Google displays its hand

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This morning’s Observer column.

The scariest question a venture capitalist can ask a company seeking funding is: what if Google enters your market? For years, this question has haunted folk in mainstream advertising. They had already seen Google collar an overwhelming share of the targeted-advertising market via its AdSense and AdWords technology, the system through which small, hopefully relevant, text ads appear alongside the results of internet searches.

On the back of this, Google become a money-printing machine and now has nearly 70% of the paid-search market. This is nice for it in the short term, of course, but raises a strategic issue. What would the company do when the paid-search market was saturated? Where would the next growth area be?

What Google did next

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If you were wondering why Google bought DoubleClick, then look no further. It’s moving into the display advertising business.

Three principles underpin our approach to the display advertising field:

1. Simplify the system for buying and selling display ads: For example, our DoubleClick ad serving products help advertisers and publishers manage campaigns and ad formats across thousands of websites and from thousands of advertisers.

2. Deliver better performance that advertisers and agencies can measure: We're building a host of new features to help advertisers to run display ad campaigns across the Google Content Network (comprising hundreds of thousands of AdSense partner sites) and on YouTube. We're also developing better measurement and reporting technology so they can figure out what's working and what's not.

3. Open up the ecosystem: We want to democratize access to display advertising and make it accessible and open, like search advertising. We recently launched the Display Ad Builder to help businesses easily set up and run display ad campaigns. 80% of advertisers who use that product have never run a display ad campaign before.

We’ve been working hard to put these principles into practice, and today we're excited to announce the new DoubleClick Ad Exchange, a step towards creating a more open display advertising ecosystem for everyone. The Ad Exchange is a real-time marketplace that helps large online publishers on one side; and ad networks and agency networks on the other, buy and sell display advertising space.

If I ran an advertising or media agency, this would have ruined my breakfast. Most agencies made their money by having (or claiming to have) expertise in a highly inefficient and opaque marketplace. Suddenly, the game has begun to change.

The first casualty, though, (as the NYT points out) is likely to be Yahoo, which up to now had the display-ad exchange space almost to itself.

Republican psychosis

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What’s going on in the US now is really scary. The attacks on Obama make the ‘Revd’ Ian Paisley — even in his bigoted heyday — look like a bleeding-heart liberal. At the root of it is a sense of frustrated entitlement: it’s as if the Right in America simply cannot believe that its God-given right to run the country has been denied as a result of a liberal swindle. We saw some of this in the Clinton era (witness the continuous campaigns to harass and even impeach him), but what we’re seeing now is something else. It’s psychotic.

In that context, Andrew Sullivan has an interesting blog post this morning. Sample:

The pattern is now clear: the imperative to play the political game has won on the right. The longer-term pattern is just as clear: a faction of congressional Democrats sometimes backed Bush on his initiatives (such as his tax cuts). No one in the Congressional Limbaugh-run GOP will back anything this president does. Not only that; they will assault him, race-bait him and insult him in a continuous reel of populist bile.

It seems to me that the GOP was once recognizable as a human personality. It had an id; but it also had a series of responsible egos – Eisenhower, Reagan, Bush I and, to some extent, Bush II; and it had a super-ego – some kind of conscience that made it think of the broader society over partisan warfare. What we've seen in the last few years is the removal of both ego and super-ego.

What you have now is just the rage at the world and its confounding trade-offs and compromises. The knowledge of the Rove right’s total failure in the last eight years has only made the far right more fervent in its theo-ideology. Do they have a plan to balance the budget? To salvage or cut losses in Afghanistan? To integrate illegal immigrants rather than use their lives as political fodder? To get the working middle classes reliable healthcare insurance? Not that I can see beyond utopian platitudes.

But they do know that anything this president does is a threat to them. And the noise they can make and violence they can foment is out of all proportion to their numbers…

It reminds me of the old definition of ‘fanatic’ as someone who keeps bombing after he has forgotten the objectives that bombing was supposed to achieve.

