Media Dojo

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Online video is huge in terms of users. Online video is more huge in terms of usage.

So where’s the money?

That seems to be a standard story line these days in both general press and on blogs. Everyone spouts off about whether online video will overtake TV, when and how. The inserted bias to these stories is that online video is a mathematical function of television, as conceived and organized by the television industry. By definition, if the image moves or is animated, it must be either film or television. But that’s a lot like benchmarking an Indy car against horse drawn carriages because both have wheels, need a road or a track, and are used by people for transportation. You can figure where the logic is leading….

So, it was a breath of fresh air for me to speak again with Sean Knapp, co-founder and CTO of Ooyala regarding a new project the video platform service provider is doing with Wheels TV and eBay Motors. For more corporate info on Ooyala, here’s the Media Dojo Tear Sheet–ooyala.

Ooyala is working with Wheels TV to market test POV (pre-owned vehicle) reviews on eBay Motors.  It’s a new, video-based consumer shopping service for people looking for pre-owned vehicles. Each five minute POV video review contains road tests, walk-arounds and data addressing reliability, safety and fuel economy information related to about 200 make/model/year automobiles for sale on the eBay Motors site.  The POV Reviews are produced in cooperation with J. D. Power and Associates.  JDPower.com’s Power Circle ratings suggest trends in overall dependability, performance and quality on every vehicle. POV reviews also include mileage estimates from the Environmental Protection Agency and crash test videos (yeah buddy!!!) from both the Insurance Institute for Highway Safety and the National Highway Transportation Safety Administration.

Naturally, viewers can share the videos across their personal networks.

Here’s some sample videos:

BMW 3 Series

Ford Mustang

Honda Pilot

The primary benefit to the buyer is that video can crunch several hours of research on the make/model of a given automobile into about five minutes. Translated, the videos give the buyer quick, effective talking points for persuading their significant other around the dinner table that it’s the JD Power *safety* rating that makes the BMW 3 Series a smart buy, rather than the kick-ass pick-up and handling, not to mention the fire-engine red color and awesome trim.

I spoke with Sean about how Ooyala is handling the video demand, especially from the viewpoint of analytics.

Media Dojo: What kind of analytics will eBay Motors get with these video streams?

Sean Knapp: They’re basically getting the full suite from us ranging from geographical breakdown, to the unique user base to how many uniques they’re getting on a daily, weekly and monthly basis. They’re also getting behavioral analytics that pinpoint which particular part of the video people watch, what’s the abandonment rate, who’s skipping ahead. Then, they can start looking across video to compare the acquisition/retention curves for the Ford Mustang versus the GMC Envoy on the site. Finally, eBay Motors is using our API to pull in data that they’ll crunch using their proprietary in-house analytics systems.

MD: Are online video analytics going the way of other digital analytics in becoming more performance-based as opposed to just exposure-based?

SK: How we monetize content isn’t based as much on the number of impressions anymore. The issue is that over the next few years there’s going to be a 10-30X increase in overall video content served even though there will be only a 2-3X increase  in the number of viewers. So what users are doing with video becomes the key metric to track as opposed to just who is being exposed to video. What video content are users accessing? How are they consuming that content? How are they responding to advertising?

MD: Granted the need for better analytics, are publishers really becoming more sophisticated about using video?

SK: On average, people are getting more sophisticated on the buy side. Publishers are looking more closely not just at how consumers are consuming their content but how the publishers are monetizing that content. Over the course of the past six to nine months, we’ve gone from supporting  2 or 3 ad networks to supporting 12-15 different ad servers and ad networks plugged in to our platform. Publishers are getting away from saying just “How do I get video into my site” more to “How do I refine the video on my site? Which knobs should I turn to get people to consume it? How do I extract value from that consumption?”

MD: Obviously, eBay Motors has a clean benchmark for monetizing the content (e.g. brokering sales). What about other sites that aren’t squarely in the e-commerce bullseye? What trends are you noticing in terms of their ability to monetize video content?

