Category Archives: Statistics

Three Things Every Business Should Do in a Recession

Change begets opportunity. Given the current economic situation, here are three things that every company should do:

Renegotiate vendor contracts. This is not to say that you should squeeze all profit out of your vendors. Business relations should always be mutually beneficial. However, contracts that were negotiated a few years ago when things looked rosy should be carefully reevaluated. For example, one small business was able to renegotiate their contract with Verizon Business and cut their bill in half.

Foster employee loyalty. Employees are more likely to stay at their jobs now, if they feel the jobs are secure. The good news is it’s easier to retain employees. But don’t be lulled by this. Unhappy employees being forced to work harder and longer hours will not stick around once the economy turns. Now that employee’s expectations are lower, do small things to increase job satisfaction and make people feel appreciated.

Do more for your customers. Much advice centers on how to maintain price discipline and avoid doing work at (or below) cost. There’s a different opportunity, however. Given that your customers are likely facing a new environment, they may be open to help in new, adjacent areas. For example, a company that downsized may now be shortstaffed in certain areas and happy to have a vendor provide managed services. Look for these areas, and propose solutions for your customers’ problems.

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When to Rebalance Your Portfolio

In the last few years, “rebalancing” has become all the rage – with the theory being that choosing an asset allocation of stocks, bonds, etc and sticking to it will force you as an investor to buy low and sell high.

This approach has become so ubiquitous that many 401k plans (and funds) offer automatic rebalancing on a yearly or quarterly basis.

Now, the Journal of Financial Planning reports that this approach is suboptimal. Research shows that a better approach to rebalancing is to look often, but only rebalance when assets have substantially depreciated/appreciated.

A more comprehensive study by Ben Stein & Philip DeMuth goes through 10,000 Monte Carlo Simulations to find an even better strategy to rebalancing: NEVER.

Rebalancing had the effect of reducing both volatility (risk) and returns. Investors with long time horizons (e.g., 401ks) should wait out the bad times, perhaps buy when securities are undervalued (such as now), but resist the urge to rebalance automatically.

Massively Multiplayer Online Game (MMOG) Hosting Market Opportunity Analysis


The MMOG market is expected to double in the next five years. MMOGs differ from typical computer games because they are perpetual virtual worlds, meaning that users can continue to play forever building on previous play. New players are constantly starting to play these game and continue playing them, creating a snowballing user base.

Traditional game developers are beginning to discover a new sources of revenue from MMOGs. The developers typically offer a free version or trial period to attract users, and then a subscription-based version (typically $10-$20/month) to keep the on going revenue stream. In the future, MMOGs are likely to generate additional revenue through advertising and non-traditional revenue sources such as virtual sale items.

Overall, DFC Intelligence estimates the market will double by 2012, reaching $13B worldwide. Half the revenue will come from East Asia, 25% from North America, and the remainder from Europe and Japan.


The 15 largest MMO Games are as follows:


Of these fifteen MMOGs, the fastest growing (based on 2006-2007 subscribers) are:

  • World of Warcraft
  • Second Life
  • Guild Wars
  • Dofus
  • Runescape

Additionally, the following venture-backed MMOG developers are likely to launch in the next 1-2 years:

  • Real Time Worlds will be launching “APB” in 2008
  • Red 5 Studios is developing an as-yet unnamed MMOG
  • Areae is developing an as-yet unnamed MMOG


Leading MMOG Hosting companies:

  • AT&T
  • Online Game Services (OGSi)
  • Hypernia
  • Valve Software

Additional hosting companies used by MMOGs:

  • APIServers (
  • Go Daddy (
  • JHServers (
  • ServePath (

Most game developers do not have the capabilities to host games themselves. Rather, they rely on outsourced MMOG hosting services. Even the largest MMOG developers such as Blizzard, Activision and Electronic Arts use third party MMOG hosting services.

