Entrepreneur Watch

The Wisdom of Clouds: How Google will build the Semantic Web

Everyone wants to build a semantic Web. Most people have the wrong idea of how to do it.

You can't build a software program that adequately mimics and understands the rules of human grammar. Not even Google can do that. Look at its problems in translating one language to another.

But you don't have to. We talk about the "cloud" of the internet, an amorphous virtual computer that sits on the fringe of our local networks, waiting to do our work for us. The great thing about the cloud is that it's smart. It's smarter than any one individual.

The internet is not just a string of connected computers. It is also people. People create links, travel to some sites more than others, refer interesting things to friends, comment on things they've seen, chat with each other. By tapping into the patterns of human activity on the internet, we tap into human intelligence.

Google first did this with the PageRank algorithm. By studying links people made to web sites, it was able to make a good evaluation of the relevance of those sites. It tapped into the human intelligence lying within the internet.

Google does not reveal what new algorithms it has created to determine relevancy. But you can be certain it has gone beyond PagRank. It can track our own traffic patterns to tell what's relevant to us. When we click on certain search results, Google gathers data about what's relevant to us. We leave a trail behind every time we surf the internet, and there are many trails Google can follow to determine what's relevant.

Amazon watches purchase patterns to determine what other products might be of interest to us. If we buy one thing, it can tell us what others buying that product have also bought. It taps into the human intelligence of the buying patterns.

I did some consulting last year for a startup called Pluggd, which helps people find videos of interest to them. Aside from watching people's patterns of viewing videos, it also gathers data by crawling the text-based internet. That reveals what people are talking about at any given time, helping the Pluggd search engine figure out exactly what it is you intend to search on.

It's called "associative rule mining," and happens to be an area Sergey Brin experimented with for a while at Stanford.

The company told me that the associations made can surprise them. When people were searching on "injury" at one point last year, the search results started coming up heavily weighted toward the terms "strained rotator cuff," "torn ligament," "sprained knee," and "stress fracture." It was the height of NFL season and fantasy football was a hot topic in the internet.

You don't have to create a computer algorithm that tries to mimic the human brain's ability to understand grammar. By analyzing the human traffic in the cloud, you can make associations that tell you what people are trying to say.

The brain is a mysterious computer, impossible to mimic by any computer today. But human wisdom is already captured in the cloud. You simply have to come up with the right ways to tap into it.

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Microsoft attacks Google

ZDNet reports from a Gartner conference that Google isn't going after Microsoft, Microsoft is going after Google.

The assertion is half right.

Gartner vice president David Smith apparently says, according to ZDNet, that Google is developing Web-based productivity applications "to distract Microsoft from focusing on its own core search advertising business."

If that's true, Google is in big trouble.

This has been the classic strategy of every company that has watched Microsoft invade their turf, from Sun Microsystems to Netscape to now barely-remembered Borland. It failed every time.

The strategy distracts the defending company from improving its own products, allowing Microsoft to catch up.

But I don't believe Google is that stupid.

Google has a vision of the future of computing. It's marked by social computing, taking advantage of the interconnected power of the internet. Applications operate in the cloud, documents are freely shared. People communicate for free, share music and videos for free, and collaborate online.

Google isn't just trying to mimic Microsoft's products, it's trying to create new types of products. There's a classic opening. The internet allows you to create social applications, opening up a new market. And existing applications are too expensive, giving an opening to a company that knows how to make money off free applications.

No, Microsoft is trying to take on Google in advertising, in search, and in the new breed of social applications. It's Microsoft playing catch-up all the way. In that respect, Gartner is right.

The behavior of both companies is telling. While neither company admits they are trying to compete directly with the other, Microsoft acts like it is. Its PR department takes every opportunity to bad-mouth Google to the press, off the record. It offers tips on how Google is evil and how it is doing things wrong.

Google doesn't do that to Microsoft. Just as, in the past, Microsoft never bad-mouthed the companies whose turf it was infiltrating. Those companies used to do it to Microsoft.

You can tell a lot about the competitive landscape by paying attention to who uses the most desperate tactics.

Time to prosecute Steve Jobs

It's called "plausible deniability."

US Attorney General Alberto Gonzales did "nothing wrong'' in firing Federal prosecutors who go after too many Republicans, and Steve Jobs "didn't know the accounting implications of backdating."

Excuse me, but I know a crock or two when I see them. At Least Gonzales didn't do anything illegal. Just unethical.

Why people seem to think Jobs is innocent because he didn't know the implications of options backdating is so far behind my comprehension it rates up there with String Theory.

I learned the mantra in grade school: "ignorantia legis non excusat." OK, I learned it in English. Stated by Wickipedia, "...no one can justify his conduct on the grounds that he was not aware of the law."

