Google Q2 Revenue Down

Shares have dropped 8% in after hour trading.

I can hear people celebrating around my cube :)

Yahoo! Q2 Results

Today we had an all-hands meeting at Yahoo! to discuss the Q2 results and what is in Yahoo's future. Jerry Yang focused on how to change Y! three years down the road. His vision of Y! is a deep, active marketplace of consumers, advertisers, and publishers/developers. The opportunity exists in turning data into insights, which can then be turned into revenue generation. The problem is that Y! has become too separate from the Web. One change that he would like to make is rid Y! of its "closed garden" mentality--allow users to access content that is not on the Y! network. Additionally, he would like to change the company's focus away from deals with advertisers and content providers, to becoming partnerships. He has given himself 100 days to buy alignment with leadership, and evolve the organizational structure.

So, what do I think is wrong with Yahoo!?
-Decisions take too long to move through the organization--Y! needs a flatter hierarchy
-Culture is "9-6 job"; people are not enthusiastic about working here--changing this needs to start at the top
-People are protective of their turf within Y!, but do not necessarily make decisions that are in the best interest of the entire company

This last point is best illustrated through an example I heard yesterday. Someone within the division I work in (SDS) found out that a group of 100+ engineers were being laid off due to downsizing at their company. SDS moved in to interview as many candidates as possible, and was interested in many of them to hire. Realizing that other divisions at Yahoo! might also be interested, SDS told them about the opportunity as well. Now these divisions are angry at SDS because they were not informed earlier, and SDS has gotten the "pick of the litter." My guess is that in the future, if another opportunity like this ever occurs, there will be no communication between divisions for fear of being ostracized. Not a great thing when Yahoo! is trying to focus on "hiring the brightest people and placing them in areas where they will add the most value," as Jerry Yang mentioned in the all-hands meeting this morning.

Meeting with Bradley Horowitz

On Friday, I had a meeting with Bradley Horowitz, Head of Advanced Development Division at Yahoo!. Bradley had given a talk for the Executive Speaker Series the first week of my internship, and I was very interested in his role as 'innovation leader' at Yahoo!. We discussed the difficulties of maintaining an entrepreneurial culture at a company the size of Y!, which are exacerbated by how quickly Y! has grown. One major problem that I have seen is that Y! has no platform--there are very little best practices across the network, and products/business units are still verticalized with little communication. Bradley mentioned that fixing this problem is one of Jerry Yang's priorities, and that very soon he will implementing a major change to address this problem.
I also asked Bradley how a company like Y! can keep its best employees; what stops them from leaving for startups or starting their own companies. Bradley runs Brickhouse, which addresses this problem, but he agreed that there is nothing Y! can do (or should do) if an employee has a great idea and wishes to pursue it outside of Y!. However, if the employee chooses to pursue his/her idea within Y!, than instead of a 1:1000 chance of success, it will be more like 1:100 or 1:50. So basically it comes down to people's risk tolerances--starting your company at Y! will never make you a billionaire, but it can make you a millionaire.

Human Tetris

Check out this new Japanese game show where humans act like tetris pieces. Perhaps a new Wii game?

Jerry Yang new CEO at Yahoo!

Quite the first day at work for me at Yahoo! It was just announced that Terry Semel has stepped down at Yahoo! to take a non-executive role. Jerry Yang, one of Yahoo's original founders, has taken his place as CEO. Sue Decker, who was believed to be in position to take the CEO role, has been named President. All three will be discussing at a company wide meeting today at 5:00. Couldn't have imagined a more exciting first day for me!

Why is online poker illegal in the U.S.?

Last fall a bill passed through Congress that caused poker sites such as Partypoker.com to turn around all of its U.S. customers--why?? And more importantly, will it be illegal forever?

Short History of Online Poker

Free online poker was first played over the IRC chat network in the late 1990s. Planet Poker was the first online cardroom to offer real money games in early 2000. ParadisePoker.com grew to become the internet’s largest online cardroom, and was acquired by Sportingbet PLC in October of 2004 for $340 million. Today, "Online Poker" is the single most searched term on the Internet.

Unlawful Internet Gambling Enforcement Act (UIGEA)

On October 13, 2006, the Safe Port Act was signed into law. Attached to the Act was a provision that deemed any online bet or wager illegal if the bet was unlawful under any law in the State at which it was initiated or received. This outlawed financial transactions between online casinos and American banks and credit card companies. Accordingly, many poker rooms stopped taking deposits from U.S. customers and their stock prices crashed. Sportingbet sold all of its US-facing sportsbetting and casino businesses to a group of investors for $1, and an assumption of $13 million in debts.