Whether an MMOG game developer is hosting a game in-house or outsourcing it to a hosting company, the following three issues are most important in selecting IT vendors:

  1. Price – minimize price of both hardware and bandwidth. A rough estimate for hosting prices for 100k subs requires 30 servers plus bandwidth and costs $50k/month. (Note this includes ammortized hardware costs, bandwidth, and managed services)
  2. System stability and scalability – ensure data isn’t lost or corrupted and system can scale to handle growing subscriber base.
  3. Bandwidth and latency – maximize uptime at all hours of the day, since most MMOGs are highly international and cross all time zones. Provide sufficient bandwidth for peak usage. Minimize latency by using NOCs collocated near major POPs and with localization in areas with large numbers of gamers.

The largest IT vendors for the MMOG market are IBM, HP, and Dell.


A vendor seeking to serve the emerging MMOG market should take the following approaches:

1) Target both large MMOG developers that do their own hosting and also outsourced MMOG hosting companies. To avoid competing on price, focus on system stability, scalability, and management tools that can support the MMOG environment.

2) Focus on the development stage. Historically, MMOGs could be hosted on any vendor’s hardware, but as developers seek to increase system stability they are increasingly becoming platform dependent. This means that if an MMOG developer uses a specific vendor’s hardware for development and testing, they are likely to request the same vendor’s hardware for hosting.

In order to assess exactly how a company can enter this market, it is necessary to understand how the company is currently positioned. The Ansoff matrix provides a basic framework to understand what type of entry is needed – based upon a company’s product portfolio and market space.

Ansoff Matrix

A go-to-market strategy required for a Market Development play is quite different from those required for a Product Development play, and different still from Diversification.

One of the immediate next steps to take will be to benchmark your company’s current status along key dimensions. Using a “Points of Differentiation” graph, it is possible to tailor the go-to-market strategy to take advantage of the company’s strengths.

Points of Differentiation

In the example above, a company may be strong in performance, reliability, average in scalability, reputation, service and price, and weak in value-added services. After analyzing other vendors using a similar framework, a company with these particular points of differentiation might choose to focus on midsized MMOGs with 100k-200k subscribers.


DFC Intelligence – Online Game Market Forecast

IGDA (International Game Developers Association) – Hardware and Hosting

GigaOM Top 10 Most Popular MMOs

MMORPG Developer’s Forum


IDC – ASEAN Online Gaming 2007 – 2011 Forecast and Analysis

IDC – China Gaming 2007-2011 Forecast and Analysis

IDC – India Online Gaming 2007–2011 Forecast and Analysis

Earth Cancer and Global Warming

Weather is complicated. Many scientists (plus Al Gore) strongly believe that Global Warming is already wreaking havoc on weather patterns.

The havoc, they say, may take many forms: warm winters, wildfires, hurricanes, flooding, cold summers, cold winters, and the list goes on….

Sadly, these scientists made a critical error. A marketing error. They called this havoc “Global Warming.” For the average Joe, a cold winter does not feel like global warming. A rainy summer doesn’t feel like global warming. A severe hurricane does not feel like global warming. As the theory became more intricate, the story got confusing – and the message got lost.

If only the scientists had called it Earth Cancer, or Extreme Weather Mutation, the news every night would focus on the issue. “This is the third coldest April 17th since 1991,” a weatherman would report with grave concern. “This is the second rainiest April 18th since 1989,” might be the following day’s breaking news. From a statistical standpoint, anomalies can be found everywhere – yet they would all be attributed to Earth Cancer – since the name would seem consistent with any weather anomaly.

One reason YouTube succeeded where others failed

A recent WSJ article mentions that when YouTube tested “pre-roll” ads (i.e., ads that play before the video launches), more than 70% of viewers abandoned the site.

Consider two startups entering the business of sharing videos:

Startup A has a lot of financing, and has not chosen a “revenue model” yet – first it plans on building dominance in the market. Then it will figure out how to monetize the traffic.

Startup B cannot afford to pass on revenue for very long, so it offers an ad-supported service. However, as in the above statistic, pre-roll ads deflect 70% of visitors – and many may switch to Startup A.

If Startup A had a plan for making money, it would have caused them to shrink and fail like Startup B. However, a day will come when Startup A must also make money – and then it will discover that its market share is only the result of its ad-free environment – as soon as it advertises it will lose viewers, too.

The difference between YouTube and most other “Startup A’s” -is that YouTube has a thousand brilliant minds at Google who spent ten months trying to find a solution. Most startups are not that fortunate.

