Monday, May 21, 2012

Data Is More Important Than Algorithms

Netflix Similarity Map

In 2006 Netflix offered to pay a million dollar, popularly known as the Netflix Prize, to whoever could help Netflix improve their recommendation system by at least 10%. A year later Korbel team won the Progress Prize by improving Netflix's recommendation system by 8.43%. They also gave the source code to Netflix of their 107 algorithms and 2000 hours of work. Netflix looked at these algorithms and decided to implement two main algorithms out of it to improve their recommendation system. Netflix did face some challenges but they managed to deploy these algorithms into their production system.

Two years later Netflix awarded the grand prize of $1 million to the work that involved hundreds of predictive models and algorithms. They evaluated these new methods and decided not to implement them. This is what they had to say:
"We evaluated some of the new methods offline but the additional accuracy gains that we measured did not seem to justify the engineering effort needed to bring them into a production environment. Also, our focus on improving Netflix personalization had shifted to the next level by then."
This appears to be strange on the surface but when you examine the details it totally makes sense.

The cost to implement algorithms to achieve incremental improvement isn't simply justifiable. While the researchers worked hard on innovating the algorithms Netflix's business as well as their customers' behavior changed. Netflix saw more and more devices being used by their users to stream movies as opposed to get a DVD in mail. The main intent behind the million dollar prize for Netflix was to perfect their recommendation system for their DVD subscription plan since those subscribers carefully picked the DVDs recommended to them as it would take some time to receive those titles in mail. Customers wanted to make sure that they don't end up with lousy movies. Netflix didn't get any feedback regarding those titles until after their customers had viewed them and decided to share their ratings.

This customer behavior changed drastically when customers started following recommendations in realtime for their streaming subscription. They could instantaneously try out the recommended movies and if they didn't like them they tried something else. The barrier to get to the next movie that the customers might like significantly went down. Netflix also started to receive feedback in realtime while customers watched the movies. This was a big shift in user behavior and hence in recommendation system as customers moved from DVD to streaming.

What does this mean to the companies venturing into Big Data?

Algorithms are certainly important but they only provide incremental value on your existing business model. They are very difficult to innovate and way more expensive to implement. Netflix had a million dollar prize to attract the best talent, your organization probably doesn't. Your organization is also less likely to open up your private data into the public domain to discover new algorithms. I do encourage to be absolutely data-driven and do everything that you can to have data as your corporate strategy including hiring a data a scientist. But, most importantly, you should focus on your changing business — disruption and rapidly changing customer behavior — and data and not on algorithms. One of the promises of Big Data is to leave no data source behind. Your data is your business and your business is your data. Don't lose sight of it. Invest in technology and more importantly in people who have skills to stay on top of changing business models and unearth insights from data to strengthen and grow business. Algorithms are cool but the data is much cooler.

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