Smart Software and an Intentional Method to Increase Revenue
July 6, 2020
The excellent write up titled “How Researchers Analyzed Allstate’s Car Insurance Algorithm.” My suggestion? Read it.
The “how to” information is detailed and instructive. The article reveals the thought process and logical thinking that allows a giant company with “good hands” to manipulate its revenues.
Here’s the most important statement in the article:
In other words, it appears that Allstate’s algorithm built a “suckers list” that would simply charge the big spenders even higher rates.
The information in the article illustrates how difficult it may be for outsiders to figure out how some smart numerical procedures are assembled into “intentional machines.”
The idea is that data allow the implementation of quite simple big ideas in a slick, automated, obfuscated way.
As my cranky grandfather observed, “It all comes down to money.”
Stephen E Arnold, July 6, 2020
Algolia Pricing
July 3, 2020
Years ago I listened to a wizard from Verity explain that a query should cost the user per cell. Now that struck me as a really stupid idea. Data sets were getting larger. The larger the data set, even extremely well crafted narrow queries would “touch” more cells. In a world of real time queries and stream processing, the result of the per cell model would be more than just interesting, it would be a deal breaker.
Pricing digital anything has been difficult. In the good old days of the late 1970s and early 1980s, one paid in many different ways — within the same system. The best example of this was the AT&T/British Telecom approach to online data.
Here’s what was involved. I am 77 and working from memory:
- Installation, set up, or preparation fee. This was dependent of factors such as location, distance from a node, etc.
- Base rate; that is, what one paid simply to be connected. This could be an upfront fee or calculated on some measurement which was intentionally almost impossible to audit or verify.
- Service required. Today this would be called bandwidth or connect time. The definition was slippery, but it was a way for the telcos of that era to add a fee.
If a connection went to a data center housing data, then other fees would kick in; for example:
- Hourly fee billed fractionally for the connect time to the database
- Per item fee when extracting data from the database
- A “print” or “type” fee which applied to the format of the data extracted
- A “report” fee because reports required cost recovery for the pre-coded template, query time, formatting, and outputting.
There were other fees, but the most fascinating one was the “threshold fee.” The idea is that paid for 60 minutes of connect time. When the 61st minute was required, the threshold was crossed, and the billing could go up, often by factors of 2X or more. No warning, of course. And the mechanism for calculating threshold fees were not disclosed to the normal customer. (After I became a contractor to Bell Communications Research, I learned that the threshold fees were determined based on “outside” or exogenous factors. In Bell Head speak this seemed to mean, “This is where we make even more money.”
To sum up, online pricing was a remarkable swamp. Little wonder that outsiders would be baffled at the online invoices generated by the online providers. Exciting, yes. Happy customers, nah. No one at the AT&T/British Telecom type outfits cared about non Bell Heads. No Young Pioneer T shirt? Ho, ho, ho. Pay your bill or we kill your account. Ho ho ho.
Algolia announced a new pricing plan. You can read about it here. The idea is to reduce confusion and be more “customer friendly.” What’s interesting to me is the string of comments on the Hacker News site. You can read these comments at this link.
There’s some back and forth with Algolia participating.
Some of the comments underscore the type of “surprise” that certain types of pricing models spark; for example, from alooPotato:
We (Streak) are in the same boat. Looks like we’d be paying approx half a million dollars a month on their new pricing which would be ~100x more than we are paying now. Haven’t heard from our enterprise rep but starting to get nervous… Sounds like the new pricing is for their ecommerce customers given how much value they provide them, doesn’t seem to make sense anymore for SaaS use cases.
ysavir takes a balanced view; that is, some good, some bad:
Not the GP, but I figure their point is as follows: If I’m running an e-commerce website, I don’t mind pay-per-search since those searches may turn into sales, so the cost is justified. My income scales with search count, and the Algolia price is part of user acquisition costs. If I’m running a SaaS business, the search is a feature for customers who have already paid, so I don’t see any further returns from the search being used. The more a client uses search, the less I’m profiting from having them as a client. They could potentially even cost me money to service them!
The point is that any pricing model — whether the AT&T/British Telecom type pricing “simplification” or a made-up, wacko approach like the IBM J1, J2, J3, etc. approach — is not going to meet the requirements of every customer.
