Mona Lisa by reinforcing it with a massive wooden brace and placing it inside a glass-fronted box, adding 150 pounds to its weight. The decorative Renaissance frame brought the total to nearly 200 pounds. However, only four sturdy hooks held it there, no more securely than if it had been hung in the house of a bourgeois Parisian. Museum officials would later explain that the paintings were fastened to the wall in this way to make it easy for guards to remove them in case of fire.
Once safely out of sight behind the closed door of the stairwell, the thief quickly stripped the painting of all its protective “garments”—the brace, the glass case, and the frame. Since the Mona Lisa’s close-grained wood, an inch and a half thick, made it impossible to roll up, he slipped the work underneath his smock. Measuring approximately 30 by 21 inches, it was small enough to avoid detection.
Though evidently familiar with the layout of the museum, the thief made one crucial mistake in his planning. At the bottom of the enclosed stairway that led down to the first floor of the Louvre was a locked door. The thief had obtained a key, but now it failed to work. Desperately, as he heard footsteps coming from above, he used a screwdriver to remove the doorknob.
Down the stairs came one of the Louvre’s plumbers, named Sauvet. Later, Sauvet—the only person to witness the thief inside the museum—testified that he had seen only one man, dressed as a museum employee. The man complained that the doorknob was missing. Apparently thinking that there was nothing strange about the situation, Sauvet produced a pliers to open the door. The plumber suggested that they leave it open in case anyone else should use the staircase. The thief agreed, and the two parted ways.
The door opened onto a courtyard, the Cour du Sphinx. From there the thief passed through another gallery, then entered the Cour Visconti, and—perhaps trying not to appear in a hurry—headed toward the main entrance of the museum. Few guards were on duty that day, and only one was assigned to that entrance. As luck would have it, the guard had left his post to fetch a bucket of water to clean the vestibule. He never saw the thief, or thieves, leave the building.
One passerby noticed a man on the sidewalk carrying a package wrapped in white cloth. The witness recalled noticing the man throw a shiny metal object into the ditch along the edge of the street. The passerby glanced at it—it was a doorknob.
Inside the museum, all was serene and would remain so for quite some time. At 8:35 a.m., Picquet passed through the Salon Carré again and noted that the painting was gone. He thought little of it at the time, since the museum’s photographers freely removed objects without notice and took them to a studio elsewhere in the building. Indeed, Picquet even remarked to his workers, “I guess the authorities have removed it because they thought we would steal it!”
If anyone else noticed during the rest of the day that there were four bare hooks where the Mona Lisa usually hung, they kept it to themselves. Incredibly, not until Tuesday, when the Louvre again opened its doors to the public, did anyone express concern over the fact that the world’s most famous painting was missing from its usual place. When an artist set up his easel in the Salon Carré and noticed that the centerpiece of his intended work was absent, he complained to a guard, who merely shrugged. Like Picquet the day before, the guard assumed the Mona Lisa had been removed to the photographers’ studio. But the artist persisted. How soon would it be returned?
The guard finally went to see a photographer, who denied having anything to do with the painting. Perhaps it had been taken by a curator for cleaning? No. Finally, the guard thought it wise to inform a superior. A search began and soon became frantic. The director of the museum was on vacation, so the unthinkable news filtered up to the acting head, Georges Bénédite: Elle est partie! She’s gone.

“Paris Has Been Startled”

Lisa Gherardini, who married Francesco del Giocondo of Florence at age 16, would have been in her mid-20s when she sat for her portrait with Leonardo da Vinci in 1503. Leonardo worked on the Mona Lisa—or La Joconde, as she is known in France—for four years, but like so many of his works, the painting was never completed. However, it had already achieved fame by the mid–16th century, owing to the innovations that had gone into its production—particularly in material, brush technique, and varnish—and its subject’s famously coy smile, which is said to be the result of musicians and clowns the artist kept on hand to prevent her from growing bored.

When Leonardo traveled to France around 1517, at the invitation of King Francis I, the Mona Lisa left Italy, it seemed, forever. The artist died only two years later, and by the middle of that century the painting—purchased for a considerable sum—had entered the collection of the French monarchy. Louis XIV gave the Mona Lisa a place of honor in his personal gallery at Versailles. But his successor, Louis XV, sent the painting to hang ignominiously in the office of the keeper of the royal buildings. However, in 1797, La Joconde was chosen as one of the works displayed in the nation’s new art museum, the Louvre, which is where she remained—save a brief stay in Napoleon’s bedroom—until someone carried her off in August 1911.

The Louvre, after the Mona Lisa was stolen, May 1912. From Mirrorpix.

Paris during the Belle Époque—the “beautiful time” between the late 19th century and the outbreak of World War I—had become an international center for painting, dance, music, theater, and publishing. The construction of Gustav Eiffel’s tower for the 1889 world’s fair had made it the “city of light”—both literally and metaphorically. The city could boast many of the world’s foremost medical and scientific institutions of the day, and Europe’s most modern manufacturing facilities. The face of the future, many believed, could be seen in Parisian leadership in such brand-new fields as motion pictures, automobile manufacturing, and aviation.
This made the disappearance of France’s most treasured artwork all the more unbearable. In the days and weeks immediately following the theft, anyone carrying a package received attention—including, at one point, a young Spanish artist named Pablo Picasso, who, four years earlier, had purchased several small Iberian stone heads that were filched from the Louvre by the secretary of avant-garde writer Guillaume Apollinaire. (Apollinaire spent a few days in jail, but Picasso had the last laugh—he used the Iberian heads as models for his Demoiselles d’Avignon.) Police at checkpoints on roads leading out of the capital examined the contents of every wagon, automobile, and truck. Fearing that the thief would try to flee the country, customs inspectors opened and examined the baggage of everyone leaving on ships or trains. Ships that departed during the day that had elapsed between the theft and its discovery were searched when they reached their overseas destinations. After the German liner Kaiser Wilhelm II docked at a pier across the Hudson River from New York City in late August, detectives combed every stateroom and piece of luggage for the masterpiece.
In the following days, from Manchester to São Paulo, the crime became front-page news. The Times of London declared, “Paris has been startled.” The Washington Post claimed, “The art world was thrown into consternation.” But perhaps The New York Times most accurately conveyed the enormity of the heist when it asserted that the crime “has caused such a sensation that Parisians for the time being have forgotten the rumors of war.” Nowhere, however, did the media cry out louder than in France itself. “What audacious criminal, what mystifier, what maniac collector, what insane lover, has committed this abduction?” asked Paris’s leading picture magazine, L’Illustration, which offered a reward of 40,000 francs to anyone who would deliver the painting to its office. Soon the Paris-Journal, its rival, offered 50,000 francs, and a bidding war was on.
The theft continued to inspire newspaper stories for weeks; any report on the case, no matter how trivial, found its way into print. One of the most popular conspiracy theories suggested that a rich American had masterminded the theft. The favorite candidate was banking scion J. Pierpont Morgan, known for his avid, not to say avaricious, collecting habits, which frequently took him through Europe on buying sprees. When Morgan arrived the following spring in the spa town of Aix-les-Bains for his annual visit, the Mona Lisa had still not been found. Paris newspapers reported that two mysterious men had come to offer to sell him the Mona Lisa. Morgan indignantly denied the account, and when a French reporter came to interview him, the American wore in his buttonhole the rosette that marked him as a commander of the Legion of Honor—France’s highest decoration. He had recently been awarded it, causing some French newspapers to speculate that he had earned the decoration by offering “a million dollars and no questions asked” for the return of the Mona Lisa to the Louvre.
Early in September, after a brief closing, the Louvre was once again opened to the public, and an even greater number of visitors than usual came to gape at the four hooks on the wall that marked the place where La Joconde once hung. One tourist, an aspiring writer named Franz Kafka, visiting the Louvre on a trip to Paris in late 1911, noted in his diary “the excitement and the knots of people, as if the Mona Lisa had just been stolen.” Some even began to place bouquets of flowers beneath the spot where the painting once resided.
What everyone wanted to know—and speculated on endlessly—was where the thief could have gone with what was probably the most recognizable artwork in the world. But the only clues were a fingerprint and the doorknob, which had been recovered by the police from the gutter outside the museum. The plumber who had opened the stairway door was asked to look at hundreds of photographs of museum employees, past and present. Every sighting or rumor about the painting’s whereabouts had to be checked out—and they came in from places as distant as Italy, Germany, Britain, Poland, Russia, the United States, Argentina, Brazil, Peru, and Japan. But by December, as the trail grew cold, the police had to shift their attention to another spectacular case. A gang of anarchist bank robbers had begun to terrorize Paris, audaciously fleeing their crimes in the first recorded use of a getaway car.

“Our Party Coming from Milan Will Be Here with Object Tomorrow”

A year after the Mona Lisa vanished, the officials of the Louvre were forced to confront the unthinkable: that she would never return. The blank space on the wall of the Salon Carré had been filled with a colored reproduction of the painting. Even that had begun to fade and curl, and many people now averted their eyes as they passed it, as if to avoid the reminder of a tragic death. So, on one December day in 1912, patrons discovered another painting hanging there: also a portrait, but of a man, Baldassare Castiglione, by Raphael.
Occasionally, stories appeared about sightings of the Mona Lisa, including one alleging that London art dealer Henry J. Duveen had been offered the painting. Duveen, however, avoided involvement by pretending that the proposal had been a joke. But another international dealer, Alfredo Geri, in Florence, was astonished by a letter he received in November 1913, more than two years after the painting had vanished. The sender, who signed himself “Leonard,” claimed to have the Mona Lisa in his possession.
Leonard said he was an Italian who had been “suddenly seized with the desire to return to [his] country at least one of the many treasures which, especially in the Napoleonic era, had been stolen from Italy.” (The fact that the Mona Lisa had come to France more than two centuries before Napoleon was born didn’t seem to dim the thief’s patriotism.) He also mentioned that, although he was not setting a specific price, he himself was not a wealthy man and would not refuse compensation if his native country were to reward him. Geri glanced at the return address. It was a post-office box in Paris.
Despite his suspicions, Geri took the letter to Giovanni Poggi, director of Florence’s Uffizi Gallery. Poggi had photographs from the Louvre that detailed certain marks that were on the back of the original panel; no forger could be aware of these. At Poggi’s suggestion, Geri invited the seller to Florence, but Leonard proved to be an elusive figure. More than once, he set a date for his arrival and then sent a letter canceling the meeting. Geri came to assume that it was all a hoax, until on December 9 he received a telegram from Leonard saying that he was in Milan and would be in Florence on the following day. The news was inconvenient, since Poggi had gone on a trip to Bologna. Geri sent Poggi an urgent telegram: our party coming from milan will be here with object tomorrow. need you here. please respond. geri. Poggi wired back that he could not arrive by the following day, but would be in Florence the day after that, a Thursday.

Mug shots of Vincenzo Perugia, the man accused of taking the Mona Lisa. From Rue des Archives/The Granger Collection.

Geri prepared to stall. When a thin young man wearing a suit and tie, with a handsome mustache, arrived at the dealer’s gallery the next day, Geri showed him into his office and pulled down the blinds. Eagerly, he asked him where he was holding the painting. Leonard replied that it was in the hotel where he was staying. When questioned about the authenticity of the painting, Leonard replied, according to Geri’s account, “We are dealing with the real Mona Lisa. I have good reason to be sure.” Leonard coolly declared that he was certain because he had taken the painting from the Louvre himself. Had he worked alone?, Geri asked. Leonard seemed to be hiding something. According to Geri, he “was not too clear on that point. He seemed to say yes, but didn’t quite do so, [but his answer was] more ‘yes’ than ‘no.’”
Nevertheless, the discussion got down to the reward. According to Geri, the thief boldly asked for 500,000 lire. That was the equivalent of $100,000 and quite a fortune, though some newspapers had estimated the painting’s value at roughly five million dollars. Geri, holding his breath, thought that he had better agree, so he said, “That’s fine. That’s not too high.” They made a plan to meet the following day.
The next afternoon, after arriving 15 minutes late, Leonard was introduced to Poggi. To Geri’s relief, the two men “shook hands enthusiastically, Leonard saying how glad he was to be able to shake the hand of the man to whom was entrusted the artistic patrimony of Florence.” As the three of them left the gallery, “Poggi and I were nervous,” Geri recalled. “Leonard, by contrast, seemed indifferent.”

Leonard took them to the Hotel Tripoli-Italia, on the Via de’ Panzani, only a few blocks from the Duomo. Leonard’s small room was on the third floor. Inside, he took from under the bed a small trunk made of white wood. When he opened the lid, Geri was dismayed. It was filled with “wretched objects: broken shoes, a mangled hat, a pair of pliers, plastering tools, a smock, some paint brushes, and even a mandolin.” Calmly, Leonard removed these one by one and tossed them onto the floor. Surely, Geri thought, this was not where the Mona Lisa had been hidden for the past 28 months. He peered inside but saw nothing more.
Then Leonard lifted what had seemed to be the bottom of the trunk. Underneath was an object wrapped in red silk. Leonard took it to the bed and removed the covering. “To our astonished eyes,” Geri recalled, “the divine Mona Lisa appeared, intact and marvelously preserved.” They carried the painting to a window, where it took Poggi little time to determine its authenticity. Even the Louvre’s catalogue number and stamp on the back checked out.

Perugia’s hotel in Florence. From Roger-Viollet/The Image Works.

Geri’s heart was pounding, but he forced himself to remain calm. He and Poggi explained that the painting had to be transported to the Uffizi Gallery for further tests. The painting was re-wrapped in the red silk, and the three men went downstairs. As they were passing through the lobby, however, the concierge stopped them. Suspiciously, he pointed to the package and asked what it was. He obviously thought it was the hotel’s property, but Geri and Poggi, showing their credentials, vouched for Leonard, and the concierge let them pass.
At the Uffizi, Poggi compared sections of the painting with close-up photographs that had been taken at the Louvre. There was a small vertical crack in the upper-left-hand part of the panel, matching the one in the photos. Most telling of all was the pattern of craquelure, cracks in the paint that had appeared as the surface dried and aged. A forger could make craquelure appear on a freshly painted object, but no one could duplicate the exact pattern of the original. There could be no further doubt, Poggi concluded: the Mona Lisa had been recovered.
Poggi and Geri then explained to Leonard that it would be best to leave the painting at the Uffizi. They would have to get further instructions from the government; they themselves could not authorize the payment he deserved.
The Uffizi was an awesome setting, and Leonard must have felt overwhelmed by their arguments. How could he doubt two men of such standing and integrity? He did mention that he was finding it a bit expensive to stay in Florence. Yes, they understood. He would be well rewarded, and soon. They shook his hand warmly and congratulated him on his patriotism. As soon as he left, Geri and Poggi notified the authorities. Not long after Leonard returned to his hotel room, he answered a knock at the door and found two policemen there to arrest him. He was, they said, quite astonished.
When a reporter telephoned a curator of the Louvre to tell him the news, the Frenchman, in the middle of his dinner, said it was impossible and hung up. The following day, December 12, 1913, the museum issued a cautious statement: “The curators of the Louvre … wish to say nothing until they have seen the painting.” But when the Italian government made an official announcement confirming Poggi’s assessment, on December 13, the French ambassador made calls on the prime minister and foreign minister of Italy to offer his government’s gratitude. After disagreement within the Italian Parliament about whether the painting should be returned, the minister of public education put the argument to rest. “The Mona Lisa will be delivered to the French Ambassador with a solemnity worthy of Leonardo da Vinci and a spirit of happiness worthy of Mona Lisa’s smile,” he announced. “Although the masterpiece is dear to all Italians as one of the best productions of the genius of their race, we will willingly return it to its foster country … as a pledge of friendship and brotherhood between the two great Latin nations.”
After a triumphal tour through Italy, on January 4, 1914, the Mona Lisa resumed its old place on the wall of the Salon Carré. It had been gone for two years and four and a half months. In the next two days, more than 100,000 people filed past, welcoming back one of Paris’s most famous icons.

The Patriot

The young thief known as Leonard had been born Vincenzo Perugia, in 1881, in a village near Lake Como, in Italy. Having moved to France as a young man, the aspiring artist settled for work as a housepainter. Perugia had very briefly worked at the Louvre, from October 1910 to January 1911, and, it was discovered, even claimed to have helped craft the protective box that encased the Mona Lisa. By the time he stood trial for his crime, in Florence in June 1914, the thief’s hopes of receiving a reward for returning the painting to his native country had been finally dashed.
Alfredo Geri, on the other hand, collected the 25,000 francs that had been offered by Les Amis du Louvre, a society of wealthy art-lovers, for information leading to the return of the painting. The grateful French government also bestowed upon him the Legion of Honor, as well as the title “officier de l’instruction publique.” Geri showed what were perhaps his true colors when he promptly turned around and sued the French government for 10 percent of the value of the Mona Lisa. His contention was based on a Gallic tradition that gave the finder of lost property a reward of one-tenth the value of the object. In the end, a court decided that the painting was beyond price and that Geri had only acted as an honest citizen should. He received no further reward.
Perugia, meanwhile, was growing depressed in jail. Guards reported that he occasionally wept. But by the time his trial began, on June 4, he was again calm and self-possessed, insisting that he had acted as a patriot. Since there was no question of guilt, the legal proceedings functioned more like an inquest intended to establish the truth, if such a thing were possible. Three judges presided in a large room in Florence’s stunning Romanesque Palazzo Vecchio, which had been remodeled to provide space for journalists from around the world. (The French government never attempted to extradite Perugia.) The designer of the room had placed on a cushion, in the middle of a semicircle, a massive silver hemisphere that symbolized justice. A cynical journalist remarked that it would not be prudent to allow the defendant to sit too close to this artistic treasure.

Perugia, now 32 years old, was handcuffed when he entered the courtroom at nine a.m. Nattily dressed in a suit and tie, he smiled graciously at the photographers. Like everyone else, the chief judge was curious to learn how this apparently humble man could have carried out such an audacious crime. Could Perugia describe what happened on August 21, 1911, when he stole the Mona Lisa? Somewhat eagerly, Perugia asked if he could also explain why he had committed the crime, but the chief judge told him that he must do that later. For now, he wanted a description of the act itself.
Perugia offered an abbreviated version that contradicted both his account to Geri and the Paris Prefecture of Police’s reconstruction of the crime. He claimed to have entered the Louvre through the front door early that Monday, wandered through various rooms, taken the Mona Lisa from its place on the wall, and left the same way. A judge pointed out that, during the pre-trial interrogations, Perugia had admitted trying to force the door at the bottom of the little stairwell that led to the Cour du Sphinx. Perugia had no answer for this, and the judge did not press him for one.
It is difficult to understand why Perugia changed his story, or even why he did not tell the full truth about how he had entered and left the museum, given the fact that he freely confessed to the crime itself. Perhaps he was afraid of implicating others, but certainly the motive that he had concocted for himself—that he was a patriot reclaiming one of Italy’s treasures—would have sounded better if he had been the sole actor in this drama.
When Perugia was asked why he had stolen the Mona Lisa, he responded that all the Italian paintings in the Louvre were stolen works, taken from their rightful home—Italy. When asked how he knew this, he said that when he had worked at the Louvre he had found documents that proved it. He remembered in particular a book with prints that showed “a cart, pulled by two oxen; it was loaded with paintings, statues, other works of art. Things that were leaving Italy and going to France.”
Was that when he decided to steal the Mona Lisa? Not exactly, Perugia replied. First he considered the paintings of Raphael, Correggio, Giorgione, and other great masters. “But I decided on the Mona Lisa, which was the smallest painting and the easiest to transport.”
“So there was no chance,” asked the court, “that you decided on it because it was the most valuable painting?”

The Mona Lisa on display in the Uffizi Gallery, in Florence, December 1913. Museum director Giovanni Poggi (right) inspects the painting. From Roger-Viollet/The Image Works.

“No, sir, I never acted with that in mind. I only desired that this masterpiece would be put in its place of honor here in Florence.”
A judge then interrupted to play one of the prosecution’s trump cards: “Is it true,” he asked, “that you tried to sell the Mona Lisa in England?”
Accounts of the trial say that this was one of the few moments when Perugia lost his composure. He glared around the courtroom, clenching his fists as if to do battle with his accusers.
“Me? I offered to sell the Mona Lisa to the English? Who says so? It’s false!”
The chief judge pointed out that “it is you yourself who said so, during one of your examinations which I have right here in front of me.”
Unable to deny that, Perugia claimed, “Duveen didn’t take me seriously. I protest against this lie that I would have wanted to sell the painting to London. I wanted to take it back to Italy, and to return it to Italy, and that is what I did.”
“Nevertheless,” said one of the judges, “your unselfishness wasn’t total—you did expect some benefit from restoration.”
“Ah benefit, benefit,” Perugia responded—“certainly something better than what happened to me here.”
That drew a laugh from the spectators. The next day, the chief judge announced a sentence for Perugia of one year and fifteen days. As he was led out of the courtroom, he was heard to say, “It could have been worse.”
It actually got better. The following month, Perugia’s attorneys presented arguments for an appeal. This time, the court was more lenient, reducing the sentence to seven months. Perugia had already been incarcerated nine days longer than that since his arrest, so he was released. A crowd had gathered to greet him as he left the courthouse. Someone asked him where he would go now, and he said he would return to the hotel where he had left his belongings. When he did, however, he found that the establishment’s name had changed. No longer was it the Tripoli-Italia; now it was the Hotel La Gioconda—and it was too fancy to admit a convicted criminal. Perugia’s lawyers had to vouch for him before the staff would give him a room.
But most spectators had already moved on. Archduke Franz Ferdinand of Austria had recently been assassinated in his touring car in the streets of Sarajevo. Soon the nations of Europe would be at war, and Perugia’s crime—and the ensuing hysteria—would seem rather trivial by comparison.

The Mastermind

In January 1914, months before Perugia’s trial began, a veteran American newspaperman named Karl Decker was on assignment in Casablanca. While having a drink with an elegant confidence man who went by the name Eduardo, he overheard an interesting story that would shed new light on the disappearance of the Mona Lisa. Eduardo had many aliases, but to his associates he was known as the Marqués de Valfierno or the “Marquis of the Vale of Hell.” With a white mustache and wavy white hair, he looked the part. He had, wrote Decker, “a distinction that would have taken him past any royal-palace gate in Europe.”
Decker had crossed paths with Valfierno in a number of exotic places, and the two had developed a friendship. After the police arrested Vincenzo Perugia, Valfierno commented casually to Decker that Perugia was “that simp who helped us get the Mona Lisa.” When Decker pressed him for details, Valfierno offered to confide his version of the events as long as the journalist promised not to publish them until he gave permission, or died. It was the latter event that allowed Decker to reveal what he had been told, nearly 20 years later, in 1932, in The Saturday Evening Post.
After years of success selling fake artworks, Valfierno moved his operation from Buenos Aires to Paris, where, he said, “thousands of Corots, Millets, even Titians and Murillos, were being sold in the city every year, all of them fakes.” He added people to his organization, including a well-connected American whom he refused to name. Valfierno was selective in choosing those he wished to fleece, concentrating on wealthy Americans who could pay highly for “masterpieces” that had supposedly been stolen from the Louvre.
But Valfierno and his gang never took anything from the Louvre. “We didn’t have to,” he said. “We sold our cleverly executed copies, and … sent [the buyers] forged documents [that] told of the mysterious disappearance from the Louvre of some gem of painting or world-envied objet d’art.… The documents always stated that in order to avoid scandal a copy had been temporarily substituted by the museum authorities.”
Eventually, Valfierno peddled the ultimate prize: the Mona Lisa itself, in June 1910. Not the genuine painting, but a forged copy, along with forged official papers that convinced the buyer (an American millionaire) that, in order to cover the theft, Louvre officials had hung a replica in the Salon Carré. The buyer, unfortunately, had been a little too free in bragging about his new acquisition, which prompted the newspaper Le Cri de Paris to publish an article—a year before the actual theft—stating that the Mona Lisa had been stolen.
Still, it had been a disturbing experience, one that Valfierno was determined to avoid a second time: “The next trip, we decided, there must be no chance for recriminations. We would steal—actually steal—the Louvre Mona Lisa and assure the buyer beyond any possibility of misunderstanding that the picture delivered to him was the true, the authentic original.”

Valfierno never intended to sell the real painting. “The original would be as awkward as a hot stove,” he told Decker. The plan would be to create a copy and ship it overseas before stealing the original. “The customs would pass it without a thought, copies being commonplace and the original still being in the Louvre.” After the Mona Lisa had been stolen, the imitation could be taken out and sold to a buyer who was convinced he was getting the missing masterpiece.

“We began our selling campaign,” recalled Valfierno, “and the first deal went through so easily that the thought ‘Why stop with one?’ naturally arose. There was no limit in theory to the fish we might hook.” Valfierno stopped with six American millionaires. “Six were as many as we could both land and keep hot,” he told Decker. The forger then carefully produced the six copies, which were sent to America and kept waiting for the proper time to be delivered. Valfierno said that an antique bed, made of Italian walnut, “seasoned by time to the identical quality of that on which the Mona Lisa was painted” provided the panels that the forger painted on.
Now came what Valfierno thought was the easy part: “Stealing the Mona Lisa was as simple as boiling an egg in a kitchenette,” he told Decker. “Our success depended upon one thing—the fact that a workman in a white blouse in the Louvre is as free from suspicion as an unlaid egg.” Recruiting someone—Perugia—who actually had worked in the Louvre was helpful because he knew the secret rooms and staircases that employees used.
Perugia did not act alone, Valfierno said. He had two accomplices who were needed to lift the painting, with its heavy protective container and frame, from the wall and carry it to a place where the frame could be removed. Valfierno did not name them either.
The one hitch in the plan was that Perugia had failed to test the duplicate key Valfierno ordered to be made for the door at the bottom of the staircase. At the moment he needed it, the key failed to turn the lock. While he was removing the doorknob, the trio heard footsteps from above, and Perugia’s two accomplices hid themselves. The plumber appeared but, seeing only one man in a white smock, had no reason to be suspicious. He opened the door and went on his way, soon followed by Perugia and the other two thieves. At the vestibule, the guard stationed there had temporarily abandoned his post.
An automobile waited for the thieves and took them to Valfierno’s headquarters, where the gang celebrated “the most magnificent single theft in the history of the world.” Now the six copies that had been sent to the United States could be delivered to the purchasers. Because each of the six collectors thought he was receiving stolen merchandise, he could not publicize his acquisition—or even complain should he suspect it wasn’t the genuine article.
Perugia was paid well for his part in the scheme. However, he squandered the money on the Riviera, and then, knowing where Valfierno had hidden the real Mona Lisa, stole it a second time. “The poor fool had some nutty notion of selling it,” Valfierno told Decker. “He had never realized that selling it, in the first place, was the real achievement, requiring an organization and a finesse that was a million miles beyond his capabilities.”
What about the copies?, Decker wanted to know. Someday, speculated Valfierno, all of them would reappear. “Without those, there are already thirty Mona Lisas in the world,” he said. “Every now and then a new one pops up. I merely added to the gross total.”
Characteristically, perhaps, reports of the date of Perugia’s death vary. It is known, however, that he died in France—an odd end point for a man who had once so vehemently asserted his Italian patriotism. Whatever secrets he knew about the theft were carried to the grave. The Decker account is the sole source for the existence of Valfierno and this version of the theft of the Mona Lisa. There is no external confirmation for it, yet it has frequently been assumed to be true by authors writing about the case. If indeed it is true, Valfierno had carried out the perfect crime.