Lest we forget

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This picture of Gordon Brown sucking up to Richard S. Fuld, CEO of Lehman Bros, just after opening Lehman’s new London HQ, is a still from a Channel 4 ‘Dispatches’ film about the banking collapse. It’s a useful reminder of how much the British and US administrations were in thrall to the bankers who engineered the meltdown of the financial services industry.

The first anniversary of the Lehman collapse is a deeply depressing one, because I see little evidence that anything has changed, or that any real lessons have been learned. But who am I to say? — I don’t have any expertise in the area. Joe Stiglitz, however, does. (He has a Nobel Prize in economics.) And here’s what he has to say in today’s Guardian:

Unquestionably we should not have allowed banks to become so big and so intertwined that their failure would cause a crisis. But the Obama administration has created a new concept: institutions too big to be resolved, too big for capital markets to provide the necessary discipline. The perverse incentives for excessive risk-taking at taxpayers’ expense are even worse with the too-big-to-be-resolved banks than they are at the too-big-to-fail institutions. We have signed a blank cheque on the public purse. We have not circumscribed their gambling – indeed, they have access to funds from the Fed at close to zero interest rates, and it appears that “trading profits” have (besides “accounting” changes) become the major source of returns.

Last night Barack Obama defended his administration’s response to the financial crisis, but the reality is that a year on from Lehmans’ collapse, it has failed to take adequate steps to restrict institutions’ size, their risk-taking, and their interconnectedness. Indeed, it has allowed the big banks to become even bigger – just as it has failed to stem the flow of profligate executive bonuses. Obama’s call on Wall Street yesterday to support “the most ambitious overhaul of the financial system since the Great Depression” is welcome – but the devil, as ever, will be in the detail.

There remain many institutions willing and able to engage in gambling, trading and speculation. There is no justification for this to be done by institutions underwritten by the public. The implicit guarantee distorts the market, providing them a competitive advantage and giving rise to a dynamic of ever-increasing size and concentration. Only their own managerial competence, demonstrated amply by a few institutions, provides a check on the whole process.

At the moment, there seems to be little evidence that people in the financial services industry accept responsibility for the catastrophe they created. An interesting report from the IPPR think-tank puts it nicely:

Financial institutions have also discovered they are not as clever as they thought they were. Keynes said, ‘Practical men,who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist’. In this instance, bankers, hedge funds and the rest were slaves to the economists who told them that people were rational and financial markets efficient. They built complex risk measurement systems, based on these theories, which told them that their positions were safe because they were well-diversified and they ignored the sceptics, such as Nassim Taleb (2007), who warned that these models could not cope with extreme outcomes and, crucially, that these extreme outcomes tend to happen more frequently than statistical models would suggest. However, events have proved Taleb right and the combined wisdom of the financial system wrong.

It seems obvious, therefore, that tomorrow’s capitalism requires a transformation of culture in the City as well as enhanced regulation, as much to save the financial system from itself as to stop it creating another crisis for the rest of the economy. However, it will be very difficult to change this culture. Although there has clearly been a breakdown in trust between the banks and the rest of the economy, there is little to suggest that the City accepts it was responsible and that it has a major role to play in restoring trust. For example, after Goldman Sachs reported a $3.44 billion profit for the second quarter of 2009, there was speculation that average pay␣(salary and bonuses) at the firm would be $1 million this year.

However, City practitioners are not solely to blame. There has also been a massive failure of accountability, which allowed bankers to do what they did. Remuneration committees did not control bank executives through appropriate packages. Auditors did not sound alarm bells over what banks were doing. Institutional shareholders failed to question banks’ behaviour — indeed they egged them on, for example supporting the RBS board’s decision to buy ABN Amro. And regulators failed to appreciate the scale of systemic risk that was developing. The City’s friends were just as culpable as the bankers themselves.

