Media Dojo

Archive for the ‘Cloudinomics’ Category

To date, my idea of a “serious game” revolved around a pool table, money and a shot of straight liquor. PC-based or web-based games seemed more appropriate for the kids or geeks. It’s stereotypical, I know, but supported by years of anecdotal evidence.

However, I’m changing my view of games after a trip over to Breakaway Ltd. in Hunt Valley Maryland. At the end of May, the Knight Center for Specialized Journalism bussed us over there to hear about serious games. We learned that the Pentagon as well as healthcare institutions like Texas A&M took games very serious indeed. For a quick one pager on Breakaway, check out the Media Dojo Tear Sheet—Breakaway Ltd.

The problem is thus: how do you enable people to tinker with real concepts based on real situations—but without real consequences? Just as product engineers take great pains to stress their inventions to the breaking point before deploying them in the field, many of those who play for the highest stakes (war fighters and healthcare) are looking hard at game-based simulations to help them test-drive strategies or ideas before they go live.

I followed up with Breakaway CEO Doug Whatley this week to discuss how serious games might impact the cloud if, as we both agree, it’s a category that’s likely to diffuse beyond the defense and healthcare communities to other industry sectors.

Media Dojo: First, tell me how games chew up computing resources

Doug Whatley: Part of the reason that games are so cutting edge is that people often need to buy the latest and greatest machines to play the latest and greatest video games. So the best games always have a very high machine spec compared to the installed base. Since serious games are coming out of modeling and simulation, they fit naturally for the military because they were already training people in flight simulators or something similar. And for medicine, the fact that they have this very expensive, sophisticated dummy attached to a PC meant that medical customers were accustomed to buying a lot of equipment as well. The issue now for serious games is that if they’re to move beyond military or healthcare to become a regular part of training and education, the client hardware issue grows in importance. Often, you don’t find anything other than really old machines throughout government and the civil sectors. If you go into your local fire station, they’re likely to have a really old PC. So the ability for us to deliver them the latest training (or not) via a game simulation is more of an issue of them not having the equipment to run the software.

MD: Does Cloud Computing solve this problem?

DW: The appeal about cloud computing is that someone can sign on over the web and play the latest training game in the cloud without having to upgrade their local PC. That’s the perfect world. But in all areas of storage, processing and bandwidth, the resources in the cloud are being pulled pretty hard for games. The amount of data necessary for a lot of these simulations can be very large. Whether it’s the military or Homeland Security with their terrain databases, all of the DBs backing up that information are very large and all that data needs to be stored somewhere. If you have satellite images and other earth sensing data, it adds up pretty quick. To show people details of an actual city, that’s many GB of data. So the data storage and having a centralized location to keep that up to date is very useful. But because there’s so much data the throughput is very important as well. And the fact that you’re doing very sophisticated physics based simulations against those environments means that the processing is really getting hammered.

MD: What are the holes that need to be filled by cloud providers to drive adoption by game publishers like Breakaway?

DW: One of the biggest holes for adoption of cloud by games makers is the virtualization of certain kinds of hardware like 3D accelerators. It goes back to the processing needed in the cloud to where the web-based user experience mimics what you’d find if they had a latest version machine. There’s just not enough availability of virtualized hardware based in the cloud to really make game-based simulation a broad-based offering.

Another thing is that right now the cloud service providers are focused on the e-retailer market rather than the application vendor or Service Oriented Architecture (SOA) market. Cloud providers need to step it up on the app vendor side as opposed to just expanding my sales capacity. Every cloud vendor has a riff talking about your web site getting mentioned on Good Morning America followed by a huge traffic spike. That variable burst capacity is great. But what if I’m an app service vendor and I’m pushing your cloud that hard all the time? It’s a different situation.

MD: Let’s imagine the cloud vendors are able to virtualize hardware better and provide an app-centric as opposed to website-centric service offer. How would that change your business of using game technology for simulations, modeling and training?

DW: What cloud-based delivery enables me to do is change my business to a subscription model. For example, if I create a fire training application, and allow firemen throughout the world to subscribe to my training service, that gives me such global reach that it completely changes my business economics. Right now, I’m out there trying to sell applications in a box and get people to buy them and go install them. With a cloud-based approach, I can switch to a more subscription based model. That’s actually what my customers want. That’s how the training budgets are paid for now. This goes back to the modeling and simulation versus training. It’s very common for companies or government employees to say, “I’m willing to pay $9.95 per person per month to have all my people trained in all these different areas”. That’s how they’re naturally inclined to purchase versus now where I have to convince them to buy in a different way.