The modern approach to pricing is to obfuscate and generate opaque variable prices. You can see this model in action by navigating to Amazon and running a query for “mens golf shirt and then zipping over to AWS and check out the prices for Sagemaker models to drive Athena. Got the difference, gentle reader?
The nifty world of enterprise search has been a wonderland of pricing methods. I flipped through the pricing data files for the three editions of the Enterprise Search Report which I began writing in 2002. Here are some highlights:
- Base fee plus engineering services. Upgrades priced individually.
- Base fee plus fixed price over a period of time.
- Variable elements like the crazy “per cell” idea from the guy who is now the head of Google Search (Oh, yeah!)
- Free if the customer (the US government) licensed other software
- One time charge. Upgrades are easy. Buy another license.
- Free. The vendor is in the business of selling engineering support, training, and custom widgets to make the search system sort of work.
- Whatever can be billed. This is extremely popular because the negotiation process reveals the allocated funds and the search system vendor angles to get as much of the allocated cash as humanly possible.
- Free for the first budget cycle. Then when funds become available, prices are negotiated.
- Custom quote only. NDA required.
Today, life is easier. One can download a free and open source search system, hit the local university for some “interns”, and let ‘er rip. Another alternative is to look for a hosted search service. Blossom.com maybe?
Net net: Pricing has one goal: Generate revenue and lock in for the vendor. That’s one reason why vendors of what I can search centric services are so darned lovable.
Stephen E Arnold, July 3, 2020
Alphabet Spells Cable Model
July 1, 2020
Cable company business models work. Alphabet Google faces some competitive pressure, looming regulatory handcuffs, and softness in its 20 year old “black box”magic ad matching machine.
The fix is to push aggressively and as quickly as possible to lock down clever ways to make money. The most recent example is to charge more than $700 per year to watch YouTube’s millennial cable programming.
You can get details in “YouTube TV Jumps 30% in Price Effective Immediately.” I found one passage interesting:
The news came at the end of a lengthy announcement of various new channels, which users cannot opt out of, all coming from the CBS/Viacom family of cable TV networks.
Does this bold, aggressive move mark the limit of Alphabet’s land grabbing?
No, it is one step on the path of locking down revenues in order to weather the approaching storm.
There are some flaws in Alphabet’s approach. For some YouTube quasi cable consumers, the other options have price tags too. Whatever the competitive environment offers, Alphabet will find inspiration.
What about the “cannot opt out.” That’s the new Google. Like it or leave it. Leaving may make perfect sense to the employees whose bonuses were gutted to pay for Google’s diversity aspirations.
Stephen E Arnold, July 1, 2020
A Moment of Irony: Microsoft and Facebook Ads
June 30, 2020
I recall reading a story about Microsoft’s purchasing a chunk of Facebook. Recode wrote about the deal in “It’s Been 10 Years Since Microsoft Invested in Facebook. Now Facebook Is Worth Almost As Much as Microsoft.”
I thought about this investment when I read “Microsoft Has Been Pausing Spending on Facebook, Instagram.”
The way I understand this is that Microsoft owns some Facebook shares. Facebook holds meetings for those who own stock. The meetings permit submission of questions from shareholders.
Some questions:
- Has Microsoft asked questions about Facebook’s ad practices at these meetings?
- Has Microsoft contacted Facebook management about its ad-related concerns?
- Has Microsoft management determined that selling its Facebook shares is a good or bad idea?
- Is the “pausing” virtue signaling or something more significant?
Hopefully one of the “real” news outfits will provide some information to help me answer these questions. If I were not so disinterested in Facebook, I could have one of the DarkCyber team jump in. And what about Microsoft’s financial thinking? Did Enron executives actually think about “energy”?
I do like the idea of a company which owns part of another company not liking the company’s policies. The action? Pausing. Yeah, maybe just another word for virtue signaling?
