Recently Yahoo! was awarded a patent for its prediction algorithm, finally exposing what has been behind the curtain for quite some time now. While I recognize much has been done to improve it over the last four years (the patent was filed in 2007), it highlights some of the dangers of patents themselves. Before I rant, if you want to read the patent you can get it here, or read Mike Nolet's post explaining it without the legal jargon here.
Yahoo! uses a prediction engine for impression buys through the Right Media Exchange, better aligning creative/campaigns with their publishers such that there is an increase in overall performance and CPM. Let's completely disregard whether or not it works, or even how it works, as that is not the point of the post. Rather, let's focus on is the patent filing itself. As mentioned above, you can go read about it yourself and learn the logistics behind this once hidden secret. That to me is quite fascinating. Wall street and the quant traders never expose their secrets. The whole concept of optimization only holds true because the algorithm is able to exploit a flaw in the marketplace. Once that flaw is discovered, it is corrected and the algorithm tends to become ineffective. I stress again that Yahoo! has made changes and (hopefully?) improvements over the last four years, but it still makes me wonder how much of an advantage they hold when their secrets are exposed to the world in such grave detail. It seems a lot easier to game a system when you know how it works ... I only hope they changed it enough.
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