A BOLIVIA TRAVELOGUE: DAY OF ASCENSION

2013-01-08T08:42:00.002-08:00

Day of Ascension

PATRICK SYMMES | NYT | Published Sep 20, 2008

At last, tear gas. Near noon, I was sitting quietly in my hotel room in La Paz when the TV screen started streaming live footage of a riot. The spectacle of protest and provocation is so traditional here in Bolivia that it could be the national dance. But this riot looked different from those I’d seen before. For one thing, the rioters were awfully well dressed — some were in spotless white government uniforms, and more than a few women hurled abuses while wearing high heels. Of more immediate concern, however, was the location, the Viru Viru International Airport in Santa Cruz. My flight back to America was leaving in 30 hours, and now the tarmac appeared to be in a state of war: gray clouds of gas rolled one way, waves of protesters surged forward, throwing rocks, and lines of policemen fell back under assault.
As usual in Bolivia, the riot had started as a labor dispute. The day before, the airport administrator had threatened to strike over the payment of landing fees, causing some international flights to be canceled. Then, at 3 a.m., a mysterious plane had touched down, disgorging elite Bolivian soldiers who occupied the control tower and restored the central government’s authority. That lasted until about lunch, when, live on TV, hundreds of angry Bolivians outside the airport began attacking the police. Shirtless young men used slingshots to fire the army’s gas canisters right back at them.

The next morning, more than a little concerned, I walked up to the airline office on the Prado, the city’s principal avenue. A crowd of panicked customers was already there tossing questions at the staff. Like me, many had arrived clutching the morning papers, which showed a rock-strewn runway and warned that the country was on the verge of collapse.
“Everything is normal,” the woman insisted. She said it with a smile.
And I have to say: she was right. As we spoke, the troops fled and thousands of jubilant citizens poured into the terminal. After 15 years of traveling here, I didn’t think Bolivia could surprise me anymore, but Bolivia proceeded to surprise me. That night my flight actually did leave, on time. Punctual to the minute. A riot, some tear gas, then back to business. Todo normal.

Bolivia is the poorest and highest country in South America, and La Paz is its lively, fermenting main city of 1.5 million, stuck into a cleft in the Andean plateau. High and low, La Paz throngs with a slightly feudal aura, where clothing trends of the 1890s and the 1980s mingle, and politics seamlessly blends the 1960s with the 1690s. The exotic is right at the end of the block, where at dawn, checking into my hotel, I encountered the end of an overnight festival, with wealthy women in bowler hats knocking back beers and dancing to a brass band. Then a man walked by carrying 10 mattresses on his back. There was a fistfight. Someone emptied a chamber pot from a second-floor window. Todo normal here means 17th-century cathedrals and 21st-century lodgings, witchcraft markets selling disenchantments, eco-tourists packing telephotos and storefront “mentalists” peddling lottery predictions to the hopeful.

The presidential palace in La Paz is known as the Palacio Quemado, or the Burned Palace, because it was sacked in a 19th-century coup. Bolivia has had an awful lot of coups, revolutions and other abrupt changes of government, at least 190 since 1825. That’s an average of about one per year — perhaps the world record for sustained, almost balletic chaos.
Yet Bolivians are lawful, even conservative people. Despite profound poverty — or, more likely, because of it — the population of nine million is deeply governed by a web of family, village, province, class and language groups. And the political process is now more or less quiescent, at least by rowdy Bolivian standards. It has been 26 years since a military government last held power, and the nation is clinging to its bumpy, imperfect democracy.

It is probably the arrival of Evo Morales in the Burned Palace that accounts for most of this. Stability helps, and high commodity prices are a boon in a nation that exports those tears of the earth silver, tin and natural gas. But it is Morales, the country’s first indigenous president, who delivered an Andean shockwave. Born to Bolivia’s large Aymara group, Morales dresses in the humble sweater of the masses, and has a portrait of Che Guevara made entirely from coca leaves hanging in the presidential palace. Elected with a strong majority, itself almost unheard of in Bolivia, he has introduced social programs and legal changes to benefit the country’s neglected Indians, who make up more than half the population. He has also alienated many, whether businessmen, defenders of civil liberty or regional officials chafing under his central government. Bolivia’s social dynamic is now curiously reversed: the Indian masses defend process and patience, while the small middle and upper classes rally against the administration. As recently as last month, Morales dealt a blow to the regionalists in a bitter referendum that married electoral democracy to street protest in a typically Bolivian way. Tear gas may come and go, but this is a unique and pivotal moment for the country, a time of improvement and optimism.

There is no doubt that Bolivia is still a hard place, physically, emotionally, aromatically. Compared with the Europeanized societies of neighboring Chile and Argentina, it’s a step back in time, a rustic patchwork quilt of cultures and environments, with large swaths of the country accessible only by beaten tracks and mud roads. (Travel is what Bolivians call imprevisible, unforeseeable.) But things are getting easier, and today’s visitor is admitted to a particularly sweet spot in Bolivia’s history, a moment when the roads are new but the ways are still old. I’ve had the classic Andean destinations of Isla del Sol, in Lake Titicaca, and the mountain town of Sorata on my to-do list for a dozen years. Yet only now have Bolivia’s stars aligned to make them not just possible, but possible with the surprising ease and unexpected rewards that mark the best days of travel in a difficult place.

FOR BOLIVIANS THE LAKE is simply the lake, and needs no name or superlatives. Titicaca is a moody, quiet sheet of water, 120 miles long and watched by snow-stained peaks. Divided between Peru and Bolivia, the lake is dotted with islands, most of them inhabited, and slowly emerging only now from their antiquity. It is the highest navigable lake in the world, with a waterline at 12,500 feet, and while traditional reed boats have disappeared as a way of life, it is still common to see lonely men in small crafts setting out for points unknown. Landlocked Bolivians come here to say they have stood on a beach.

It took just two hours in a shuttle bus to reach that shore at Copacabana, a transit point for overlanders making the brilliant two-day journey to Machu Picchu and Cuzco. Whitewashed and something of a boomtown, Copacabana is famous for its religious blessings of the nation’s cars, trucks and bus fleets; it also offers pleasant hotels and ferries out onto Lake Titicaca’s communities. After a cool night sipping pisco sours with a lake view, I caught the morning ferry, a wooden cruiser, for the hourlong ride to Isla del Sol, the largest and most romantic of the lake’s inhabited isles, with several small villages, Inca ruins and a soaring trade in tourism.
We landed on a steep shore, rattling down the wooden dock with a crowd of Australian and Israeli backpackers and Latin American hippies looking for the stone ruins that mark points of ancient Incan worship. Amid some touts for the islands’ few small hotels, I joined three Americans I’d met, a family from Reno, Nev. Vicky was a biologist, Glenn a veterinarian; they’d come here to join their 27-year old daughter, Lisa, as she wrapped up an eight-month work-study tour of South America.

Isla del Sol – is the legendary birthplace of the Incas, where the god Viracocha made his first mystical appearance, and it’s full of Inca ruins. People tend to wax lyrical about it’s tranquil, mystical nature.

The altitude even at the dock had us all huffing as we took the first steps up an Incan staircase toward the island’s ridge line and the town of Yumani. “Reno’s at 5,000 feet,” Glenn said slowly. “I thought I would be prepared.” Our bags were strapped onto a couple of mules behind us by a determined lady in a bowler hat, who then pulled out her cellphone to confirm our reservations at the Ecolodge La Estancia, the island’s best hotel, which was a 30-minute walk away, almost all of it uphill. When we got to the lodge, we found adobe cabanas built with Trombe passive solar heat traps and an attention to traditional details that otherwise seemed missing on the island. The furniture was made in La Paz, and housewares like linens and dishes were mostly sourced from sustainable projects around Bolivia that support village women. Water, precious in this arid climate, is brought up from an old Inca fountain near the boat landing on pack trains. Besides mules, alpacas are used as beasts of burden on the island, and one came tottering up the hill with a trombone on its back. “We wanted to build a place where we feel the responsibility we have for nature and local people,” one of the owners, a Swiss-born Bolivian named Roswitha Grisi, told me.

AdThe Bolivia Road of Death is an 80-90 kilometer stretch leading from La Paz, Bolivia to the small city of Coroico, located to the North in the Bolivian yungas, a jungle high in the Andes mountains.

La Estancia opened in 2001, just before the government announced it was skipping high-tension power lines to Yumani over a series of stepping-stone islets. Now everyone in the town has lighting and power off the national grid. Streetlights and cellphones have suddenly become common in a place that still, in dress, agriculture and language, reflects the oldest origins of Bolivia.
Could Isla del Sol be ruined by visitors? “It could be,” Grisi told me. “It’s always the double role of tourism.” Fifteen years before, there hadn’t been one place on the island “that was warm, clean and comfortable, with a view of nature.” Now development allows many local men, who used to leave for La Paz if they wanted work, to get jobs at home. It has raised incomes but also the amount of trash, which local people often throw on the ground. La Estancia trained its staff in recycling and conservation, and helped maintain the Inca terracing on the island. But the message is barely sinking in; traditional people are colliding with modern problems. “Every time we come we find more trash thrown down the ravines,” Grisi said. “You have to raise the consciousness of people, but it’s very hard.” She saw a paradox in the goal of using tourism to preserve tradition. “If Bolivia wants to exist as Bolivia,” she said, “it still has to offer what the customer wants.”

Tourism is big business, worth the equivalent of up to 8 percent of the country’s exports. In 2006, Ricardo Cox, the vice minister of tourism, announced a $200 million investment in “indigenous community tourism” under the slogan “Authenticity Still Exists,” intended to make rural Indian communities not simply objects of observation for tourists. In places like Isla del Sol, this has meant blocking development by “outsiders,” even from La Paz, and a free-for-all of shameless development by locals: I saw a dozen new two- and three-story guesthouses sprouting from the crowded ridgeline at Yumani. One such monstrosity was done in breeze-block, with wet mortar and a disco ball. An islander told me, “It doesn’t have a name yet,” then offered me a room for $3.

The next morning I shared a water taxi with the American family. It dropped us at the island’s northernmost tip, and we climbed steeply to a ridge scattered with Incan ruins. Mythology says this exact spot was the birthplace of the sun and of the Inca empire. A rock-wall labyrinth here may have been a temple; a massive stone table is thought to have served for sacrifices; a big concave boulder is said to resemble a crouching puma. (“Titicaca” is believed to mean “rock puma.”)

The road back to Yumani carried us south over nearly barren slopes furrowed with lines of potato, corn and tobacco. From high points we had water in a 360-degree panorama. “A lake where you can’t see the other side,” Glenn said at one point, shaking his head. He’d thought Lake Tahoe was large until now. Here, the waters fell over the curve of the earth. Tiny sailboats glided out of the island’s emerald bays, heading toward Peru.
The Nevadans were eager to see village life, and we left the ridge trail to descend to the beachside town of Challapampa, where the spartan conditions of life and a meager lunch were sufficiently authentic. Then we wound our way up again, through oily eucalyptus trees planted to hold the island’s eroding slopes in place. Marching into Yumani as the sun set, we shared the path with village boys in homespun hats tending alpacas. Women wearing the traditional layered petticoats under bright aprons went trundling past on their daily commutes, clutching radios tuned to the larger worlds of Peru and Bolivia. They cracked up laughing whenever I said “Kamisaki?”— “How are you?” in Aymara.

SORATA is a popular weekend retreat from La Paz and a center of alpine trekking, just across the lake in the foothills of the Cordillera Real, where the high Andes plunge abruptly to low jungle. Once famously isolated — during a rubber and minerals boom in the 1890s, it could take a week to get here — it is now four hours from La Paz on a fresh ribbon of asphalt. Since I was traveling from the lake, it required a gut-wrenching ride on two buses and a lengthy wait by the side of the road to reach Sorata, but at last I saw the town, compact and white, perched on a steep hill at an oxygen-rich altitude of nearly 9,000 feet. The headache that had been bothering me up at Titicaca vanished the moment I downed a mango smoothie in the classic plaza, surrounded by a church, government buildings, markets and cafes.
I took a room just outside town, in a quiet lodge, Altai Oasis, where I could reflect on the trend of traveling around Bolivia without any problems. It was disconcerting. On my first visit here, in 1991, the Pan-American Highway from Peru was blockaded by protesters, and on my second, in 1996, I’d caught a stiff hit of pepper gas at a demonstration in La Paz. And in September 2003, a trip with my wife was canceled when the La Paz airport — does this sound familiar? — was shut by demonstrations.
Sorata had played an unfortunate role in that last event. Some foreign travelers were “trapped” in the town by a protest that blocked the road, and an exchange of gunfire with Bolivian police left one demonstrator dead.
The town lost tourist business for years. But the smooth new road instantly restored Sorata’s popularity, and hotels are now often booked solid by La Paz weekenders. On a Friday night, I found Land Rover fanatics and groups of motorcyclists crowding into town, along with a German jazz orchestra.

I spent the mornings shopping and reading around the plaza, grabbing lunch somewhere and then returning to the plaza again in the evening, long after dark, for dinner. The prices left me scratching numbers onto napkins.
Could it really be just $5.50 for an evening of cocktails and beef skewers? Were simple but clean hotel rooms in the center of town actually going for $4?
After dinner one night, I walked downhill to the Laguna Room, a tiny expat bar that hangs off the steepest cliff in Sorata and serves as the headquarters of the Andean Epics Ride Company. Amid reggae music, the bartender/D.J./tour guide Travis was pouring drinks for six foreigners, mostly Canadians, as they signed releases for Sorata’s signature mountain biking event, a five-day descent that included three days on a riverboat in the Beni jungles. It sounded nice, but if you don’t climb, you aren’t truly experiencing Bolivia. So the next day I found the Sorata Guides and Porters Association, just off the plaza, where I pored over some topographic maps with Eusebio Jallurana, the chief guide. Sorata’s main attractions are the folds of the Cordillera Real. There are weeklong excursions across glaciers, but I chose Laguna Chillata, a small green lake caught in the side of Mount Illampu, a 20,892-foot peak covered in snow. The lake can take four hours, so most visitors spend the night. But I hoped to get there and back in one long day. At 8 the next morning, Eusebio’s 25-year-old son, Benito, took me outside of town in a taxi, and we started hiking up a shepherd’s trail.

Thus began the most oxygen-challenged day of my life. Sorata had been foggy, with optimism-inducing patches of sun, but the higher Benito and I climbed, the more the clouds enveloped us. We gained almost 4,000 feet during the course of the morning, a challenge made worse by a starting point at 9,000 feet. Soon I was gasping, unable to speak or, eventually, to think. At 10,000 feet I felt bad; at 11,000, very bad; at 12,000, worse.

The Andes are young, and the ridges here are flat slabs of topsoil pushed up and broken by tectonic shifts, nothing yet eroded, as if the mountains were made yesterday. The few small, grassy meadows were left for animals; tiny plots of corn and potatoes were contoured into the slopes at 30 or even 45 degrees.

During a rest break, Benito pointed to white dots schooling below us: sheep were being led up to these higher pastures. As a boy, he’d brought his family’s flocks up these slopes “hundreds and hundreds of times, almost seven days a week,” he told me.
We started climbing again. Breathing easily, he recalled soccer games among the shepherds at 14,000 feet, when they would abandon their flocks to chase the ball madly, with the severest penalty — you get it! — for whoever launched it into a canyon. At 13,000 feet we startled a lonely lady singing to herself as she watched a few llamas. Even though Benito knew her by name, she looked away, refusing to speak while a stranger was present. Bolivia’s indigenous people have learned from history to mourn the appearance of outsiders.
I was tortured by one false summit after another. A glacier peeked briefly from between clouds — Illampu’s castoff snow and ice — but then disappeared behind fog. We crossed a final steep meadow and reached the emerald-colored Laguna Chillata, just as it began to rain. The famous views, taking in Illampu, the distant Lake Titicaca and dozens of rippling peaks, were lost: within minutes of arriving, I couldn’t even see across the lagoon. A fierce wind kicked in.
Too tired to be disappointed, too flushed with endorphins to care, I was in a receptive state for what happened next. We were halfway through our guacamole sandwiches when a dark colossus drifted out of the cloud, coming right for us.
“Cóndor,” Benito said.
It dropped over the lagoon, low, then soared over our heads, slowing and pausing to watch us. “Hembra,” Benito declared. Female. The bird had a five-foot wingspan, as wide as Benito was tall. It hovered 30 feet overhead, only the tips of its trailing feathers vibrating in the wind.
There might have been time to throw open my backpack, wrestle with zippers, dig out the camera and engage in a frantic effort for electronic mastery. I sat still. No blurry photo of a silhouette was worth it. I simply absorbed the lifelong sound of the bird, lordly, slicing those feathers through the air with an off-key whistle.
Limping back into Sorata that night, seven and a half hours after setting out, all I had were bragging rights, a pile of wet clothes, sore knees and the sound of condor feathers in the wind. I sat alone on the plaza, drinking cheap daiquiris. A Catholic parade went past, full of fireworks, confetti and slow drumming. When the bill came, I had to laugh.

Four thousand feet up, four thousand feet down, about six miles to the right and left, and five different centuries all at once. It must be Bolivia.

Essentials: BOLIVIA

CORDILLERRA REAL, also called Cordillera Oriental, major mountain system, the easternmost of the two in Bolivia. It extends generally north-south for about 750 miles (1,200 km) through the length of the country. The Cordillera Real separates the lowlands of the Amazon River basin to the east from the high plateaus of the Altiplano to the west. The Cordillera Real contains within its ranges two characteristic physiographic regions, the Valles, or higher (8,200 to 11,500 feet [2,500 to 3,500 metres]) intermontane valleys, and the Yungas, or lower (3,300 to 6,600 feet [1,000 to 2,000 metres]) valleys. From the massif of Vilcanota in the north to the pass of San Francisco in the south, the main cordillera is composed of six lesser ranges: the Cordillera de La Paz; the Cordillera Tres Cruces; two parallel ranges, the Azanaques (east) and the Frailes (west); the Chichas; and the Lípez, extending southwestward to connect the Cordillera Real with the Cordillera Occidental, Bolivia’s other, more westerly mountain system. The Cordillera de La Paz is the highest portion of the system, with elevations ranging downward from 21,067 feet (6,421 metres) at Illampu. Aymara and Quechua Indian villages are located at the foothills of the Cordillera Real.

The world’s most dangerous highway is not just a tourist moniker for the route which drops from La Cumbre, above the Bolivian capital of La Paz at an icy 4900m, to Coroico, in the lush subtropical valley 3000m below.

The Bolivia Road of Death is an 80-90 kilometer stretch leading from La Paz, Bolivia to the small city of Coroico, located to the North in the Bolivian yungas, a jungle high in the Andes mountains. From Coroico it eventually leads to the small town of Rurrenabaque passing through towns like Caranavi. The road of death Bolivia is the world’s most dangerous road because several hundred people die in accidents on this road each year.

When I was growing up in La Paz it was a one-lane dirt road all the way. However, now death road is a paved 2-lane highway between La Paz and the Cumbre (summit) where cars and buses stop for a break and something to eat in a tiny village called Unduavi. Still, this hasn’t reduced the number of accidents that occur. From La Paz to the Cumbre it’s about 27 kilometers and you’ll be at 4643 meters above sea level at that point. At these heights, cars going over the edge can drop over 1000 meters in some places, crashing against boulders and trees as they roll over and over. Few people ever survive this. The road is lined with small stone altars and crosses, each marking a point where someone has died on Death Road. There are between 100 and 300 deaths per year and I’ve lost several of my friends on this road.
Although it is only really about 90 miles from La Paz to Coroico, the Bolivia road of death is carved around each mountain. The road winds up and down the sides of several mountains in a zig zag pattern, then curves around each mountain and on to the next where the zigging and zagging begins anew. It has a total of over 200 hairpin turns. The first 20+ miles are now a paved 2-lane highway, but once you read the second stretch, it returns to being a one-lane dirt road. Every 2-3 kilometers there is a slightly wider patch just wide enough for one or two vehicles going in one direction to pull over to the edge of the cliff to allow vehicles going in the other direction to pass.
Since the road has so many curves and twists around each mountain, it’s difficult to see when cars are approaching from the opposite direction. Thus, strange as it may seem, some drivers (and passengers) prefer to travel Death Road Bolivia at night when cars and buses have their lights on because they can see the lights of vehicles heading toward them and can plan ahead to stop at one of the slightly wider areas to wait for the other vehicle to pass. During the day, when it’s impossible to see other vehicles coming, cars and buses sometimes have to back up (!!!) extremely slowly until they find a patch of road wide enough to allow the other car to pass.
Several additional factors make this the world’s most dangerous road: rain, rock slides and water falls. Because the road is simply dug out of the mountain, landslides and rock slides are frequent, especially during the rainy season when the soil and vegetation loosen. When the road becomes blocked by mud or rocks, Death Road can be closed for hours or days while crews repair it. Between La Paz and Coroico two water falls also pour over the road (dubbed la Carretera de la Muerte in Spanish), falling from unknown heights above the bus and splashing onto the road and further down beyond your view over the cliff. The water erodes the edge of the road and causes it to narrow. It also makes it muddy and slippery.
Sometimes drivers ask passengers to disembark and creep slowly across the slick, narrow patch by themselves so as to risk only one life rather than dozens. Passengers walk across and return to the bus which waits for them on the other side. Between the hairpin turns, the ruts and erosion on the road, the rain, mud, waterfalls, landslides and the many stops that must be made when vehicles pass each other, the Bolivia road of death from La Paz to Coroico now takes about 4-6 hours.

LA PAZ Hotel Rosario A favorite of European climbers and anthropologists in a charming colonial building. Staff can arrange travel and lodging on Lake Titicaca. Avenida Illampu 704; 011-591-2-245-6634; hotelrosario.com; doubles from about $61. Café Banaís A good smoothiesand- sandwich spot popular with travelers. At the bottom of Sagárnaga, by the San Francisco church. 011-591-2- 231-1214. Gitana A stylish new restaurant serving haute cuisine in the upscale Plaza Humboldt neighborhood. Avenida Sánchez Bustamante 36; 011-591-2-215-4545; entrees $7 to $15. La Comédie One of the city’s quirkiest restaurants, with European owners and a great bar, up a tiny alley in the Sopocachi neighborhood. Pasaje Medinacelli 2234; 011-591-2-242-3561; lacomedie-lapaz.com; entrees $5 to $7. Pronto Dalicatessen A Sopocachi hangout with an excellent menu. Pasaje Jáuregui 2248; 011-591-2- 244-1369; entrees $6 to $9. Vienna Captures the faded elegance of the old La Paz downtown (there’s a pianist most nights). Calle Federico Zuazo 1905; 011-591-2-244-1660; restaurantvienna.com; entrees $4 to $14. Wagamama Serves the best Lake Titicaca trout sushi in La Paz. Pasaje Pinilla 2557; 011-591-2-243-4911; entrees $7 to $9.

TITICACA Hotel Rosario del Lago Sister to the La Paz institution, in Copacabana. At Paredes and Costanera; 011-591-2-862-2141; hotelrosario.com/lago; doubles from $58. Hotel La Cúpula Copacabana hotel with the town’s best restaurant and rooms overlooking the lake. Calle Michel Pérez 1-3; 011-591-2-862-2029; hotelcupula.com; doubles from $22. Ecolodge La Estancia Comfortable rooms in Yumani, carefully done in traditional Andean style. 011-591- 2-244-2727; ecolodge-laketiticaca.com; doubles from $50.

SORATA Altai Oasis Cabins, campground and a worthwhile restaurant just outside town. 011-591-7-151-9856; altaioasis .lobopages.com; doubles from $23. Hostal Las Piedras Cozy accommodations in town. Villa Elisa Calle 2; 011-591- 7-191-6341; doubles from $7. Laguna Room Expat hangout and Andean Epics Ride Company headquarters. Downhill from the Sorata plaza, opposite Casa Reggae and the Hostal Mirador; 011-591-7-127-6685; andeanepics.com. Sorata Guides and Porters Association Calle Sucre 302; 011-591-2-213-6698; guiasorata.com.

A TV TRANSFORMATION (NOT TV REVOLUTION) IS UNDERWAY

2013-01-06T10:24:00.001-08:00

Last Year’s Tax Rate May Not Survive in 2013, but Your Cable Service Probably Will

Now that the fiscal cliff has collapsed, we can be pretty certain our tax bills are going up unfortunately. And a Reuters report in August suggested that cable/satellite TV subscribers are dropping like flies, with the industry losing 400,000 customers in just seven months. But as Peter Kafka aptly countered, these numbers are based on quarterly results not annual. And when you look at all of the data in the market, it is clear that paid TV is hardly dying.
In spite of a soft economy, with about 14.5 million unemployed Americans and 8.2 million under-employed, people are still holding onto paid television, and actually consuming more video than ever before. Netflix has crossed over 30 million subscribers in the U.S., Hulu is approaching three million, but only 2.65 million people in the country “cut the cord” from traditional paid TV service. In fact, Americans are still spending about 33 hours a week watching traditional TV (that’s 4.5 hours a day!), compared to 27 minutes a week of streaming video. So where is this TV revolution the pundits have been blogging about??

Maybe we need to stop thinking of cable TV the way we think of phone service. It’s easy for technologists to predict that streaming video will do to cable companies what Skype did to the telcos, but I propose a new lens to filter TV technologies: an App that replaces broadcast television is like saying Yelp should replace Taco Bell.

My contention is that a “TV revolution,” is not in the cards. Instead, I see a “transformation” of TV taking place, and while transformations are far less sexy to blog about than revolutions, I think this one could be pretty fun and pretty lucrative for tech companies that get it right. First, let’s clarify “transformation” versus “revolution,” in the context of Web services and Internet Apps:

Revolutionary apps fundamentally overthrow an analog provider with a digital alternative. Examples: Skype is a substitute for your landline. iTunes is a substitute for Virgin Megastore. LinkedIn is a substitute for schmoozing. Match.com is a substitute for my pushy (but well-intentioned) auntie in India.
Transformative Apps make analog providers a more pleasing or user-friendly experience. Examples: Fandango makes going to movies easy and predictable. Foodspotting makes finding the perfect entree a delightful experience. Mint makes banking more manageable and transparent. Driving from San Francisco to a cabin in Tahoe is a breeze thanks to Google Maps. None of these technologies replace the desired outcome, but they greatly enhance the experience to achieve it.

All evidence and viewership data suggests that YouTube, Hulu or Netflix isn’t a substitute for the experience of gathering around a big-screen to watch the Super Bowl or the latest episode of American Idol. Apps that make the offline experience of watching traditional television better, more fun and more social will be far more successful than those that try to overthrow TV. The Twitter app on my phone, for example, is the perfect TV companion and primary beneficiary of this phenomenon.

There is no question that on-demand, instant access to great shows on the iPad or laptop is one of the coolest things ever, but this is proving to be additive and incremental to traditional TV viewership at the moment. Most consumers still love the experience of watching TV on the TV.

In 2012, the Olympics provided the perfect case study for the transformation that’s taking place. Between the live streams on NBC.com, real-time access to event scoring and the medal count, we have never had this much access to the Olympics in history. Nearly every major event was available online, and usage was tremendous. But what pundits failed to point out this past summer is that we did not give up big screen, traditional television. NBC’s primetime broadcast, which was all taped coverage, averaged 31.1 million viewers per night, which was up 12 percent from the Beijing Olympics in 2008! According to NBC, many people who watched events, streaming live to a Web browser, also watched them again on television.
We have 70 years of consumer behavior patterns established and burned into the American psyche. And on top of that, television is big business. It exists on $65 billion of advertising spending and $60 billion of subscription revenue, and that’s 125 billion reasons why the industry will resist this revolution. In stark contrast to my friends in Silicon Valley who have said that they want to “destroy television,” I strongly believe that television should be transformed. And those of us inspired by the opportunity to innovate in the TV industry should be thinking about the opportunity in a transformational way if we hope to succeed.