Sure, there are exceptions, in the case of certain obscure laws. But for Jobs to deny he knew this was illegal is to exorbitantly underestimate Jobs. Come on, folks, he knows stock options. He's been an entrepreneur and executive and board member for decades.

And now Apple's scapegoats have fired guns at him that are still smoking.  Former CFO Fred Anderson said that he told Jobs that backdating options would require an accounting change.

Not quite as good as the emails that proved Gonzales wasn't as innocent as he claimed, but good enough to take to court.

The fact that Jobs was informed of accounting implications means he knew that Apple would have to restate its earnings. It should have announced that earnings in the quarter in which the options were granted were actually lower than the company had claimed.

Ouch. That would have upset Wall Street and hit the company's stock, so they didn't do it.

Steve Jobs knows that is both illegal and unethical. I know that's illegal and unethical, and I've never been on a company's board. I just don't see the plausible part of this denial.

Jobs is known in the Valley as a ruthless competitor. Allowing his former execs to take the fall is ruthlessly unethical, an attack on people who did not compete with him, but worked with him. This really stinks.

Now the only question is whether securities regulators will pursue Jobs with the same vigor they pursued, say, former CFO Anderson, who has to pay $3.5 million in fines and penalties.

Backdating was a common, illegal activity in Silicon Valley, and it hurt untold shareholders while enriching the people taking the options.

It needs to be prosecuted in order to let executives know they can't get away with these kinds of tactics.

The SEC needs to prosecute Jobs, or it will have as little credibility as Alberto Gonzales. Just do it.   

Virginia Tech and the nature of evil

I've been working on some other stuff lately.

I was looking into some fascinating brain research studying the basis of morality and psychopathic behavior. Because of the tragedy at Virginia Tech, I published an article on Technology Review's Web site.

Brain imaging scans called functional MRI can track activity in the brain in real time. Researchers have been studying the brains of people as they ponder moral issues, including the brains of psychopaths.

They find that the brains of psychopaths don't show any activity in empathy centers, while the brains of normal people do. Psychopaths have no empathy, remorse or fear, showing the same concern for people as hunters show toward deer.

From the researchers I talked to, it does not appear that Cho was a psychopath.

The most likely profile is that he was severely depressed. In extremely rare cases, a trauma, even an imagined one, can turn really dysfunctional depressives into a "Rampage killer."

One psychiatrist I talked to thinks this was the case at Virginia Tech as well as Columbine. These people were isolated, lonely, convinced the world was out to get them. Then they just snap. Says UCSF's Dr. Thomas Lewis, "It's kind of like throwing a temper tantrum--only with automatic weapons."

It's fascinating stuff. The research is still new, but maybe research is on the path of finding that a dysfunctional brain is really the root of all evil.

Why everyone hates the telcos and cable companies: they deserve it.

Let's stop hating Google for a moment to hate some companies that really deserve it.

The telcos and cable companies, otherwise known as Evil Incarnate and The Devil Himself.

It's not their fault, really. They're victims of their childhoods. Any company raised as a monopoly just can't stop robbing the people who who paid for its nurturing through public assistance programs.

Now that the telcos are rebuilding monopolies, they figure they can gouge us a little more. The cable companies have hated their customers all along.

They already killed off most of the independent ISPs, by bundling that service with their phone and cable  services, which were really monopolies in their geographic markets. You get a discount only if you subscribe to all their services, like the only hotel in the county charging you a higher room rate if you don't pay its fee for the exercise room and eat all your meals in its restaurant.

When Microsoft tried to bundle services with its monopoly product, governments the world over tried to do a little monopoly-busting head-butting with Bill Gates, who has more wealth and power than most nations.

Now the telcos figure they can screw us a little deeper. They want to start making us sign contracts and charge penalties for early withdrawal. It showed up in a Consumers Union survey of practices among broadband suppliers.

I guess they have bigger butts than even Bill Gates, because no governments are trying to stop them.

They're already trying to sue VoIP companies out of existence by claiming patents on the technology. Never mind that they were last to the market.

No matter, here's what's going to happen: Companies like Google and Metro-fi will increasingly wire cities for free wi-fi, despite the resistance of city governments who either don't know their ISPs from a manhhole cover or are beholden to the local telcos. The existing ISPs will find their business models collapsing under their feet like Wile E. Coyote standing on an overhanging bluff.

Then companies like Google and Apple will create direct-to-internet cell phones as wi-fi spreads, and drop a boulder on the phone companies's heads with free or exorbitantly cheap international calling.

And companies like Google, Apple, AOL, Blinkx, etc., will put folks in touch with free video, no matter how much Hollywood tries to stop it. There goes that boulder on the cable coyotes' heads.

Ten years, max, the telcos and cable monopolies will be dying or desperately seeking other ways to make money. We'll have free telephony, free internet access, and free video and music on demand. And there won't be any early cancellation fees.