Guilty as charged for light posting since the AWS gathering two weeks ago. Closing on the sale of my house long-distance has turned into a voyage into the surreal. Yesterday, I told one of the bankers of my intention to be one of the first in line for Tim Burton’s re-make of Alice in Wonderland, which will have Johnny Depp playing the Mad Hatter. I figured I owed myself a dose of reality after falling down the rabbit hole of US real estate circa 2009.

Thankfully, tomorrow I’ll be going to SF for Structure ’09. Om Malik and the crew at GigaOm have put together the right people for anyone needing the best single, slurp of cloud computing. Naturally, some of the usual suspects like Werner Vogels, Marc Benioff, Russ Daniels, Lew Tucker and others will be there. But there’s also a good selection of “middle layer” companies who can fill in a lot of the white space.

Media oriented players will be thin on the ground. But we’re still in the stage where it’s more important to know what’s under the hood than it’s exact fit into the media and marketing worlds. They’re running at wildly different speeds but are converging (colliding?) rapidly. I’ll be there as Media Dojo to corral more interviews and participation in my summer-long project, which will be a Cloud Computing Guide for the Media and Marketing Industries. Trips off the tongue, huh? Right now, it’s more important to be clear than creative. I’ll inject chutzpah into the title as we get closer to publication, which will be near end of Sept./early Oct.

Expect a raft of posts based on that event and more information about the MD Guide over the next few days.

Compared to real estate, I’m glad to be back working with something tangible like cloud computing.

The last company to present during last week’s AWS event was Zumobi. Spun out of Microsoft Research in 2006, Zumobi is betting on superphones such as iPhone, Android and Palm Pre as platforms for mobile application-based advertising. According to John SanGiovanni, Zumobi co-founder and VP of Product Design, superphones sport full fidelity browsers, robust SDKs, 3G speeds, as well as GPS capability. Given superphones’ capacity for high-end processing and rendering, branded mobile applications rather than display banners constitute the most important mobile advertising inventory.

Zumobi got its first taste of cloud computing with AWS through the 2008 Summer Olympics. Lenovo and Intel were the main sponsors for branded mobile apps that needed to stay in synch with the evolving action in Beijing in terms of updating scores and provoding other context tual information. With the large amount of stored data that needed to be accessed rapidly, Zumobi started out with Amazon S3 as its primary data store for the Olympics. That experience led to the next branded project which was working on the Xbox 360 launch for Microsoft. For that project, Zumobi tried out EC2 for the first time. They also worked on their own back-end to tune some of their internal load balancing systems to accommodate the Amazon infrastructure. Then came work with American Idol which pushed the AWS partnership harder as scale and speed requirements co-mingled. By that time, roughly 7-9 months ago, Zumobi decided to port nearly all of its operational infrastructure over to AWS.

Aside from the evolution of the Zumobi/AWS relationship, John focused on how to parse some of the blizzard of iPhone and other superphone statistics spit out by the research industry and the media. There may well be over 1 billion apps downloaded from the iPhone app store. But the vast majority of these are “transient” apps (e.g. beer sloshing and fart sounds), meaning that they live isolated on the mobile device for a limited period of time and then are uninstalled. There is very little scope for network interaction.

Zumobi places its future on mobile applications in which there is a strong content anchor. By that, John meant that there is a recurring, refreshing dose of content that keeps the app active and conversing with a network service. Hence, a branded app from REI that allows a skier to source snow conditions on selected resorts fits the criteria. Zumobi partners heavily with media companies to get rich recurring content to fuel the app, drive the engagement with the user, and increase the value of the mobile app to a potential sponsor.

The issue brought up by superphones is that now, the bar is raised for recurring content to include video, real-time data, images all of which point to massive scalability issues with a mobile app. “In order for us to build a network of superphone applications, having a flexible data center is absolutely imperative”, he says. In concrete terms, John said that going wholesale with AWS has eliminated fixed costs (as a matter of course) , and save around 80% in variable costs. Along with the costs savings , SanGiovanni notes that Quality of Service, Quality Assurance, and geo-location functions have been greatly improved.

Of cource, whether this is a match made in heaven will be decided once Zumobi launches a major app right as AWS has a hiccup. I’ll be curious to see how the company plans for disaster recovery having put so many eggs into the same basket. That said, the fact that AWS was able to produce a clean example of a customer putting their operational destiny on the line is worth noting.

Time for the second installment of last week’s Amazon Web Services (AWS) meeting for local start-ups in Seattle. Rounding out the four customers presenting last Thursday were two Seattle-based media plays, nuTsie and Zumobi.