SK: In terms of monetization, there’s no silver bullet. There’s some value in a video CPM and some value in a CPC. But it all eventually falls under the umbrella of some kind of Cost Per Action. We think the better players will be those who carve up a broader publishing base into finely sliced niches against which people can advertise. Auto is a good category in which there are numerous niches for targeting that can be aggregated into a bigger media buy. But to get to that place, you’re going to need to see the larger video platforms get into closer collaboration with the larger ad networks. Everyone needs to help create a larger media buy ecosystem. To get the best exposure, brands can’t just dip into the top 100 sites of a given category, but need to get into the top 100,000 sites. This means that a lot of mid tier publishers using video will need to offer more sophisticated analytics to get that business but it’s not likely that they’re able to build that in house. That’s where the large video platforms like us come along.

MD: Last question. How much cloud computing horsepower have you added to keep up with demand since we spoke last spring?

SK: We’re seeing anywhere from 30-40% growth on the low end per month to over 100% growth in certain months. It depends on the metric you chose whether it’s GB ingested, video hours served, video users reached. We’ve been able to scale things through good partnerships with our Content Delivery Network (CDN). We also have a very good distributed computing team in house. We built our transcoding and storage applications to site on top of cloud infrastructure from day one. Today when you upload a 2hr length full movie to us, it will hit anywhere from 10-100 different encoding machines operating in parallel. We can now encode a HD quality 2hr movies substantially faster than real time by operating in parallel on cloud infrastructure.

I’m In Langley, WA this coming Saturday September 19th to speak about the media play for cloud computing at New Media 2012. I like the agenda and set up. Each speaker gets five min to make their case. Then comes a panel discussion. The line-up includes people from the telecom world, gaming, visual media and journalism. Here’s the speaker list:

Tom Kennedy, Former Director, Multimedia, WashingtonPost.com
Brent Friedman, Partner, Electric Farm Entertainment
John du Pre Gauntt, Author, Consultant, Technologist
Joe Pulizzi, Junta 42; Author, Get Content, Get Customer
Alexis Gerard, Founder, Future Image Report
Robert Gilman, Founder, Context Institute
Russell Sparkman, Founder, Fusionspark Media
Marcia Hofmann, Staff Attorney, Electronic Frontier Foundation
George Henny, Co-CEO, Whidbey Telecom and Fibercloud
Joseph M. Tringali, Co-Founder, General Manager 5TH Cell Media

There’s also the venue—the Clyde Theater. It’ll seat about 200. Tickets are still available for the event which will run from 1pm until 330pm Saturday.

Hope to see you there.

Over 100 million games installed in 18 months. 40 million monthly players. 9 million daily players. Already profitable. 200+ staff spread around offices in Europe, US and China.

And, by the way, they don’t own a single server.

It’s often the case that when you use the terms “social”  or “cloud-based” to describe a company or a business venture, a lot of people roll their eyes—often for good reason. The bullshit to hard numbers ratio often exposes that you’re dealing with just the marketing phrase.

In the case of Playfish, the numbers speak for themselves. Founded in late 2007 by people with deep roots in the mobile ecosystem (e.g. Nokia, Glu Mobile), Playfish launched to take advantage of Facebook and MySpace as distribution channels for games. For quick overview of the company, check out the MD Tear Sheet.

Earlier this month I spoke with Sebastien de Halleux, Playfish co-founder and COO, as part of a research project for GigaOm Pro. The following is a more extended interview.

Media Dojo: Please define social gaming…

Sebastien de Halleux: Social gaming focuses the value on the interaction between friends via games as opposed to concentrating the value on the product side by selling a copy of a game. So we’re heavy on the idea of a game as a service and the connected nature of social experience as opposed to concentrating the value on the product side of selling a copy of a game.

MD: To state the obvious, then, how do you make money?

SH: From a business model point-of-view, the Playfish model employs micro-transactions during the game as well as in-game advertising.

MD: How does Playfish operate in the cloud?

SH: All of our business and commercial infrastructure runs on the cloud. The company literally only has laptops. We use Amazon S3 for storage, EC2 for computing, and use Cloud Front for content distribution across the fixed and mobile web. We were founded in October 2007, which was the first time you could get an entire company purely in the cloud.

MD: There’s a lot of mobile DNA in the company as well, how do you see social gaming in the mobile space?

SH: Today, there are about 1.5 billion web users worldwide who have access via a laptop or PC versus 3.5 billion mobile users, many of whom have some level of access to the Internet on their mobile device. So there’s already a very strong skew toward mobile computing in general as an access layer, especially outside the US. Social gaming is all about bringing a shared experience to a group of friends, wherever they are, whatever their access preferences might be.