HR 2046 -- Internet Gambling Regulation and Enforcement Act of 2007

This bill was introduced into Congress on April 26, 2007 by Rep. Barney Frank (D-MA). It argues that internet gambling is a $13 billion industry worldwide, and licensing and regulating gambling in the U.S. would provide an increase in tax revenues. The bill establishes the steps required to receive an internet gambling license, arguing that through this procedure the U.S. could reduce underage gambling, compulsive gambling, and money laundering.

Will this bill pass?

Poker Players Alliance (PPA), an interest group for poker players, has formed to help support this bill. The group has 500,000+ members, and recently announced that former Republican Senator Alfonse D'Amato is the new chairman of the board. Through the website group members have the ability to send a letter to their representative congressman to support HR 2046. Last year, PPA spent $560,000 in direct lobbying efforts, a 100 percent over what was spent in 2005.

There has also been an increase in international pressure, as UIGEA is viewed as anticompetitive. In March of 2007, the World Trade Organization “ruled that America's online gambling ban has unfairly closed U.S. markets to offshore casinos.” The U.S. tried to argue that the act was needed to protect ‘American morals.’ However, the WTO noted that online horse betting was granted an exemption from UIGEA. This ruling opens the door for online gaming countries such as Antigua and Barbuda to file lawsuits against the U.S.

Finally, Academia has also begun to investigate whether poker should be classified as gambling at all. The Wall Street Journal recently published an article on May 5 entitled “Harvard Ponders Just What It Takes To Excel At Poker.” Harvard University Law School Professor Charles Nesson invited a group of poker professionals, game theorists, law students and gambling lobbyists to, as Nesson put it, “legitimate poker.” One of the attendees, Jay Kadane, has pitched to sponsors a project to show statistically that poker is a game of skill. University of Chicago economist Steve Levitt has already begun a similar project entitled Pokernomics.

Legalizing poker could bring well needed tax revenues to U.S. states. Most likely, states that already allow poker (such as California) will be the first to allow poker. For poker to be legal, it will have to be permitted under the laws of the customer's place of residence and the operator's. It will be very interesting to see how tax revenues are shared between the operator's state and the customer's state.

Prediction Markets at Google

Bo Cowgill (Stanford Public Policy '03) presented in my E-business and Data Mining class on Monday about how Google use of prediction markets. Here is a summary of his presentation.

Prediction Markets at Google

Origins, Objectives and Implementation

Objective:

1. Empowering average employee
2. Improve awareness
3. Quantify unquantifiable
4. Improve morale

25 markets per quarter for 2 years.

Markets about:

• Product launches (number of Gmail users)
• Office/position openings (will this important position be filled on time)
• Employee quality of life (when will gym re-open)
• Competitors’ actions
• Fun markets (who will win the NBA championship)

Implementation

• Continuous double auction with limit orders
• Alternative would be with market makers.
• People can not see each other’s position.

Growth and Usage

Market stats

• Number of shares and number of trades has grown over time (due to added liquidity and more participants)
• Approximately 68,000 trades had occurred by the end of 2006, through a total of 2000 trade accounts
• Long tail distribution:
• One participant has made 3100 trades in 1 year 8 months (~5 per day)
• Approximately 400 participants have made 2 or less trades
• A little more than 50% of trades are made by engineers (but this reflects the overall structure of the company).
• People that are higher up (closer to CEO) and have a long tenure at Google are more likely to participate.

Individual performance

• Geography was a better predictor than job function of success
• Finance and software engineers have done better (best explained by bots?)
• "Batting Average" increases slightly with market participation (evidence of learning or do individuals who are not good quit?)
• Success for certain individuals has been consistent from quarter to quarter

Market set up:

• Typically 5 “options”
• E.g., when does a certain project launch: Jan, Feb, Mar, Apr, May or later

Analysis of Predictiveness

• Average winning price 0 weeks before closing was $55; average losing price was $15
• Some predicted better (close to $100 the week of closing), whereas others like the Bush v Gore election was still 50/50 on election day

Rewards

• Money earned through trading is used to buy raffle tickets
• Prizes are then awarded through a random drawing
• Financial rewards seem not as strong as ‘Reputation’

Further Research

• Robin Hanson, professor of Economics at George Mason University (see webpage)
• Paper on presidential outcome prediction by Paul Rhode and Koleman Strumpf
• Research on the 2004 presidential race by Justin Wolfers and Eric Zitzewitz