Ashwin Navin is the CEO and co-founder of Flingo, the largest publisher of Smart TV software including apps from FOX, A+E Networks, Showtime, the WB, Transworld and TMZ.

FELIX BAUMGARTNER'S DAREDEVIL SPACE JUMP

2013-01-03T15:43:00.000-08:00

Felix Baumgartner's daredevil Spacejump Brings Hi-Definition Video Down to Earth

Record-breaking parachute jump draws big TV and online audiences

In one l-o-n-g drop on Oct. 14, Austrian daredevil Felix Baumgartner proved that a man in a spacesuit could fall safely back to Earth from more than 24 miles high. He also proved that it’s possible to get outstanding video of the event and broadcast it live to millions on the Internet.

Baumgartner floated to the edge of space in Stratos, a pressurized capsule hung from a balloon. At a height of 128,100 feet, he stepped away from the capsule, fell freely for nearly 23 miles (including breaking the sound barrier), then drifted to ground on a parachute.

The event was captured by cameras stuffed into the capsule and by groundbased cameras with massive lenses, and relayed live to YouTube for a worldwide audience of 52 million. The primary sponsor for Baumgartner’s space jump was beverage maker Red Bull, and its media group— Red Bull Media House—pulled together all the cameras and necessary communications equipment.

“We knew that the technology existed to document the project,” said Charlie Rosene, executive producer for Red Bull Media House North America, in Santa Monica, Calif. “But how do you combine established, military-grade tools with state-of-the-art high-definition digital broadcast equipment so the world could experience this project from an intimate front-row seat?”
Red Bull Media House decided to broadcast the jump live on YouTube.
“We have partnered with YouTube for several years, and have worked closely with them in developing our digital channel that includes exclusive programming,” Rosene said. “YouTube also gave us a truly global exclusive digital streaming platform, as our goals were to touch not only the U.S., but a worldwide audience.”
But YouTube? How many people would stop to watch something like this on You- Tube?
“Just like Felix, we set a few records of our own, including more than eight million concurrent live streams on YouTube and 52 million views during our live presentation,” Rosene said. “Safe to say, we would do it again.”
The jump was also broadcast live on Discovery Channel, where it became the highest-rated non-prime television event in the network’s history.

‘OUTDOOR BROADCASTING TRUCK IN A CAN’
The Red Bull Stratos capsule was fitted with nine HD video cameras, three Canon still-image cameras and three RED 4K cameras, although one of the RED cameras was set to shoot 120 fps at 2K resolution. In addition to all that gear, there were five HD cameras on Baumgartner’s suit, all of which were record-only and did not provide live images.
Putting the camera systems together was the job of Jay Nemeth, Red Bull Stratos’ director of photography. He pointed out that there’s more to getting images from the edge of space than simply mounting a few cameras.

The JLAIR Long Range Optical Tracking System contained highpower telescopes with an HD camera and a RED Epic camera running at 4K 120 fps. A shortwave infrared camera captured Baumgartner as he stepped off the capsule 30 miles away.

“The electronics cage in our keg-sized housing contained nine HD P2 recorders, a router, nine camera control units, downconverters, audio embedders, SDI crossconverters, 48 channels of GPIO control, telemetry computer, mic preamps, DC regulators, 60 spacerated circuit breakers, telemetry RX/TX radios, video transmitters with power amplifi ers, and several other items,” Nemeth said. “We called it the ‘OB truck in a can’.” There were many technical concerns for the video gear.
“There wasn’t much that could be used off-the-shelf without some sort of modification,” Nemeth said. “The near-space conditions created problems with extreme cold, down to –95 degrees at one point and high temp conditions at the same time that required us to design and build cooling systems with complex heat exchangers. The REDs generate so much heat that we designed nitrogen-filled housings to give the fans a dry convective medium to circulate.”
Nemeth said that the HD video cameras used in the Stratos capsule were proprietary space-rated units that are not made by a manufacturer familiar to the video community.
The camera system design was finalized in 2009, which meant that the project couldn’t take advantage of newer products and developments.
“I would have loved to use the RED Epic on the capsule, but when we were constructing the housings and putting the control system together in early 2009, they weren’t available,” Nemeth said. “It just wasn’t possible to start the design and integration process over.”

MICROWAVE TELEMETRY
Riedel Communications provided three microwave transmitters in the Stratos capsule, as well as telemetry radios and receive equipment. Red Bull Media had one receive site at mission control in New Mexico, and another one downrange fitted with a FlightLine JLAIR long-range optical tracking system.
The signals received downrange were relayed back to mission control using 2 GHz and 18GHz terrestrial links provided by 3G wireless. Although the production team considered downlinking live video from Baumgartner in freefall, it was deemed a safety hazard by the science team, so the five cameras on Baumgartner’s suit were record-only.
Riedel has worked with Red Bull Media on a variety of projects, such as the Red Bull Air Race, so the company was a part of the space jump project right from the beginning. Still, Riedel’s experience had been all within the comforting envelope of the atmosphere, and providing live communications from 24 miles up would be… well, outside the envelope.
“There were number of challenges that were new to us,” said Thomas Riedel, president of Riedel Communications in Wuppertal, Germany. “Ranging from color correction and white balance challenges for the cameras due to the change of the atmosphere, to tracking and telemetry tasks that were more demanding than usual. Together with a group of specialists in the Red Bull Stratos team and our own R&D team, we managed to overcome them.”
If you’re interested in using a piece of historically significant equipment, you might be surprised to learn that it’s available for rent.
“Besides being a manufacturer, Riedel also runs a large-scale rental business supplying equipment to events and productions such as the Olympics and FIFA World Cups,” Riedel said. “The equipment used at Stratos will be part of our rental stock—a good measure of equipment already was part of our rental stock when we started working with Red Bull on the Stratos project, such as Artist digital matrix intercom systems and Medior- Net fiber backbone technology for distributing HD video/audio signals.”
Riedel said that there was much learned during the Red Bull Stratos project and that the experience was of “high value.” However, there are no immediate plans to create new products as a result of Riedel’s experience on the space jump.

LIVE GRAPHICS
Live graphics for Baumgartner’s leap were provided by Vizrt, which supported the project with three Viz Engines, four Viz Trios and a Viz Graphic Hub.
“The biggest challenge was to gather all the data sources from all different ‘providers’ [capsule telemetry, Felix bio-meds, mission clocks, chest pack informations, and simulation data calculated in cooperation with the Technical University of Munich], and to deliver them to the world outside of the command center in Roswell, N.M.,” said Petter Ole Jakobsen, CTO for Vizrt.
Jakobsen pointed out that only standard off-the-shelf Vizrt gear was used for the project.
“The Viz Graphics Hub shared memory maps workflow was a breakthrough, allowing a normal Viz Trio studio workflow synchronized between the U.S. and Europe,” he said. “So even in a remote studio, the Viz Trio operator was accessing live data through normal page recalling— no third-party software needed to be installed.”
Scott Gillies, director of production and technology for Red Bull Media House North America, was responsible for the technical side of the television production for the space jump. As important as the video feed was, the primary concerns of the entire team were safety and situational awareness.
“We needed a system that would let us see the pilot, flight-train connections, and the balloon in real time during the flight,” Gillies said. “Secondly, we needed to see Felix during the descent. These were no small challenges, especially when there are tight timelines and multiple teams working together.”
So how do you create a production system for such an extreme event?
“The goal for the Red Bull Media House was to deliver the very best images possible given the constraints of physical space, heating/cooling and power consumption,” Gillies said. “If we could utilize existing technology that was robust enough, then we were pleased, but at the same time we wanted to push the envelope wherever possible.”
Despite pundits who decry today’s media landscape as fractured and fit only for those with attention spans measured in seconds, attracting 52 million views to a live nine-minute video is a significant accomplishment. Gillies points out that viewers didn’t tune in to see the gear.
“To make compelling content, the story and technology have to go hand and hand—one cannot outshine the other,” he said.
If you missed the live broadcast, there is a re-cap on YouTube and plenty of other videos available, including a documentary co-produced by BBC and National Geographic. That documentary was shown on National Geographic on Nov. 11, and included previously unseen video from one of the cameras on Baumgartner during the jump.

MOBILE COMMERCE TRENDS: BUYING MOVIE TICKETS FROM FANDANGO

2013-01-03T09:11:00.001-08:00

Fandango’s mobile ticket sales soar 171% in 2012

There’s a strong case for mobile commerce in the movie ticketing industry. A consumer can quickly narrow down which films he would like to see and at which theaters. There’s only one product to purchase, a ticket, and it doesn’t need to be shipped. And in some cases today movie tickets can be delivered to smartphones as QR codes ticket-takers scan, no paper required.
Ticket seller Fandango has been at the forefront of mobile ticketing, and business is booming. Mobile ticket sales increased 171% in 2012 over 2011 and accounted for more than 30% of the company’s overall ticket sales, Fandango reports.
Fandango, a division of NBCUniversal now has estimated 2012 mobile sales of $72 million.

Downloads of Fandango’s smartphone and tablet apps increased 50% in 2012 over 2011; Many of the consumers downloading apps are using them to buy tickets: Mobile ticket sales rose 116% in summer 2012 compared with the previous summer, with m-commerce accounting for nearly 30% of all tickets sold, up from 23% in Q1 2012. The number of Fandango app downloads increased 43% in summer 2012 versus summer 2011, the company reports. Total app downloads now stand at 31 million, the company says. Fandango’s iPhone app was among the first to be integrated with Apple Inc.’s Passbook app, which debuted with the iPhone 5 in September 2012. After completing a paperless tickets purchase—available only for select theaters—in the iPhone app, a consumer can opt to send his tickets to his Fandango’s iPhone app was among the first to be integrated with Apple Inc.’s Passbook app, which debuted with the iPhone 5 in September 2012. After completing a paperless tickets purchase—available only for select theaters—in the iPhone app, a consumer can opt to send his tickets to his Passbook, where the tickets can be scanned by a theater ticket-taker.

Summer is blockbuster movie season. And this summer is blockbuster mobile commerce season for online and mobile movie ticket seller Fandango.Overall, 2012 was Fandango’s best-performing year in its 12-year history, with record highs in ticket sales and web and mobile traffic. The records include a 57% surge in annual ticket sales and 34% annual growth in monthly visitors to its online and mobile sites and apps, the company reports. That’s 30% of a lot of tickets, as this summer has been the best in the ticket seller’s 12-year history. Summer ticket sales rose more than 26% year over year, while traffic across all platforms broke previous records with total monthly unique visitors increasing more than 25% over the same time period last year. During the summer season, Fandango also posted its two highest-trafficked months ever with July garnering more than 41 million unique visitors, online and mobile combined besting the previous record set in June of 35 million unique visitors.
Says Paul Yanover, president of Fandango“Our 2012 successes have further established Fandango as the go-to resource for the total movie-going experience—from discovery, decision-making and ticketing, to going to the theater and sharing with friends after the credits roll,”. “In 2013, we’ll continue our momentum and deliver advertising partners, exhibitors and moviegoers even more products, services and platforms that serve their needs.”
“Fandango continues to be on a roll,” says executive vice president and general manager Rick Butler. “This summer’s record performance is a testament to our new exhibitor and portal partnerships, as well as our mobile and social innovations which have made Fandango the easiest and most convenient way to go to the movies.”
Helping fuel Fandango’s growth in 2012 was the company’s expanded exhibitor and online portal reach. Fandango’s expanded exhibitor reach is helping fuel growth. It struck deals with AMC Theatres & Regency Theatres (added more than 3,000 screens), Southern Theatres, Carmike Theaters (the Columbus, Georgia-based theater chain's 2,254 screens) and other chains. In addition, Fandango signed partnerships recently with MSN Movies, Yahoo! Movies and AOL's Moviefone, becoming the movie ticketing provider for all three of the web information portals.

For years, the online movie ticketing space has been divided between the two major players but Fandango is emerged as the winner in its decade long battle against chief rival MovieTickets.com, dramatically altering a rapidly growing sector of the movie business.

In February, Fandango managed to convince the country’s second largest theater chain to jump ship from MovieTickets.com, adding 3,000 more screens to its rolls. Making the defection particularly painful is the fact that AMC was one of the companies that founded MovieTickets.com in 2000 and remains a part owner. Although AMC was contractually obligated to provide tickets to Movietickets.com, its agreement was amended after AMC merged with Loews in 2005. Fandango had provided tickets to Lowes prior to the merger, but a deal was in place to shift those roughly 2,000 screens to Movietickets.com when the agreement expired in September 2011. Not that MovieTickets.com is giving up AMC without a fight. Along with National Amusements, the company is suing AMC for breaching its joint-venture agreement. The suit claims that as part of that pact, MovieTickets.com has the right to be the exclusive seller of the theater chain’s ticket inventory.The legal scuffle is a sign of how great a factor the AMC decision was in Fandango’s rapid rise this year.The decision by AMC to offer domestic tickets exclusively through Fandango was part of an effort to prevent users from having to go through multiple sites to buy tickets.

Fandango now represents roughly 70 percent of the online and mobile movie ticketing space in the United States Rick Butler, Fandango’s executive vice president and general manager, “We began significantly investing in the business four to five years ago, and our focus has remained making the movie-going experience as seamless and frictionless as possible.”
Fandango sells tickets to more than 20,000 screens nationwide.

SURFEIT OF "R" RATED HOLLYWOOD FILMS. BUT PG-13 MAKES THE MONEY

2013-01-02T12:15:00.002-08:00

Hollywood studios have released 33 percent more R-rated films in 2012 than last year, but the wealth of adult offerings hasn't translated into a box office boom. Instead, audiences have flocked to PG-13 fare.

This year, 168 films have carried the "restricted" rating, which requires youths under 17 to be accompanied by an adult, and they have taken in $2.3 billion at the box office. That compares to 113 PG-13 films, with a $4.7 billion take, and 52 PG movies with a combined gross of $1.8 billion.
Only one R-rated film, Universal's "Ted," has cracked the year's Top 10 grossing films. Six of the Top 10 -- including the top four -- carry PG-13 ratings, while three are rated PG. In 2011, nine of the Top 10 movies were rated PG-13 with the remaining slot taken by "Cars 2," with the all-but-extinct G rating from the Motion Picture Association of America.
So if the money is in PG-13 movies, why do the studios keep releasing more R-rated films?

"In most cases, you don't really make a decision -- or have a choice," Lionsgate's head of distribution, Richie Fay, told TheWrap. "It's usually a case of what the material demands, and whether it's organic. But you know all that going in -- it is part of the process. You see it when you read the script, and you factor it in when you're planning."
Indeed, the majority of the R-rated releases aren't major studio productions, they are independently produced and niche films. For example, nine of the 12 films released this year by the Weinstein Company, which focuses on adult specialty releases, were rated R. But of the 19 films released this year by market-share leader Sony, only four were rated R, two were PG and the remainder were PG-13. Eight of Universal's 14 releases this year have carried an R, but none of the 11 movies released this year by Disney have been R.
There is money to be made. Besides the top-earning R-rated film "Ted," Universal scored with the R-rated "Safe House" ($126 million), "Prometheus" did the same for Fox and Sony had "21 Jump Street" ($138 million). Even with PG-13 appearing to offer the most direct shot at blockbuster box-office numbers, there are reasons the studios make R-rated films, Universal's distribution chief Nikki Rocco told TheWrap.

"Mainly, you want to stay true to the material," Rocco said. "You couldn't make a film like 'Savages' anything other than an R. By the time we greenlight a picture, we know what its rating will be." Creative considerations aren't all, though.
"Another reason is to bring some diversity to the marketplace, to offer something for specifically for adults, so that there is in theory something for everyone out there," Rocco said.

Warner Bros. had six R films among its 14 releases (not counting Imax nature films and re-releases) and had a major hit with the R-rated "Magic Mike," which cost just $7 million to make and took in $113 million domestically. The studio's Oscar frontrunner "Argo," which over the weekend topped the $100 million plateau at the box office, is also rated R. That rating won't hurt should the film claim a Best Picture nomination; seven of the last winners at the Academy Awards have been R-rated.

Obviously, an R-rating offers filmmakers the ability to more accurately portray real-life situations. But that’s not the goal for every filmmaker. “If Spider-Man were really out there battling crime in the streets of New York City, don’t you think he’d be inclined to drop an F-bomb now and then?” wondered Exhibitor Relations senior analyst Jeff Bock.
He might in the real world, but he won’t be dropping them at the multiplex anytime soon. Nor will Batman or Katniss Everdeen -- at least not if they intend to draw the droves of teenagers that power the grosses of the biggest franchise films. There was never any doubt that the “Twilight” films – including the nation’s current top film for two weeks running, “Breaking Dawn 2” -- were going to be rated PG-13, according to Fay.

Author “Stephenie Meyer was very specific with her edict that there would be nothing in there that would put us in the position of getting an ‘R’,” Fay told TheWrap. “She knew the audience that bought the books and had a lot of communication with those folks, and she was very clear on that.”
Both Universal and Warner Bros. have successfully bucked the trend with comedies recently, Warner Bros. with its two “Hangover” films and Universal with this summer’s “Ted.”
“They’ve shown you can get away with an ‘R’ with comedies,” Bock said. “But with an action film, if you want to make $200 million, $250 million at the box office, you’ve got to get the biggest possible audience in there.”

This year’s top four films -- “The Avengers,” “Dark Knight Rises,” “The Hunger Games” and “The Amazing Spider-Man” -- are all rated PG-13. And of the top 25 film franchises of all time, only one -- “The Matrix” -- carried an “R” rating, so it’s a dollars and cents issue. It’s hard to imagine any project with franchise potential -- and a franchise-sized budget -- could get a studio green light today without assurances that it could play to teenagers.
This summer’s “Prometheus," tied to director Ridley Scott’s earlier “Alien” film, was the rare R-rated project that seemed to have franchise potential.

It opened to $51 million in June and topped out at $126 million domestically. The grittiness and freedom that the R rating allowed Scott no doubt lured some adults, but it's impossible to determine how much it would have made had it been more accessible to teens.
Dick Rolfe, who heads the Dove Foundation, a nonprofit organization that has been trying to push Hollywood in a more family-friendly direction for more than two decades, isn't surprised that audiences are choosing the non-R titles.
“I think there is a kind of wearing-out of the public in terms of explicit material,” Rolfe told TheWrap. “People are just getting tired of exploding body parts, naked body parts and abusive language.”

On the other end of the ratings spectrum, the “G” rating has essentially vanished. There were only nine films released with that rating this year. Three were re-releases, two were Disney nature films and the other four were independent animated kids films. Among those was “Oogieloves: The Big Balloon Adventure,” which set a record for box-office futility.

“It’s just not cool for kids -- at least kids old enough to care about stuff like this -- to go to G-rated films anymore,” Bock said.
There were 261 films that were released without MPAA ratings, mainly small foreign films, independent features, documentaries and re-releases. They grossed $45.4 million, or an average of $174,000.
Only two films have been released with an NC-17 rating in 2012. LD Entertainment’s “Killer Joe,” which starred Matthew McConaughey, grossed $1.9 million and Kino Lorber’s “Elles” brought in $754,000.

HOW TO IMPROVE HOLLYWOOD

2013-01-02T12:02:00.002-08:00

At the dawn of 2013, Hollywood is edging towardcautious optimism. The box-office is set to shatter domestic records and the home-entertainment sector is poised to grow after five years of losses.

Six experts - a set of thought leaders across the spectrum of the movie busines weigh in on the daunting question: How do we fix Hollywood? How do we make sense of the changing landscape? And what trends are emerging as a new year dawns?

CHRIS MCGURK
CEO, Cinedigm
We’re entering a period of tremendous upside for the independent film business. Finally things are coming together in terms of digital technology.
The cost of making a movie that’s worthy of theatrical release is now a hell of a lot less than it was a few years ago, and the profusion of digital services like Netflix and Hulu and Amazon is reaching a critical mass.
They’re in an arms race for content, and that’s creating a perfect storm for independent film.
People have to re-screw their heads on about the way a film is released. It used to be that a movie had to be picked up by an independent distributor and get to 500 screens to be validated as a movie, but it takes $5 million to $10 million in marketing to do that, and it makes it difficult to get a return on your investment.
It’s still really important to get a theatrical release, but it should be done in a smart targeted way, in a few key markets. It’s important to get those reviews and publicity so they raise awareness of a film for ancillary markets, but you have to do it in a way where you still have a shot at making money.

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CATHERINE PAURA
Founder and CEO, Capstone Global Marketing & Research Group
The box office will break records this year with the biggest admissions bounce in more than a decade. That inspires confidence. Families are going to the movies. Women are going to the movies. But the most reliable audience may be older people. Don’t forget about the old people.
When we started the National Research Group 35 years ago, moviegoing was a young person’s domain. Older people went to the movies, but we stopped sampling after the age of 49. The target audience ranged from teenagers to the late 40s. Now it goes up to the mid-60s.
It first became clear moviegoing was getting older in the late '90s, when older people didn’t stop going to the movies like the generations before them. It reflects that Baby Boomer population, which has always been a huge population -- and still goes to the movies.

When movies are in the marketplace that appeal to older people, they go. They’ll go see “Hope Springs” and “The Best Exotic Marigold Hotel,” but they’ll also go see “Ted” and “The Avengers” once they’re in the zeitgeist.
Hollywood also needs to communicate that movies that are going to be on the big screen should be on the big screen. If you have a movie that doesn’t look or feel big, it’s very hard to get enough people to see it.

FRANKLIN LEONARD Founder, the Black List
I spend a lot of time thinking about data and how data can be used to improve the film business. One way that seems both obvious and interesting is making movies that already have an audience.
Hollywood typically assumes that means, "Oh there’s a built-in audience for this board game." That’s wrong. It means determining ways to identify audiences for specific subjects or ideas via the internet, social media and surveys.
If you have a piece of material and you want to get butts in the seats, how do you identify and communicate with that audience and convince them to leave their house, pay to go to a movie and sit there and watch it?
We’re talking about something besides billboards and trailers on television. Whether it be with Twitter, Facebook or people with Netflix viewing logs, there are more direct ways to communicate with those people and remind them, "Hey there’s this thing coming out tonight you might be interested in seeing."
The Obama campaign did a remarkable job of identifying potential voters and converting them into actual voters. If the industry looked at all potential viewers like that, it could bump up not only domestic box office but also revenue streams further down the line.

JOE PICHIRALLO
Chairman, Tisch School of the Arts' Undergraduate Film & Television program at NYU

You’ve always had to be entrepreneurial. In the ‘90s, you wrote a script, then you’d find an agent or go to a studio. And studios used to be underwriters of producers and would cover their costs with the idea that somewhere down the line they would come up with material they'd want to make.
Today, those deals are almost gone -- you’re dealing with a shrinking universe in terms of mainstream sources of support. So you have to be more savvy in your approach.
With more entertainment avenues available to young filmmakers -- with web series and the internet -- you have to find ways to use these tools to support yourself. You have to understand how to build a following on social media. It doesn’t have to be 50 million people. I had one alum who had 3,000 Twitter followers, but he interacted with them, and they were passionate. IFC took notice of him because they wanted access to his followers.

That suggests there is a more democratic way to get noticed than there was 10 or 15 years ago.

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GLEN BASNER
CEO, FilmNation
Most Hollywood agents and representatives don’t believe it, but it’s a great time for talent in Hollywood. With studios making fewer movies, there’s more of an opportunity to go outside the system and make a project you’re passionate about.
And it’s much easier to have a hand in the creative process and in the development of a movie than when you're getting a big fee from the studios, making $20 million before you step on set.
Don’t get me wrong, studios have a lot of strengths -- more advantages than disadvantages -- but they are not nimble. They can’t tailor each project to specific filmmakers. That has allowed smaller companies to enter the void and have a bigger impact than ever before.
This also presents an opportunity to get involved financially, to bet on yourself, bet on the movie and reap the rewards. Look at Terrence Malick. He has more ownership in the movies he’s worked on than ever before, and he feels that will help him make better movies.
You can have a great experience with a project you’re invested in emotionally and do really well economically -- the Hollywood equivalent of having your cake and eating it, too.

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BILL BLOCK CEO, QED International
The fight for distribution is still that narrow gate, despite all the new media platforms. The business has been around for, what, 80 years? But there really are still just six or seven studios. It remains the great barrier to entry and the great goal: wide-release studio distribution.
Foreign markets have become much more important for getting that initial greenlight. You have to be thinking about how a project is going to potentially play from Leicester Square to the Champs-Élysées to the Shinjuku in Tokyo.
China and Russia and South America, these are growth territories. By that, I mean growth in exhibition and the theatrical experience. You have moviegoing demand there, but that’s quickly followed by discernment. It’s got to be good.
Another thing, from “John Carter” to “Battleship” to “Total Recall,” somehow audiences are not moved by the spectacle movie like they were a couple of years ago. Maybe it's just over-familiarity whereas you take something like “Chronicle,” and it’s fresh and it’s a different kind of special-effects movie.

RICH ROMAN WAUGH Director, "Snitch"
When people say there are no good movies being made, I totally disagree. The people who are making good movies are just rolling up their sleeves.
From the craft service person to the 800-pound gorilla producer, everybody is getting crushed in these economic times.
You used to see a lot of resistance from actors demanding their quote, but now they know you have to roll the dice and bet on what they’re doing instead of getting a big fat upfront fee.

This applies to below-the-line people, too. They have complained about how the work is not in L.A. anymore; it’s going everywhere. So roll with it.
The challenge remains the same: Tell compelling stories. You just need to do it cheaper, which technology and passion enable. If you’re not making “The Avengers,” if you’re not making a Marvel franchise or “Spider-Man” where they’ll spend a god-awful amount of money, you need to adjust. You’re not getting the same budget you used to, and it’s fine with me.
The last decade was such gluttony and excess -- huge budgets for movies that could have been made much cheaper. I’m not going to name them, but you know what they are.
I’d rather figure out how to make that movie that I can be passionate about, and you can see by the movies this year a lot of people are doing that. From “Zero Dark Thirty” to “Lincoln” to “Argo,” I’m more excited this year than I have been in a long time.

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JASON BLUM
Founder and CEO, Blumhouse Productions
I work in the low-budget level. I hope that what we do is not just cut costs, but cut costs in a way that forces filmmakers to think about storytelling in a different way. I really believe that parameters make for better content. When you have fewer tools in your tool box, you have to focus on character and story.
The movies that came out this year were greenlit and developed 12 to 24 months ago. Now that’s at a time when the movie business was never harder and look what happened -- there were more high-quality movies than just a few years ago.
Hollywood is in flux. Distribution is changing, so that puts a squeeze on all of us who got used to spending more freely when the model was rock solid. Even though there is less money for filmmaking, I think it’s a huge opportunity.
We don't know where the industry is going to land, but people are consuming more content than they ever have before, we just haven't figured out how to monetize this audience, but eventually we will.

DAVID EDELSTEIN Movie critic, New York magazine
We have all these incredibly wonderful people who have grown up with movies and they now have the tools to make their own projects like never before in the history of the business.
The cost of doing what 25, 30, 40 years ago could only be done with the backing of a studio has decreased to the point where you can just pick up a camera. That's why there's no shortage of interesting and important movies being made.