If the City and its supporters are unwilling, or unable, to alter its culture from within, change will have to be imposed on it from without. Some changes seem obvious. Limits should be placed on remuneration packages to ensure they only reward long-term success, not short- term (and unsustainable) gains. And institutional investors, such as pension funds, should think about how they can encourage the City away from its trading mentality and back to a longer-term buy and hold approach.

There will also have to be changes in regulation, since the old rules have been demonstrated to be clearly inadequate. This does not necessarily mean more regulation — the US already has the most heavily regulated financial sector, but this did not stop financial crises developing there. What is needed is better regulation.

Quite. But will we get it? Don’t hold your breath. Obama has already chickened out.

Dave Barry on modern art

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In another container there was a work of art consisting of a video, repeated over and over, showing a man — not in peak physical condition, I might add — rollerblading around a vast empty space, stark naked. I’m proud to say I betrayed no emotion while viewing this work, although my daughter, who is 3, said, quite loudly: “You can see his tushy! Yuck!”

She is young, and has no art training.

Anyway, in the corner of one container there was a ratty old collapsed armchair — worn, dirty, leaking stuffing, possibly housing active vermin colonies. I asked the gallery person if the chair was art, and she said yes, it was a work titled “Chair.” I asked her what role the artist had played in creating “Chair.” She said: “He found it.”

“Chair” is for sale. The price is $2,800. Really. I looked up “Chair” on a Serious Art Internet site, artcritical.com, which said: “The chair offers not a weedy patina of desuetude but an apotheosis of its former occupant.”

See, I missed that altogether, about the desuetude and the apotheosis. I thought it was just a crappy old junk chair some guy took off a trash pile and was now trying to sell for 2,800 clams.

From one of his Miami Herald columns entitled `The Idiot’s Guide to Art’.

A strange madness

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Watching the loopy hysteria of the American Right about health care, I’ve been wondering sometimes if I’m hallucinating. Surely an intelligent and progressive country like the US can’t be entirely populated by fanatics? But Paul Krugman is seeing the same thing — as this blog post entitled A strange madness suggests.

Joe Klein reports on a town hall meeting where people think that Obama has larded the government with communists. Bizarre — but I’ve been getting equally bizarre claims in much of my mail. And what’s striking is the intensity.

I’ve mentioned before that my hate mail has reached levels I haven’t seen since 2004 or so. But back then, the hate was in a way understandable. People like me were questioning Bush’s bona fides as the great protector against terrorism, were claiming that he deliberately misled the country into an unnecessary war. Those were strong charges, and in a way you could understand that people who idolized Bush (believe it or not, there used to be a lot of them) were upset.

But now I get spitting, incoherent rage over articles on, um, health care economics or macro modeling. What enrages people so much about these pieces? Usually, it’s impossible to tell — in fact, I often have the sense that the enraged correspondents haven’t read the things at all. But that’s OK — they know that I’m corrupt, a liar, a Nazi, and have been spewing my evil in my writings.

The point is that whatever is driving all this doesn’t have anything to do with the realities of what I, or, much more important of course, Obama say or do. Obama could have come in proposing to pursue an agenda identical to Bush, and he would still be a socialist/Commie/fascist, with those of us who don’t see it that way lying Nazis ourselves.

Something is going very wrong in the heads of a substantial number of Americans.

What is happening to us?

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Wonderful, impassioned Boing Boing post by Cory. I’m reproducing it in full.

The Philadelphia Free Library system is broke, and they’re shutting it down, including cancelling “all branch and regional library programs, programs for children and teens, after school programs, computer classes, and programs for adults”; and “all children programs, programs to support small businesses and job seekers, computer classes and after school programs”; and “all library visits to schools, day care centers, senior centers and other community centers”; and “all community meetings”; and “all GED, ABE and ESL program.”