First up was Bob Wise, VP of Engineering of nuTsie, (www.nutsie.com), which allows people to port their iTunes play list across web and mobile platforms, including Blackberry and iPhone.  Basically, nuTsie takes a user’s existing iTunes library and rolls it into a streaming service much like Pandora. They don’t use the actual music in the library but the meta data about the songs and/or a playlist to create a super customized experience anytime, anywhere. If it seems a little disjointed there is method to the madness. Music licensing remains a mess even after a decade of industry tinkering. Like Pandora, Melodeo must make all its music streaming DCMA compliant so legally nuTsie is considering web radio rather than a a formal music distribution service.  The primary outlets are streaming for the web and for mobile phones. The business model is based on advertising for web streaming and subscriptions mobile phones.

For plumbing, Melodeo uses Amazon S3 to store and serve up the audio files (several TB in aggregate) that stream via a Flash player. The web-based nuTsie service gets about 10 million page views per month with about 10,000 hours of streaming music content served up each day between the web and mobile components. Both the streaming service and the mobile play are hosted on AWS. Bob said that for a typical load, it takes about 40 EC2 instances (think 40 virtual servers) that are about evenly split between large and small instances with one extra large instance for the main database. If you do a back of the envelope calculation it works out to roughly $10-15 per hour for pure compute capacity. Remember that nuTsie is also paying for data and certain transfer bandwidth charges.

source: http://aws.amazon.com/ec2/#pricing

One aspect of Bob’s presentation I liked was how he illustrated the effect of business forces on technical design. Chris Anderson of Wired fame used music as exhibit A of his Long Tail hypothesis. Bob said that in his experience the long tail might be long but it’s also thin as fishing line. Basically, this means that ultimately the number of music plays instead of the number of music tracks is what makes or breaks the business. Given the fact that the action stays with a relatively small number of tracks, nuTsie uses Amazon S3 as a content delivery network (CDN). If it sounds strange to use a data storage service to serve up content, take a look at charging. With many other CDNs in the market, a business is charged according to how much data sits at the edge node plus the transfer bandwidth to the end user. Thus, the key cost point is how much you get charged for keeping music tracks in storage which aren’t being played very much. Sticking several TB of music data out there on various edge nodes is an expensive way to do things. If you look at parking data similar to parking cars, loading rarely played music or video on an edge node is a bit like using a parking meter or a temporary lot whereas oft-played content needs the equivalent of a monthly reserved space. It’s an imperfect comparison I know. However, it’s decently clear that some of the heavy lifting for media providers is to figure how thick is the head of their demand model and how thin is the tail. Otherwise, it’s money out the door, cloud or not.

The Mariners were practicing today at Safeco Field where Amazon Web Services held a developer and start-up afternoon. Adam Selipsky and Matt Tavis of AWS covered the business layer as well as what was under the hood. Four customers gave their perspective about how they use AWS. Trains passed by as did the occasional crack of a bat to add background music to the presos.

I came away from the afternoon thinking that cloud computing has shifted into 3rd gear. We’re not yet at freeway speeds but it is clear that a lot of the theory is being hammered into practical application. Adam and Matt’s job is to solidify the current AWS story. Given that I’ve seen Werner Vogels recite the AWS lineage on numerous occasions, I can’t say that I heard anything new. Paradoxically, that makes me feel good. It suggests that AWS is in the midst of the tedious though critical task of truly productizing the offer. It’s easy for snarky analysts to harp about cloud computing being another form of time sharing, something we’ve had since the 1960s. But while it’s one thing to understand what something is, it’s quite a different challenge to make that something work at scale. Kind of like the physicist who can model a fastball. Very good, professor. Now, hit the sucker when it’s thrown at you at 96mph. Thus, I’m not particularly fussed when I hear AWS repeat its basic story with some incremental additions thrown in. Indeed, I’d say their success measure by 2015 is to become as boring and crucial as the power companies they seek to emulate.

To me, the customers provided the more exciting content. Jeff Lawson, Twilio’s CEO, spoke about how they offer telephony as a web service using multiple cloud providers, not just AWS. Strip out the black magic, and Twilio is about making telephony app development accessible to web developers. So if your expertise isn’t SIP, 3GPP or some other exotic telecommunications protocol, no worries. You can add various telecom services to your web app using traditional web standards and tools. Cloud infrastructure, much of which is AWS, enables Twilio to split its internal world into three large domains, continents if you will. There’s a DEV zone in which Twilio’s staff developers access a simple, powerful API that has only five blocks for building voice mail systems, IVR, PBX, click-to-call and other telecom services. Then there’s a STAGE zone that lets the developer test the app. Then there’s a PROD zone which is the only cluster that touches external customers (e.g. web developers). Media providers and marketers need to take note that branded comms is a huge future growth and community building area. Nearly every marketer I know bleats about how they’re fed up with using page views as a negotiating currency for media buys. They want more engagement (whatever the hell that is) from consumers. Nothing seems more engaging than a direct conversation, either between a brand and a consumer or consumers communicating in the context of a branded environment. I can’t say that Twilio solves the engagement problem (let alone how to use telephony as an ad currency). But you don’t get more guts level customer dialog than when it’s spoken instead of written so something is bound to shake out. Cloud now makes it far more likely that a savvy web developer will catch lightning in a bottle by using telephony in a new way. Watch this space.