The trick is to get them seen and to compensate the people who make them. Studios seem to be using such a disproportionate amount of their resources on franchise and tentpole films that they have little left over for anything else. Then in November and December, we’re suddenly inundated with this insane Oscar-driven culture.
I understand that it’s the source of employment for a lot of Hollywood publications, but it is absolutely crazy. It ruins it to see movies only in terms of ranking and odds-making -- is Anne Hathaway up or down? And here comes the girl from “Beasts of the Southern Wild"!
If a movie isn’t nominated, there’s no buzz and the crowds just move on, and I hate that more than anything. There are so many wonderful movies that are labors of love, that are just joyful expressions, and they get caught up in this “American Idol,” “X-Factor,” "300 Days of Oscar” culture that, to quote the James Bond picture, only cares about who is the last rat standing.

WHAT IS WRONG WITH THE MOVIE BUSINESS ?

2013-01-02T11:59:00.003-08:00

What’s wrong with the movie business?
It’s a question worth asking after a year in which DVD sales continued to decline, domestic attendance fell to its lowest level since 1992, and critics are griping that this has been one of the worst periods for movies in recent memory. Six industry experts weighed in on what the future holds for Hollywood and what, if anything, can prevent the business from being a casualty of the digital revolution taking place around it.

Wall Street expert Harold Vogel, analyst and author Edward Jay Epstein, producers Mike Medavoy and David Hoberman, critic Joe Morgenstern and director Gavin O’Connor all weighed in with a range of observations from a pessimistic “there is no cure” to an optimistic view of burgeoning creativity among young artists.Here’s a look at the film landscape from people who’ve seen the ups and downs of Hollywood over the years.

Mike Medavoy, chairman and CEO of Phoenix Pictures
“The [declining] numbers are not that surprising. It’s been a long time coming, and the economy worldwide is certainly not helpful.
In the past new technology like television, videotape, DVD, and cable have saved the film industry. Well, what's next? If anything, the American movie industry is the best there is, but it too can wear out its welcome. Special effects alone won't save it.
The cost of marketing and producing, the decline of DVD, pirating and the need for outside partners for high risk and cost films which lowers your upside, makes all the choices of pictures to make more difficult. The decision to rely on remakes and sequels at higher costs either makes people feel that they have seen a movie and can either wait and see it on the after-market or miss it all together.
Fresh and different helps in the long and short term.
It finally comes down to picking the right films and at the right cost -- not by bankers, but by a combination of people who love movies and know talent, story, and character weighing in with business people and with the marketing people. Finally it's a gut call.

Joe Morgenstern, film critic for “The Wall Street Journal”
Anybody who loves movies has to be honest with themselves and worry whether this is not a cyclical thing, but a downward spiral.
There’s been a dismaying spectacle of studio ineptitude. "Bridesmaids" was the one studio film that emerged from the meat grinder unflawed and that was only because [producer] Judd Apatow had the power to protect it.
It was a raggedy film and not everything worked, but I’ll take raggedy over expected any day. It was complex, funny, raunchy, and all of those elements were done with zest and conviction.
One obvious lesson is that high end technology can have a toxic effect on films. When I look at "Hugo" or "Tintin," I think of what these guys would have done without hundreds of millions of dollars, and I think in both cases they would have made better movies. There was an absence of simple human feeling that is indispensable to a good film, even though the displays of technology are awesome.
The one upside this year is that more independent films are going online, which means that there is a democratization of distribution. But just like with newspapers, it’s not clear that there’s going to be enough online money to pay for these films.

Harold Vogel, head of Vogel Capital Management and author of “Entertainment Industry Economics: A Guide for Financial Analysis”
The business will never be the same again.
It’s not cyclical. This is a technological shift on a generational scale, and the long-term technology is distribution on the web -- and that’s not ten years, that’s forever.
The DVD lived for about eight or ten years and was magnificent while it lasted, but it was an interim technology. But the longterm technology is all digital distribution on the web -- streaming or downloading or whatever.
The studios feel vulnerable [to piracy], but the film industry lucked out too. Their product requires five gigabytes or more of data to be downloaded and it doesn’t happen that fast on the current Internet, but that will change. Slow speeds gave the business a couple of years to figure things out. It’s been a buffer.
The business kind of imploded about three years ago -- films became seen as something you could never get a return on, so the studios went to these bets of $100 million-plus. That seemed to do well for awhile, but if you look at the margins of the industry for basically the last forty or fifty years, we have not broken out of this eight to ten percent pre-tax margin range. Margins have been basically flat and are probably headed down.
There is no great cure for this. There are some problems in life for which there’s no cure. The studios are going to be around, but their ability to generate high margins and sustained margins is being challenged all the time.
Eventually the business will settle into accommodation with the digital universe and studios will make money out of it. But that doesn’t mean the business is going to go back to the old way, because the old way doesn't exist anymore. We’re coming into a time of slow economic growth around the world and this is going to last a minimum of three or four years and more likely for another ten years.

Gavin O’Connor, director of "Warrior"
There’s a consumer market unlike anything we've ever experienced. It can consume content in myriad ways and that needs to be acknowledged. Much as I'd like to be an artist and plough my own field and not worry about accessing consumers, I’ve learned you can't do that anymore.
A lot of people are scratching their heads on the artistic side and the business side. What doesn't change is original voices and great stories and daring visions -- these things will never change. But you have to understand the market and how much a move should cost.
I try to be an optimist. What's exciting is that there are so many new ways to find revenue. I believe that there’s an on-demand revolution going on where you have companies like Netflix moving in and gobbling up market share, so if you can put your finger of the pulse of this change and engage on alternative platforms, there's lots of new ways to touch the consumer.
Do I wish I was alive and making films in the late '60s and '70s? Yeah. I’m an old soul that way, but you have to evolve with the way the revolution is evolving. Now there’s a chance for artists to band together and create a new model.
I'm doing a little movie that I’m going to shoot for a hundred thousand. At the same time, I'm writing big studio scripts and I’m doing a play.
It’s about being entrepreneurial and creating content that I care about and that I think people will respond to. You can’t wait around for studios to send you scripts anymore. You have to write movies outside the studio system, take them around and maybe you have someone attached to it before you find the right home.

Edward Jay Epstein, author of "The Hollywood Economist"
The main challenge to the film industry is the death of video stores. It’s not a threat to movies like "Spider-Man," but to a movie like "Tinker, Tailor, Soldier, Spy." It’s the kind of small movie where people have to find out about it by going into the store and speaking to a clerk. It might not get into a Redbox or a Walmart. Their disappearance is a major challenge for smaller and more diverse productions.
The decline of the DVD is being masked by the still strong sales of DVDs to children and it's hiding the real slide in sales of smaller movies.
That's limiting the guaranteed income for a lot of productions. It will be harder to guarantee money to make a movie as the way people watch movies changes. The entire nature of a film's availability is changing as people watch things on tablets and smart phones and people aren't buying digital copies the way studios want.

One way the studios are improving their profits is by lowering their above-the-line costs. They can't really cut their below-the-line costs. But through digital production, they're able to lower their printing costs.
There are two things the industry can do. It can make the technology of theaters more appealing and studios can change the mix of the pictures that are in theaters. They know how to do that and it’s been going on since "Jaws." But making a movie like "Avatar" or "Titanic," which becomes an event, is much harder to do.

David Hoberman, producer and partner in Mandeville Films and Television
This year there wasn't the big launch of some new franchise or a big new piece of business that gets people excited about the movies.
It felt like people were not compelled to go to the theaters. From Thanksgiving to Christmas, it just felt like a lackluster holiday season and I'm not sure what that’s about.
I think that there were good movies out there, so I’m not sure that a facet of this was that the movies weren’t good. There were movies like "Hugo" and "Tintin" that were inventive and terrific movies, but they didn’t drive people to the marketplace.
It's like a television network. One hit show drives a programing slate and makes a whole network. What’s that big event movie that people go out to and gets them excited about going to see more movies?
I teach at UCLA and I do a teaching fellowship of Suffolk University in Boston, and over the last few years, the films I’ve seen from my students are amazing. The energy and inventiveness of what some of these kids are doing makes me think there’s going to be a whole new wave in live action and animation.
There's so much fermenting at the university level that I think there’s going to be tons of opportunities, as these kids from this last generation are growing up. They’re going to be the Steve Jobs of the world, figuring out new ways of creating things.

ESCAPE VELOCITY: Hewlett-Packard As A Case-Study

2013-01-02T11:29:00.001-08:00

The fundamental idea behind Escape Velocity: Free Your Company’s Future from the Pull of the Past is that the world wants established franchises to continue to thrive but that every decade or so they must reorient themselves in order to do so. The problem, as Clay Christensen expressed it so eloquently in The Innovator’s Dilemma, is that our management systems are designed to repel the very changes that are needed. Now what?

The conventional response has been that management needs to focus more on innovation. But several decades worth of flogging that horse has produced near zero results, and I for one think the whole notion is misdirected. Instead I believe the problem is with the lack of focus itself. We have become prisoners of the portfolio principle, spreading highly limited resources over a virtually limitless landscape, to little or no end effect. So what I advocate is that the CEO, sponsor one—and only one—innovation per half decade, and deploy all the considerable resources of that office to ensure that this innovation gets adopted broadly and deeply. The poster children for this are Gerstner at IBM in the 1990s, Jobs at Apple in the 2000s, and Bezos at Amazon in the current decade.

In the next few blogs I am going to apply this idea to a number of iconic high-tech franchises in need of rejuvenation, beginning here with HP. In each case I am going to propose a mega-trend in play that could support a wave of investment big enough to matter to enterprises of $10 billion and up, and I am going to suggest an uber-strategy by which the franchise in question could reasonably be expected to capitalize on that trend, creating a market leader position for itself in a vibrant new category.
In the case of HP, here is the mega-trend I propose Meg Whitman set her sights on:

The world economy is morphing from a supervisory command-and-control management system to an orchestrated collaborative ecosystem, but the IT systems that enable and support its largest foundational institutions have yet to evolve, causing the established leaders to lose ground to smaller nimbler enterprises despite the latter’s lack of reach or resources.

This trend, in my view, is the inexorable consequence of the digitization of the world economy and culture. In a digital universe, it is virtually impossible to command and control. One must instead engage and enlist. The good news is that the digital ecosystem dramatically lowers the barriers to so doing. The bad news is that it requires a fundamentally different kind of IT to do it.

The IT industry has been discussing this change for some time, in part under the banner of systems of engagement, specifically as they contrast with systems of record. At the poles, these two classes of systems are readily distinguishable, the one at the heart of the digital consumer experience, the other at the heart of enterprise accounting and accountability. But what the world really wants, and increasingly needs, is a rapprochement between the two systems, allowing data, analytics, and transactions to traverse back and forth as needed. It wants, in other words, an integrated, end-to-end IT capability that respects the privacy of both domains but enables appropriate exchanges between them.

This is a gigantic undertaking, which means it must be led by an enterprise systems vendor with global credibility. Candidates include IBM, Cisco, Oracle, Microsoft, SAP, and HP. However, I do not think any one of these vendors operating solo can swing the deal. Here, however, is an uber-strategy I do think could work:

HP should team up with Microsoft and SAP to design, build, and deploy an end-to-end IT architecture that interfaces systems of record and systems of engagement to provide a platform for next-generation collaborative management applications.

In this context, SAP brings exceptional competence in systems of record and Microsoft brings a strong presence and a rejuvenated interest in systems of engagement. Both have assets that are widely deployed in global enterprises, so there is plenty of canvas to paint on. Both companies have partnered effectively with HP in the past. Neither, however, is primarily a systems vendor nor a company that wants to serve as the prime contractor, that single throat to choke that CIOs instinctively seek out. HP, by contrast, is well suited to play this role. And perhaps just as importantly, it needs a mission worthy of its heritage, a role to rally around and pull itself out from the doldrums it has been in for the past decade.

Finally, from a pragmatic standpoint, we need a revitalized HP. There is just too much enterprise IT work to do and not enough companies to do it. We cannot afford to write one of them off because of some very painful, over-much discussed mistakes. IBM arguably did worse at its nadir, and Apple got itself into such desperate shape it needed an investment from Microsoft to get back on its feet. Oracle at one point was desperate enough to be looking to a Japanese steel company to save its bacon. There is no shame in falling down. The only shame is in not getting back up.

SAN FRANCISCO GIANTS' BILL SCHLOUGH: InformationWeek's CIO Of The Year

2012-12-21T20:08:00.000-08:00

The Giants' CIO and his team are innovating in areas such as analytics-based scouting and in-stadium wireless, keeping the World Series champions ahead of the game.

Every member of the San Francisco Giants IT department has a 2010 World Series ring, and one day during the 2013 season they'll also get their 2012 World Series rings. Buster Posey, the National League's Most Valuable Player, Pablo Sandoval, the World Series MVP, and 23 other players were on the field, but Ken Logan, senior IT director, Dave Woolley, director of strategic IT initiatives, Dan Quill, director of application development, and eight other IT all stars also made the Giants' Western Division championship, playoff run and final sweep of the Detroit Tigers possible.This notion may seem over the top, but it is what they believe, and they can draw the chalk lines from technology initiatives to Commissioner's Trophies, from dynamic ticket pricing to the Digital Dugout to a World Series victory, like Tinker to Evers to Chance.That's the magic of Bill Schlough, the CIO of the San Francisco Giants and InformationWeek's 2012 Chief of the Year: He believes.

THE PLAYER: Schlough greets me dressed like a banker, suited up for a short trip to HP Pavilion for the San Jose Sports Hall of Fame induction reception. He's chairman of the San Jose Giants, a Class A minor league team where he served as interim CEO from August 2011 through January 2012, before hiring his successor.

Schlough isn't just a believer. He's a doer, a versatile executive who meets regularly with department heads such as baseball operations VP Bobby Evans and sponsorship/business development VP Jason Pearl, as well as with sponsors he insists on calling partners. He often speaks at their customer conferences.

Schlough has been the CIO of the Giants for 14 years, but it seems unimaginable that a former Unix admin could run a baseball team. Giants CEO Larry Baer says Schlough was chosen to run the San Jose team because of his versatility. "He has a breadth of understanding of baseball and the sports industry that goes beyond sports technology," he says. To Baer's credit, he thinks employees with high potential need new challenges. "We don't pigeonhole people," he says. Adds baseball operations VP Evans: "He has the desire to grow. He doesn't get satisfied with where he's at. He's not afraid to take chances to achieve big things."

THE INNOVATOR:
In a business where all that matters is winning, what has Schlough, his IT organization and the Giants actually accomplished? Here are some highlights.

Dynamic ticket pricing: There's no better, or more dangerous, intersection between a team and its customer than ticketing, which usually begins online and ends at a turnstile. And while it's difficult to pick out a single IT innovation among so many, the Giants were a pioneer in this area. In 2000, when AT&T Park opened, the Giants' ticketing team, working with Schlough and the IT team, rolled out dynamic ticket pricing, where competitive forces drive the cost of attending a ballgame.

If a game is part of a crucial series or against an in-division rival, or the pitching matchup is especially compelling, or the game is simply selling out fast for whatever reason, ticket prices rise -- thanks to software from 5-year-old vendor Qcue. Conversely, prices fall if the game isn't a big draw.

Schlough openly admits the Giants borrowed the dynamic pricing idea from the airline industry. The organization won't directly correlate revenue gains to the ticket pricing effort, but it's worth noting that the team's ticket sales have risen 7% to 8% over the past two years, an increase that also lifts concession and parking sales. The Giants have sold out 100% of their home games since Oct. 1, 2010, the second longest such streak in Major League Baseball (behind the Boston Red Sox). The Giants' paid attendance in 2012 came to 3.3 million.

Meantime, the team has increased season ticket sales from 21,000 in 2010 to 28,000 in 2011 and 29,000 in 2012. Knowing that season ticket holders don't normally attend every game, the Giants created a secondary online ticket market, called Double Play Ticket Window, in 2000, before StubHub existed. Working with a now-defunct SAP-Intel joint venture called Pandesic, the Giants invented a way to activate and deactivate the bar codes on tickets, making exchanges simple and safe. After Pandesic went bust in 2000, the Giants built the platform again in partnership with Tickets.com, which was subsequently acquired by MLB Advanced Media, which now licenses the technology to StubHub. While the Giants still make a small profit from Double Play, Schlough considers it a fan service rather than a business venture.

One giant Wi-Fi hotspot: The Giants have also become the bellwether for enabling a digital fan experience at the ballpark, and a lightning rod for criticism. Baseball purists don't cotton to dancing mascots, eardrum-bursting music and other family-friendly entertainment, and they can't fathom why fans need to use laptops and tablets at a baseball game. But Giants fans live and breathe the fumes of Silicon Valley. Business pros pound out emails between innings; other fans update their social networks and check scores and video highlights from around the league.

When the Giants opened AT&T (formerly Pacific Bell) Park in 2000, mobile was in its relative infancy and modern social networking didn't exist. As early as 2004, Schlough sculpted a wireless experience for fans, even if only a handful of them were on the network. But on opening day of 2008, several months after the advent of the iPhone, the ballpark's network was saturated.

Luckily, the Giants had a partner with both the resources and the motivation to help: AT&T. Terry Stenzel, an AT&T VP, won't forget his first phone call from Schlough. "I knew I was in trouble," he says, "but I didn't feel like it." That is, Schlough made Stenzel feel like a partner in solving the problem.
To be clear, this wasn't just about fans being able to access Facebook. Schlough was concerned about employees being able to reach one another, a matter of fan safety. It took almost the entire 2008 season for Schlough and AT&T to build up the wireless infrastructure, and even then, Stenzel says, the problems didn't go away as demand continued to soar. "Every year, it's almost a rip and replace," Giants IT director Logan says.
The wireless network extends from the seats to the concession stands and even outside the stadium. After all, Stenzel notes, the "fan experience starts in the parking lot." From Game 1 of the 2010 World Series through the 2012 season, the Giants and AT&T boosted network capacity to handle an almost eightfold increase in traffic, from 55 GB to 433 GB.
Quill, the Giants' app dev director, remembers when fans started streaming the games in the ballpark, putting even more stress on the network. The Giants worked with MLB's Advanced Media group to arrive at the ability to cache some of that video locally to relieve some of the traffic pressure.
Maps is one of the most used applications at the park, because fans like to connect with friends and family after a game, Stenzel says. Surprisingly, fans also stream a lot of music at games. While 40% of all Web activity at games is just browsing, he says that for the first time ever at a sporting event, uploads have surpassed downloads.
Fans want to associate themselves with being at a World Series or other big game, and there's plenty to associate themselves with, like celebrity national anthems and fly-by military exercises. It's enough to make a purist want to stay home. But then again, this is precisely what Schlough's team fights. As he puts it: "Our biggest competition is the couch."

The "big rig": There are several ways to look at what The Los Angeles Times called "baseball's big rig," a reference to the clever method Schlough and his team employed to help deliver a few Giants players to last season's All-Star game.
Online fan voting is theoretically limited to 25 times per person, and the biggest baseball markets have always had the advantage. In 2012, MLB allowed mobile balloting for the first time. "What other park in the world has the infrastructure to be able to tell our fans to pull out their mobile devices and vote right now," Schlough says. And that's what the Giants did, starting with a big series with the Los Angeles Dodgers a week before the voting period closed.

The Giants built a voting command center, via kiosks located around the park, and they encouraged mobile voting during games over the high-definition scoreboard. Vote often, the Giants told fans. (Major League Baseball has a rich tradition of cities stuffing the All-Star ballot box. The Cincinnati Enquirer famously started a campaign in 1957 in which it sent prefilled ballots to bars throughout Cincinnati. After the Reds monopolized the All-Star roster, MLB commissioner Ford Frick ended fan balloting -- it returned 20 years later.)
Schlough is unapologetic. Indeed, he's gleeful that players such as outfielder Melky Cabrera (No. 4 in the voting a week earlier -- this was a month before he was suspended for 50 games after testing positive for steroids) and third baseman Sandoval (whose stats at the time paled in comparison to those of the Mets' David Wright) were voted All-Star game starters. Such selections build player and team morale, he rationalizes. So what if a little technology greased the skids?
Evans, the Giants' VP of baseball operations and a 20-year team veteran, is a little more cautious. He doesn't want anyone, especially the All-Star players, to think they didn't earn their votes. "The players who got in deserved it," he says, noting that Cabrera was leading the league in batting average at the time (and was named the All-Star game's MVP); Sandoval eventually was the World Series MVP; and the third Giant voted an All-Star starter, Posey, ended up earning the league's MVP.

Big data: Baseball, more than any other sport, is a game of statistics, one put on steroids (sorry, Melky) by the wide embrace of "sabermetrics" of Moneyball fame. While teams evaluate factors such as player performance and optimal positioning on the field by analyzing thousands of slivers of data, MLB Advanced Media (BAM) is beginning to let a handful of teams -- the Giants among them -- take the concept further with Sportvision's Fieldf/x, a video system that helps teams analyze player reaction times, or what Evans calls biomechanics.

"You're going to be able to get an amazing matrix on speed and response time," says app dev director Quill, adding that Fieldf/x "will revolutionize how defense is analyzed," like how fast an outfielder comes in for a ball, moves laterally or reacts to line drives. "In some cases, it's just making the data more accurate, and in other cases it's giving us information that just didn't exist before."

While BAM CEO Bob Bowman is careful to note that MLB plays no team favorites, he says Schlough and his organization have two essential qualities when it comes to digital media: ideas and execution. "They always say yes," he says.
Fieldf/x generates a million records per game. Schlough does the math for me: 30 frames per second, tracking nine defensive players, the home plate umpire, a batter and the ball, multiplied by the amount of time a game takes (about 30 minutes of action). Quill says that when teams accumulate three years' worth of data -- enough to give them a high level of confidence in that data -- we'll be talking about 5 billion records. As Quill and Schlough like to point out, 5 billion records is on par with the amount of data a typical bank deals with. Indeed, when we met last month Schlough was due to meet with the head of a large bank's data analytics operations, at the bank's request.
Mix into that data pool the stats every team tracks, as well as the information teams are starting to collect about fans, including social media activity and ticket purchasing/sales patterns, and we're talking about a big data (and storage) problem. It's the IT organization's biggest challenge right now, Quill says.
MLB's Bowman adds that the league's big data, which his organization centralizes and manages, requires teams to be "ready to move not within hours, but maybe within minutes and preferably in seconds."

Scouting: Quill has been in every Giants draft room since 1999. "My systems have been used in the draft room," he says, "and that draft room created Buster Posey, it created [Madison] Bumgarner, created [Matt] Cain 10 years ago. All of those were related to how we scouted and how the organization figured out how to pick those players, and we assisted in that process."
Quill has worked with Evans and the rest of the baseball operations staff to incorporate various systems, including Fieldf/x and Sportvision's Pitchf/x, into the Giants' scouting process. Beyond picking players, the IT organization's data and video analyses extend to advanced scouting, like figuring out how to pitch the Tigers and who to trade for.

High-definition video: It's hard to say whether AT&T Park was the first to go 100% HD. The Giants were the third MLB team to introduce an HD video scoreboard, Schlough says, after the Braves and the Marlins. But replacing all of the stadium's TVs with HD sets transformed the fan experience, he says. "It's that simple to me," he says. "Change out the TVs and the park feels new."
MLB's Bowman also talks about another aspect of video: delivering live video captured in the ballpark, which the Giants have been doing for years. Bowman's goal is to capture video, edit it and deliver it to the 2 million MLB.com subscribers within 20 seconds. The league can embed an ad, deliver the video to mobile devices and, of course, generate revenue. And Schlough's AT&T Park infrastructure makes such delivery, even live look-ins to other games, possible.
After the Giants swept the Tigers in the World Series, Schlough's team produced a 360-degree interactive video of the victory parade. With only two days to get the video done, it mounted three cameras: one on the windshield of Sandoval's vehicle, one on a golf cart and one on the front of the podium at the City Hall stage. The final product, which you can view here, is stunning.

Schlough's IT team celebrates the Giants' World Series win

When I met with Schlough in November, he and his team had already cooked up 50 IT projects for the off-season, and they had yet to meet with the team's various departments. Many of those projects, he says, are fairly boring: upgrading the Microsoft Exchange system, adding storage, shoring up disaster recovery. After they woke me up, I also heard about plans to deliver video and data to iPads, which players and managers carry around, and about delivering a better mobile experience overall (Quill's team takes an HTML5 approach).

Schlough wouldn't go into details, but the Giants endured a cyber attack during the World Series, so he's also focused on enhancing the company's password and mobile device policies.
The Giants are replacing the homegrown CRM system they've used for years, containing information on 700,000 customers, with Salesforce.com. They've also moved to a new ticketing platform, and these two systems (ticketing and CRM) will come together at a few points. The team is testing mobile point-of-sale systems in stores, for example.
The goal is to integrate all customer data, from ticket purchasers to callers into the Giants' ShoreTel VoIP system, and to "track the value of every customer and accurately assess the likelihood of losing that customer, or how to retain that customer," Schlough says. The organization wants to cater to each customer based on past behavior and interaction.
The Giants just hired a social media director, who reports to three people: the heads of communications, revenue and marketing. But he works most closely with Schlough. The Giants are building a physical social media hub in the ballpark. Schlough wants to install mobile device charging stations at the ballpark -- he tells me purposefully, because if I report it, he says, he'll be committed to following through.

Tech Me Out To The Ballgame

334 Number of wireless access points at AT&T Park 577 Number of HD TVs at the park 805 GB of data that park spectators moved via Wi-Fi during Giants' two World Series home games 870K Total unique visitors to the park's Wi-Fi network at Giants games in 2012 season

THE MENSCH:
Schlough is well connected in sports IT circles. It's worth noting that the top IT execs of the Los Angeles Dodgers and the San Diego Padres, two fierce in-division rivals, agreed immediately to speak with me about the Giants' CIO.
Steve Reese, VP of IT for the Padres, says Schlough's greatest impact has been helping baseball understand "that IT should be part of the business process." Schlough drives initiatives that aren't just disruptive to the way traditional organizations think, Reese says, but that also impact the bottom line.

Reese goes so far as to call Schlough "the Bill Walsh of IT," referring to the former San Francisco 49ers head coach, who not only was an offensive football genius, but whose progeny is a who's who of former NFL coaches, including Mike Holmgren, George Seifert and Dennis Green.

One of Schlough's proteges is John Winborn, whom he hired in 1999 as a desktop support specialist and later promoted to MIS director, before seeing him off to the Padres. Winborn is now the CIO of the Dallas Cowboys. "I would not be here without his mentoring," Winborn says of Schlough, who's one of the first people he calls with tough problems.

Ralph Esquibel, the senior director of technology for the hated Los Angeles Dodgers, says the Giants "have without a doubt been innovators in the league," and that while baseball hasn't been on the top of the innovation curve, "Bill doesn't fit that mold. ... He has tended not to follow the herd ... and they've been rewarded."
The Giants' technology prowess has rubbed off on many baseball franchises. Esquibel says the Dodgers are building the largest stadium wireless infrastructure in North America -- more than double what the Giants have. Esquibel has a big challenge on his hands, given that Dodger Stadium is the third-oldest stadium in Major League Baseball, but he's undaunted -- a reflection of the pace Schlough has set for everyone else.

Bill Schlough is impeccable. His office, bursting with books and memorabilia, feels a little cluttered, but everything has its place, like his bulletin board with inspirational quotes. Several awards and plaques hang on the wall, but they're hidden. His notes and projects are organized in neat stacks.