Stephen E Arnold, June 30, 2020
Amzon AWS Cost Control Insights
June 29, 2020
Amazon’s AWS is a fascinating business case. On one hand, AWS reduces some of the hurdles to modern solution development. On the other hand, it is easy — even for an experienced Certified AWS expert — to forget what’s running, whether a particular service is unnecessary, or what processes are tucked into the corner of Jeff Bezos’ profit making machine. “Our AWS Bill is ~ 2% of revenue. Here’s How We Did It” provides a run down of the money gobblers and provides some helpful guidance. There are screenshots in the Gulf racing colors of orange and blue. There are explanations. Plus, there are useful insights; for example:
Our application is a Shopify app and during the process of building the application we created a Shopify store. Every Shopify store gets its own personal CDN where you can manually upload anything and it will be served over the Shopify CDN. So we minified and uploaded our JS file to the CDN of our Shopify store and now we serve 20000 Shopify stores using this method at zero cost.
One problem: There are more ways for Mr. Bezos to suck cash from eager and willing customers than helpful explanations of how to keep expenses low.
Stephen E Arnold, June 29, 2020
Brazil and WhatsApp: Avoiding an Orkut Moment?
June 24, 2020
Brazil, land of pinga and Covid, is brandishing some Lança-perfumes with malice. “Brazil Suspends WhatsApp’s Payments Service” reports:
Brazil, the second largest market for WhatsApp, has suspended the instant messaging app’s mobile payments service in the country a week after its rollout in what is the latest setback for Facebook. In a statement, Brazil’s central bank said it was taking the decision to “preserve an adequate competitive environment” in the mobile payments space and to ensure “functioning of a payment system that’s interchangeable, fast, secure, transparent, open and cheap.”
This is an interesting development. The banking system in Cariocaland is fascinating. Facebook’s confident leader assumed that WhatsApp was a slam dunk in a nation state where cash transactions take place near cathedrals located in central squares.
The issue, however, may be a lingering digital imprint from the long ago era of Orkut. Google’s failed social network (no, I don’t want to recount the story, gentle reader) was allegedly quite the go-to service for some elements of Brazilian society.
Law enforcement in Brazil is stretched. Orkut was an electronic accelerant for certain activities which the government had determined were detrimental to the country.
DarkCyber believes that usage of WhatsApp emulated some of the exploratory paths used to chop through the Orkut digital undergrowth.
The result? Yo, Facebook, stop.
Perhaps Facebook’s method of ignoring is meeting some resistance? Germany is taking Facebook to task. Plus there are some advertisers waving their checkbooks and saying, “No ads in July.”
What’s self aware mean for Facebook’s management?
One answer is, “You are all stupid.”
A new company motto. Facebook could make its own version of the Brazilian flag and replace “Ordem and Progresso” with “You are all stupid.” Interesting. “All.”
Stephen E Arnold, June 24, 2020
Now These Are Numbers You Can Bank On
June 1, 2020
In the midst of the pandemic, DarkCyber noted “How Semantic Search Helps Users Help Themselves.” The write up is from Lucidworks, a company reselling open source engineering support, proprietary software, and other jazzed up solutions. In the write up was a reference to an IBM document. The idea is that the IBM data make a case for buying IBM? Of course not. The data support the contention that semantic search is like training wheels on a toddler’s bicycle.
What are these magical data? First, the data come from an IBM blog post dated October 17, 2017. That’s a couple of years ago. Change does happen, doesn’t it?
Check out these numbers:
- Businesses spend $1.3 trillion on 265 billion customer service calls each year
- Phone interactions cost around $35-$50
- Text chat costs about $8-$10 per session
- It is realistic to aim to deflect between 40% – 80% of common customer service inquiries to automated frameworks.
- A drop in per-query cost from $15-$200 (human agents) to $1 (virtual agents)
What’s the connection to the SOLR centric Lucidworks? The company wants to convince prospects that it has the solution known as chatbots. Clever phrase for what is a cost reduction play. Do chatbots work? That depends on whom one asks.
The good thing about chatbots is that they don’t create Rona hot spots. The bad thing is that most of the chatbots don’t work particularly well.
The IBM data, even though old and not in step with the Rona business climate, suggest that the on going cost of helping a “customer” deal with a product and service is brutal. Combine these here and now costs with the technical debt of informationized products and services and what do you get?
The short answer is that one has to have quite a bit of money to keep the good ship technology afloat.
Even Google-type companies, faced with sky rocketing costs and a dicey economic environment, are having to make money saving changes.
Net net: The happy talk about super duper technologies often creates cost black holes. What about IBM? Layoffs and ultra hedgey forecasts. What about Lucidworks type outfits? Wow. Much sales work ahead.