However, you can bet that serving up telephony or other latency-sensitive applications beg for more robust testing. John or Jane Q Public won’t be thinking, “oh well, the app’s still in BETA. They’ll get it right with the next rev.” Far more likely, ordinary people will think “this sucks!” and move on when they encounter a communications or media app that is late in delivering the goods. Enter SOASTA, which uses the cloud to be an Underwriters Laboratory equivalent for websites and web based apps. They remind me of those demo guys who bring down city office buildings with explosives except SOASTA’s job is to stress test major web sites for latency issues. A case in point is Intuit. Many remember April 15, 2007 when Turbotax melted at 1015pm, not the company’s best day. The problem, however, is that to get a proper test, you need to simulate a proper load. SOASTA uses AWS and other providers to simulate massive traffic loads (eg. 300,000 simultaneous users) in various combinations without the need to construct a separate test facility. According to SOASTA’s CEO Tom Lunibos, the dirty little secret of most Web 2.0 apps (1.0 for that matter) is that they were lit without having done more than cursory load testing. The idea was that you got it out there, had it melt, apologized to the users with some cute stick figure with a hard hat, and fixed your latency problem. Mainstream adoption and recessions are curing that stunt pronto. Tom  declared (rightly) that latency can be measured as lost sales. Outages in 1998 that were reported in PC Magazine of Information Week now grace the front pages of the New York Times and Wall Street Journal. Bottom line for media providers (especially gaming companies) is that latency is money. So blow up your pre-launch site. You’ll be glad you did.

Don’t want to get too long so I’ll follow up with Melodeo (cloud-based music serving) and Zumobi (mobile applications as marketing) in a separate post.

It’s hard to discuss Google without having a general discussion about Internet Media/Marketing and vice-versa. I’m not sure the same dichotomy exists in the cloud world yet. But it’s safe to say that you can’t have a comprehensive cloud computing policy discussion without referring to Google. Hat tip to the Knight Center for Specialized Journalism for bringing Google’s regulatory policy lead to speak to us about the web giant’s role in policy making.

Alan Davidson is the Government Affairs point person for Google in Washington. Naturally, he’s a computer scientist and a lawyer by training.

Alan believes that we’re currently in the Empire Strikes Back part II of the policy trilogy. The first part of Internet policy had a certain naivete on the policy side, summed up by the thinking that the Internet was a particular “thing”. It was a new technology system to be sure, but one that could eventually be wrestled into an existing policy tool kit. Step change is a nice theory but rarely observed in practice. At the same time, digital utopians believed that all the new users adhered to similar norms that marked the early generation of “netizens”. Given the information asymmetry in favor of the technologists and early adopters, it shouldn’t be surprising that advantage went to the rebels.

However, the last few years have seen regulatory authorities world-wide respond to all the John Perry Barlowesque declarations of cyber-independence with, “You don’t think we can regulate the Internet? Well, watch us…” In the past two years, major Google services in 23 countries have been blocked outright. For example, YouTube doesn’t exist in Turkey ever since a Greek activist posted a parody video claiming that Turkish independence icon Attaturk was gay. The Turkish Government told its ISPs to block all YouTube traffic into Turkey full stop. Similar incidents with various Google services have occurred in Pakistan, China and Bangladesh.

Alan was quick to caution that regulation itself isn’t inherently bad, however. Think for a moment as a U.S. citizen how the 4th Amendment regarding unreasonable search and seizure applies in a cloud-based environment. If you keep your correspondence and/or your business records in your house or on your person, the police or other authorities have numerous procedural hoops to cross before they can seize them. Not so once you port all that stuff into a cloud. People do it all the time with Quicken Finance, which is convenient to be sure, but buried in the privacy policy is the well-worn phrase that the company will protect your information up to the point it receives a “lawful request” from the “proper authorities”.

Knotty policy question often expose the cultural rifts between Silicon Valley and Washington. Alan freely admits that since Google is an engineering company, its first response to almost any problem is to try to figure if there is a technical means to solve it. Washington looks for a law. The Valley builds a tool. Occasionally, the twain need to meet.