I had planned to ask him about mentors, but he beats me to the punch, listing among them his late mother-in-law, whom he describes as someone who labeled everything and sweated the small stuff. One of his heroes is Pierre de Coubertin, who founded the International Olympic Committee, and he's a disciple of Gary Rogers, the former CEO of Dreyer's Ice Cream, who's a big believer in empowering teams. Schlough invited eight of his mentors to join him at his banquet table in Los Angeles when he was named to the Street & Smith's SportsBusiness Journal's 2010 "Forty under 40." I confess that it's difficult to find flaws in the man. Either that or he's got something on just about every associate I talked with.
How about this: He doesn't really like music, and doesn't listen to it. String him up!
On the morning I met with Schlough, he was up early stalking Randy Petersen, founder of InsideFlyer and Milepoint and, according to Schlough, the god of frequent fliers. Schlough set a goal early in his career to fly 1 million miles, and after achieving that milestone got United Airlines CEO Jeff Smisek (the boss of a friend) to sign Schlough's Up In The Air movie poster. And now he landed Petersen. One more signature to go: George Clooney's. (I'll take the bet that Schlough gets that one, too.)

Schlough is an Ironman triathlete and dreams of qualifying for and competing in the annual world championship in Kona, Hawaii. Sports has always been a big part of his life. In college at Duke, he played club sports and won the Kevin Deford Gorter Memorial Award, given to the athlete who has contributed the most to sports at the university. Friend Christian Laettner, winner of a college basketball national championship and Olympic gold medal, doesn't have one of those. At EDS, Schlough worked on the soccer World Cup.
But Bill Schlough, the technology executive and sports enthusiast, is best viewed as a leader who brings purpose and humility to that calling.

Woolley, the Giants' director of strategic IT initiatives, says Schlough is "a CIO, a VP, but he's the type of guy who leads by example. He'll be right there when we have to clean out a closet." Woolley remembers when one of the Giants' sites in Arizona was down. Schlough volunteered immediately to get on a plane. "He'll do whatever it takes to help the team."
Logan quipped about the Arizona trip: "He probably did it for the miles."
Anne Cribbs, CEO of the Bay Area Sports Organizing Committee, says Schlough is adept at building consensus, especially among those with big egos. Other associates and direct reports describe him with words like "progressive" and "structured." Before I left AT&T Park, he provided me with a breakdown of help desk trouble tickets and an example of the day-of-game support manual. I hadn't asked for such things, but he must have thought it would be helpful.
Schlough is also someone who "pushes limits," says Pearl, who heads up sponsorships for the Giants. "He doesn't see roadblocks. He sees opportunity."
Baseball, it is said, is a game of inches. A little white ball traveling 90 miles per hour, a skinny stick. Your arm, his eye. A stare, a blink, a swing.
Bill Schlough can't miss.

Bill Schlough At A Glance

Education: BS in mechanical engineering from Duke University. MBA from the Wharton School.

Professional experience: At EDS (1992-1996) performed a variety of functions for clients such as AMD, World Cup USA, General Motors and Kmart. At Booz Allen Hamilton (1998-1999) provided IT strategy and other consulting services to media/entertainment industry clients. Since 1999, senior VP and CIO of San Francisco Giants

Other affiliations: Board member of the Bay Area Sports Organizing Committee, where he played a key role in getting San Francisco into contention to host the 2012 and 2016 Summer Olympics. Board member of Junior Achievement of Northern California (since 2003). Media center technical supervisor for 2002 Winter Olympic Games in Salt Lake City.

Recent books read: Seth Godin's The Dip and Marshall Goldsmith's What Got You Here Won't Get You There.

ORCA: INSIDE TEAM-ROMNEY'S I.T. MELTDOWN

2012-11-10T09:37:00.002-08:00

Inside Team Romney's whale of an IT meltdown

Orca, the Romney campaign's "killer" app, skips beta and pays the price.

Aurich Lawson / Thinkstock

It was supposed to be a "killer app," but a system deployed to volunteers by Mitt Romney's presidential campaign may have done more harm to Romney's chances on Election Day—largely because of a failure to follow basic best practices for IT projects.
Called "Orca," the effort was supposed to give the Romney campaign its own analytics on what was happening at polling places and to help the campaign direct get-out-the-vote efforts in the key battleground states of Ohio, Florida, Pennsylvania, Iowa, and Colorado.
Instead, volunteers couldn't get the system to work from the field in many states—in some cases because they had been given the wrong login information. The system crashed repeatedly. At one point, the network connection to the Romney campaign's headquarters went down because Internet provider Comcast reportedly thought the traffic was caused by a denial of service attack.
As one Orca user described it to Ars, the entire episode was a "huge clusterfuck." Here's how it happened.

Develop in haste, repent at leisure

The Romney campaign put a lot of stock in Orca, giving PBS NewsHour an advance look at the operation on November 5. But according to volunteers who saw and used the system, it was hardly a model of stability, having been developed in just seven months on a lightning schedule following the Republican primary elections. Orca had been conceived by two men—Romney's Director of Voter Contact Dan Centinello and the campaign's Political Director Rich Beeson. It was named in honor of the killer whale as an allusion to the Obama campaign's own voter identification program, code-named Narwhal; orcas are the top predator of narwhals, Romney campaign staffers explained, and they were preparing to outshine the Democratic voter turnout effort.
As Romney's Communications Director Gail Gitcho put it in the PBS piece, "The Obama campaign likes to brag about their ground operation, but it's nothing compared to this." To build Orca, the Romney campaign turned to Microsoft and an unnamed application consulting firm. The goal was to put a mobile application in the hands of 37,000 volunteers in swing states, who would station themselves at the polls and track the arrival of known Romney supporters. The information would be monitored by more than 800 volunteers back at Romney's Boston Garden campaign headquarters via a Web-based management console, and it would be used to push out more calls throughout the day to pro-Romney voters who hadn't yet shown up at the polls. A backup voice response system would allow local poll volunteers to call in information from the field if they couldn't access the Web.
But Orca turned out to be toothless, thanks to a series of deployment blunders and network and system failures. While the system was stress-tested using automated testing tools, users received little or no advance training on the system. Crucially, there was no dry run to test how Orca would perform over the public Internet.
Part of the issue was Orca's architecture. While 11 backend database servers had been provisioned for the system—probably running on virtual machines—the "mobile" piece of Orca was a Web application supported by a single Web server and a single application server. Rather than a set of servers in the cloud, "I believe all the servers were in Boston at the Garden or a data center nearby," wrote Hans Dittuobo, a Romney volunteer at Boston Garden, to Ars by e-mail.

Throughout the day, the Orca Web page was repeatedly inaccessible. It remains unclear whether the issue was server load or a lack of available bandwidth, but the result was the same: Orca had not been tested under real-world conditions and repeatedly failed when it was needed the most.

All tell, no show

Before Election Day, volunteer training at Boston headquarters amounted to a series of 90-minute conference calls with Centinello. Users had no hands-on with the Orca application itself, which wasn't turned on until 6:00 AM on Election Day.
"We asked if our laptops needed to be WiFi capable," Dittuobo told Ars. "Dan Centinello went into how the Garden had just finished expansion of its wireless network and that yes, WiFi was required. I was concerned about hacking, jamming the signal, etc...Then we were told that we would not be using WiFi but using Ethernet connections."
Field volunteers also got briefed via conference calls, and they too had no hands-on with the application in advance of Election Day. There was a great deal of confusion among some volunteers in the days leading up to the election as they searched Android and Apple app stores for the Orca application, not knowing it was a Web app.
John Ekdahl, Jr., a Web developer and Romney volunteer, recounted on the Ace of Spades HQ blog that these preparatory calls were "more of the slick marketing speech type than helpful training sessions. I had some serious questions—things like 'Has this been stress tested?', 'Is there redundancy in place?', and 'What steps have been taken to combat a coordinated DDOS attack or the like?', among others. These types of questions were brushed aside (truth be told, they never took one of my questions). They assured us that the system had been relentlessly tested and would be a tremendous success."
In a final training call on November 3, field volunteers were told to expect "packets" shortly containing the information they needed to use Orca. Those packets, which showed up in some volunteers' e-mail inboxes as late as November 5, turned out to be PDF files—huge PDF files which contained instructions on how to use the app and voter rolls for the voting precincts each volunteer would be working. After discovering the PDFs in his e-mail inbox at 10:00 PM on Election Eve, Ekdahl said that "I sat down and cursed, as I would have to print 60+ pages of instructions and voter rolls on my home printer. They expected 75 to 80-year old veteran volunteers to print out 60+ pages on their home computers? The night before election day?"

Invalid passwords, crashing servers

When the Romney campaign finally brought up Orca, the "killer whale" was not ready to perform. Some field volunteers couldn't even report to their posts, because the campaign hadn't told them they first needed to pick up poll watcher credentials from one of Romney's local "victory centers." Others couldn't connect to the Orca site because they entered the URL for the site without the https:// prefix; instead of being redirected to the secure site, they were confronted with a blank page, Ekdahl said.
And for many of those who managed to get to their polling places and who called up the website on their phones, there was another, insurmountable hurdle—their passwords didn't work and attempts to reset passwords through the site also failed. As for the voice-powered backup system, it failed too as many poll watchers received the wrong personal identification numbers needed to access the system. Joel Pollak of Briebart reported that hundreds of volunteers in Colorado and North Carolina couldn't use either the Web-based or the voice-based Orca systems; it wasn't until 6:00 PM on Election Day that the team running Orca admitted they had issued the wrong PIN codes and passwords to everyone in those states, and they reset them. Even then, some volunteers still couldn’t login.
In Boston, things weren't much better. Some of the VoIP phones set up for volunteers were misconfigured. And as volunteers tried to help people in the field get into the system, they ran into similar problems themselves. "I tried to login to the field website," Dittuobo told me, "but none of the user names and passwords worked, though the person next to me could get in. We had zero access to Iowa, Colorado, North Carolina, and Pennsylvania. Seems like the only state that was working was Florida."
As the Web traffic from volunteers attempting to connect to Orca mounted, the system crashed repeatedly because of bandwidth constraints. At one point the network connection to the campaign's data center went down—apparently because the ISP shut it off. "They told us Comcast thought it was a denial of service attack and shut it down," Dittuobu recounted. "(Centinello) was giddy about it," he added—presumably because he thought that so much traffic was sign of heavy system use.

Flying blind

As the day wore on and information still failed to flow in from the field, the Romney campaign was flying blind. Instead of using Orca's vaunted analytics to steer their course, Centinello and the rest of Romney's team had no solid data on how to target late voters, other than what they heard from the media. Meanwhile, volunteers like Ekdahl could do nothing but vote themselves and go home.
This sort of failure is why there's a trend in application testing (particularly in the development of public-facing applications) away from focusing on testing application infrastructure performance and toward focusing on user experience. Automated testing rigs can tell if software components are up to the task of handling expected loads, but they can't show what the system's performance will look like to the end user. And whatever testing environment Romney's campaign team and IT consultants used, it wasn't one that mimicked the conditions of Election Day. As a result, Orca's launch on Election Day was essentially a beta test of the software—not something most IT organizations would do in such a high-stakes environment.
IT projects are easy scapegoats for organizational failures. There's no way to know if Romney could have made up the margins in Ohio if Orca had worked. But the catastrophic failure of the system, purchased at large expense, squandered the campaign's most valuable resource—people—and was symptomatic of a much bigger leadership problem.
"The end result," Ekdahl wrote, "was that 30,000+ of the most active and fired-up volunteers were wandering around confused and frustrated when they could have been doing anything else to help. The bitter irony of this entire endeavor was that a supposedly small government candidate gutted the local structure of [get out the vote] efforts in favor of a centralized, faceless organization in a far off place (in this case, their Boston headquarters). Wrap your head around that."
Republican campaigners will undoubtedly try to wrap their heads around it for some time to come.

IBC 2012 Sessions

2012-10-17T17:40:00.000-07:00

Multi-screen in Heterogeneous Networks
Dr. Dirk Jaeger, CTO, Divitel Holding /MD Divitel Deutschland GmbH

How the Piracy Business Has Changed
Tom Munro, CEO, Verimatrix

Interactive Roundtable Q&A / Moderated by Nigel Walley

Reaching Regional Subscribers Globally: A Multi-network Video Strategy
Sherry Ann Supelana, Head of Global Engineering & Technical Services, ABS-CBN International

THE iECONOMY: THE PATENT, USED AS A SWORD

2012-10-10T08:31:00.000-07:00

THE PATENT, USED AS A SWORD

When Apple announced last year that all iPhones would come with a voice-activated assistant named Siri, capable of answering spoken questions, Michael Phillips’s heart sank.
A series examining challenges posed by increasingly globalized high-tech industries.

A display of giant iPhones at the Los Angeles County Fair that show some of Apple's patents.

For three decades, Mr. Phillips had focused on writing software to allow computers to understand human speech. In 2006, he had co-founded a voice recognition company, and eventually executives at Apple, Google and elsewhere proposed partnerships. Mr. Phillips’s technology was even integrated into Siri itself before the digital assistant was absorbed into the iPhone.

But in 2008, Mr. Phillips’s company, Vlingo, had been contacted by a much larger voice recognition firm called Nuance. “I have patents that can prevent you from practicing in this market,” Nuance’s chief executive, Paul Ricci, told Mr. Phillips, according to executives involved in that conversation. Mr. Ricci issued an ultimatum: Mr. Phillips could sell his firm to Mr. Ricci or be sued for patent infringements. When Mr. Phillips refused to sell, Mr. Ricci’s company filed the first of six lawsuits.
Soon after, Apple and Google stopped returning phone calls. The company behind Siri switched its partnership from Mr. Phillips to Mr. Ricci’s firm. And the millions of dollars Mr. Phillips had set aside for research and development were redirected to lawyers and court fees.

When the first lawsuit went to trial last year, Mr. Phillips won. In the companies’ only courtroom face-off, a jury ruled that Mr. Phillips had not infringed on a broad voice recognition patent owned by Mr. Ricci’s company. But it was too late. The suit had cost $3 million, and the financial damage was done. In December, Mr. Phillips agreed to sell his company to Mr. Ricci. “We were on the brink of changing the world before we got stuck in this legal muck,” Mr. Phillips said.

Mr. Phillips and Vlingo are among the thousands of executives and companies caught in a software patent system that federal judges, economists, policy makers and technology executives say is so flawed that it often stymies innovation. Alongside the impressive technological advances of the last two decades, they argue, a pall has descended: the marketplace for new ideas has been corrupted by software patents used as destructive weapons.

Richard A. Posner, a federal appellate judge, said: “There’s a real chaos. The standards for granting patents are too loose.

Vlingo was a tiny upstart on this battlefield, but as recent litigation involving Apple and Samsung shows, technology giants have also waged wars among themselves.
In the smartphone industry alone, according to a Stanford University analysis, as much as $20 billion was spent on patent litigation and patent purchases in the last two years — an amount equal to eight Mars rover missions. Last year, for the first time, spending by Apple and Google on patent lawsuits and unusually big-dollar patent purchases exceeded spending on research and development of new products, according to public filings.

Patents are vitally important to protecting intellectual property. Plenty of creativity occurs within the technology industry, and without patents, executives say they could never justify spending fortunes on new products. And academics say that some aspects of the patent system, like protections for pharmaceuticals, often function smoothly.

However, many people argue that the nation’s patent rules, intended for a mechanical world, are inadequate in today’s digital marketplace. Unlike patents for new drug formulas, patents on software often effectively grant ownership of concepts, rather than tangible creations. Today, the patent office routinely approves patents that describe vague algorithms or business methods, like a software system for calculating online prices, without patent examiners demanding specifics about how those calculations occur or how the software operates. As a result, some patents are so broad that they allow patent holders to claim sweeping ownership of seemingly unrelated products built by others. Often, companies are sued for violating patents they never knew existed or never dreamed might apply to their creations, at a cost shouldered by consumers in the form of higher prices and fewer choices.

“There’s a real chaos,” said Richard A. Posner, a federal appellate judge who has helped shape patent law, in an interview. “The standards for granting patents are too loose.”

Almost every major technology company is involved in ongoing patent battles, but the most significant player is Apple, industry executives say, because of its influence and the size of its claims: in August in California, the company won a $1 billion patent infringement judgment against Samsung. Former Apple employees say senior executives made a deliberate decision over the last decade, after Apple was a victim of patent attacks, to use patents as leverage against competitors to the iPhone, the company’s biggest source of profits.

Apple has filed multiple suits against three companies — HTC, Samsung and Motorola Mobility, now part of Google — that today are responsible for more than half of all smartphone sales in the United States. If Apple’s claims — which include ownership of minor elements like rounded square icons and of more fundamental smartphone technologies — prevail, it will most likely force competitors to overhaul how they design phones, industry experts say. HTC, Samsung, Motorola and others have filed numerous suits of their own, also trying to claim ownership of market-changing technologies.

While Apple and other major companies have sometimes benefited from this war, so have smaller partners. In 2010, Apple acquired Siri Inc., the company behind the software of the same name. The stock price of Mr. Ricci’s company, Nuance, which had by then become Siri’s partner, rose by more than 70 percent as iPhone sales skyrocketed. Some former executives at Vlingo, Nuance’s old rival, remain bitter.

“We had spent $3 million to win one patent trial, and had five more to go,” said a former Vlingo executive who spoke on condition of anonymity because he had signed confidentiality agreements. “We had the better product, but it didn’t matter, because this system is so completely broken.”

Mr. Ricci declined to be interviewed. Others at Nuance said they were simply protecting their intellectual property.

“Our responsibility is to follow the law,” said Lee Patch, a vice president at Nuance. “That’s what we do. It’s not our fault if some people don’t like the system.”

Today, Nuance is a giant in voice recognition. Apple is the most valuable company in the world. And the iPhone is wrapped in thousands of patents that keep companies in numerous court battles.

“Apple has always stood for innovation,” the company wrote in a statement in response to questions from The New York Times. “To protect our inventions, we have patented many of the new technologies in these groundbreaking and category-defining products. In the rare cases when we take legal action over a patent dispute, it’s only as a last resort.

“We think companies should dream up their own products rather than willfully copying ours, and in August a jury in California reached the same conclusion,” the statement said.

At a technology conference this year, Apple’s chief executive, Timothy D. Cook, said patent battles had not slowed innovation at the company, but acknowledged that some aspects of the battles had “kind of gotten crazy.” “There’s some of this that is maddening,” he said. “It’s a waste; it’s a time suck.” The evolution of Apple into one of the industry’s patent warriors gained momentum, like many things within the company, with a terse order from its chief executive, Steven P. Jobs.

A Patent Warrior’s Education
It was 2006, and Apple was preparing to unveil the first iPhone. Life inside company headquarters, former executives said, had become a frenzy of programming sessions and meetings between engineers and executives. And, increasingly, patent lawyers.

Just months earlier, Apple reluctantly agreed to pay $100 million to Creative Technology, a Singapore-based company. Five years before, Creative applied for a broad software patent for a “portable music playback device” that bore minor similarities to the iPod, an Apple product that had gone on sale the same year. Once the patent was granted to Creative, it became a license to sue.

Apple settled three months after Creative went to court. “Creative is very fortunate to have been granted this early patent,” Mr. Jobs said in a statement announcing the settlement in 2006.

Privately, Mr. Jobs gathered his senior managers. While Apple had long been adept at filing patents, when it came to the new iPhone, “we’re going to patent it all,” he declared, according to a former executive who, like other former employees, requested anonymity because of confidentiality agreements.

“His attitude was that if someone at Apple can dream it up, then we should apply for a patent, because even if we never build it, it’s a defensive tool,” said Nancy R. Heinen, Apple’s general counsel until 2006.

Soon, Apple’s engineers were asked to participate in monthly “invention disclosure sessions.” One day, a group of software engineers met with three patent lawyers, according to a former Apple patent lawyer who was at the meeting.

The first engineer discussed a piece of software that studied users’ preferences as they browsed the Web.

“That’s a patent,” a lawyer said, scribbling notes.

Another engineer described a slight modification to a popular application.

“That’s a patent,” the lawyer said.

Another engineer mentioned that his team had streamlined some software.

“That’s another one,” the lawyer said.

“Even if we knew it wouldn’t get approved, we would file the application anyway,” the former Apple lawyer said in an interview. “If nothing else, it prevents another company from trying to patent the idea.”

The disclosure session had yielded more than a dozen potential patents when an engineer, an Apple veteran, spoke up. “I would like to decline to participate,” he said, according to the lawyer who was at the meeting. The engineer explained that he didn’t believe companies should be allowed to own basic software concepts.

It is a complaint heard throughout the industry. The increasing push to assert ownership of broad technologies has led to a destructive arms race, engineers say. Some point to so-called patent trolls, companies that exist solely to sue over patent violations. Others say big technology companies have also exploited the system’s weaknesses.

“There are hundreds of ways to write the same computer program,” said James Bessen, a legal expert at Harvard. And so patent applications often try to encompass every potential aspect of a new technology. When such applications are approved, Mr. Bessen said, “the borders are fuzzy, so it’s really easy to accuse others of trespassing on your ideas.”

The number of patent applications, computer-related and otherwise, filed each year at the United States patent office has increased by more than 50 percent over the last decade to more than 540,000 in 2011. Google has received 2,700 patents since 2000, according to the patent analysis firm M-CAM. Microsoft has received 21,000.

In the last decade, the number of patent applications submitted by Apple each year has risen almost tenfold. The company has won ownership of pinching a screen to zoom in, of using magnets to affix a cover to a tablet computer and of the glass staircases in Apple stores. It has received more than 4,100 patents since 2000, according to M-CAM.

And as patent portfolios have expanded, so have pressures to use them against competitors.

In March 2010, Apple sued HTC, a Taiwanese smartphone manufacturer that had partnered with Google. Apple did not talk to HTC before suing. Negotiations were not part of the strategy, according to a former executive. “Google was the enemy, the real target,” the executive said.

It was one of seven major smartphone and patent-related lawsuits Apple has initiated since 2006. The suits have focused on two large companies, HTC and Samsung, both Google partners, which together account for 39 percent of American smartphone sales. Apple has also filed countersuits against Nokia, as well as against Motorola Mobility, which is now owned by Google and accounts for 12 percent of sales.

In addition, the company has filed two declaratory judgment actions asking the courts to rule on the provenance and validity of patents. Over the same period, Apple itself has been sued 135 times, mostly by patent trolls interested in its deep pockets.

Apple is not alone. The number of patent lawsuits filed in United States district courts each year has almost tripled in the last two decades to 3,260 in 2010, the last year for which federal data is available. Microsoft has sued Motorola; Motorola has sued Apple and Research in Motion; Research in Motion has sued Visto, a mobile technology company; and in August, Google, through its Motorola unit, sued Apple, contending that Siri had infringed on its patents. (Google dropped the suit last week, leaving open the possibility of refiling at a later date.) All of those companies have also been sued numerous times by trolls.

Patents for software and some kinds of electronics, particularly smartphones, are now so problematic that they contribute to a so-called patent tax that adds as much as 20 percent to companies’ research and development costs, according to a study conducted last year by two Boston University professors.

Supporters of suits initiated by Apple say that the litigation is vital to the company’s success and that Apple is sued far more often than it sues, as do all major tech firms.

“If we can’t protect our intellectual property, then we won’t spend millions creating products like the iPhone,” a former Apple executive said, noting that some of Apple’s patents, like the “slide to unlock” feature on the iPhone, took years to perfect. The concept “might seem obvious now, but that’s only after we spent millions figuring it out,” the executive said. “Other companies shouldn’t be able to steal that without compensating us. That’s why the patent system exists.”

But others challenge that logic, given the huge profits the technology industry enjoys. Apple collects more than $1 billion a week in iPhone and related sales. “I am skeptical whether patents are needed in the software industry to provide adequate incentives,” Judge Posner wrote in an e-mail.

One consequence of all this litigation, policy makers and academics say, is that patent disputes are suffocating the culture of start-ups that has long fueled job growth and technological innovation.

“Think of the billions of dollars being flushed down the toilet,” said Ms. Heinen, the former Apple general counsel, who left the company and paid $2.2 million in connection with a federal investigation of stock option backdating. “When patent lawyers become rock stars, it’s a bad sign for where an industry is heading,” she said, adding that she had no issue with the lawyers themselves.

There are some indications that the big companies themselves are growing weary of this warfare.

In its response to The Times, Apple addressed “standards-essential” patents, which companies are obligated to license to competitors at reasonable rates, and wrote that it was “deeply concerned by the rampant abuse of standards-essential patents by some of our competitors.”

“Standards-essential patents are technologies which these companies have volunteered to license to anyone for a reasonable fee,” the statement said, “but instead of negotiating with Apple, they’ve chosen to sue us.” Samsung, Motorola, Nokia and HTC have sued Apple, claiming it violated standards-essential patents.

Another sign of fatigue is the frequency with which executives and lawyers from Apple and Google speak to one another about patent disputes. Earlier this year, Google proposed a cease-fire, according to people familiar with the conversations. And when Google withdrew its Motorola suit last week, it was widely seen as a peace gesture.

But Apple has been hard to pin down, said one person from Google who was not authorized to speak publicly. “Sometimes they’re asking for money. Then they say we have to promise to not copy aspects of the iPhone. And whenever we get close to an agreement, it all changes again.

“Our feeling is they don’t really want this to end. As long as everyone is distracted by these trials, the iPhone continues to sell.”

Apple declined to comment on the negotiations.

The Patent Bureaucracy

The United States Patent and Trademark Office in Alexandria, Va. The office is known for being understaffed and plagued by turnover.

The application by Apple that eventually became patent 8,086,604 first crossed desks at the Patent and Trademark Office on a winter day in 2004.In the next two years, a small cast of officials spent about 23 hours — the time generally allotted for reviewing a new application — examining the three dozen pages before recommending rejection. The application, for a voice- and text-based search engine, was “an obvious variation” on existing ideas, a patent examiner named Raheem Hoffler wrote. Over the next five years, Apple modified and resubmitted the application eight times — and each time it was rejected by the patent office. Until last year. On its 10th attempt, Apple got patent 8,086,604 approved.

Today, though the patent was not among those Vlingo and Nuance fought over, it is known as the Siri patent because it is widely viewed as one of the linchpins of Apple’s strategy to protect its smartphone technologies.

In February, the company deployed this new patent in a continuing lawsuit against Samsung that could radically reorder the $200 billion smartphone business by giving Apple effective ownership of now-commonplace technologies, software experts say.

Patent 8,086,604’s path to approval “shows there’s a lot wrong with the process,” said Arti K. Rai, an intellectual property expert at Duke University School of Law who reviewed the patent application for The Times. That patent, like numerous others, is an example of how companies can file an application again and again until they win approval, Ms. Rai said.

When Apple submitted the first application for 8,086,604, the iPhone and Siri did not exist. The application was aspirational: it described a theoretical “universal interface” that would allow people to search across various mediums, like the Internet, corporate databases and computer hard drives, without having to use multiple search engines. It outlined how such software might function, but it did not offer specifics about how to build it. It suggested that some people might speak a search phrase rather than use a keyboard.

The ideas contained in the application would blossom at Apple, Google, Microsoft, Nuance, Vlingo and dozens of other companies. All the while, the application traveled quietly through the patent office, where officials rejected it twice in 2007, three times in 2008, once in 2009, twice in 2010 and once in 2011.

The patent office has a reputation for being overworked, understaffed and plagued by employee turnover, and employees concede that some of their work is subjective.

