Posted Sunday, March 9th, 2008 at 12:18 am under me, other.

Lucky Streak

lucky streaksMy good friend Emily used to try to get me to write more. We had to find a way to turn it into a competition to get me to do it. Today I was talking to another friend on Skype and was reminded of the following story I wrote for Emily. So I’m posting it here. Maybe some other enterprising (and less scrupulous?) entrepreneur can implement it. I bet it would work.

By modern web attention span standards, this is really long.

LUCKY STREAK

They say the first million is always the hardest. In my case it was actually pretty easy; it just took me a long time to figure out how to do it. They also say “if you’re so smart, why aren’t you rich?” Although I don’t think anyone ever asked me that, I could never shake the question after I first came across it. It always rankled me somehow. If you’re that damned smart, making a mere million bucks shouldn’t even raise a sweat. Just think of all the rich idiots you’ve met over the years. What do they have that you don’t? Luck?

Anyway, that’s all the past. The computer I’m using right now has a monster 52 inch flat-screen plasma display. I’m listening to some of my favorite music on a $27,000 stereo system. I have wireless everything. There’s a high-speed multi-homed satellite connection to the internet hidden in the turret of my castle, and several high-performance motor cars in my graveled driveway. Did I say castle? Correct. I’m in a 16th century castle on a hill in Spain. It’s mine. So just how smart am I? It’s hard to say with certainty, but I’m one certifiably rich white dude. And I’m still raking it in. Over $3M a month, clear. It’s a one-man operation and I work about one hour a week.

Here’s my story.

The seed was sown when a friend told me about the following possibility. First of all, buy a mailing list of 50 million email addresses. These can be had online for under $100. Then, pick some sporting event (let’s say) and make a prediction at random about the outcome: team X will beat team Y (ignore draws for now, that’s just a detail). Send your prediction, couched in the appropriate language about mystical forces, seeing the future etc, to all 50 million people on your mailing list. After the event takes place, half of the people you mailed will have received a correct prediction from you. Chuck out the 25 million addresses of the people who got the incorrect prediction. Now pick another upcoming event. Make a prediction at random and mail it to your 25 million survivors. Do this ten times. Each time, say a little more about how omniscient you are in your email, about how you can look into the future. Whatever. After ten mailings you’ll be down to 50,000 people who will have all received ten correct predictions from you.

I probably don’t need to mention that at this point you’re going to have about 50,000 new friends. You could probably start a religion. You could probably make some real money.

That’s the setup. The problem my friend posed: what to do with these 50,000 believers? How can you turn them into money, and in such a way that you also stay out of jail? Clearly you could pull a crude one-time scam. For example, offer to send them (for a price, naturally) the device you were using to make your predictions, and then mail them a Magic 8 ball. Solutions like that are obvious, but they’re very unsatisfying. For one, you’re blowing away all you credibility in one go. For two, you’re going to have some fraction of 50,000 people complaining that they’ve been scammed (i.e., you’re going into hiding or you’re perhaps going to jail). And for three, you wont make that much money: maybe a million before you figure your costs, and that’s under the highly unrealistic assumption that you’ll be able to convince all those 50,000 people to simultaneously pay you $20 each. So while the basic idea holds water, it’s not clear where to take it and how to maximize its potential while staying on the right side of the law.

I admitted the idea was good. At first I didn’t see what to make of it, if anything. Then two months later, lying in bed, I realized I knew exactly what to do. I quit my job the next day.

I’ll tell you what I do. But first….. Why would I tell you? Because I’ve learned, though actually I knew before I started it, that it just doesn’t matter if you know. It’s not the first time I’ve spilled the beans either, though it is the most explicit and it’s the first time in writing. It just doesn’t matter. Hardly anyone would believe you if you told them the truth. Not even if you presented them with a copy of this with my signature at the bottom. Some would say “well of course” but the rest, the great majority of my users, would be more inclined to argue passionately with you and even stop speaking to you if you will not admit your error. And nope, I’m not kidding.

First of all, I use a trade secret algorithm which combines a person’s email address with the text of a question and comes up with a yes/no answer. The secret sauce, oh so special, far too secret for mere patent protection, is in fact based on a simple MD5 checksum of the concatenated email address and question text. If the first character of the MD5 checksum is 0 to 7, the answer to the question for the person with that email address is Yes. Otherwise it’s No. The system can generate millions of these predictions in minutes.

To prime the service, I just sent out the predictions to people. My initial list was 35 million (valid, non-bouncing, unique) email addresses, and I didn’t whittle it down at all when people got sent a wrong prediction. Once I’d gone through ten iterations, the plan went into serious action.

The main point is to change the focus of the original idea. In the original, the focus or pretense is that you can predict the future. Some number of people are going to believe you. But you’d better take advantage of that belief as quickly as possible because they’re going to stop believing pretty fast once you go wrong and it begins costing them. If you’re infallible and then you start screwing up regularly, you can kiss it all goodbye pretty quick smart.