The session ended with me asking the obvious question about cloud computing policy—taxation. Privacy is an issue that will require decades of piling mess upon mess until something workable emerges. Taxation of cloud-based commerce is a hear and now that hits all pockets. States are desperate for revenue in a recession. Many are scrambling to introduce Internet commerce sales tax. The issue boils down to a simple question of nexus: where did the “commerce” take place? Did it happen in Google’s data centers on the Columbia river? What about a small publisher in North Dakota using App Engine, Azure or EC2 that’s pulling data from S3 or another data provider in another state? Then you have a customer in New York who’s ordering and accessing the content through their New Jersey-based ISP. The bottom line is that under classic conceptions of nexus, upon which most sales tax theory is based, you could end up with 6-8 states having a claim on the potential sales tax revenue. Amazon and New York State are currently duking it out over that issue as it applies to Amazon’s current business.

Many, if not most, of these issues were argued when Internet commerce could be restricted to specific servers in specific states doing specific things. However, once you start looking into public cloud services that are selling both digital services and digital goods, you fall down the rabbit hole. The smart money right now is talking about a Federal Excise Tax on Internet commerce, which will hit cloud services. But what one hand simplifies (e.g. single rate, single collection point, single collector) the other hand flails about ( does a call to a S3 account in one state count less than spinning an EC2 instance in another). The only sure bet is that if cloud computing reaches its lofty goals for adoption, the bars in D.C. will be packed with lawyers and activists talking cloud policy for some time to come.

I’ll post some more about the D.C. trip with the Knight Foundation after working through some more notes. In the meantime, here’s a shout-out for the upcoming Structure ’09 conference being put on June 25 in SF by Om Malik’s GigaOm crew. Regardless of the policy hairball that will soon grip the industry, it’s mega important to get all the top players in one room (can still do it for cloud computing infrastructure). That’s what they’ve pulled off. I’ll be there cranking out copy that affects the media and marketing industries.

http://events.gigaom.com/structure/09/

Jokes are among the oldest and most effective forms of human communication. From etchings made by a bored Centurion on Hadrian’s Wall (“A Roman and a Greek were debating in the Forum one day….”) to the latest YouTube postings, the ability to take in communication, make it your own, and pass it along strums a deep cord within people—if it’s done well.

That’s one of key benchmarks for a newer breed of service providers using cloud computing to change how outbound communications via email and text are done by organizations to reach their customers and partners. I spoke with Dale McCrory, a top product manager at Exact Target out of Indianapolis. Earlier this month, Exact Target raised a whopping $70m VC round in the midst of economic turmoil. More about the company here: Media Dojo Tear Sheet: Exacttarget

I found that many of the social rules we’ve learned over time about context, consent and content of a good joke go a long way toward making the social value of it work. What cloud computing does, it allow the infrastructure to respond in tune with what a savvy marketer would like to do.

Media Dojo: Tell me about Exact Target and its DNA

Dale McCrory: We’re a SaaS-based one-to-one communications provider for companies wanting to reach their customers. We started as SaaS marketing to send out messages, primarily via email. We’ve now expanded our footprint to other one to one communications mediums like SMS.

MD: Where does cloud computing fit into that?

DM: There’s a portion of the cloud that allows a marketer to upload files that contain the email addresses that constitute their opt-in customer base. Our service connects to a back-end database on the customer premise. The data goes into the cloud at that point in time.

MD: So what problem are you solving?

DM: We enable marketers of all sizes to deliver direct communication (email, SMS, voicemail) to their customers and have all the tracking and analysis tied back to their goals and projections. We also have a content management landing page so people can build websites in our system. The main problem we’re attacking is that if you can’t find a way to quickly organize, personalize, send and track your marketing communications, it quickly defaults to spam in the customer’s mind. Aside from working the logistics of ensuring the right message to the right person in the right context, we also help our customers maintain their legal compliance with legislation such as the Canned Spam Act.

MD: So where is email marketing going as a business process? As an “art” form?

DM: It used to be only about the message: its content, its delivery, its tracking back to goals and outcomes. That’s still important but we’re also seeing email as a vehicle for allowing the consumer to repurpose good content across social channels. So it’s a customer being able to say, “the content of this email is important or funny enough for me to want to forward and display it on my Facebook wall”. Being able to facilitate that interaction while maintaining the essence of the message is crucial because now you’re introducing your content to people who weren’t experienced it before.

Secondly, it’s the ability within an email to actually change images on the fly. An example would be that you have a coupon that goes out via email that after three days you want that coupon offer to change into something else if it hasn’t yet been opened. We can do that with technology called Live Content.