“When I get an application, I basically have two days to research and write a 10- to 20-page term paper on why I think it should be approved or rejected,” said Robert Budens, a 22-year patent examiner and president of the examiners’ labor union. “I’m not going to pretend like we get it right every time.”

To receive a patent, an invention must be novel (substantially different from what exists), not obvious (one can’t patent a new toaster simply by expanding it to handle five slices of bread), and useful (someone can’t patent an invisibility machine if invisibility is impossible).

“If you give the same application to 10 different examiners, you’ll get 10 different results,” said Raymond Persino, a patent lawyer who worked as an examiner from 1998 to 2005.

After patent 8,086,604 was first rejected in 2007, Apple’s lawyers made small adjustments to the application, changing the word “documents” to “items of information” and inserting the phrase “heuristic modules” to refer to bits of software code. A few years later, the inclusion of the word “predetermined” further narrowed Apple’s approach.

These changes had little substantial impact, said experts who reviewed the application for The Times. But the patent office slowly began to come around to Apple’s point of view.

Though submitting an application repeatedly can incur large legal fees, it is often effective. About 70 percent of patent applications are eventually approved after an applicant has altered claims, tinkered with language or worn down the patent examiners. One consequence is that patents are sometimes granted for ideas that already exist.

In 1999, for instance, two men received a patent for a crustless, sealed peanut butter and jelly sandwich. (The J. M. Smucker company acquired the patent and used it to sue other food makers. In 2007, after press scrutiny, federal officials canceled the patent.)

A year earlier, the patent office had awarded an Illinois company effective ownership of many of the basic systems that power the Internet. That firm sued a number of tech giants, persuading many to sign multimillion-dollar settlements, until a jury declared some of the patents invalid last year.

For Apple’s 8,086,604, the examiners finally relented last December and issued a patent.“Apple got another warhead in its arsenal, but there’s no big invention here,” said David J. Pratt, president of M-CAM, the patent analysis firm, who analyzed the application for The Times.The patent office declined to discuss 8,086,604. Officials pointed out that the agency’s 7,650 examiners received more than half a million applications last year, and the numbers have kept climbing.

By all accounts, there have been improvements in the patent office since David J. Kappos took over as director in 2009. In an interview, Mr. Kappos said the lengthy back-and-forth between examiners and Apple was evidence that the system worked.

“It’s called the patent office,” he said, noting that issuing patents is the agency’s job. In a statement, the agency said it had spent the last three years strengthening policies to improve patent quality. Besides, Mr. Kappos said, “we realize that only a handful of these patents will be really important.”

However, patent 8,086,604 has proved very important. In February, Apple sued Samsung in a California court, arguing that 17 of Samsung’s smartphones and tablets violated 8,086,604. In June, a judge banned sales of Samsung’s Galaxy Nexus phone, validating 8,086,604 and ruling that the phone infringed on Apple’s patent because it featured a “Google quick search box” that allowed users to enter one search term, either typed or spoken, that returned results simultaneously from the Internet, contacts stored on the phone and recently visited Web sites. (The ban has been stayed while under appeal.)

Searching for FixesSome experts worry that Apple’s broad patents may give the company control of technologies that, over the last seven years, have been independently developed at dozens of companies and have become central to many devices.

“Apple could get a chokehold on the smartphone industry,” said Tim O’Reilly, a publisher of computer guides and a software patent critic. “A patent is a government-sanctioned monopoly, and we should be very cautious about handing those out.”

Others say the system works fine.

“Intellectual property is property, just like a house, and its owners deserve protection,” said Jay P. Kesan, a law professor at the University of Illinois. “We have rules in place, and they’re getting better.

“And if someone gets a bad patent, so what?” he said. “You can request a re-examination. You can go to court to invalidate the patent. Even rules that need improvements are better than no rules at all.”

Five years ago, Congress was debating how to fix the patent system when an inventor named Stephen G. Perlman went to Capitol Hill.

Mr. Perlman worked at Apple in the 1980s. Today, he runs a start-up incubator called Rearden in San Francisco. He holds 100 patents — including for the software behind the reverse aging in the film “The Curious Case of Benjamin Button” — and has about 100 more applications pending.

Patents are crucial to his business, Mr. Perlman said, particularly in raising money from venture capitalists and deterring large companies from copying his innovations. “When we file a patent application, it’s a big deal,” he said. When Mr. Perlman went to Congress, he brought ideas to protect small inventors. He wasn’t alone in suggesting solutions. Thousands of companies, from start-ups like Vlingo to large technology firms, have argued that a well-functioning patent system is essential to their success. The problems with the current system are so pervasive, they say, that the courts, lawmakers and Silicon Valley must find their own fixes.

One option is judicial activism. This year, Judge Posner, in an Illinois federal court, tossed out patent arguments made by both Apple and Motorola Mobility in a 38-page opinion that dismissed a lawsuit between the two companies. Cleaning up the patent mess, Judge Posner said in an interview, might also require reducing the duration of patents on digital technologies, which can be as long as 20 years. “That would make a big difference,” he said. “After five years, these patents are mainly traps for the unwary.”

Ideas have also come from policy experts and Silicon Valley. The Federal Reserve Bank of St. Louis recently published a working paper calling for the abolition of patents, saying they do more harm than good.

Another idea is to create different classes of patents, so that some kinds of inventions, like pharmaceuticals, would receive 20 years of ironclad protection, while others, like software, would receive shorter and more flexible terms.

A third suggestion was made by the Internet company Twitter, which released an “Innovator’s Patent Agreement” this year intended to give software engineers some control over how their creations are used. Under the terms of the agreement, companies pledge that patents will be used only for defensive purposes.

“We’re just trying to do something modest,” said Benjamin Lee, Twitter’s legal counsel.

Similarly, law school faculty at the University of California, Berkeley, have proposed a “Defensive Patent License” in which companies would contribute patents to a common pool that shielded participants from litigious aggressors. Companies would be allowed to participate as long as they did not become first-strike plaintiffs. The benefit is that “you don’t have to worry about your patent being weaponized” and used to attack competitors, said Jason M. Schultz, an assistant professor who helped design the license.

But to really make a difference, such ideas require the participation of large technology companies, and the incentives to cooperate are small. So some frustrated engineers have become outspoken advocates for reform.

Mr. Perlman, the independent inventor, for instance, was hopeful his voice would be heard on Capitol Hill. But alongside Mr. Perlman were hundreds of lobbyists from high-tech corporations and the pharmaceutical industry, which often push conflicting proposals. Big technology companies, in general, want to limit the financial damages juries can award for minor patent violations, while drug makers want to make sure they can sue for billions of dollars if a single patent is violated.

These and dozens of other narrow battles have paralyzed Congress’s ability to make real changes, lawmakers and lobbyists say. The last attempt, the America Invents Act, which was passed last year, achieved mostly administrative fixes, like making it easier for outsiders to challenge a patent’s validity. The new law did make one fundamental change. Since the patent system was overseen by Thomas Jefferson, the United States has awarded ownership of an innovation to whoever created the first prototype, a policy known as “first to invent.” Under the America Invents Act, ownership will be awarded to whoever submits the first application, or “first to file.”

The shift, inventors like Mr. Perlman say, makes life harder for small entrepreneurs. Large companies with battalions of lawyers can file thousands of pre-emptive patent applications in emerging industries. Start-ups, lacking similar resources, will find themselves easy prey once their products show promise.

That is the concern of people like Mr. Phillips, the voice recognition specialist and one-time Siri partner who founded Vlingo. “Start-ups are where progress occurs,” he said in an interview. “If you spend all your time in court, you can’t create much technology.”
In June, Mr. Phillips started work at his new employer, and former courtroom adversary, Nuance. Theoretically, his job was to help manage the companies’ integration and find new technological frontiers to explore. With a background at M.I.T. and Carnegie Mellon, he is widely acknowledged as one of the most innovative thinkers in computer speech.
But he spent much of the summer on vacation, recuperating from the last six bruising years. And in September, he quit. He plans to leave voice recognition altogether, he has told friends, and find an industry with less treacherous patent terrain.

A version of this article appeared in print on October 8, 2012, on page A1 of the New York

WIDENING SCRUTINY OF GOOGLE'S SMARTPHONE PATENTS

By Steve Lohr | NYT | October 9, 2012

For more than a year, the Federal Trade Commission has been conducting a broad antitrust investigation into the way Google runs its Internet search and search advertising businesses. But in recent months it has added another investigation into Google’s competitive behavior.
Nathan Weber for The New York Times. Judge Richard Posner has handled tech patent cases.

This time, the focus is on phones — specifically, on patents that apply to lucrative smartphone technology, and the conduct of Google’s Motorola Mobility subsidiary.
The F.T.C. issued subpoenas in June seeking information from Google and smartphone rivals including Apple and Microsoft, and it questioned representatives of the companies as recently as a few weeks ago, said people briefed on the investigation.

Google owns patents covering communications and data-handling technologies that are crucial for the basic operation of smartphones and tablets — what are known as standard-essential patents. The investigators are scrutinizing the company’s policies for licensing these patents and suing other companies that it claims are infringing on them, said these people, who spoke on the condition that they not be identified.
Google’s Motorola unit pledged to technology standards organizations that it would license the patents to others on “fair and reasonable” terms to stimulate the growth of the industry, benefiting all companies.

Bloomberg reported in June that the F.T.C. had opened an investigation in this area. Since then, the agency inquiry has progressed, and the use of standard-essential patents has been an issue in several court cases and before Congress.

Google said in a statement on Tuesday: “We take our commitments to license on fair, reasonable and nondiscriminatory terms very seriously, and we are happy to answer any questions.”

Standard-essential patents, antitrust experts say, are the modern, high-tech equivalent of certain vital railway lines in the 19th century, like the Eads rail terminal and bridge across the Mississippi in St. Louis, the subject of a historic antitrust decision in 1912. Essential patents, like rail bridges, can become anticompetitive bottlenecks if the corporate owner withholds access to the technology or demands unreasonably high payment.

In Senate testimony in July, Edith Ramirez, an F.T.C. commissioner, speaking of the potential abuse of standard-essential patents, said, “Holdup and the threat of holdup can deter innovation by increasing costs and uncertainty for other industry participants, including other patent holders.”

Google is by no means the only smartphone company with standard-essential patents. But when it agreed to buy Motorola Mobility for $12.5 billion, Google picked up 17,000 patents, including a large trove of important patents relating to wireless devices that Motorola had committed to license.

The Google move was partly to defend itself and the smartphone makers that use its Android software, after rivals had already loaded up on patents.

A few months earlier, Apple and Microsoft led a six-company consortium that outbid Google and paid $4.5 billion for 6,000 patents sold by Nortel Networks, a bankrupt telecommunications company.

In the smartphone patent wars, Apple has relied on its patents on design and the way a person interacts with a mobile device, which are not standard-essential patents.

The F.T.C. investigation indicates that it is keeping an eye on the patent buildup by major high-tech companies. “It’s part of the larger concern that the amalgamation of these giant patent arsenals harms competition,” said William E. Kovacic, the former chairman of the F.T.C. who is now a professor at George Washington University.

“The worry,” said Mr. Kovacic, “is that the new Googles and new Apples will bump into too many patent tollbooths.”

The F.T.C. is not the only agency that has raised concerns about Google’s stewardship of standard-essential patents. The Justice Department, when it approved Google’s acquisition of Motorola and the consortium’s purchase of Nortel’s patents earlier this year, issued a statement praising the “clear commitments” by Apple and Microsoft to license standard patents on fair terms. It also noted their pledge not to try to use such patents to seek court injunctions to stop shipments of rivals’ products.

“Google’s commitments,” the Justice Department statement said, “were more ambiguous and do not provide the same direct confirmation of its standard-essential patent licensing policies.”

In June, Judge Richard A. Posner, a prominent federal appeals court judge in Chicago, dismissed a case between Apple and Motorola, finding the patent claims on both sides lacking. Judge Posner said Google’s Motorola unit could not try to calculate a royalty rate on a standard-essential patent based on “the holdup value — conferred by the patent’s being designated as standard-essential.”

“Motorola,” Judge Posner wrote, “has provided no evidence for calculating a reasonable royalty.”

The greatest potential abuse of a standard-essential patent is to get a court injunction to block a product from a market, said Carl Shapiro, a former chief economist in the Justice Department’s antitrust division.

Conventional patents can be used to stop shipment of an infringing product. But in the case of standard-essential patents, “you have made promises to license and that changes the game,” he said. “You’ve agreed to attenuate your property rights to expand the industry as a whole.”

Companies should not be allowed to use standard-essential patents as weapons, said Mr. Shapiro, a professor at the University of California at Berkeley. They should be barred from using such patents to seek market-blocking injunctions, and then pricing disputes should be left to the courts to decide what is fair, he said.

SOARING ILLEGAL TRADE IN USERS ONLINE DATA

2012-10-01T23:55:00.004-07:00

Maija Palmer, Financial Times Technology correspondent

Nearly 20m items of personal data were traded illegally over the internet in the first half of this year, as more people went online.

The amount of illegal data in circulation is on track to quadruple from 2010 by the end of this year, according to research by Experian, the credit checking agency.
The sharp rise came as consumers have more accounts online than before, making transactions online, from bank payments to utility and council tax bills. The average Briton now has about 26 accounts online and those aged 25-34 have about 40 accounts.

Despite efforts to toughen sanctions against companies who do not properly safeguard their customers’ data, the amount being circulated by criminals has continued to grow.

Data are sold by hackers on auction-like black market sites, where information to authenticate credit card accounts sells for $1-$30 an account depending on the card credit limit. Passwords for email accounts sell for $1-$20.

About 90 per cent of illegally traded personal data involves the combination of an account name and password, Experian said.

The most prevalent form of identity theft is account takeover, where someone simply begins using a consumer’s email or bank account. Fraudsters can also set up new accounts in a user’s name, running up bills which can take a long time to sort out with creditors.

Peter Turner, managing director at Experian Consumer Services in the UK and Ireland, said consumers had become too complacent when they went online.

“Although 14 per cent of Britons admit to being concerned about the risk of online ID theft, many more, 43 per cent, have no such worries,” he said.

People’s behaviour can make them more prone to having their data hacked. Three-fifths of internet users never log out of websites and a quarter never check whether a website they are visiting is marked with an image of a security padlock to denote that it is a secure site.

Consumers also frequently reuse the same password for many sites – a quarter use a single password for most of their accounts, according to research from Experian this year. Many also use simple, easy-to-crack passwords, such as dictionary words or names of pets. Mr Turner recommends having unique passwords for at least the main email account and for any online banking services.

As part of its research Experian set up eight fake email accounts to see what would happen when hackers got hold of the details. All eight were taken over within five hours, by criminals based in countries ranging from Albania to South Africa. The first messages to be read in the account were emails related to passwords, followed by messages between friends and family.

Experian tracked about 9.49m items of personal data being traded in 2010, rising to 19.04m last year and likely to be nearly 40m by the end of 2012.

UNCOVERING SECRETS IN SOCIAL DATA

2012-09-10T12:35:00.002-07:00

How researchers are letting us uncover secrets in social data

Thanks to the popularity of everything from social media sites such as Twitter to email to mobile phones, it’s easier than ever to get data about who’s connected to whom. With the right tools, we can apply it solve certain problems faster and easier than ever.

It’s not easy work turning the Mayberry Police Department into the team from C.S.I., or turning an idea for a new type of social network analysis into something like Klout on steroids, but those types of transformations are becoming increasingly more possible. The world’s universities and research institutions are hard at work figuring out ways to make the mountains of social data generated every day more useful and, hopefully, to make us realize there’s more to social data than just figuring out whose digital voice is the loudest.

Aspiring heirs to the Klout throne, for example, might look to a project called STINGER currently under development at Georgia Tech University. STINGER, which stands for Spatio-Temporal Interaction Networks and Graphs Extensible Representation, is a graph-processing engine that project lead David Bader says is bigger, faster and more flexible than anything currently in use for analyzing social media connections. You provide a shared-memory computing system, and it provides an open-source tool that can help detect relationships between billions of people, places and things as those relationships change over time — even in real time. Someone using Facebook data, for example, might write an algorithm using where people or pages would be the vertices and actions (likes, shares, wall posts, etc.) would be the graph’s edges. One relatively easy application, Bader explained, would be to analyze how activity around particular people is increasing, decreasing or changing, therefore indicating changes in their importance or the growth of new communities.

We’ll do the hard work

Writing an algorithm to perform that kind of analysis isn’t really the problem, though — it’s writing one that can scale into the billions of vertices and edges and still perform quickly enough to be useful. An algorithm that generates one false positive in a million isn’t so bad when you’re dealing with tens of thousands of items, Bader explained, but it gets to be a big problem when you’re talking about billions of items against which it’s running.

There are dozens of open source graph databases available, including popular offerings such as Neo4j and InfiniteGraph, but he said, “Our lab focuses on algorithms that run fast on massive data sets and that are more accurate than what is traditionally done in social media.”

David Bader

Bader’s team recently presented a paper detailing a social media algorithm running atop STINGER that ran 100 times faster than some previous approaches because the system stores the graph’s previous state and only performs the minimal amount of processing necessary as new edges are inserted. This is in contrast to traditional approaches that re-process the entire graph every time there’s a change.

That being said, Georgia Tech isn’t entirely alone analyzing massive amounts of social data with graph databases. Google’s Pregel had already scaled to billions of vertices and edges as of 2009, and Facebook is currently analyzing more than a billion edges using Apache Giraph (an open source, Hadoop-based Pregel implementation). But those cases — both companies are loaded with smart engineers, data scientists and powerful infrastructure — just underscore the importance of what researchers like Bader are building and releasing as open source.

Forget social media, solve real problems

But social data isn’t just useful for figuring out who’s influential on Twitter or Facebook — it also can be used to solve some real problems. Bader said he’s already used graph processing with Twitter data to determine who was leading resistance units during Egypt’s recent revolution. ”Anywhere I can look at connections between entities,” he said, “these approaches are available.” Indeed. On a Wednesday afternoon, a group of researchers from the University of Alberta, University of Connecticut and University of California-Merced unveiled a new data-based method that could make it faster, easier and less expensive to root out culprits in fraud cases.

The technique uses a method called the Steiner tree to analyze the connections –social, business, familial, etc. — between the people involved in a given case of fraud. The algorithm is able to determine the shortest path between two objects, which the researchers posit is especially applicable to fraud investigations — the person with the shortest path between himself and the crime is probably the culprit (or at least a solid suspect).

The fraud researchers’ paper follows the publication in August of a method for determining the source of everything from a disease outbreak to a Twitter rumor by tracking its spread across a complex network over time. Their algorithm, the paper’s authors claim, could be particularly effective for combating cybercrime by tracking computer viruses back to their sources. The more connections (in the case of social data), or observers, a particular point has, the fewer that are needed to track down the source point.

However, all the algorithms and data frameworks in the world probably won’t make too big a difference until they’re turned into products that actually work on real-world situations. As the University of Alberta’s Ray Patterson pointed out in a press release detailing the fraudster-detection algorithm, ”It might take several years or many years before anyone picks it up. But it’s a good thing if we can point people towards what’s useful.”

Georgia Tech’s Bader said DARPA, Intel, Sandia National Laboratory and other research institutions have already used STINGER to tackle some complex data sets, and he suspects a strong commercial interest, as well. If a company is willing to take STINGER from a project into a product, it could bring the project’s scale and speed to everything from analyzing customer interactions to monitoring the changing nature of criminal networks, Bader said. Considering the desire from companies of all types to extract some meaning from social data, I have to think someone will give it a shot.

TECH'S NEW WAVE, DRIVEN BY DATA

2012-09-09T00:23:00.002-07:00

TECHNOLOGY tends to cascade into the marketplace in waves. Think of personal computers in the 1980s, the Internet in the 1990s and smartphones in the last five years.

Computing may be on the cusp of another such wave. This one, many researchers and entrepreneurs say, will be based on smarter machines and software that will automate more tasks and help people make better decisions in business, science and government. And the technological building blocks, both hardware and software, are falling into place, stirring optimism.

Michael R. Stonebraker, a pioneer in database research, is one of the optimists. Software used by companies and government agencies — in products sold by Oracle, I.B.M., Microsoft and others — descends from research done in the 1970s by Mr. Stonebraker and Eugene Wong, a colleague at the University of California, Berkeley, as well as a team of scientists at I.B.M.

Today, Mr. Stonebraker sees an opportunity for new kinds of ultrafast databases. The new software, he explains, takes advantage of rapid advances in computer hardware to help businesses and researchers find insights in the rising flood of data coming from so many sources, including Web-browsing trails, sensor data, genetic testing and stock trading. So, at 68, Mr. Stonebraker is a co-founder and chief technology officer of two start-ups in the field of data-driven discovery, VoltDB and Paradigm4. “Now is the time,” says Mr. Stonebraker, who is an adjunct professor at the Massachusetts Institute of Technology’s computer science and artificial intelligence laboratory. “The economics and the technology are ripe.”

The case for optimism is by no means unqualified. The march of these technologies raises social issues, including privacy concerns, and the timing is uncertain. All of the bold predictions in the 1990s that the Internet would disrupt traditional industries like media, advertising and retailing did come true — a decade later.

But a series of related technologies, scientists and entrepreneurs say, has reached a critical mass — come to a digital boiling point, so to speak — so that new products and capabilities become possible. The technical ingredients, they note, include powerful, low-cost computing and storage spread across thousands of computers. The digital engine rooms of Google and Amazon are prime examples.

Another fast-improving technology involves inexpensive and intelligent sensors, which are crucial to a new breed of automated machines like experimental driverless cars and battlefield drones. Clever software — notably machine-learning algorithms — animates much of the current wave of smarter technology. Two well-known examples are found in Watson, the “Jeopardy”-winning computer from I.B.M., and the movie recommendations on Netflix.

ADVANCES in such underlying technologies are fueling the current excitement in fields like artificial intelligence, robotics and data analysis and prediction. “All parts of the technology pipeline are gearing up at the same time, and that’s how you get this explosion of new applications and uses,” says Jon Kleinberg, a computer scientist at Cornell University.

Behind the seeming explosion, experts say, is a process of technology evolution. Paul Saffo, a technology forecaster, compares the process to the evolutionary biology concept known as “punctuated equilibria” formulated by the paleontologists Stephen Jay Gould and Niles Eldredge. The idea is that species often evolve in periodic spurts.

Yet, they say, there are typically years of progress before a commercial breakthrough in the technological realm.

“Even in Silicon Valley, it takes most technologies 20 years to become overnight successes,” says Mr. Saffo, a consulting professor at Stanford’s school of engineering.

The Internet provides a case study of both technology’s evolutionary progress and its exponential growth. In 1969, there were only four computers connected to the nascent Internet, compared with roughly a billion computing devices today, from laptops to cellphones, says Edward Lazowska, a computer scientist at the University of Washington.

The early increases in connected computers drew scant attention. “But at some point in the late 1990s,” Mr. Lazowska says, “you were going from 4 million to 8 million to 16 million to 32 million to 64 million, and people started to notice that something revolutionary was going on.”

Rocket Fuel is a four-year-old Silicon Valley start-up that uses artificial-intelligence software to place display advertisements for marketers on the Web. The company can not only tailor ads by demographic slices of viewers’ ages, gender and interests, but can also use its predictive algorithms to produce campaigns based on results, says George H. John, the company’s chief executive.

For example, a luxury carmaker might tell Rocket Fuel that it wants to place 100 million ads in the next month, and it will pay the company, say, $80 for generating a sales lead, as evidenced by a potential customer downloading a brochure or filling out an online form.

Rocket Fuel is growing fast, having nearly doubled its work force since the start of the year, to 240. So far in 2012, it has handled campaigns for more than 500 advertisers, including BMW, Duncan Hines, Allstate, Pizza Hut and Ace Hardware. It has raised $76 million in venture funding and debt, and its thousands of computers handle 19 billion bid requests a day on ad exchanges. Each online auction for ad space is typically completed in about 100 milliseconds, a tenth of a second.

Rocket Fuel, Mr. John says, is using some of the ideas he worked on in the 1990s as a doctoral student focusing on artificial intelligence at Stanford — research that was supported with government dollars from the National Science Foundation and other agencies, as is so often the case. In the last few years, building a business around those ideas has become achievable and affordable. “And a lot of it has to do with the underlying technology,” Mr. John says.

FOR Mr. Stonebraker, the hardware advance that opens the door to his start-ups is the striking improvement of solid-state memory, as performance climbs and prices plunge. Solid-state, or flash, memory is most widely known as the lightweight storage technology used in consumer devices like small music players and smartphones.But increasingly, solid-state memory can be used in big computers, holding a hefty database in memory instead of sending data off to be stored on disk drives. According to Mr. Stonebraker, some data-handling tasks can now be completed 50 times faster than with conventional systems.

“Memory is the new disk,” he says. “The obvious thing to do is to exploit that technology.”

In the yin and yang of computing, it is software that exploits hardware, enabling a computer to do useful things. And machine-learning programs and other data-sifting software are advancing swiftly. “There is no point in collecting and storing all this data if the algorithms are not able to find useful patterns and insights in the data,” says Mr. Kleinberg at Cornell. “But the software is scaling up to the task.”

BIG DATA | BIG BROTHER | BIG BUCKS | Equifax Eyes Are Watching You

2012-09-04T21:56:00.001-07:00

Equifax, the giant credit bureau, is using Big Data to create new analytics products from 800 billion business and consumer records worldwide. Its CIO says, 'We know more about you than you would care for us to know.'

As one of three credit bureaus in the United States, Equifax keeps financial data on every adult in America, plus people in 16 other countries. But the company knows much more than just what goes into an old-fashioned credit score. It maintains information about people who share the same phone number or address, "non-obvious" relationships between individuals, loans for dental work, magazine subscriptions, rental history, real estate assets, investment wealth, retail purchasing, the type of federal tax return someone files, marital status, employment, utility payments, cable TV accounts, criminal records, debt-to-income ratios, changes of address, motor vehicle files, post office boxes, inferences about someone's capacity to pay bills, predictions about someone's propensity to pay, links to past and potential fraud crimes--and more.

This pile of more than 800 billion records is sliced, diced, analyzed and indexed into 26 petabytes of data. That's more data than the FBI's Investigative Data Warehouse, said to be the single biggest repository at the agency, with its relatively measly 1 billion unique documents. In all, Equifax has data on 500 million consumers and 81 million businesses worldwide.
Says Equifax CIO Dave Webb: "We know more about you than you would care for us to know."
In his wry British way, Webb alludes to the power of information and his push to derive ever more lucrative products and services from Equifax's vast stores of it. Webb says Equifax can make money off IT innovation--that is, his staff's ability to manipulate massive amounts of data better and faster than competitors can.

The company has launched scores of new IT-based products in the past few years, chasing two ideas: cutting risk and improving marketing for its 46,000 business customers. Equifax can, among other things, check an immigrant's employment status, verify a doctor's credentials, assess an Internet user's social influence and monitor a child's budding credit portfolio. Big data. Big Brother. Big bucks. But like other companies in various industries hoping to spin in-house data into revenue, Equifax has to maneuver through tricky economic, political and cultural changes. The recession forces businesses to seek out reliable data on which to base decisions (opportunity), but they have less money to spend (problem). Congress enacted tough regulations to try to control mortgage companies (opportunity), while President Obama's new Consumer Financial Protection Bureau says it's going to monitor credit bureaus (problem). People are freer with personal data than ever before (opportunity), but they don't like it when companies get too personal (problem).