It’s clear that more people are shifting a greater amount of their time from the bigger screen stationary experience to the smaller screen mobile experience via smartphones and netbooks. It’s not a function of us dictating that the user must have a specific device to enjoy a particular kind of content experience. It’s a function of the user choosing the stream that’s most adapted to their lifestyle at any given moment. As a service-based game company, you need to be able to offer a meaningful experience to people regardless of their access device or the social gaming model runs into problems.

MD: How does this work in practice?

SH: We launched an iPhone and iPod Touch version of one of our most popular titles, “Who has the Biggest Brain?” at South by Southwest this past March. It reached number 2 position in the Apple App store in the UK and was a top 5 mobile game in many other countries. The look and feel of the game is the same whether you play on your iPhone or your laptop even though the underlying rendering technology and input method is different. The key similarity is that your friends, who are Facebook friends in this case, are present as part of the experience regardless of whether you’re using your iPhone or a laptop. Moreover, your score and your progress within the game are preserved even if you pause it, change access devices, and re-start.

What’s important for the user is that they no longer think of the device as the platform but much more as the means to connect to the service. For us, the “platform” is the social network.

MD: What needs improving for the user to forget or not care about the access device they use to play one of your games?

SH: The iPhone is a revolutionary mobile media device but has atrocious connectivity once you get away from a Wi-Fi connection. It’s typically a use case never to assume 100% connectivity to a mobile cloud service. Managing this duality of being based in the cloud, but needing to maintain availability to the end user on questionable infrastructure is a huge technical and design challenge. Practically, this means that we still need to have the user download a client application into their device, mostly to handle the lack of bandwidth plus the frequent interruption of mobile connectivity. You often need to push updates to the client in order to update the service, which isn’t a good experience. So one of the milestones we want to see is the day when you can run a game in a mobile experience using Flash or something comparable to the web development model instead of needing a specific mobile client. That will require a big jump in mobile connectivity.

MD: What about on the cloud computing side? What needs to happen to take it to the next level?

SH: In terms of the cloud industry ecosystem, there are several forces in play. First, we are reaching a scale with 40 million monthly accesses to where we start to have increasing leverage as buyers of cloud services. When we started, AWS was the only credible provider. They’re still a close partner. But I think the market needs more mature options among different cloud providers, especially across geographies. At the moment, we’re very happy with our current partner but I think it’s important for the cloud industry to stay competitive. The second thing is more cloud specific services for businesses like ours. For example, our business depends heavily on micro-transactions. But it’s not uncommon for certain online payment providers to require a static IP address, which is a contradiction in a cloud environment. How to design a cloud-native billing layer is still pretty open territory. The next one would be cloud enabling layers, the tools that enable a company like our to manage and optimize the operational aspects of running a cloud-based business. Sure, there are companies focusing on this problem but many are tied to existing cloud providers. We’re like to see more cloud agnostic tool providers.

MD: Last question, how do you see games pushing cloud computing forward?

SH: Games will help cloud computing progress because of the sheer scale of demand it puts on the infrastructure. We’re probably one of the largest AWS Cloud Front customers because we need to push huge Flash files all over the Internet. This is a demand level you don’t see as much with business applications. The demand for game services will play a big role in developing cloud infrastructure, and especially tailoring it for low latency, efficient distribution and always-on connectivity. Latency and performance is everything if you’re offering games for multi-player experience.

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/

Growing up in Tennessee, I often heard my mother use the phrase “livin’ in high cotton” to describe a situation in which you’re the beneficiary of exquisite hospitality. Today, I received the final program schedule for my week in D.C. working on online privacy issues as a Knight Foundation fellow. From trips to the FBI, to a briefing from the Obama Adminstration Office of Science and Technology Policy, to meetings with Google’s Washington handlers as well as the ACLU, I’ll be livin’ in high cotton from Memorial Day.

Jokes aside, I’m honored to be given the chance to take a deep dive into online privacy concepts and policy at such a top level. If we take as given that demographics and activity data form the capital of the interactive world, then privacy becomes one of the core concepts to master. I’m also jazzed at the make-up of the other fellows and their organizations.

Mark my words, children. There’s many a time when you fill out an application with only a sliver of a chance to being accepted. However, the only sure outcome is that you have a 100% probability of nothing happening if you don’t fill out that application. So take a chance. You might end up pleasantly surprised.

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.