MD: What cost areas are you attacking with cloud computing?

DM: If you look at a traditional web hosting today, if a SME marketer chooses to build a web presence that relies on regular email communication, most web hosts throttle back emails to about 100 per hour. The reason that most hosting companies limit you to about 100 is that there is a something called an IP address reputation. All spam collectors look at an IP address and ask whether the volume is too great. If the email volume exceeds a certain threshold, the host will start blocking everything coming from that IP address. The hosting providers have to do that because they have their own IP reputation to maintain with other hosting providers and peers. The individual host might have 500 customers sending email through that one IP address and if any one of those exceeds that threshold they can end up punishing the rest of them. So there’s a huge cost to doing that.

Take it up to the enterprise level and imagine that you need to send out 200K emails for a legitimate reason on a particular business morning. if your business is going to make money by getting those 200K emails out that particular morning and you’re on a system that can’t send out those messages fast enough, so it takes you 8 hrs to get those 200K emails out, you’ve lost money. By using the cloud, you’re able to get out your message and not worry about whether you put enough hardware to solve the problem. You’ll also need someone monitoring your IP address to ensure that not only do the sends go through, you’re also complying with your opt-in/opt-out lists. According to the Canned Spam act, you have to process someone within 36 hours who wants to unsubscribe. If you don’t meet that request, then you’re in violation of the law.

MD: Last question, what new things does cloud computing enable you to do from a communications point-of-view?

DM: One thing the cloud enables is for us to become a hub for data. It enables us to interact with other cloud providers, for example Salesforce.com. You can mix data from SF such as support data or it might be sales prospecting data, combine it with the rest of your email marketing data, and do advanced segmentations by bringing together all these disparate sources in to a single system. A key cloud advantage is that you need to bring multiple systems together in a standard way and you need to have the scale to do that.

Another aspect is that having the same communications platform on the cloud allows the customer to explore different messaging types such as SMS without leaving the basic system. So the marketer might want to know the customer’s communication preference, which might change depending on the type of message or even the time of day. It might be better to send a SMS instead of an email to let a customer know that their pre-ordered item is now in stock. That would be a huge undertaking if you needed separate systems.

Publishers have an inventory and supply chain management problem similar to airlines and their seat pricing. The value of the asset changes rapidly, changes according to who wants it, changes according to how it’s bundled with other offers. It’s a whirl of activity right up to the point when the plane takes off or the ad impression is served whereupon the value of the asset plunges to zero. It’s an everyday challenge to practice effective yield management for both online ad spaces and airline seats.

Savvy operators in both industries have long known what they wanted to do to crack this problem: take raw data in the form of server logs or ticket price searches, refine it into information that can be combined with other information in an analytics package, process that information into insight about opportunities to maximize revenue at the margin, and then take action based on that insight. It’s a relatively straight forward process that, technically speaking, requires a shitload of data, storage, processing, and reporting infrastructure. Thus, the “cost-effective” constraint raises its ugly head again.

However, cloud computing is starting to change that dynamic. I spoke with Tom Shields, CEO of YieldEx which is a cloud-based provider of tools for publishers to manage and optimize their online ad inventory, including forecasting of overlapping inventory and best possible campaign allocations. YieldEx became the second company to win Amazon’s Web Services Start-up Challenge, receiving $50,000 in cash, $50,000 in AWS credits and eventual direct investment into the company. For a quick overview, access the MD Tear Sheet. MD-TearSheet-YieldEx

Media Dojo: Why the focus on cloud computing?

Tom Shields: We ran into a number of problems during the 90s and into 2000 that were essentially unsolvable with the compute resources and capabilities we had at the time. The volumes of data we needed to process, the types of analytics that people wanted to do, the kinds of information that people were trying to get out of that data was pretty hard obtain cost-effectively. But we knew what we wanted to do. It’s a combination of yield management and plain old supply chain management for publishing. So what YieldEx is trying to do is apply computer science to and new capabilities offered by cloud computing to advance the state of the art.

MD: How are ad spaces different from airline seats when it comes to yield management?

TS: There’s a couple of things that make advertising impressions unique. Like airline tickets they disappear and the value goes to zero. If you have a physical object on a shelf, it may decline in value over time but it doesn’t disappear. The second interesting thing that so far seems unique to advertising impressions is that impressions can be characterized in many different ways. Those different ways have different values to different people.

