StartUpCrunch

The latest security regulations put forward by the PCI Security Standards Council fail to prevent even the most basic vulnerabilities online. What's particularly disturbing is that the new regulations which are said to be mandatory as of April 2010 are costing small companies thousands of dollars to comply, yet even after PCI compliance has been achieved, online companies could still be putting their customers card data at risk!

This stems from a simple feature of most browsers, where the use can simply press the down key in any form and it will reveal previous entries entered into that form. Try many of the online forms where you enter your login details, addressees, names etc. including sensitive card data. According to this article the security flaw is not covered by the extensive PCI regulations which have been developed to give people a sense of confidence that they can trust online companies, yet if personal details are not protected by even the most basic exploits, are the PCI Security Standards really doing the job intended?

This seems to be such a simple but fundamental flaw of the new PCI standards and a quick fix would go a long way to improving online trust if this potential exploit was included in the compliance regulations.

Online video is having a bad time with some of the largest media companies pulling out of streaming video, namely Stage6, 'voluntary' shutting down (after loosing 12 million USD in 12 months), Google Video halting uploading and some pretty major implosions such as Veoh burning through 70 Million USD and filling for bankruptcy, to name just a few.

The problem being that the video vertical is a very difficult one to make money from, given the CPM from advertising is almost worthless and bandwidth costs are so high.

Enter The New Flash 'Payer' Application:

The traditional approach which attempted to solve the 'free dilemma' has been to put premium content behind pay walls, this has resulted in piss poor results for all who have experimented as openly published by this New York Newspaper.

The reason for such miserable failures being simply that people don't miss what they never had and usually only pay for something once they are hooked on it (crack for example). This is where the 'Flash Payer' comes into the picture solving the most difficult problem, that of getting users hooked. The widget and application works by allowing viewers a limited amount of free daily viewing time (decided by the publisher), then once their free bandwidth has been used viewers are paused. At this point the system opens a new page where they can choose a payment option, 1 day, 7 days, 90 days, or 365 days. Viewers pay the price indicated (decided again by publishers) and then the viewers can go back and continue watching where they left off.

In my own trials with the Flash Payer on my popular documentary video porthole Doc-Film-Net sales increased by more than 90% over the pay per view (premium pay-wall model previously implemented). This is a site which has had many near death experiences and is now off death watch and is now being placed into the party ward with all the living, breathing and thriving with the help of the Karsa Flash Payer widget and application.

What this application does is take care of all the technical hurdles, building the Flash widget, the management system and taking the payments, making it possible for video publishers to profit from their content without having to set up their own complicated processing systems and who can now start profiting with no technical knowledge or investments and immediately implement this system on their own sites and start profiting with no costs or technical hurdles to overcome.

The other players in this space include the JW player by Longtailvideo who offer a flash player which can be used freely for GPL use and a licensed version is available for commercial use. Also there is the FlowPlayer who also offer a similar concept as JW player. Both of these latter players rely upon advertising as the source for generating income for video publishers.

We are in a strange era with some of the largest media companies pulling out of streaming video, namely Stage6, 'voluntary' shutting down (after loosing 12 million USD in 12 months), Google Video halting uploading and some pretty major implosions such as Veoh burning through 70 Million USD and filling for bankruptcy, to name just a few.

The obvious problem here is that the video terrain is a very difficult one to make money from, given the CPM from advertising in this vertical is so low (almost worthless) and bandwidth costs are simply so high.

I have personally had plenty of my own struggles in this sector with Doc-Film-Net (a documentary film streaming porthole for controversial documentaries) which has been put on death watch numerous times as one CDN after another pulled the rug from underneath it (having offered free bandwidth then relinquished). Ultimately in order to survive it had to pay its own way and hence I was forced to explore every possible payment method to pay Highwinds the new CDN.

In my trials I experimented for a long time with pay per view, which was extremely disappointing since I found when the content is behind a pay wall, viewers simply did not miss what they had never seen and would not pay even small fees. In this model there was no pain being alleviated, as this New York Newspaper discovered too!

This got me to thinking long and hard and inspired this post on my own blog: Painful Ways To Make Money Out Of Free which led me to experiment with a Megavideo style payment system, in this system viewers are allowed limited free daily viewing time (60 minutes) and are then cut off and required to pay for unrestricted access.

I then developed a similar concept for Doc-Film-Net where users where allowed limited daily viewing access but had to pay for more than 60 minutes and the results were extremely encouraging, so much so that sales increased over those pay-per-view trials by about 90%. The reason being simply that people didn't miss what they never had and only usually pay for something once they are hooked on it (crack). Needless to say with the new limited viewing system in place Doc-Film-Net is now no longer on life support and is accruing healthy profits!