Rivals Experian and TransUnion also are remaking themselves into analytics companies. "Decision analytics is the growth engine for these companies," says Elizabeth Mason, an analyst at Outsell, a company that studies the information industry. "Yet it's a shifting landscape. We don't know yet what the public's tolerance is for companies mining all of this data really well."

Privacy? What Privacy?
Business isn't just about building a better mousetrap. It's about finding out why people don't like mice and what they're willing to do about it. In the past, companies might have gathered consumers in a room to quiz them. Now they pay millions of dollars to collect, buy and analyze data about those consumers, to market the best mousetraps to the right customers.
And why not? People give up personal information in return for convenience. They hand over data about their Web activity for the chance to win a cruise. They let online game companies vacuum up personal tidbits from their Facebook accounts.

Equifax itself coaxes consumers to give up personal information online. A contest to win World Series tickets and $3,000 asked Facebook users to submit a photo and short essay on what they would do with the money. Consumers share knowingly and unknowingly, through surveys, location-based services, searches, online resumes, photos, check boxes, check-ins, tweets and clicks. People have no time to read gobbledygook privacy policies; they simply click "I Agree." "The majority of consumers have no clue about the breadth of the information about them, where their information is residing and who has access to it," says John Ulzheimer, president of consumer education at SmartCredit.com, which offers consumers credit scores, identity protection and credit-monitoring services.

How the norms have shifted. Until the mid-1990s, the conventional wisdom about privacy protection was, in essence, that information collected for one purpose shouldn't be used for another. The idea is rooted in a 1973 federal guideline, "Code of Fair Information Practices," which advocated consumer control and consent as core principles.

After the Web opened up, we moved away from the notion of separating and guarding individual pieces of data to protect privacy. Now the prevailing goal seems to be to collect and combine nearly as much personal information as possible in the quest for profit.
There's a growing movement against that trend, though, that CIOs should monitor. What people don't like is when companies combine personal data to reveal more than any single piece of information can, says Lee Rainie, director of the Pew Research Center's Internet and American Life Project. "They are nervous, concerned that material might hurt them," he says.
Still, he notes, people fail to lock down their data out of ignorance or neglect, or sometimes because it's simply not possible.

To protect consumers from themselves and from overreaching companies, lawmakers are getting involved. In March, the Federal Trade Commission recommended that businesses make privacy protection their "default setting." Companies are asked to issue clearer explanations about what happens to consumer data and simplify the choices people are given for how their information is used. "Implementing these best practices will enhance trust and stimulate commerce," the FTC says. Congress, meanwhile, is writing "Do Not Track" and other privacy bills.
For now, as data-based products grow more profitable, the boundaries consist of regulations, laws and the judgment of companies policing themselves.

Monetizing Innovation
Pulling in $2 billion in revenue, Equifax is the second-largest of the three credit bureaus, tucked between $1 billion TransUnion and $4 billion Experian. With no one dominant player, the three are in a constant, tense battle to come up with new products that reveal that much more about consumers. Each touts the breadth and uniqueness of its data. Where they overlap--and despite their rhetoric, they do overlap--speed and innovation are the advantages. "It's a fast-followers game," Webb says. His mission: to use his operations and IT background, combined with financial industry expertise, to uncover new revenue for Equifax. Webb joined the company in 2010 from SVB Financial Group, a financial services company with $20 billion in assets, where he was CIO and later COO. While his bachelor's degree in Russian may not help, his MBA certainly does. "I am amazed at how few opportunities business identifies to mine data," Webb says. "We have a responsibility to identify opportunities."

Asked how far Equifax should go, Webb pauses. "The morality question is another whole discussion. But we have the technology to do this, and if it's legal, we should."
They are. Equifax cranked out 69 new products last year in risk management, identity verification, fraud detection, analytics and marketing. Equifax executives carefully measure innovation in revenue terms. An index called New Product Innovation (NPI) measures the revenue generated from products launched in the previous three years to see if they, combined, can bring in at least 10 percent of the company's revenue in a given year. NPI revenue last year was $181 million, up from $176 million in 2010 and $134 million in 2009.
In another innovation program, the company removes 12-15 high-performers from various business units and support functions and sends them off together to brainstorm new products. They meet for three or four weeks, excused from their day jobs, to talk about how to target a need in a specific industry. Most of their ideas make it through the NPI process.

Two new products in development would help companies use analytics to avoid bad customers, says David Brooks, senior vice president of integrated data solutions at Equifax. In one, developers are building a model for banks that combines a person's credit scores with his track record for paying utility bills. The results would indicate whether it's worth the bank's time to pursue the customer for delinquent credit card payments.
The other new product, nicknamed Suspicious ID internally, is a system for watching inquiries on credit reports in real time, to catch crime in the making. The rate of inquiries, along with other factors, would be scored according to fraud risk. "When fraudsters find something that works," says Keith Manthey, the company's vice president of integrated data solutions, "they share it and use it quick."

Breaking IT Traditions
Webb has been stepping up Equifax's analytics and collaboration capabilities, buying a business intelligence tools company and a workflow software vendor last year. The company has spent $1.7 billion in the past five years acquiring data-collection and technology companies. It's a long way from the paper ledgers the company kept through the first 50 of its 113 years in existence. If the useful life of data is two to 15 years, as Equifax says in its latest annual report, Webb wants to make the most of that time. He has set loose his 1,000-member IT group to attack big data, and they've come back with technology innovations that create competitive advantage, he says.

The way Equifax's data is stored and retrieved, for example, bucks tradition. Historically, companies with enormous amounts of data build giant warehouses, often running on massively parallel processing systems. The hardware is expensive, and the architecture of a relational database inhibits queries of unstructured data, Brooks says. Instead, Equifax views the work as content delivery, rather than query processing. Data is spread across a grid of low-cost servers. IT developed proprietary distributed indexing technology to find information.
"Since our data sizes, transaction inquiry volumes and response-time requirements are all very challenging, we have to be careful about blindly following an industry-standard approach," Brooks says. "That can drive large and complex infrastructure demands that may not be necessary if you step back and think differently about the problem."
The IT group also tosses aside another worn idea. Where master data management projects seek the fabled single version of the truth, Brooks says there's no such thing. Equifax data gurus certainly spend time de-duplicating and cleansing data they integrate from public and private sources, but they've stopped fretting about finding and storing one definitive view of a consumer. Context is more important. "The reality is, they're all right. Now we think of observations more than truth," he says.
Webb encourages creativity in IT, saying the best results come from people who feel challenged. "You know who in your organization wants to learn. Let them have the reins," he says. "Set out the problem and get out of the way."

Mining You
One common way to uncover insights is to mix and match data sets, looking for correlations. Do the credit limits on the department store charge cards of single women indicate anything about their propensity to lease cars? Such blue-sky dabbling might produce useful results for marketers. For example, Equifax's rival Experian recently discovered that adults who use social media are more likely than other Internet users to visit Starbucks. Starbucks--or its coffee competitors--may want to step up its ad buys on Facebook.

At Equifax, insights also come from an executive brain spark. Last spring, Webb's imagination was caught by a CNN story about a $500,000 credit card fraud. According to federal investigators, two brothers conspired with an employee at a Beverly Hills dentist office to create hundreds of fake people who looked real on paper. They made up names, Social Security numbers and other personal data to generate "synthetic" individuals to whom the insider could pretend to give loans for dental work. The insider then reported the loans and false payments to Experian, to establish credit histories under names such as Garnik Dumanov and Grisha Stpanov. For more than a year, the trio got credit cards under these and other false identities from Bank of America, Wells Fargo and 19 other banks, which approved them after seeing good credit scores. DirecTV and several cell phone providers approved accounts. Car dealerships approved loans for an Audi Q7 and a Lexus IS 250.
Webb emailed Brooks: Could we catch scams like this?
Brooks, Manthey and other colleagues looked up more details about the crime and pulled internal data beyond just credit reports from across Equifax's wide assortment of records. Then they began testing new ways to analyze the information in an effort to produce the outcome they already knew to be true--that Stpanov, for example, couldn't be real.

Typically, someone with valid identity information will show up in other files, even if he doesn't have credit, by paying a phone bill, for example, or subscribing to a magazine. Manthey says the Equifax data showed that the synthetic individuals "obtained lines of credit, then vaporized."
"A normal person would have a footprint in many areas," Brooks adds. "Our 360-degree view lets us not be fooled." This kind of reverse analytics, spurred by Webb, ultimately resulted in new fraud-detection tools for Equifax's security team to use with clients.The fraudster brothers, meanwhile, are in federal prison and the dentist's office insider is on probation.

Beyond Financial Reporting
The way Webb sees it, new regulations for the mortgage industry hand Equifax another opportunity. The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in 2010, holds financial institutions more accountable for bad loans. Equifax quickly launched Undisclosed Debt Monitoring, an always-on service that monitors a borrower's major spending during the time between getting approved for a mortgage and the closing date. Taking out a car loan after you've been approved for a mortgage, for example, can change your risk profile, possibly putting you outside the bank's threshold for the mortgage deal.

Assessing the mortgage crisis, financial experts realized simple credit scores don't provide enough information for banks deciding whether to approve a big loan, Webb says. "We identified gaps in their knowledge." Equifax can mold its technology into revenue-generating products to suit very different circumstances. Real-time identity verification, for example, can help a telecommunications company avoid fraud. Equifax can confirm for us that Elaine Quinn is who she says she is and pays her cell phone bills on time. We'll sell to her.
That same telco can also buy marketing services from Equifax, to build on the basic identity product. Equifax can tell us that Elaine Quinn has a high wealth score, a history of big spending in the summertime and is active on social media. Let's upsell her to our most expensive mobile phone and offer a discount on her data plan if she later gets two social-media friends to sign on with us.

Upselling is most effective in the moment when a customer is interacting with a company. Sending a pamphlet in the mail weeks later or even an email a few days later is far less effective, Webb says. Real-time identity verification and "decisioning" services let retailers, telecom companies and other organizations strike while the customer is standing there. And not with generic offers, but with ones tailored to that kind of customer.
"To the extent we can know who you are when you're doing a transaction, that's highly valuable," he says.

Equifax has extended far beyond the financial realm, and way beyond being a credit bureau. Patients and medical staff who need to prove their identities online to hospitals can use the company's authentication technology, which presents questions whose answers should be known only by the individual. "Which of the following streets did you live on: Greenlawn Ave., Baldwin Rd., Elmcrest Dr. or Mead St.?" Last year, Equifax started helping the Department of Homeland Security and U.S. Citizenship and Immigration Services check the employment eligibility of immigrants.

What's Next?:
The question now is where, or perhaps even whether, this will end. Some privacy advocates worry that U.S. companies can find out too much about private citizens in the name of corporate profits. But even if Congress passes stricter laws, the privacy debate will never disappear, says Pew's Rainie. That's in part because an individual's decision to reveal personal data "is highly contextual and conditional," he says, depending on what they receive in return for disclosure. But that, too, can change over time. "People in different stages of life sometimes have different calculations about this."

Technology is another unpredictable force. Future IT capabilities will enable unforeseen uses of data. Companies, to remain competitive, must stay ahead of these trends, says Outsell's Mason, but follow a steady internal compass.
"Executives must bring to the table a sense of ethics around information, as well as knowledge of the laws and regulations," Mason says. "The challenge that any credit bureau faces is balancing the potential for revenue with offering services and data that, while completely legal, seem to cross the line between what's right for the bottom line and what's clearly wrong for consumers," adds Ulzheimer, the credit consultant. He says credit bureaus have made consumer-friendly choices, so far, such as not permanently reporting negative credit events like bankruptcies.

At Equifax, CIO Webb emphasizes how solemnly the company regards its duty to follow the laws and regulations that rule how it can use information. "We have very strong governance and controls around how data gets consumed," he says. "We are trusted stewards of data and have a responsibility to protect it."

AMAZON SHAPING THE FUTURE OF BIG-DATA COMPUTING

2012-08-28T07:59:00.001-07:00

Active in Cloud, Amazon Reshapes Computing

Within a few years, Amazon.com’s creative destruction of both traditional book publishing and retailing may be footnotes to the company’s larger and more secretive goal: giving anyone on the planet access to an almost unimaginable amount of computing power.

Every day, a start-up called the Climate Corporation performs over 10,000 simulations of the next two years’ weather for more than one million locations in the United States. It then combines that with data on root structure and soil porosity to write crop insurance for thousands of farmers.

Another start-up, called Cue, scans up to 500 million e-mails, Facebook updates and corporate documents to create a service that can outline the biography of a given person you meet, warn you to be home to receive a package or text a lunch guest that you are running late.Each of these start-ups carries out computing tasks that a decade ago would have been impossible without a major investment in computers. Both of these companies, however, own little besides a few desktop computers.

They and thousands of other companies now rent data storage and computer server time from Amazon, through its Amazon Web Services division, for what they say is a fraction of the cost of owning and running their own computers.“I have 10 engineers, but without A.W.S. I guarantee I’d need 60,” said Daniel Gross, Cue’s 20-year-old co-founder. “It just gets cheaper, and cheaper, and cheaper.” He figures Cue spends something under $100,000 a month with Amazon but would spend “probably $2 million to do it ourselves, without the speed and flexibility.”He conceded that “I don’t even know what the ballpark number for a server is — for me, it would be like knowing what the price of a sword is.”

Instagram, a 12-person photo-sharing company that was sold to Facebook for an estimated $1 billion just 19 months after it opened, skipped the expenses and bother of setting up its own computer servers.

EdX, a global online education program from the Massachusetts Institute of Technology and Harvard, had over 120,000 students taking a single class together on A.W.S. Over 185 United States government agencies run some part of their services on A.W.S. Millions of people in Africa shop for cars online, using cheap smartphones connected to A.W.S. servers located in California and Ireland.

Cloud computing has been around for years, but it is now powering all kinds of new businesses around the globe, quickly and with less capital.“We are on a shift that is as momentous and as fundamental as the shift to the electrical grid,” said Andrew R. Jassy, the head of A.W.S. “It’s happening a lot faster than any of us thought.”He started A.W.S. in 2006 with about three dozen employees. Amazon won’t say how many people now work at A.W.S., but the company’s Web site currently lists over 600 job openings.

Amazon’s efforts are just the start of a global competition among computing giants. In June, Google fully introduced a service similar to A.W.S. Microsoft is also in the business with its offering, Windows Azure.If only for competitive reasons, Amazon does not say much about A.W.S. However, it is estimated to bring in about $1 billion to Amazon. Its three giant computer regional centers in the United States, in Virginia, Oregon and California, each consist of multiple buildings with thousands of servers.There are others in Japan, Ireland, Singapore and Brazil. And the pace of its expansion has quickened. It opened four of those regions in 2011 and is believed to be building a similar number now. Jeff Bezos, the chief executive of Amazon, is interested in setting up cloud-computing installations for other governments.

According to an executive with knowledge of Amazon’s operation who was not authorized to speak publicly, just one of the 10 data centers in Amazon’s Eastern United States region has more servers dedicated to cloud computing than does Rackspace, a public cloud company serving 180,000 businesses with more than 80,000 servers. Eventually, however, Mr. Jassy said, “we believe at the highest level that A.W.S. can be at least as big as our other businesses.” Amazon recorded nearly $50 billion in revenue last year. Mr. Jassy thinks A.W.S. is probably less than 10 percent of its eventual size. The lower cost of computing, along with overnight deployment of machines, drives the business.

Germany’s Spiegel TV paid A.W.S. to make digital copies of 20,000 programs. It cost less than Spiegel would have paid for the electricity powering its own servers.

GoodData, based in San Francisco, analyzes data from 6,000 companies on A.W.S. to find things like sales leads. “Before, each company needed at least five people to do this work,” said Roman Stanek, GoodData’s chief executive. “That is 30,000 people. I do it with 180. I don’t know what all those other people will do now, but this isn’t work they can do anymore. It’s a winner-takes-all consolidation.”

All that data running through Amazon’s cloud also has value. People leave bits of data about themselves that others then analyze. At any given time on A.W.S., there are about one million uses of a powerful database, called Elastic MapReduce, that is used to make predictions. Some suggest a new movie or video game to play, while others log behavior for advertising, credit history or suggestions about whom to date. (Companies have to permit their data to be analyzed, and Amazon says it applies the same security standards it uses on its retail site.)

The efficiency of this hyper-aware environment is already remaking jobs for many and will most likely dislocate more. “You can now test a product against millions of users for just a few thousand dollars, or start a company with just one or two people,” said Graham Spencer, a partner at Google Ventures, which invests in data-heavy start-ups that rely on such cheap computing. “It’s a huge change for Silicon Valley.”

That vision is in line with the way Mr. Bezos sees A.W.S., say executives who have worked with him. “Jeff thinks on a planetary level,” said David Risher, a former Amazon senior executive who now heads a charity called Worldreader, which uses A.W.S. to download books to thousands of computers in Africa. “A.W.S. is an opportunity, as a business. But it is also a philosophy of enabling other people to build big systems. That is how Amazon will make a dent in the universe.”

THE INTERNET OF THINGS: UNION PACIFIC & NEST LABS

2012-08-27T12:27:00.002-07:00

Union Pacific Delivers Internet Of Things Reality Check
U.S.'s largest railroad uses sensors and analytics to prevent derailments, but it also shows where the next wave of innovation is needed.

Union Pacific, the nation's largest railroad company, is a choice place to assess the gap between the dream and the reality of what's commonly called the "Internet of things." Like a lot of technology movements, the Internet of things is easy to describe but hard to execute. It means putting sensors on all manner of machines to collect data, linking them over wired and wireless networks, and then applying data analytics to assess when a train's wheel needs replacing, a power plant needs fixing, a soybean field needs watering, or a patient needs reviving.

Union Pacific and other companies are doing some of that kind of analytics today. Companies that succeed in the future will have to do much more of it, so it's critical to know the barriers and constraints--which brings us to Union Pacific headquarters in Omaha, Neb. UP has been in the same business for 150 years, hauling railcars full of coal, grain, manufactured goods, and people across the plains and mountains of the Western U.S. To run the railroad of the future, it's putting more emphasis on a new skill: predicting the future.

For example, UP would like to be able to predict when a wheel is going to fail weeks before it causes a 1.5-mile-long, 20,000-ton coal train running at 70 miles per hour to derail, risking lives, causing delays, and losing the company money. UP has been using technology to predict and prevent derailments for well over a decade. It has placed infrared sensors every 20 miles on its tracks to take about 20 million temperature readings of train wheels a day to look for overheating, a sign of impending failure. It has trackside microphones to listen for growling bearings in the wheels. For its biggest and heaviest coal trains, it even shoots ultrasound images--like those used to see a fetus in the womb--to look for flaws inside wheels.

BY THE NUMBERS

20 Million

Number of daily pattern matches UP does of sensor readings in order to spot problem wheels

10 Billion

Number of transmissions its firewalls rejected in 2011

$35-$40 Million

Annual revenue UP generates from its own innovations

Data is sent via fiber-optic cables that run alongside UP's tracks back to its Omaha-area data centers. There, complex pattern-matching algorithms flag the outliers, letting experts decide within five minutes of taking a reading whether a driver should pull a train off the track for inspection, or perhaps just slow it from 70 to 35 mph until it can be repaired at the next station. Using all of these technologies, UP has cut bearing-related derailments by 75%.

But the railroad isn't content. Slowing a train to half speed slows the entire network, since the trains behind it on the tracks must slow as well. Stopping a train at a station midroute is a lot better than stopping it out on the track, or having a derailment, but it still bungs up the network.

CIO Lynden Tennison would love to someday get rid of all of those wayside sensors and instead put tiny sensors, called motes, directly on the wheels, bearings, door locks, and more, and collect the data wirelessly. That way, UP could predict weeks out when most repairs are needed and do them when a train is between deliveries and at a major hub. But there's a long list of obstacles to achieving this dream network:

Wireless coverage isn't everywhere. Sensors are too expensive. Unlimited data can't be instantly analyzed, even by today's computers. Algorithms can't replace human judgment. Location data is incomplete. Batteries are too short-lived. "Those are all things that will come," Tennison says. Until then, he and his team of 2,000 IT pros keep pushing today's technology to make UP a smarter railroad, testing the limits of the Internet of things as they go.

Technology Alongside Judgment

To grow, a railroad needs to push more freight volumes through a relatively finite network of tracks, locomotives, and railcars. IT is essential to maximizing that throughput; it's a constant balance between analytics-driven automation and human judgment.Railroads are a growth business. After weathering the recession and a disastrous 2009, when revenue fell 21%, UP has climbed back, with revenue up 15% in 2011 to $19.6 billion. The country's seven big railroads have been benefiting from power plants' demand for coal, China's demand for U.S. crops, and recovering auto sales. Even e-commerce growth provides a lift: UP has a section of its dispatch center devoted to one customer, UPS, which is riding the growth of e-commerce home deliveries. Meantime, UP is looking to become more of an end-to-end player by partnering with local trucking and logistics companies.

But UP's core is capacity-constrained. It has one network of tracks, 32,000 miles of it, and adding new track costs about $2.5 million a mile. One new locomotive costs $2.2 million. "We can't spend enough money on capital to fulfill our growth," says Tennison, even though UP's capital spending in 2011 was $3.26 billion. "We have to get there with IT"--by steps that improve decision-making through better information.

Nearly every technology project at the railroad can be tied back to one metric: velocity.

Velocity is the amount of freight moving through the system at a time, and dispatchers talk about the track network like a giant pipeline. UP has about 3,350 trains traveling its tracks and rail yards in any given 24-hour period, and the dispatchers have to manage those trains and their crews to optimize the flow.

Mission control is UP's main dispatch center in Omaha, something of a cross between an air traffic control room and a stock exchange. LED monitors display real-time information on everything from track and train problems to train speeds and locations to fuel consumption to freight counts (the arrangements and contents of shipping containers) to adverse weather patterns specific to its exact track locations to the status of repairs in any one of the company's 120 rail yards and terminals.

To understand the constant blend of technology, automation, and human judgment, consider all of that data coming in from trackside wheel sensors. UP's custom-written software assesses more than 20 million wheel readings a day, generating about 1,500 daily alerts that employees look at. Most problems are considered "strategic"--they aren't a looming risk and just need to be addressed at some point. Fifty to 60 can wait to be checked at the final destination, 25 to 30 at the next terminal, and seven to 10 are serious enough that the driver needs to pull the train over as soon as possible for inspection.

If a train has to slow down, dispatchers must manage the ripple effect throughout the network. An executive VP of operations monitors current and projected velocity constantly, and if it's projected to decline will isolate which trains are dragging it down. And this system doesn't just monitor UP tracks--60% of company shipments spend part of their journey on another railroad's tracks.

Other railroads are doing similar wheel-sensor readings, and ideally this trending information gets shared among the railroads. Since 2006, the major U.S. railroads have had a consortium that works out how to most effectively share that data. Without that data, when a train comes onto the UP system, analysts can't tell if a wheel suddenly got much hotter or had been steaming along that way for miles.

Another trade-off between automation and judgment comes with the Optimizing Traffic Platform, decision-support software designed using an algorithm from Carnegie Mellon to optimize railroad throughput. It can be configured to maximize throughput, to maximize velocity while giving preference to certain shipments, or to stick as closely as possible to the schedule. UP was the first major railroad to use the OTP technology, in 2010, and it's now used for about 60% of the railroad's operations, with the goal of 100% within a couple of years. Without OTP, the railroad uses a rules-based planner for when trains will meet and have to pass. That planner lets people make the best local decision, but it doesn't factor in the ripple effect. The computing capacity the OTP software requires is one reason UP recently upgraded its long-running VAX 700 data center servers to clusters of Hewlett-Packard and Dell blade servers.

Imperfect Data

The U.S. railroads are proud of their rising efficiency. U.S. rail freight rates are half of what they were in 1981 in inflation-adjusted dollars, the Association of American Railroads is fond of noting. Railroads move a ton of freight 484 miles on a gallon of fuel, up from 235 miles in 1980. Technology plays a role there as well: UP has been testing a system on its Wyoming-to-Chicago coal trains that tells a driver when to throttle up or down to maximize fuel savings.

And yet this complicated network runs on imperfect data. As companies consider the future of analytics, one of the big limitations still is getting the needed data at an affordable price.

For railroads, location data is a big gap. While UP has GPS tracking on several thousand locomotives, GPS isn't reliable enough for safe dispatching and switching of trains--it isn't accurate enough to tell which of two parallel tracks a train is on. So the tracks have a location sensor about every 15 miles that tells a central dispatcher where a train is, leaving a lot of blind spots. And even at those markers, the system knows only that a train passed the spot. In terms of where a train will be in the next five minutes, one traveling 60 mph and accelerating is a lot different from one going 40 mph and slowing down.

Another reason trains don't use GPS is because there isn't universal cellular coverage along the tracks, especially in the vast expanses of the Western U.S., for trains to continually transmit their precise locations. Until the trains get that precise location data and ubiquitous wireless data coverage, railroads can't do a lot of the sophisticated routing, monitoring, and automated controls envisioned for the Internet of things.

"If I could wave my magic wand, I would love to have 4G networks everywhere across my tracks," Tennison says. "That would really change the game for us." The industry is funding research on space-based navigation options like GPS, hoping to find something that meets its requirements.

Sensors are another linchpin to the Internet of things. They're how we'll extract the data from all of these devices. Tennison can quickly spin out a list of places on a railcar he'd like to put sensors: on bearings to measure vibration to anticipate a failure; on a tanker valve to measure pressure and know if there's a leak of toxic gas; on doors to know if a high-value container has been opened. But it would cost UP $500 to $600 to put eight to 10 battery-powered sensors on a railcar. The cost needs to get closer to $200 to be practical. "I think that's coming, but it's coming slower than I wish it was coming," Tennison says. Those sensors would need to last on a railcar for five to seven years without replacement. That rules out today's battery-powered sensors and likely will require "energy harvesting"--techniques such as capturing the energy from a train braking to use as power.And UP would need to persuade the industry to standardize on sensors, network standards, and messaging.

Another challenge has to do with how quickly companies can do analytics on the reams of data they're collecting. To understanding that challenge, it's worth a quick detour from railroads to power plants.

The Industrial Internet

General Electric's moniker for the Internet of things is "the industrial Internet." For example, it has a center in Atlanta that remotely monitors about 1,800 GE gas turbines used in electricity power plants worldwide. Sensors on the turbines relay performance data so that GE can anticipate maintenance needs and try to avoid breakdowns.Software is essential because GE isn't really selling a gas turbine; it's selling the ability to generate power.

GE is increasingly selling service contracts that are less about making repairs and more about guaranteeing performance. It has a pipeline of $147 billion worth of performance-based service contracts that will generate $45 billion in revenue this year, CEO Jeffrey Immelt said in the company's last annual report. Like at UP, however, what's just as interesting is what GE can't do now but expects do in the coming years.

Until about three years ago, GE had to be selective about the data it collected from those gas turbines. It could collect only about three months' worth of data--about 50 TB--because its database and analysis tools didn't scale beyond that size. See the problem if you were in the energy business? It meant you couldn't trend the current heat wave against the last few years' heat waves. What's more, the software could analyze data from only the turbine itself, not data points from the steam turbine and heat-recovery equipment around it, which also might have clues to a pending breakdown.Over the past few years, GE has scaled its software so it can collect and use data spanning many years and more equipment. It also acquired analytics vendors such as SmartSignal that let it handle more complicated data, like the effects of those machines connected to the gas turbine.