So an impression coming in may be a male 25-34 on west coast looking at sports content. You might have some marketer wanting to buy sports content opportunities, others want to buy males; still others want to buy west coast. And these marketers may have different values attached to each one of those things. Part of the challenge here is that what one person considers premium inventory, another considers junk, what works for one marketer might not work for another. So there’s an optimization challenge to figure out how do I as a publisher maximize my revenue given this set of X impressions that expire at a given Y rate and given Z demand from all these different marketer audiences. It ends up being very complex and challenging, especially when you have 10 million ad impressions being served every month and you’ve got 10 thousand potential ad placements. The cloud allows us to economically crunch that kind of data unlike before.

MD: How does this work in practice?

TS: We take in a day’s worth of our publishing clients’ server log files. We process those log files overnight, turning them into clean information sets that you can run queries against in order to surface an opportunity to optimize your ad inventory. We need to be able to start up a hundred instances of significant sized virtual machines, and run them all in parallel for a relatively short period of time like an hour, 30min even. Then we need to shut them all down again and stop paying for them. That’s why our application is particularly well suited to the cloud.

In terms of the amount of server log data we need to process, it ranges from a couple of GB to a couple of hundred GB per customer per night. For some of the larger publishers, their current reporting infrastructure takes them 22 hours to process one day’s worth of server log data into information they can sell against. If you take that same data and put it in a cloud based parallel infrastructure, you can process it sometimes in less than an hour. It’s a huge difference.

MD: Is the nature of impression data changing online? How do you optimize that?

TS: Along with the Facebooks and other social platforms generating mountains of impression data, publishers are going to create a lot of that stuff anyway. How they obtain that data and use it for their own benefit and potentially sell data as well as impressions is probably where we’re going over the next 3-5 years. Publishers will probably also be combining their impression data with 3rd party impression data to get better demographics so that they can generate profile information that they can turn around and sell more effectively than an ad network might be able to.

Then there’s going to be this whole concept of measuring performance. What’s interesting is that for a number of marketing objectives that brand guys typically talk about, clicks are really a terrible measure for those things. For the publishers, the trick going to be about attribution tracking. It’s knowing, “sure that guy went on Google and did a search on the product but he saw five banner ads for that same thing before he searched and wouldn’t have known what to search for without getting the awareness from those display ads”. How does a publisher get credit for that? He won’t unless he can prove his content had an impact. And that requires data.

MD: Why do clicks rule? Should they rule for branding?

TS: It’s easy to optimize stuff you can measure. If you look at optimizing around clicks, it’s actually pretty easy because you can measure the clicks right away. You can promote your site because you can see where people are clicking and where they’re not. Without minimizing the scaling challenges involved, it’s a pretty straight forward problem. If you have feedback, you can optimize rather quickly.

The problem is that it’s hard to get feedback from activities that move higher in the funnel. Take brand awareness. How do I get feedback on brand awareness I can quantitatively measure automatically in software? If I can’t measure it quantitatively, it will be much more difficult to modify the format or delivery of the ad to optimize it quickly. If you can start measuring those things, you can start optimizing them very quick. But part of the problem is that there is this time delay between measurement and feedback because you can’t measure the impact of brand awareness until much later.

MD: Last question, do you see cloud computing as a means to collapse this float between measurement, however defined, and the ability to take action?

TS: Cloud computing offers only the ability to ingest, process and report a lot of data under far better economics. It’s no replacement for common sense on the publisher side. Whether you use cloud systems or what ever the key to optimizing your inventory is to learn what works with the customer, then go after it and earn money. How fast can you run your learn cycle so that you can maximize your earn cycle.

For marketers, learning is the overhead in the overall media buy. You’re taking your hit via lower effectiveness during the learning period of the campaign cycle in order to maximize the effectiveness of the earning period. So the shorter and more effective you can make the learning period, the less overhead you have, the more efficient the overall media buy becomes.

It’s 5pm somewhere in the world and time for a cocktail.

Let’s see. Mix one part Google App or EC2 with one part S3, add a pinch of Salesforce.com with a twist of Facebook, shake well and enjoy. Of course, as many of us learned during our first or second years of university, indulging in exotic tipples at scale often came to an embarasssing and/or nauseating conclusion.

Fortunately, some of the first true mixologists for cloud-based solutions are springing up. Combining products, services and strategic relationships with platform companies like Google or Amazon, enablers like Appirio provide a “middlelayer” rather than “middleware” for organizations trying out the cloud for select business functions. Based in San Mateo, Appirio basically helps its clients fast-track selected business functions onto the cloud by offering them a turn-key proposition. For a quick overview of Appirio, check out Media Dojo Tear Sheet–Appirio.

We spoke with Ryan Nichols, Vice-President of Product Development at Appirio about where he sees the low hanging fruit for media and advertising firms in the context of cloud computing for 2009 and where they should start.