Enter The New Flash 'Payer' Application:

This has led to the development of a third party plugin & application for all video providers with the same dilemma where they can offer this feature on their own sites, it has more features and is fully customizable. It's called the 'Flash Payer' and is now being provided by Karsa.co.uk. Video content providers can now use this widget and application to charge for their content in the same way, setting their own price points and limits.

I have been thinking about the psychologically of making money out of free online services largely as a result of having developed some services which have attained healthy traffic, yet failed - like many others to make any profits.

Using free!

Using free as a business model is easily one of the fastest ways to gain traction, However, if the solution provided is too efficient, no new pain will be created and thus there will be no opportunity to make any profits.

Unintended Consequences.

Rarely there are unintended consequences which arise out of new solutions. These ultimately manifest as a new pain for the users and oddly, it is precisely these events which need to be carefully considered during the planning stages of the new concept if it is going to be successful!

Intended Consequences

When providing considerable value to users and thus gaining traction with a free service, I argue the intended consequence should be to crate a new pain! Then one simply charges for the resolution of this new pain.

Interesting Case Studies:

Company : MegaVideo

Value : provides great value with reliable video streaming, a large library of content and good image quality.

Pain: limit of 1 hour free viewing, demanding payment (20 euros = 3 months access) to watch the last part of a film!

Company: Plenty of Fish

Value: provides free online dating networking service.

Pain: creates pain for competitors who then pay to advertise.

Company: Wordpress

Value: provides free blogging software.

Pain: spam, users invest considerable energy into the platform, then suffer huge comment spam issues, resolved with the askima plugin (cost 49 euros).

Summery

Each of the above are interesting examples of companies who have intentionally or unintentionally created services which have gained considerable traction out of free, which has then resulted in a new pain being experienced by either their competition or their users, many of whom have payed for that pain to be resolved.

Is it ethical and does this matter!

Maybe or maybe not (depending on the variables), but what matters more IMO is the resolution of problems and the advancement of technology. I'm sure some will cry foul and accuse thee of simply looking for ways to exploit others pain which is true, but before you can exploit the new pain you have to solve another problem and/or provide considerable value to the target which is the the primary hook, so the end justifies the means and as long as there is added value then most people should be happy...

Update

After being put on death watch about 6 months ago, my own site Doc-Film-Net has again been given notice by the content delivery network who kindly stepped in (after the previous one stepped out) to offer free bandwidth (1Tb per month for this baby), and again the site has been given 7 days notice before the lights will go out unless it pays its own way (fair enough really). Hence, I have just spent the weekend building a Megavideo style payment system, (i.e. you get to watch 30 minutes free per day but are asked to pay for unlimited access) and have just implemented this on Doc-Film-Net. It will be interesting to see how this experiment works out...

Techcrunch UK reports today that the UK government have a ridiculous proposal to waste yet another 15 billion GBP on a nationwide snooping database on the terrorists public.

Thankfully an easy way around this nonsense has already been developed! Privnote allows people to send information via a link in an email. Once opened the link (and message) will instantly self destruct and the sender will be notified that the recipient has received the message.

In a New World Order where paranoia is the emotion of the day, with many nations on DEFCON 3 alert, and secrecy being of paramount importance, there is clearly a need for messages that self destruct!

This is where Privnote comes in to allow anyone (not just the CIA and MI6) to send these self destructing messages. In the current economic downturn, imagine the scenario, you (your name being George Soros) have just been given a top tip (from your man on the inside) that Lloyds of London are about to declare bankruptcy, now of course you need get in quick and start to buy up as many short stocks as you can get your hands on, but secrecy is the only method which will save you from 'a good day for bad news' scandal!

So you head over to Privnote and within a jiffy you have sent your brokers the orders to snap up these stocks that you can offload for a fortune when the market collapses... Now I am sure you and I would not be using this service for any such activity but in a world where the slightest mistake can be reviled by leaving an electronic trail of evidence against you, no one is safe, only those who use Privnote!

P.s. Privnote was designed by one of the very few Startup hubs emerging from Uruguay Insophia.

Alan Greenspan, neo con devil according to the conspiracy theorists, but darling according to Ayn Rand and the Objectivism movement, which advoacted rational individualism and laissez-faire capitalism, now writes in his 2007 autobiography about his feelings and thoughts of how and why he missed the signs of the looming crisis.

I personally find it amazing that he can claim ignorance, given his position, and further it's my belief that he in large part orchestrated the crisis by way of the actions and polices he undertook while acting as the longest standing head of the Federal Reserve (who he once heavily criticized in his earliest writings, and after which was promoted within its ranks).

The bubble was manufactured from 1997 onwards, the economy was pumped with fuel (cheap black oil supported) in a vain attempt to retain US military / political control (by simply printing more greenbacks and thus increasing the deficit withour any regard whatsoever inevitable). Here is THE NY TIMES FORGIVEN TAKE ON HIS AFFAIRS:

http://tinyurl.com/2kx9tb

ONE great puzzle about the recent housing bubble is why even most experts didn’t recognize the bubble as it was forming.