It's inevitable. It's the internet, dammit.

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Google is buying its way out of lawsuits

Google has decided to throw a few bones to  media companies. Instead of getting sued for sending traffic to news sites, Google will pay media companies for sending traffic to their sites.

Such a deal!

Google has settled the lawsuit by Agence France-Presse, which was irate that Google posted headlines, news summaries and photos, plus links to the sites so you can read the whole story. Google already agreed to pay AP for the privilege last August.

Now I know that Donna Bogatin thinks Google is just stealing news from others and making money off that news through some mysterious, unspecified means (Google does NOT run ads on Google News. It seems to think this is just a good service for people interested in news. Go figure.)

But I'm dumb. I just don't understand the complaint. I like reading news, and I use Google to find it. Google's snippets tell me where to find news I'm interested and then--surprise!--I go to the sites where the news originated and put up with their ads.

That's how I found the Fox News article I linked to above.

It also seems to me that I've seen lots of TV commercials advertising  newspapers and news programs, and in each of them, they show headlines, snippets and photos.

I hope the broadcasters are paying those news services for the privilege of running those ads.

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How do you say "Bad Google, bad, bad!" in Mandarin?

Google was caught cheating. This ought to make the Google-haters happy.

Apparently, Google's Pinyin Input Method Editor (IME), which enables you to use a standard English keyboard to enter Chinese characters for searches, uses data from competitor Sohu. Sohu complained, Google apologized and removed the offending data.

Information Week gives a great translation of Google's announcement of its apology, courtesy of Google's translation program: "We are willing to face up to their problems, such as Sohu said it apologized to customers."

Still a few bugs to work out.

I think it means Google is willing to admit its mistakes and apologize, as Sohu demanded.

I'll bet this was something that was done by Google's folks in China. The home team is too wary of lawsuits to do anything that blatantly illegal.

I wonder if Sohu will sue anyway.

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Forget Vonage, will the telcos kill VoIP altogether?

It's a sad day when entrepreneurial companies are bullied out of existence by big monopolies flexing their patents. Patents are supposed to encourage innovation and competition. The Verizon lawsuit against Vonage has the opposite effect.

I'm all in favor of protecting legitimate innovations with patents. But is this the case in this lawsuit? Too many companies get process patents that cover, say, just the concept of connecting a packet switch phone to internet protocols for transmission over the internet.

I don't know yet how broad these patents are, but I'm looking into it.

Blogger Vaibha Sharma says the patents are too broad, although he does not give specifics: "The trouble is that the patents Verizon holds are so generic that going around them by flipping a switch is not an option. When designing their network, they used generic equipment available from Cisco and other providers."

If this is true, then the entire VOiP business is in trouble. Either way there is going to be a ton of lawsuits from other companies claiming VOiP patents.

Business Week says there are 2,273 such patents, and VoIP Inc. has already told its lawyers to get out their legal pads.

How is anyone going to create a VoIP business when there are so many lawsuits flying through the courts like drunkards on a Saturday night? Earthlink and Google are probably the next targets.

The telcos do not have a reputation of innovation these days. In the mid-1990s, everyone thought Asynchronous Transfer Mode (ATM) technology would speed up the internet, but the telcos sat on it so long it became obsolete when other broadband options became available.

Then they were threatened by independent ISPs, and managed to drive almost all of them through the courts and out of existence. How much innovation have we seen in bandwidth improvements since then?

Pure and simple, the telcos are trying to protect their turf. They are threatened by VoIP, which should reduce voice transmission costs to nearly zero. But they don't want to reduce their prices to nearly zero.

Entrepreneurial companies try to use the economic power of the internet to create cheaper and better services. Old companies try to use the internet to increase their profit margins. If they win, forget about cheap VoIP.

The telcos are also trying to end net neutrality by charging companies like Google for sending so much data over their lines. Sure, they need to cover the costs of improving the networks, but their lawsuits say if they win, they promise to do those upgrades. Excuse me if I'm skeptical.

Perhaps the solution is in a new type of phone. If Apple's coming iPhone bypasses the switched network, it could be the salvation of internet calling. I'm counting on Google to help out as well. Wouldn't a Google/iPhone combination be great?

That is, unless the companies lock up that concept with patents.

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Ray Ozzie gets Microsoft to compete with Google

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The word is in: Microsoft has a different view of the future than Google.

I've been wondering how and what Ray Ozzie, Microsoft's new Software Architect, has been doing to get Microsoft in touch with the "cloud," pushing Microsoft applications out of the desktop and onto the internet. Ozzie doesn't like to talk about strategy until he has some actual products to back it up.

Thanks to Knowledge@Wharton, the online magazine for the Wharton School, we now have some excellent indications. The Man Who Would Change Microsoft: Ray Ozzie's Vision for Connected Software

It's a long article, best read as a PDF printout, but I have a few observations on his comments.