The new focus? Luck. Instead of telling people you can predict the future, you tell them that everyone has lucky (and unlucky) streaks and that you’ve come up with a way to detect when people are on a roll. You tell them up front (click here to accept the Terms and Conditions of service) that you explicitly cannot predict the future. That they should not bet on your predictions. That, as everyone knows, lucky streaks always come to an end, etc. You cover your ass here. What I offer is a service that advises people when it looks like they’re on a lucky (or unlucky) streak.

After the initial priming, all 35 million emails got a further email introducing them to lucky-streak.com. The introductory email depended on the number of initial predictions the system got right for the email address in question. The people who got sent ten correct initial predictions received a very different email from the ones who had an average time of it. Those with a very low success rate got an appropriate letter. Naturally, the take up rate for the service was extremely heavily skewed towards those who got many correct predictions, with a clear bump at the end of the distribution for those with zero correct predictions.

I mail out the predictions (this is a per-user configuration option) and make them available online so that users can see their prediction history. See their luck. For those that want it, an email or SMS text alert is sent to their PDA or mobile phone to tell them just when it looks like they’re on a roll or when their lucky streak seems to be over or ending. All this for $1.99 a month.

I have a couple of servers, located in Seeland. It’s an offshore secure site with basically no laws. The server takes credit card payments and transfers are made to accounts at one of several banks. Cayman Islands, Bermuda, Switzerland, Channel Isles, etc. I have about 30 offshore bank accounts in seven principalities. My business is highly welcomed, and absolutely no questions have ever been asked. In my very occasional visits to these banks, I am treated like royalty. I tip.

Users get to define their own concept of lucky streak. On average, people choose about 4.3. That is, if 4 or 5 of my predictions go their way in a row, they consider themselves to be in a lucky phase. If the same number go against them, they consider themselves to be unlucky. When these things happen, I send out an alert. Consequently, something between 1/16th and 1/32nd of my users are feeling lucky at any one time and roughly the same fraction are being a little bit more cautious than normal. But that’s neither here nor there – the service costs the same whether you’re in a lucky phase or not. I don’t pretend to know anything for sure. No guarantees, no extra charges.

So I’m like a horoscope service or a palm reader. Everyone knows the service makes mistakes, but people love it. And I mean they _really_ love it. Even when their friends tell them it’s a fraud and that there must be some trick, even if they explain the trick, the believers refuse to listen. They come back for more. You can sign up for a year’s worth for a mere $15. Hundreds of thousands of people take that option.

Behind all this are a couple of machines with a simple database. Just linux PCs from Dell. Nothing too special. The database holds email addresses, the prediction questions, and the record of predictions for each user. When a user pulls up their history, I simply generate a line of recent predictions (red dot = wrong, green dot = right) and let them click on these to see the underlying question. It’s pretty easy to see when you’re on a roll. Lucky and unlucky streaks are undeniable. Of course, most of the time, most people are not on any kind of streak. But that’s no problem, that’s exactly what people expect. After all, you can’t be lucky all the time.

Legally, I’m pretty well covered. First of all, I’m quite hard to locate. I spent several grand on a $400/hr lawyer in New York, crafting the Terms and Conditions agreement. It’s very explicit. It states that my predictions may have no more than a 50% chance of being correct. It warns that users should use the service for entertainment only, and under no circumstance as the basis for any kind of betting or other decision making. It tells them that the concept of a lucky streak is extremely nebulous and unproven and that even if there is such a thing it may end without any warning and at any moment. Then there are half a dozen paragraphs of disclaimers and acknowledgements that basically amount to a General Release. I’ve received two legal challenges over the last two years and both have quickly been thrown out long before reaching any court as the result of filing for declarative judgments. The Terms and Conditions are pretty ironclad. The average time new users spend between receiving the page and clicking “I Agree”? About two seconds.

Naturally, people do bet on my predictions, and in general, when they receive an alert to tell them they may be on a lucky streak. Not surprisingly, that seems to be the principal reason people use the service. In fact, I typically receive a couple of hundred grateful emails a month offering me some cut of their winnings! For legal reasons, I always politely decline and instead suggest that they make a contribution to the political party of their choice. The government isn’t too likely to shut me down. In fact, I expect such contributions are pretty scarce. In any case, as far as I’ve been able to determine, I fall outside the jurisdiction and legal system of all countries except the one I reside in and residence itself is invariably a mathematical concept. Just by spending perpetual spring and early summers in various locations around the world, following the sun, it’s not at all clear that I’m a resident of any country or where taxes might be due, supposing any are due at all. The internet created some extraordinarily gaping holes that the historical national tax and legal systems are going to have a hard time filling any time soon.