The next big obstacle GE's software faces is speed--which it will need to predict the future. Today's software can send alerts when it spots a potential problem, but it isn't nearly fast enough to do "what if" analysis of machines. "People call us up and say, 'Can we overdrive our equipment for the next two hours?'" says GE software CTO Rich Carpenter. Today, those answers are given based on decades of experience and engineering knowledge.

What GE wants to offer is the ability to ask, "Has any machine in our entire system ever had X, Y, and Z factors, and what happened four hours later?" GE's systems today would take about 30 days to answer that question--if they could even answer it. GE's working to combine its data management and analytics software with Hadoop-based data processing to deliver an answer in 30 seconds. GE Software has just tested a prototype architecture that delivers that kind of speed, says Erik Udstuen, business leader for GE's software and services business.

"It's being able to predict the future by having a very clear line of sight to the past," says Jim Walsh, global general manager for GE software and services.

Yet GE sees some of the same limits that Tennison sees at UP: sensors are pricey and networks to collect the data can be spotty. It's one thing to cover the 1,800 gas turbines inside power plants in sensors and collect the related data. It's much harder to do that for tens of thousands of wind turbines spread across often remote expanses of the U.S. and China.

This kind of reality check on the Internet of things is essential. People's faith in emerging technology gets to the point that they start to assume that all data is gettable, that all of it is crunchable to turn questions into answers, like those magical computers that spit out the answer in spy movies.

Union Pacific points to what's possible. Yet at the same time, its goal of driving growth through greater use of analytics, sensors, and networked machines shows how much work still lies ahead.

Congress' $20 Billion Tech Mandate: Make Trains Safer Union Pacific is spending hundreds of millions on IT each year for the federal plan aimed at making train accidents less likely.

Imagine having a $300 million annual IT budget, about 1.5% of company revenue, and then being told by Congress that you need to spend an additional $350 million to $400 million a year on an IT project that will yield minimal business benefits and for which there are minimal federal subsidies.

That's the situation Union Pacific finds itself in with its version of Positive Train Control, a set of interoperable systems under development industry-wide aimed at preventing train-to-train collisions, over-speed derailments, and injuries to rail-side workers. PTC systems are designed to keep a train within authorized limits on a track. When necessary, the technology will override the engineer or operator to slow down or stop a train. "It self-enforces safety," says Michael Newcomb, the IT director who oversees UP's work on PTC.

A train crash in California in 2008 in which 25 people died led to the Rail Safety Improvement Act, which mandates that all major U.S. railroads implement a PTC system by Dec. 31, 2015. Currently, 11 PTC projects, involving nine railroads in at least 16 states, are in varying stages of development and implementation, according to the Federal Railroad Administration, which estimates that the systems will cover about 70,000 miles of track when the program is completed. A consortium led by UP, CSX Transportation, Norfolk Southern Railway, and BNSF Railway is leading the interoperability effort.

PTC is a huge undertaking, one that UP CIO Lynden Tennison equates to a massive "science project" requiring each railroad company to overhaul its communications, back-office, "wayside" switching and signaling, and on-board train infrastructures. Newcomb says the system will have to pass 10,000 test cases before it can go fully operational at UP. Already, there's widespread talk in the industry of the need to extend the deadline beyond 2015.
Tennison estimates that when all is said and done, the industry will have spent about $20 billion and UP itself more than $2 billion on PTC. Originally, it was thought that the program would let the railroad companies eliminate one of the two engineers on board each of their trains, yielding substantial cost savings over time, but union pressures scuttled those plans, Tennison says. So UP is looking for other ways to monetize its PTC work.
For example, that work is giving UP crews improved real-time feedback if they're violating train handling rules, it's helping with remote management of track wayside equipment, and it's improving communications security for national critical infrastructure.

A more tangible outcome of UP's PTC work is a system that alerts on-board engineers to optimal throttling and braking procedures given track, traffic, and other conditions, helping the company cut fuel costs by 4% to 6%. Deeper savings are possible, as UP studies show that its best engineers use two-thirds the fuel of its worst engineers. (UP now publishes the fuel metrics of its train engineers, rewarding the top tier with $75 gas cards while having serious chats with the underperformers.) The fuel savings are noteworthy, Tennison says, "but you don't need $100,000 worth of hardware on the locomotive to do that. We could've done it for a much, much lower price."

Why Union Pacific Builds Its Own Tech
The railroad often finds off-the-shelf software and hardware is too expensive and isn't tuned to its needs.

In an era when most IT organizations look to buy off-the-shelf software, avoid doing custom coding, and allow the use of more mass-market consumer technology than they ever thought possible, Union Pacific CIO Lynden Tennison is an unapologetic believer in building rather than always buying the hardware, software, and systems that underpin its $20 billion railroad shipping business. And while it's at it, UP generates $35 million to $40 million in revenue a year selling or licensing some of those technology innovations to other companies, including rivals, creating a small profit center within its $300 million-a-year IT cost center.

UP, the nation's largest railroad company, operating west of Chicago and New Orleans, develops and builds much of its own IT partly out of necessity. The railroad shipping industry's specialized and often complex technology needs don't add up to a lucrative enough market to attract the major tech vendors. And the boutique vendors that try to fill those specialized needs are often one bad quarter away from bankruptcy, Tennison says, or they charge exorbitant prices because they're not producing at large scale and lack adequate competition. So UP is always looking for in-house IT alternatives.

While Tennison jokes that UP isn't likely to get into the general ledger software business anytime soon, it did develop its own supply chain applications, as the likes of SAP and Oracle couldn't meet its stringent performance requirements (it will tolerate only 1.5 hours of downtime a month for system upgrades and changes). UP even develops its own firewalls; develops its own service-oriented architecture; builds its own locomotive radios, networking consoles, and antenna farms; owns its own radio spectrum and trackside optical fiber (34,000 miles of it); and builds its own microwave towers (700 of them).

More ambitiously, UP acquired a small Michigan-based gaming outfit several years ago to develop virtual reality programs--complete with avatars and precise 3-D renderings of actual rail yards and trains--for internal training of RCOs (remote control operators), conductors, car inspectors, and other personnel. The company is now looking to sell that software to other railroad companies, as well as to construction, mining, and energy companies, under its PS Technology unit.

The mother of all UP IT projects is NetControl, a Linux-based transportation management system to replace the mainframe-based system the company rolled out in the late 1960s. About 270 people worldwide are working on NetControl, which Tennison calls "our family jewels." The $200 million system, which is rolled out in increments, is about halfway done and due to be fully operational in 2017.

UP's current transportation management system is used mostly for taking customer orders, scheduling train operations, tracking what's going on in train cars, and monitoring railroad traffic. It's being updated to a Web platform, letting customers access it from mobile devices, place more accurate orders, and see the planned travel itinerary for their shipments. With NetControl, UC will be able to monitor terminal and network use over time and forecast imbalances in the supply and demand of crews or locomotive power. Automated action- or alert-driven workflows can recommend optimal solutions. One internal benefit of moving to NetControl is that more technical expertise is available to support a Web versus a mainframe system, Tennison says. UP is also looking to sell NetControl to other railroad companies.

Tennison, the company's CIO since 2005, made his vendor bones running a for-profit UP service management application subsidiary called Nexterna from 1998 through 2001. Still, he says he sometimes wonders "whether we're dinosaurs" doing all of this custom work. "I second-guess myself a lot," he concedes, "but it doesn't feel like we're making bad decisions."

Tech Hotshot, Want To Work At A Railroad?
Union Pacific has to put a lot of energy into internships and recruiting to lure its IT talent.

When Union Pacific IT recruiters attend job fairs on college campuses nationwide, they typically look on enviously as long lines queue at the booths of Google, Microsoft, Oracle, and other tony tech employers. Union Pacific CIO Lynden Tennison realizes he has a big challenge on his hands to convince students that a 150-year-old railroad freight hauler based in Omaha, Neb., is an attractive alternative. But he has a plan.

Tennison figures that if he can get students to spend a few months interning at UP headquarters, he can hook them. The company's IT organization recruits at the likes of Purdue, Michigan State, Georgia Tech, Texas, even MIT, as well as locally at Nebraska and Iowa State. Only 10% of the college students it makes job offers to accept, he says, but that rate jumps to 70% to 75% among students who have interned at headquarters.

The IT organization's 40 summer interns and 70 year-round interns are paid between $15 and $24 an hour; those from outside the Omaha area get housing, a meal plan, transportation, and relocation assistance. It also has seven high school interns doing system and training documentation, performing data validation, and creating scripts to migrate data during system upgrades. "We try to push on all sides as much as we can to grow the pool," Tennison says.
What does UP have to offer more seasoned IT pros? Tennison runs through a few attributes:
UP is doing leading-edge work--in real-time and predictive analytics, hardware engineering, sensor-based mote technology, train communications, and other areas. It develops and builds much of its own IT.

To promote a culture of IT innovation, Tennison three years ago initiated a website where anyone in the IT organization can post and comment on an IT-related idea anonymously. If 80% of voters give the idea a thumbs up, the person who proposed it gets $3,000 and up to 80 hours of work time to whip it into a prototype. If the idea is then deemed worthy of additional investment or deeper analysis, a formal plan is drawn up. Tennison estimates that UP has realized $10 million in benefits from the program, mostly from one idea on how to minimize false positives generated by rail wayside tracking systems, which were needlessly stopping trains.

Omaha, where most of the company's IT employees work, isn't the most hopping place for a college grad, but it has a lot to offer. It ranked eighth on the 2011 Best Cities for Families list of Parenting magazine, which gave the city of 400,000 people (more than 800,000 in the metro area) props for its strong schools, "thriving job market," and "vibrant jazz presence." Along with short commutes, it has a small downtown area, supports a performing arts center, is home to three minor league sports teams, hosts the College World Series every June, and attracts a number of name entertainment acts.

There's employment stability at UP. Average length of service is 12 years. Attrition rates run in the 5% to 6% range, with a significant portion from retirements. In all, the UP IT organization consists of about 2,000 people, 600 of them contractors (450 offshore, mostly in India, and 150 onshore). Of its 1,400 or so full-time employees, 400 are in telecom; 200 are in what Tennison calls "system engineering" (database management, middleware, operating systems, system programming, data warehousing); 180 to 200 are in data center operations; and most of the rest are in application development. Then there are the 50 or so computer, electrical, and mechanical engineers in the company's hardware R&D lab, who design and build everything from locomotive radios to railcar monitoring systems

Tennison says he has never laid off an IT employee in seven years as CIO, even as he moved work offshore. His organization hired 137 people in 2011 and 70 people so far this year. It has 10 open positions, for systems architects, developers (Java, C++), and operations support (help desk, LAN, network ops).To get access to programmers, Tennison had been bringing workers on H-1B visas to Omaha, but he found that going offshore for such work was cheaper and easier. He thinks UP's current mix of onshore/offshore IT pros is just about right, acknowledging that "you lose efficiency" with offshore contractors. "It's worked pretty effectively," he says. "I will not say it's worked without pain."

AUTHOR: Chris Murphy | InformationWeek

Chris Murphy is editor of InformationWeek magazine and Global CIO columnist on IT strategy issues. He has been covering technology leadership and strategy issues for InformationWeek since 1999. Before that, he was editor of the Budapest Business Journal, a business newspaper in Hungary; and a daily newspaper reporter in Michigan, where he covered everything from crime to the car industry. Murphy studied economics and journalism at Michigan State University, has an M.B.A. from the University of Virginia, and has passed the Chartered Financial Analyst (CFA) exams.

Big Data in the (Heated or Cooled) Air Around You

Big Data is in more places than you know, perhaps even your living room.
Nest Labs makes a smart thermostat that promotes energy saving by studying its owner's habits and predicting things about when people are home and what they are likely to do with their home heating and cooling. Using a clever system of awards for the homeowner (green "leaves" for doing the energy-efficient thing), the thermostat is intended to save money through efficiency.

Since its ballyhooed launch in October, the $249 device has sold "in the mid-hundreds of thousands" of units, according to the company. That is not yet a barn burner, so to speak, but it's not bad for a device that costs about twice what a standard energy-saving thermostat does.
The device also collects enough data that Nest can start to draw from really large data sets on consumption and correlate that knowledge with information from other sources, like weather forecasts, to make a more powerful product.

Each Nest thermostat "is as powerful as a high-end smartphone, and they communicate with each other inside a house," says Tony Fadell, Nest's founder and chief executive. "We can gather all that data, mix it with other data we store in the cloud, and push different algorithms to different houses to see how people react." That approach, continually testing one feature against another and going with the one that consumers respond to best, is called A/B testing when done with Internet software. It is how Google and others make their products. As more physical objects fill up with software and develop two-way interactions with the network, Mr. Fadell says, they can be developed the same way.

The data from the thermostats includes things like when people are home. Cats and small dogs can be separated out from humans, since the thermostats have motion sensors that can determine the relative masses of different-size critters. Data in Nest's cloud servers crunches their information with things like the customer's ZIP code, location and weather forecasts. If it looks like it's getting cold, the system can then turn on the heating faster. As with much of the software released over the Internet and then adjusted as its creators see what customers do with it, the thermostat's actions have changed as the company has learned about human habits. "We found that people are more predictable in their habits, things like when they go out in the morning," Mr. Fadell says. Part of what the company needs to do, he says, is to make sure people feel that their machine understands them. "It's really important to give a lot of weight to any errors in prediction, so you don't make them again," he says.

The company also sends customers reports on their energy-saving behavior (including how many "leaves" they earned) and compares that information with local and national averages. Nothing like a little competition to keep people interested. Some of the education has been specific to a single house. A feature introduced last spring focused on the time an air conditioner's compressor needed to be on to generate enough cool air to bring a specific home's temperature down. Usually the compressor is on the whole time fans are blowing over it and circulating the air, so limiting the use of the compressor saved about 30 percent of energy expended.

Mr. Fadell, who earlier played important roles in the creation of the iPod and the iPhone at Apple, indicated that Nest's data-driven education about the home won't just go into that thing on the wall. "Algorithms can really change the way we use energy and how we interact with all kinds of products," Mr. Fadell says. "The company is called 'Nest,' not 'Thermostat.'"
I also asked Mr. Fadell about energy savings in general. Even more important than his device, or solar panels, or anything else, he said, was decent insulation and well-fitted doors and windows. "Worry about that before anything else," he said.

NASA’s MARS DATA MISSION

2012-08-11T22:27:00.000-07:00

When all the hugs and rounds of cheering at NASA’s Jet Propulsion Laboratory in Pasadena finally died down late last Sunday night, the scientists, engineers and navigators who had just improbably placed a car-sized planetary rover onto the surface of Mars dutifully returned to their terminals to commence years of surface exploration.

The details of the entry, descent and landing, almost preposterous on the surface, make it no surprise that many years of planning, calculations and building led up to the daring touchdown of Curiosity. The 14 minute transmission delay between Mars and Earth meant the landing would meet its fate before the signal arrived back at Earth. It inspired a viral movie JPL dubbed “7 Minutes of Terror.”

But to any follower of computing technology and especially to a computing or information professional, the data now flowing back and forth between Mars and Earth is a telling study in IT engineering minimalism using technology as simple as could be practical to do many things very reliably.

Ann Devereaux was deputy lead for entry, descent and landing (EDL) stage of Curiosity’s mission. She also built the Electra-Lite radios that are on the Mars Science Laboratory (MSL) and Mars Reconnaissance Orbiter (MRO), a project she started in 2004. Her job up through EDL was to make sure that computers would be doing what they were supposed to and that all the data interfaces on the rover and orbiters would be working.

Image courtesy FlordaToday and Tom Walters

With EDL accomplished she’s turning to tactical duties with the same mission equipment that took Curiosity to Mars, a slim stack of working gear that all but the earliest Internet users would find quaint. The central processor aboard the MRO, an IBM PowerPC 750 hardened to deflect radiation, clocks at 133Mhz and comes from a generation of chips introduced in the 1990s. The code footprint is 20 MB with 128 MB of total execution space. The entire file storage for telemetry and science data storage is 4.5 GB.

Put another way, the computing that powers NASA’s most sophisticated space exploration mission ever is pretty much the dead opposite of the technology you’d use to make a Hollywood movie about space exploration.

“When people saw the data volumes we process and the memory space they’d inevitably ask, ‘You're taking this to Mars?’” Devereaux says. “Why isn’t the latest gear? My memory stick has more memory than your whole computer.”

It Has to Last

As Devereaux explains, NASA’s big design constraint is finding parts that are “space qualified,” a term that figuratively translates to “bulletproof.” Everything on board including the radios has some computing inside just as an iPhone does, but there is no getting around the use of older technologies for a few reasons.

For starters, she began building mission components eight years ago, which predetermined the lineage. And, newer electronic circuit designs have some drawbacks in space. Before microcircuits were commonplace, components ran at higher voltages and were less sensitive to radiation bombardment and extremes of temperature. For military or NASA use, manufacturers spend a lot of time and money to be approved as space qualified; it takes a long history and a big database of performance reliability.

“You need to have super controlled processes to know parts are still going to work in 10 years,” says Devereaux. “If you are Dell or Apple, and 10 percent of a chip run fails, you just throw it on the floor. And if one out of 10,000 iPads goes bad because of a memory chip or a video driver, you just replace it.” NASA, she confirms, has no service centers on the Red Planet.

Data Transmission

Like the CPU and memory, the bandwidth of data coming from the rover is modest and arrives from two transmitters. One points directly to Earth and operates at about half the speed of a home telephone modem. The other handles UHF data relays between Curiosity, the orbiters and JPL in Pasadena, and is Devereaux’s mission focus.

The rover’s UHF transmitter sends data to either the Mars Reconnaissance Orbiter or Odyssey Orbiter, an older space craft with an older radio. All the transmissions have to take place in 15 minute windows three or four times a day depending on geometry “when the orbiter goes screaming overhead,” in Devereaux’s words.

The orbiters act like cell towers with more power and storage than the rover and a longer look at Earth’s horizon. “They suck up whatever data Curiosity can give them every day and when have a view they can dump all the data back to JPL at once,” says Devereaux. “It makes for a very chunky sort of day where you plan everything around when you uplink orders to Curiosity to do stuff during the day and when you downlink and assess all the work you did that day and how it went.”

Even the 15-minute windows are unreliable with signal strength rising as the orbiter moves overhead and falling as it regains the horizon, says Devereaux. “We get a lot of junky links until the orbiter is straight above, so on the newer Reconnaissance Orbiter we use adaptive data rates where the orbiter monitors the signal strength and can tell the rover to speed up or slow down its transmission.” The aim is to get the absolute most out of 15 minutes, and NASA is starting very slow in order to optimize and capture the most important information cleanly.

Data comes in three streams: telemetry to report temperature, power and other onboard conditions; computer process reporting (of the type you'd see in a DOS or UNIX computer booting); and the actual science data, a pipeline that will grow only slowly.

It is slow enough that NASA measures bandwidth in bits rather than bytes (8 bits = 1 byte). Curiosity can transmit up to two megabits per second to Mars Reconnaissance Orbiter; the older Odyssey radio can only handle 256 kilobits, one-eighth as much. Right now the downlinks reported at press conferences are on the order of 10s of megabits of data a couple of times per day.

“We are operating the vehicle very cautiously and we want to see the health data first,” says the scientist. “There was a lot of data transmission to reconstruct from entry, descent and landing and that had the highest priority by far.”

Transmission rates are partly a function of power, and Curiosity’s nuclear battery puts out a steady 100 watts, just a fraction of what’s needed to run a blow dryer. So, solar panels charge other batteries, but every day’s planning has to carefully account for activity.

“If we are going to run the [robotic] arm, god forbid, we have to calculate the power it takes to heat the mechanisms that move it, to use an instrument the arm is providing samples for plot all this out,” Devereaux says. “When you get to a certain battery state you have to stop and recharge and recalculate.”

Balancing Act

All the variables that made the successful beginning of the Curiosity mission so remarkable are based on sound engineering, science and mathematics. It could not have been done with wholesale stacking and layering of infrastructure as happens in mainstream IT and data management.

“Compared to most IT development you have to program in very clever ways to work on Mars. The best result is that you end up with just the key crisp points of data.” Devereaux compares her task to an email that might read, “Hi, hope you are well, I wanted to tell you X,Y and Z and remind you of a couple of things we are working on…”

”All we get to say is, ‘Hi’ and we’re done,” Devereaux laughs. Her analogy is that anyone can generate large amounts of numbers and load them to a server farm, “but it takes a clever person to do Sudoku where everything is tiny and has to fit in boxes.”

NASA’s mission is also to inspire the public to future scientific exploration and it prioritized activities to be able to deliver that first grainy shot of Curiosity’s wheels on the Martian surface almost immediately. It was a bit of fortunate timing that also lifted the whole project team.

“It was funny because we’d tested entry, descent and landing hundreds of time in the test bed and dozens of times in dress rehearsals where the computer says everything is working,” says the scientist. “We knew it was real but it was a weird experience to see the data you’ve looked at dozens of times and then you see that picture and it’s really sitting on Mars and it hits home.”

Devereaux, third from left, celebrates at JPL.

Now, she says, an impatient consumer audience is expecting streaming video, but like everything else, only in due time. “That video stream would be kind of a killer app that people want to do, but the storage and bandwidth will dictate when it’s possible. Plus, I’ve got to tell you, the surface of Mars doesn’t change that much so the rover drivers might go crazy for it but you might not see much new.”

Also, compressed video can’t give scientists the accuracy they want. It might be fine “for watching ‘Battleship’ on NetFlix,” but scientists want lossless compression because they want to see every shadow and detail that uses the sun to estimate position and reveal textures.

The audience engagement part she gets personally. “I will tell you when we were doing EDL and there was this pause and blank screens until the UHF radio kicked in once we’d gotten rid of the parachute that was covering the antennas. Someone called out, ‘We’re getting Odyssey back,' which meant UHF data through Odyssey to the ground, all the screens started populating and I jumped up and screamed oh yeah, Electra! This is what we waited eight years for from the time we built this radio, the first time we’d used it and seen it work. The whole team felt this way.”

Jim Ericson is editorial director of Information Management, a SourceMedia publication. You can reach him at Jim.Ericson@sourcemedia.com. Follow him on Twitter at @jimericson.

How NASA's Jet Propulsion Laboratory Leveraged Amazon Web Services To Manage Data For Its MARS CURIOSITY Rover

NASA’s Jet Propulsion Laboratory (JPL) is the premier NASA center for the robotic exploration of space. JPL has sent a robot to every planet in the solar system. NASA/JPL is also leading the way in the adoption of cloud computing across the federal government. In fact, cloud computing is an essential part of the tactical operations pipeline for the Mars Science Laboratory mission. From the control room in Pasadena, California, NASA/JPL is using Amazon Web Services (AWS) to capture and store images and metadata collected from the Mars Exploration Rover and the Mars Science Laboratory missions. The Mars Exploration rover Opportunity is still roving on Mars after landing 8 years ago, and Mars rover Curiosity landed on August 5, 2012.

The Mission and Challenge

On November 26, 2011, NASA launched Curiosity on an 8-month voyage to the Red Planet. This high-profile mission had a number of challenges that needed to be overcome in order to be successful. First, the landing was a huge challenge because Curiosity’s mass rendered previous landing approaches untenable. Engineers at JPL designed an innovative entry/descent/landing technique that concluded with a “sky crane” maneuver that gently lowered Curiosity to the surface. NASA wanted to ensure that this thrilling experience was shared with fans across the globe by providing up-to-the-minute details of the mission - especially during the final 7 minutes it took for the rover to descend through the Martian atmosphere and land on Mars. The availability, scalability, and performance of the mars.jpl.nasa.gov website was of the utmost essence during the landing event. Prior to working with AWS, supporting hundreds of thousands of concurrent visitors to the website would have been very difficult, requiring significant web and live video streaming infrastructure that NASA/JPL did not have.

NASA’s Jet Propulsion Laboratory used AWS to stream the images and video associated with Curiosity’s landing. Cloud computing enabled JPL to provision capacity rapidly and leverage the AWS cloud to deliver successfully engaging experiences of Mars to the public. With public users all over the globe visiting its sites, NASA/JPL served its contents from AWS regions around the world to enhance the viewers experience and scale to meet global demand. Novel use of Amazon Route 53 and Elastic Load Balancers (ELB) enabled NASA/JPL to balance the load across AWS regions and ensure the availability of its content under all circumstances imaginable. The final architecture, co-developed and reviewed across NASA/JPL and Amazon Web Services, provided NASA with assurance that the deployment model could cost-effectively scale, perform, and deliver an incredible experience of landing on another planet. With unrelenting goals to get the data out to the public, NASA/JPL prepared to service hundreds of gigabits/second of traffic for hundreds of thousands of concurrent viewers.

Why Amazon Web Services

In just a few weeks, NASA/JPL was able to design, build, test, and deploy their web hosting and live video streaming solutions that were built using a variety of services on AWS. NASA/JPL’s live video streaming architecture was developed on a combination of Adobe Flash Media Server, Amazon Elastic Compute Cloud (Amazon EC2) instances running the popular nginx caching tier, Elastic Load Balancing, Amazon Route 53 for DNS management, and Amazon CloudFront for content delivery. AWS CloudFormation automates the deployment of live video streaming infrastructure stacks across multiple AWS Availability Zones (AZ) and regions.

Additionally, Amazon EC2 instances running the Amazon Linux AMI were configured using configuration scripts and Amazon EC2 instance metadata. Shortly before the landing, NASA/JPL provisioned stacks of AWS infrastructure, each capable of handling 25 Gbps of traffic. NASA/JPL used Amazon CloudWatch to monitor spikes in traffic volume and provision additional capacity based on regional demand. As traffic volumes returned to normal hours after the landing, NASA/JPL used AWS CloudFormation to de-provision resources using a single command. The figure below provides a diagram of the live video streaming architecture.

Figure 1: NASA/JPL Live Video Streaming Architecture

The mars.jpl.nasa.gov website is based on the open-source Content Management System (CMS) Railo, running on Amazon EC2. Shared storage for Railo is provided by Amazon EC2 instances running Gluster on a pool of Amazon Elastic Block Store (EBS) volumes for consistently high performance disk I/O. The CMS also interacts with a highly available, multi-AZ MySQL database managed by Amazon Relational Database Service (RDS). Traffic is dispersed across CMS servers by a number of Elastic Load Balancers using Amazon Route 53 to provide a weighted traffic distribution across the ELBs. Amazon CloudFront is also used to spread traffic to points of presence around the world, thereby reducing latency for international visitors and improving the overall scalability of the solution.

Furthermore, NASA leverages Amazon Simple Workflow Service (Amazon SWF) to copy the latest images from Mars to Amazon S3. Metadata is stored in Amazon SimpleDB and Amazon SWF triggers provisioning of Amazon EC2 instances to process images as each transmission from Curiosity is relayed to Earth. The diagram below illustrates NASA/JPL’s web architecture.

Figure 2: NASA/JPL Web Architecture

The Benefits

Operating the mars.jpl.nasa.gov website on Amazon Web Services allowed NASA/JPL to broadcast their message to the world without building this infrastructure themselves. The broad set of capabilities and ease-of-use afforded by AWS allowed NASA/JPL to construct a robust, scalable web infrastructure in only two to three weeks instead of months.
Now that Curiosity has landed safely on Mars, the mission will continue to use Amazon Web Services to automate the analysis of images from Mars, maximizing the time that scientists have to identify potential hazards or areas of particular scientific interest. As a result, scientists are able to send a longer sequence of commands to Curiosity that increases the amount of exploration that the Mars Science Laboratory can perform on any given sol (Martian day).

From The AWS Blog: NASA Tells the World About Mars with AWS