Since publishing the post on Realizing the Bounty of Free Computing, I have been socializing the concept with many people including business execs, venture capitalists, scientists, and a host of other smart people I have the privilege to know and who have tolerance for my ideas.  And while they are uniformly kind, it is clear that the phenomenon and the potential is not yet real to them. This week a couple of items crossed my radar screen that may reveal some insight.

Dark clouds

I heard Phil Windley and Scott Lemon interview Andre’ M. DiMino of the Shadowserver foundation on Phil’s Technometria podcast at IT Conversations. Andre’ describes the organizations efforts to track bots and botnets across the internet.  These are computers, servers numbering in the 1000s and personal computers numbering in the neighborhood of 750,000 at this writing, that are compromised with nefarious software, aka malware, that can be tasked to do the bidding of the botnet commander.  Botnets are well explained at Shadowserver.

Make no mistake, this is an example of utility computing.  Except the owners of these computers have been duped into letting their machines be conscripted to do the deeds of the commanders.  These deeds are often illegal, like SPAMming.  From previous posts, you learned I am no fan of the label Cloud Computing.  If we did apply the cloud metaphor, this use would be the dark side.

Also make no mistake, the people who create these bot networks are clever and resourceful.  And while I have argued that abundant computing is almost free, it is really free for these people.  Isn’t it interesting that the dark side provides early adopters and innovative exploits of this new resource?

Economics of SPAM

Phil Windley also mentioned a fascinating article by BBC, Study Shows How Spammers Cash In on SPAM.  The article reports a study conducted by a group of researchers at the University of California, San Diego, led by Stefan Savage.  They hijacked a subset of a bot network (yes, there is no honor…), inserted their harmless SPAM directing customers to a fake pharmacy site appearing to sell a herbal supplement for libido enhancement, and counted.  Here is the summary:

  • 75,869 computers were hijacked
  • over the course of 26 days, 350 million SPAM emails were relayed
  • 28 user clicks resulted, that would have been sales had the harmless website processed them (they didn’t) for a total of $2,732 or an average order of $98.

The paper describing the study is here.

28 sales per 350 million emails is a yield of 0.000008% or 1 per 12.5 million emails. $105 revenue per day. Use of 75,869 computers for $2732, or the use of more than 27 computers per $1 revenue. Remember the researchers only hijacked a subset of the bot network, which they estimated to be 1.5% of the total.  The researchers estimate the full network would yield $7000 revenue per day.

Pause and reflect on how much free resource the botnet commanders exploited for modest gain.

Post office sees less mail volume, in part due to the internet

Also this week, the Postal Service reports a reduction in mail volume, in part to what Postmaster General John E. Potter explains as,  “a revolution in the way people communicate has structurally changed the way America uses the mail,”  and offered as part of the rationale for reducing some mail delivery from 6 days to 5 days per week.

This news arriving the same week as the SPAM economics above, prompted me to do some back-of-the-envelope calculations comparing the economics of a direct mail campaign versus a botnet SPAM relay campaign.  Granted, I am not including the case of a legitimate (!?) bulk email campaign.

Turns out I can’t responsibly make the comparison.  Sure, I ran the calculations but there is no rational market for a 350 million piece direct mail campaign.  Some things do jump out.

Asymmetric Costs

The cost of the message payload in the case of direct mail, the printed envelope and contents, has approached some low-cost asymptote from years of cost pressures, but is still probably in the neighborhood of $0.22.  If 350 million pieces were rational to send, the payload cost would be in the tens of millions.  The weight at 0.5 ounces per piece would imply well over 5000 tons.  Of course, the cost of the payload in the case of email is nil.

Also jumping out is the cost of transport, effectively zero in the case of SPAM.  According to the calculator at the postal service website, we can expect another $0.22 for postage per piece of direct mail.  Again, tens of millions in expense.

These wildly different costs drive wildly different behaviors.  Free or almost free means you can afford to oversend, without any regard to being selective about it.

Not so great versus terrible response rates

The direct mailers tell us to expect a 2.15% response rate for a well-designed campaign.  That’s not so great, but the business case works and lots of companies and products depend on it. I suspect the 2.15% rate holds with the typical direct mail campaign in the range of 10s of thousands of pieces, not 100s of millions.

The 0.000008% response rate reported by UCSD study is terrible, something like 250,000x worse than direct mail. The business case works too, although most classical market analysis would classify it as a niche. I like niches.  Chris Anderson would call it the far end of the long tail.

I must point out, that as much as I hear people protesting SPAM, the reason we have it is that it works.  There are a few people out there who will buy in response to it.

Implications for using the Cloud

Developing and prospering from niches is not new. Realizing the benefits of utility computing is not as far off as you may think.  Clever people exploiting the dark side of the Cloud have been doing it for years.  Check your inbox.

Time for the rest of us to step up and participate. db