So that’s it. Right now (and I do mean right now) I have exactly 1,348,216 monthly subscribers at $1.99 a month, plus 703,237 subs who paid the $15 in advance for a year of alerts. That works out at a touch over $3.5M per month. I have no staff and almost nothing to do. Sometimes, I even consider going back to my old job. The servers have multiple redundant independent power supplies, hourly tape backup, RAID arrays, etc. They’re locked down with tight firewalls and the security team at Seeland apply patches on the rare occasion any problem is found (only 3 patches have been applied in two years – one to apache and two to ssh). The credit card companies take a small cut. They love me too, and are lobbyists with considerable clout. My monthly hosting, service and traffic charge is about a thousand bucks. It took me four months to get the site together originally (this done in parallel with sending out the initial predictions). The lucky-streak.com domain costs me $15 a year.

My users love me too. They thank me. They believe. They have chat rooms, mailing lists, IRC channels, and even support groups (only in America of course). There’s a hard core that refuse to believe something so accurate could possibly be a scam. I’m giving them something they want. They evangelize. They proselytize. They swear by me. And yes, they occasionally swear at me. Articles about the site have appeared in the international media and in many national and regional papers and magazines. I refuse virtually all interviews when occasional reporters do manage to get hold of me, and I never allow photos. I’m on record in a Rolling Stone interview as saying that of course it’s all random and that people shouldn’t take it seriously. Did that put a dent in my numbers? No way. Quite the opposite: subscriptions jumped sharply following the interview. My devoted users, interviewed by the same magazine, and others, simply refuse to believe that the service could be anything but real. Of course many don’t believe it has much, if any, accuracy in its actual predictions. They all have one thing in common: they all believe in luck. They believe that luck is real, and that lucky and unlucky streaks exist. And who doesn’t believe that? I just offer a service, backed by seemingly solid evidence (my personalized prediction history for the user), to help flag the good and bad times.

I read some book about the importance of brand. There was a discussion of the Harley Davidson company as a great example of brand. It concluded something like this: if you can convince your customers to tattoo your brand name onto their bodies, you know you’ve won the branding game. I may not be there quite yet, but that’s the kind of following the service has. Reason and rationality are simply not a factor. The average person has no head for probability, in fact no concept of it. Their friends can’t convince them to stop buying lottery tickets or to cancel their subscription to lucky-streak.com. In the end though, the friends don’t figure there’s much harm. After all, it’s just a couple of bucks a month.

When I said I could start a religion, I wasn’t kidding. Not too many leave the service, and at least at the moment, for every one that leaves, two new ones join. Unlucky streaks are just as important to people as lucky ones. Lots of people have no intention of betting or doing anything crazy, but they want to know when they should be a little extra careful. It’s a vital aspect of the service that I’m there for you in the good and the bad, always trying to help, always on your side, ready to celebrate or commiserate as the case may be. The predictions can be wrong half the time (and, of course, they are), but the service doesn’t lose people as a result. The subscribers don’t care about the individual predictions. They care about when they’re in a lucky phase. When they’re on a roll. When a prediction is wrong and you send them email them telling them to watch out, that their streak may be over, they’ll reply to say thank you. I make a random prediction and send it out. The prediction is completely wrong. Nevertheless, the recipient sends me a thank-you note. It’s wacky, but that’s the way it works. I figure tattoos are not out of the question.

I know it can’t grow like this forever, but when you think about it, a couple of million people really is a very small fraction of the number of people online. I figure it’s going to settle down at around 5-10 million subscribers. At some point, probably within the next two years, I expect something will go wrong and that I’ll shut the whole thing down and walk away from it. You can’t make $35M a year in a vacuum. There are all sorts of people that are simply not going to let that happen. Still, after two full years of operation, I have over $40M spread across my various bank accounts, so I’m doing OK. It’s probably strictly 100% legal. It’s not as easy to spend, invest, or move the money as I would like, but on the other hand I don’t pay tax. I do my serious shopping by wire transfer, often to other offshore accounts. There are clearly ethical questions, but I simply ignore them. Like they say, every man has his price. They also say that lotteries are just a tax on people who are bad at math. But I’m not that callous. I have a service, and I’ve been quite up-front about what it does, what can be expected, and even how it works. People choose to send me money in exchange for the service. And after all, it’s for a very good cause.

Like all my satisfied clients, I know my run will also someday come to an end.

But for now, I’m really on a roll.

  • http://jon.es terry

    Hi Brad

    Be my guest :-) I’m sure it would work. I want an invite to the first party in your castle.

    T

  • http://jon.es/ terry

    Hi Brad

    Be my guest :-) I’m sure it would work. I want an invite to the first party in your castle.

    T

  • Brad Thomas

    Terry!

    Haha – great story – loved it.

    I am off to implement it immediately.
    :)

    Cheers
    Brad

  • Brad Thomas

    Terry!

    Haha – great story – loved it.

    I am off to implement it immediately.
    :)

    Cheers
    Brad

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