It's telling that he refuses to list Google as a competitor, when Microsoft insiders tell me that the company sees Google as a huge threat.

When asked abut Microsoft's biggest competitive threats, he mentions Linux, Apple's iPod, continuing to lead in email and mobile applications, competing in business solutions,  and finally, "I want to deliver online services to consumers and small businesses and big businesses."

Only "online services to consumers" really deals with the direct threat from Google. Although Google is delivering products to corporations, it is less of a threat there than in the consumer market, where it excels.

I still believe that corporate computing  is where Microsoft's main strength and future lies.

The one group he  mentions as reporting directly to him is "Live Labs," the group creating internet-based applications.

But he also has to "bridge" the many different groups within Microsoft to ensure the spread of good ideas, to make sure market strategy and business strategy are in synch, to make sure existing products work on new platforms. He has a lot on his plate.

That means he's dealing a lot with legacy products. He notes that this requires innovation "with a small i" as opposed to the big-I Innovation of major changes.

What counts as "big I" changes? Much of this also sounds like legacy product changes: hardware with multi-core processors, storage improvements, and finally, broadband improvements.

And here's where Microsoft's strategy differs with Google's. Google sees everything as residing in the cloud first, with the desktop machine in a secondary role. Ozzie strives for more balance between the two:

"...what part of an application should be in a data center -- somewhere "in the cloud" -- and what piece of that solution should be on a desktop or on a mobile device. The right balance varies based on the application."

That's a very smart view. But the advantage Google has is the same that Microsoft had in its early days. The products were developed for consumers first and crept in the back door of corporations as expense account items. That's exactly what's happening now with all products operating in the cloud.

Is it a difficult transition?

"Well, any transformation is difficult."

In other words, yes.

And finally, making money off the cloud. Isn't advertising "having difficulty getting traction" at Microsoft? Before answering, he goes on about Microsoft's "DNA," its strengths, the software-driven world we live in, transitions coming slowly, Microsoft's paranoia and ability to adapt, and then for the first time mentions Google.

"The success of the ad model is something that [Microsoft] didn't see. It saw search but I don't think it appreciated the power of that ad economic engine writ large. Is it difficult to compete with somebody who has executed as well in search as Google? Absolutely."

Ozzie has a big job ahead of him. I wish him the best of luck.

And thanks to Techmeme for pointing me to the article.

Why everyone (especially Europeans) hates iTunes

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The European Commission is investigating pricing at Apple's iTunes business. Apple charges 99 cents or 99 pence or 0.99 Euros for a tune, depending on where you live. But a dollar does not equal a pound or a Euro. Because of exchange rates, Europeans pay more than Americans.

Good for the EC. The record labels are greedier than a two-year-old in a toy store. They seem to believe that they have an inalienable right to maintain the profits they have enjoyed decades. I think it's the 12th Amendment.

Steve Jobs has a good defense: The record labels made him do it. They dictate the prices here and abroad, trying to milk every penny they can out of their abused fans. They've tried to make Jobs charge more than a buck, but he has managed to resist.

At least, until he did a deal with EMI. Everyone is heralding the potential of ending the dreaded DRM that keeps us from copying tunes. But there's a catch: You pay an extra 30 cents for the right to copy a song you already own.

This is price fixing, pure and simple. Marketwatch believes the investigation could force an open global market for world music downloads. 

What a concept: Actually allowing the market to set the price? It's almost un-American! Or un-European.

The simple fact is, iTunes downloads are over-priced. People hate that. They vote with their pocketbooks. They will like the extra fee for DRM-free even less.

"Forrester Research found that just 3.2% of all households connected to the Internet had made an iTunes purchase in the past year and that the number of monthly transactions in those households with iTunes appeared to declining," notes Marketwatch. This ain't universal love.

An NPD Group survey found that "only" 500 million songs were downloaded legally in 2006, up 56 percent from the year before. Sniff.

But five billion free, illegal downloads were made last year. That ain't a whole lotta love, either. Note to recording labels: Wake up and listen to the music.

Here's the solution to this mess: A song on iTunes should be priced at 25 cents. Worldwide. Then look for the price that brings the most downloads.

At 25 cents a song, how many music pirates would decide that the threat of lawsuits isn't worth it? Maybe a couple billion of those five billion pirated songs would go legal. Maybe a whopping 5 percent of households would start downloading music!

The world is a big place, and music downloads can reach a big chunk of it. Distribution costs are almost zero. You can make a profit this way. 3 or 4 billion downloads at 25 cents is more profitable than half a billion downloads at a buck. Maybe 10 billion people would download songs at 10 cents apiece.

This long tail should be wagging the dog.

The world has changed. Get used to it. Take a chance. Experiment with pricing. Go with the flow and you'll survive.

And maybe people would really start loving their iTunes.