Blogging – Full vs Partial RSS Feeds

As a professional blogger (and professional consultant) I like statistics. For my blog, I want stats on who reads what, so that I can better understand my audience and the articles that are most interesting.

One way to do this is by “forcing a click” – not showing the entire article on either the home page or RSS feed, thereby requiring an interested reader to click the “More…” link.

However, blog readers frequently find “More” links very annoying. A recent example is the Freakonomics blog, which changed from “full feeds” to “partial feeds” when it moved onto the New York Times website. Angry comments are coming in hourly. Another popular blog “Techdirt” believes that full feeds not only make readers happy, but lead to increased readership.

Perhaps this is a variation of the Schrodinger’s cat phenomenon: tracking readers affects readership.

Continue reading

Rock, Paper, Scissors: Strategy or Luck?

Rock Paper ScissorsRock Paper Scissors is a simple game that, theoretically, should depend entirely on chance. (As a three-element group, each option wins against one option but loses against the other.)

However, the game is growing ever more popular, in large part because people believe there is strategy in winning.

There are two main approaches to increasing the odds:

(1) Cheating, such as by delaying one’s throw for a split second – just long enough to see what the opponent has thrown

(2) Anticipating the opponent’s decision, based on their personality, past history, as well as a psychological interpretation of the meaning of each choice – and how it corresponds to the psychographic state of the opponent. For example, Rock is considered an aggressive option; paper may be either considered “weak” or “intellectual,” depending upon the RPS expert you consult. Additionally, some people may have “tells” that give away what they are planning to do.

For further reading, see the the Rock Paper Scissors Society, motto: “Serving the needs of decision makers since 1918.”

Purchase the official Rock Paper Scissors strategy book here:

Friendship Causes Obesity

In a groundbreaking study, researchers at Harvard Medical School used social networking techniques to track the spread of obesity. They found that even though obesity is a non-communicable disease, risks for becoming obese could nearly triple in some instances, solely based on relationships one has with obese people. Having an obese brother or spouse makes you 37% more likely to become obese in the next 2-4 years; having an obese friend can make you up to 171% more likely for you to become obese yourself.

The Harvard researchers believe this is a causal relationship:  that the obese friend causes you to become obese as well. If this is true, then those politicians in favor of “family values” or “friendship” may soon be in a conundrum – since such tendencies are likely to increase the spread of obesity.

Of course, other scientists note that correlation is not causation: it may be more likely that there are other environmental factors at play that merely correlated with social networks. If friends like McDonalds – then should we blame the friends for eating with us there or should we blame McDonalds for serving fattening food?

Prediction…or Wild Guess? (Decision Analysis Part 2)

In the recent bestselling book The Black Swan, Nassim Nicholas Taleb argues that traditional models focus on predicting events that stay within a “normal” range – that is, outliers and extremely rare events are excluded from the analysis and therefore are not predictable.ans, he argues, alter history with great frequency but we tend not to recognize their importance and rationalize them away post-facto. His hedge fund takes advantage of the rare event of a stock “exploding” – much the way a venture capital firm bets on many startups with the hope that one will become a Google.

The Economist reports on a study showing our inability to predict recidivism in criminals – even within a group of criminals who are very likely to become repeat offenders, there is wide variation in any individual criminal’s likelihood. What this means is that although we may be able to classify someone into a high-risk group, we still don’t know how likely he/she is to commit a Black Swan event .

In an article in Scientific American (“Shaping the Future,” April 2005), researchers at RAND Coporation and decision anlaysis firm Evolving Logic describe a second way of making predictions…

Rather than building a model based on one (or a few) scenarios and optimizing to find the result with the highest expected value, what if we optimize to choose the result that is most robust? I.e., when dealing with policy affecting global environment and international economics, the best policy will be one that can *never* result in widespread destruction. We can’t build a portfolio on worlds the way a venture capitalist can, so when we bet the farm on a single set of policies, we should prefer a policy that eliminates the possibility of World War III or widespread famine over a policy that offers the possibility of a utopia (but might end in World War III instead).

When we look at analysis – we must ask whether we want to predict the unusual event or the mundane event, and in the latter case what ramifications the Black Swan event can have on our business or our life.