One suggestion? Watch those assertions and one’s cost accounting. Can one “help oneself”? Absolutely, maybe.
Stephen E Arnold, June 1, 2020
AWS Cost Management
May 29, 2020
I am not sure if Amazon AWS cost management was covered in my Accounting 101 class and in the mindless training programs I enjoyed at Halliburton NUS, Booz Allen & Hamilton, and “lectures I could not escape from” at “secure” intelligence conferences. Come to think of it, Amazon AWS cost management is a new and increasingly important discipline. Ah, if I were 25 and looking for a niche, AACM, shorthand for Amazon Aws cost management might be lured by this digital Peitho.
Why is AACM (among the DarkCyber team we pronounce this acronym ah-shazam) a new big thing?
Navigate to “How We Reduced the AWS Costs of Our Streaming Data Pipeline by 67%.” The write up explains what one outfit did to keep $0.67 from the scraper of the Bezos bulldozer. The procedure involved technical analysis, cross tabulation, and detailed tracking of AWS billing.
Do know a cost accountant up to this work? What about a newly minted CPA? What about a financial analyst working at a Silicon Valley money machine?
I don’t. Thus, gentle reader, here’s a practice for a recent college accounting grad or a with-it MBA.
Stephen E Arnold, May 29, 2020
News Report from India Alleges Thomson Reuters Tap Dances with Trust
May 26, 2020
Who knows if Tecake in India is reporting “real news.” The report is interesting and thought provoking like its title: “Thomson Reuters Faces Pressure Over ICE Contracts.”
DarkCyber finds Thomson Reuters use of “trust” as a keyword interesting. My father once told me, “Anyone who tell you he or she is honest, may not be.”
The write up alleges:
A group of Thomson Reuters shareholders says the company’s technology databases are being used by Immigration and Customs Enforcement to “track and arrest immigrants on a massive scale,” potentially causing reputational damage to the company.
The article then adds:
Jacinta Gonzalez of Mijente said in an interview with The Verge that the role of data brokers like CLEAR in the surveillance of immigrants has been unsettling.
“While Thomson Reuters has built a brand as a trusted news source, few people realize that the news operation is largely financed by the company’s role as a data broker for agencies like ICE,” Gonzalez said. She added that there are “enormous risks” associated with working with ICE, not the least of which are human rights concerns around the agency’s detention of immigrants and the separation of families trying to enter the US at its border with Mexico.
Thomson Reuters may find itself in an unusual position: Making news instead of reporting it.
Worth watching how a trusted outfit responds to shareholder and activist grousing. Money is the objective, isn’t it? Perhaps questioning trust is not in the notebook?
Stephen E Arnold, May 26, 2020
Yes or No: Unicorns in the Time of Pandemic
May 24, 2020
Each tech startup has little more chance of becoming a unicorn than you have of stumbling upon the animal version on your next nature walk. In venture capital speak, a unicorn is a privately held startup that has undergone hyper-growth in a new or changing market and is valued at over $1 billion. Such companies, when they do occur, often redefine (or “disrupt”) a market through their innovations. Journalist John Gallagher reminds us that fewer than 1% of companies reach this position in, “It’s Time We Outgrew our Fairytale Fascination with Tech Unicorns” at TNW.
“Unicorns are very eye-catching and we all love to read about them. I followed the drama surrounding WeWork with fascination, with the founder walking off with several hundred million dollars, an extremely rare outcome for a founder whose investors are in the red. Was there a different way to build the company which would have seen real value built for all involved? I certainly think so. Sustainable growth and keeping control of your company has a much higher likelihood of success for founders. Dreaming big is certainly a powerful mindset for entrepreneurs, but keeping your feet on the ground is also important for those who want to build businesses that will have a high chance of lasting more than a few funding rounds.”
Sure, it would be great to be (or invest in) a unicorn, but as we know the chances of success are slim. The more likely outcome, writes Gallagher, is that founders will burn through tens of millions of dollars in a few years only to have investors demand they sell the company with nothing to show for it but failure. The sustainable-growth journey may be boring compared to chasing unicorns, but it is much more likely to lead to a happy ending.
Cynthia Murrell, May 24, 2020
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