Alan Greenspan, a very serious student of the markets, didn’t see it, and, moreover, he didn’t see the stock market bubble of the 1990s, either. In his 2007 autobiography, “The Age of Turbulence: Adventures in a New World,” he talks at some length about his suspicions in the 1990s that there was irrational exuberance in the stock market. But in the end, he says, he just couldn’t figure it out: “I’d come to realize that we’d never be able to identify irrational exuberance with certainty, much less act on it, until after the fact.”

With the housing bubble, Mr. Greenspan didn’t seem to have any doubt: “I would tell audiences that we were facing not a bubble but a froth — lots of small local bubbles that never grew to a scale that could threaten the health of the overall economy.”

The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world. If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks.

Were all these people stupid? It can’t be. We have to consider the possibility that perfectly rational people can get caught up in a bubble. In this connection, it is helpful to refer to an important bit of economic theory about herd behavior.

Three economists, Sushil Bikhchandani, David Hirshleifer and Ivo Welch, in a classic 1992 article, defined what they call “information cascades” that can lead people into serious error. They found that these cascades can affect even perfectly rational people and cause bubblelike phenomena. Why? Ultimately, people sometimes need to rely on the judgment of others, and therein lies the problem. The theory provides a framework for understanding the real estate turbulence we are now observing.

Mr. Bikhchandani and his co-authors present this example: Suppose that a group of individuals must make an important decision, based on useful but incomplete information. Each one of them has received some information relevant to the decision, but the information is incomplete and “noisy” and does not always point to the right conclusion.

Let’s update the example to apply it to the recent bubble: The individuals in the group must each decide whether real estate is a terrific investment and whether to buy some property. Suppose that there is a 60 percent probability that any one person’s information will lead to the right decision.

In other words, that person’s information is useful but not definitive — and not clear enough to make a firm judgment about something as momentous as a market bubble. Perhaps that is how Mr. Greenspan assessed the probability that he could make an accurate judgment about the stock market bubble.

The theory helps explain why he — or anyone trying to verify the existence of a market bubble — may have squelched his own judgment.

The fundamental problem is that the information obtained by any individual — even one as well-placed as the chairman of the Federal Reserve — is bound to be incomplete. If people could somehow hold a national town meeting and share their independent information, they would have the opportunity to see the full weight of the evidence. Any individual errors would be averaged out, and the participants would collectively reach the correct decision.

Of course, such a national town meeting is impossible. Each person makes decisions individually, sequentially, and reveals his decisions through actions — in this case, by entering the housing market and bidding up home prices.

Suppose houses are really of low investment value, but the first person to make a decision reaches the wrong conclusion (which happens, as we have assumed, 40 percent of the time). The first person, A, pays a high price for a home, thus signaling to others that houses are a good investment.

The second person, B, has no problem if his own data seem to confirm the information provided by A’s willingness to pay a high price. But B faces a quandary if his own information seems to contradict A’s judgment. In that case, B would conclude that he has no worthwhile information, and so he must make an arbitrary decision — say, by flipping a coin to decide whether to buy a house.

The result is that even if houses are of low investment value, we may now have two people who make purchasing decisions that reveal their conclusion that houses are a good investment.

As others make purchases at rising prices, more and more people will conclude that these buyers’ information about the market outweighs their own.

Mr. Bikhchandani and his co-authors worked out this rational herding story carefully, and their results show that the probability of the cascade leading to an incorrect assumption is 37 percent. In other words, more than one-third of the time, rational individuals, each given information that is 60 percent accurate, will reach the wrong collective conclusion.

Thus, we should expect to see cascades driving our thinking from time to time, even when everyone is absolutely rational and calculating.

This theory poses a major challenge to the “efficient markets” view of the world, which assumes that investors are like independent-minded voters, relying only on their own information to make decisions. The efficient-markets view holds that the market is wiser than any individual: in aggregate, the market will come to the correct decision. But the theory is flawed because it does not recognize that people must rely on the judgments of others.

NOW, let’s modify the Bikhchandani-Hirshleifer-Welch example again, so that the individuals are no longer purely rational beings. Instead, they are real people, subject to emotional reactions.

Furthermore, these people are being influenced by agencies like the National Association of Realtors, which is conducting a public-relations campaign intended to show that putting money into housing is a reliable way to build wealth. Under these circumstances, it’s easy to understand how even experts could come to believe that housing is a spectacular investment.

It is clear that just such an information cascade helped to create the housing bubble. And it is now possible that a downward cascade will develop — in which rational individuals become excessively pessimistic as they see others bidding down home prices to abnormally low levels.

Robert J. Shiller is professor of economics and finance at Yale and co-founder and chief economist of MacroMarkets LLC.