Just look at that list of all the things libraries do for our communities, all the ways they help the least among us, the vulnerable, the children, the elderly. Think of every wonderful thing that happened to you among the shelves of a library. Think of the millions of lifelong love-affairs with literacy sparked in the collections of those libraries. Think of every person whose life was forever changed for the better in those buildings.

Think of the nobility of libraries and librarianship, the great scar that the Burning of Alexandria gouged in human history. Think of the archivists who barricaded themselves in the Hermitage during the Siege of Leningrad, slowly starving and freezing to death but refusing to desert their posts for fear that the collections they guarded would become firewood.

Think of the librarians who took a stand during the darkest years of the PATRIOT Act and refused to turn over patron records. Think of the moral unimpeachability of those whose trade is universal access to all human knowledge.

Picture an entire city, a modern, wealthy place, in the richest country in the world, in which the vital services provided by libraries are withdrawn due to political brinksmanship and an unwillingness to spare one banker’s bonus worth of tax-dollars to sustain an entire region’s connection with human culture and knowledge and community.

Think of it and ask yourself what the hell has happened to us.

Amen.

Recession causes, er, hard times in the porn business

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Interesting piece in the Economist.

The adult-film industry is concentrated in the San Fernando Valley—“the Valley” to Angelenos—on the northern edge of Los Angeles, so the slump in porn is yet another factor depressing the local economy. Pornography had been immune to previous recessions, so the current downturn has come as a shock.

Most of the industry consists of small private production companies whose numbers are secret, but Mark Kernes, an editor at Adult Video News, a trade magazine, estimates that the American industry had some $6 billion in revenues in 2007, before the recession, mostly in DVD sales and rentals and some in internet subscriptions. Diane Duke, the director of the Free Speech Coalition, the adult industry’s trade group, thinks that revenues have fallen 30-50% during the past year. “One producer told me his revenue was down 80%,” she says.

If the Valley used to make 5,000-6,000 films a year, says Mr Kernes, it now makes perhaps 3,000-4,000. Some firms have shut down, others are consolidating or scraping by. For the 1,200 active performers in the Valley this means less action and more hardship. A young woman without …name-recognition might have charged $1,000 for a straight scene before the crisis, but gets $800 or less now. Men are worse hit. If they averaged $500 for a straight scene in 2007, they are now lucky to get $300. For every performer there are several people in support, from sound-tech to catering and (yes) wardrobe, says Ms Duke, so the overall effect on the Valley economy is large.

The Economist — and the industry — think that piracy is to blame. I wonder: surely the rise of user-generated porn has something to do with it too. At any rate, those stories of ‘amateur’ porn being sold freely in pubs might not all be urban myths. And some of those camcorders being sold by the truckload must be used for, er, creative purposes.

En passant And don’t you just love the irony of the porn industry trade association calling itself “the Free Speech Coalition”? Almost as funny as the Irish alcoholic drinks industry calling itself the “Hospitality Association”.

Microsoft’s next Big Thing: visual search

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From VentureBeat.

Microsoft continues its attempt to unseat Google as the king of search. Today, someone from the team behind its Bing search engine took the stage at the TechCrunch50 conference in San Francisco to announce the latest feature: Visual search.

The most obvious way to use visual search is when you’re shopping for products. So if you want to buy a new handbag, you could look at images of thousands of handbags in Bing, scroll through them quickly, and narrow down your search based on brand, price, and other attributes. Unusually for Microsoft, the user experience is actually quite impressive, with the image results and the transition between search pages providing some nice eye-candy. It’s certainly a much flashier experience than Google Image Search. Bing Visual Search is supposed to be live any second now, so you can see it for yourself.

So, let’s get this straight…

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“So, let me get this straight. Bush inherited a $7 Trillion surplus, turned it into a deficit by funding an illegal war, fought by murderous private contractors, but Obama is the bad guy because he wants healthcare the entire rest of the developed world has had since the early 1950s?”

From a posting on Reddit.com

Yep. That’s called Republican logic.