CHAPTER 3
The Age of the Algorithm Economy
“The price of light is less than the cost of darkness.”
– Arthur C. Nielsen, market researcher and founder of ACNielsen
How much would any specific algorithm be worth to a company? Maybe $1,000? Or perhaps $10,000, or even $50,000? For Netflix, the answer was a cool $1 million.
More than 10 years ago, the online entertainment company was looking for a way to improve its video recommendation system for customers. It established the “Netflix Prize,” an open competition with a $1 million purse. The cash would be awarded to anyone or group of individuals who could best improve the performance of Netflix’s existing algorithm, called “Cinematch,” by at least 10 percent.
The competition began on October 2, 2006, and three years later the winner was announced: BellKor’s Pragmatic Chaos, a team that had developed an algorithm that was 10.06 percent better than Cinematch.1
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