Media Dojo: What are the initial conversations you’re having with media and advertising firms when it comes to cloud computing solutions?

Ryan Nichols: We have more of a functional go-to-market strategy than an industry-specific strategy. We see a lot of companies, media providers and advertisers included, starting with a straight up sales automation solution from Salesforce.com that they soon want to extend into adjacent functions. Practically, this might be extending the work they’re doing with SF.com into a Facebook application to drive word-of-mouth referrals. Another extension for media and advertisers as well as other companies might be to automate some of their lead generation and/or lead nurturing functions. So they might have started at the part of the funnel that’s one or two steps removed from sales and now want to migrate higher up the funnel to more marketing related functions.

MD: What is the relationship between social media and cloud computing?

RN: People have an intuitive sense that World of Mouth (WOM) referrals are the lowest cost highest quality way of building out their business. That’s why people measure things like a Net Promoter Score, which is great if you can get social media users to recommend your brand or product. The problem is that even if they already are prepared to recommend you to their circle, typically you need to put an application in their hands to close the loop. One of the more exciting things is not only does the cloud enable us to quickly build apps but the target platform, Facebook for example, is itself already a cloud-based system. That makes it simple, fast and inexpensive to connect the application to the platform. Going further, it’s possible to tie this platform to another cloud-based platform like SF.com, which would be almost impossible if we were dealing with on-premise software and infrastructure.

MD: Where does this easier integration fit with other published cloud benefits such as lower costs, pay-as-you-go pricing, or flexible scaling up or down?

RN: Those are all important value adds of cloud-based solutions. However, one thing I believe gets missed sometimes is our ability to use the cloud to prototype something rapidly and at low cost. Often, while a client is evaluating one of our deal proposals, we knock together a quick prototype to show them what a custom solution looks like for them. You’d be hard pressed to do that with on-premise technology because the cost of starting up is so high that it’s hard to be agile. Agility is a critical benefit once server cost savings are realized.

MD: What should media and advertising companies start doing in 2009 to get the most benefit out of cloud-based solutions?

RN: I think the key for most media and advertising people is to stop reading and start doing something. Start out with a small, initial project where you build an app for the cloud and learn. There’s no faster or better way to learn what works or doesn’t work for your company. At the business level, it means picking an app for which you were just about to call internal IT to provision and trying it out under an on-demand model. That’s the only way to stay on the development curve and ensure that a year from now you have a real strategy for your company. Cloud computing isn’t just about becoming world-class in your cost control of IT. It’s just as much about finding that innovation path that will take you into the next phase of your business.

[Editor's Note: Ryan came from a retail analytics background prior to joining Appirio. During our talk, he provided feedback and some useful pushback to my thesis below that the future of media lies in a retailer's mindset. I'll chew on his comments some more and then give that presentation another rev.]

The last couple of interviews I’ve done with ooyala and Tumri have me thinking that we’re getting closer to a Just-in-Time World for media and marketing. By that, I mean that the action (the ability to profit disproportionately) is moving to how fast and how well you can customize a content experience or an ad at the margin. It used to be that leverage was all about aggregating eyeballs. No argument there in terms of creating an efficient media buy for a big advertiser. Scale has its advantages and always will.

But as we’ve found in other industries like automotive or consumer electronics, scale only makes you a player. Soon enough, you get a disruptive force like Toyota saying that you can customize the hell out of your car and we’ll build it, and ship it to your dealer in a week or less. That’s where scale takes on a whole new meaning. It’s no longer only the ability to spit out more units at a lower per unit cost. Scale becomes a game where the trick is how fast you can orchestrate a massive ecosystem to deliver an individualized experience.

I’m not saying we’re there today with media and advertising. But some of the building blocks have been put in place. Cloud infrastructures are becoming the assembly lines for a new breed of media and marketing disruptor. Whether it’s Tumri blowing up display ads into objects that are then re-assembled on the fly based on impression data. Or ooyala seeding video streams with a slew of clickable elements, the game is shifting. Like it or not, principles of e-commerce are being injected into media and advertising just like retail, travel, real estate, automotive, and financial services.

The advantages of scale will never go away. But how those advantages get re-distributed along the value chain and which new players control them, ah, now there’s an interesting question.

Stay tuned over the next couple of weeks. I’m banging out a 5-6min screencast called “When Media Acts like Software” to take a first stab at the idea of a JIT world for media and advertising. It’ll be a first rev so it’ll eventually join my 8th grade class picture at the bottom of the Marianas Trench. But that’s often the only way to learn. Just F*ckin’ Doo It as Nike would say had it started in New Jersey.