Open beats Closed states a rather obvious law of doing business on the Internetwork:  There is more talent outside your company than within it.  Companies that harness the power of relationships using networks to tap that outside talent will win over those that don’t.

In another Open Beats Closed story, Netflix just announced the winner of its one million dollar contest to improve its ratings system.

Ratings and recommendations are a critical piece of Netflix’ infrastructure.  If Netflix can do a better job than anyone else deducing from your behavior what movies you will enjoy next, Netflix will enjoy an enormous amount of advantage in terms of customer loyalty and increased movie consumption.

Yet recommendation systems are based on  extremely complex and proprietary algorithms involving heavy math and some deep thinking to set up and test assumptions about behavior.   Employing a team of these people in-house for this work is difficult at best.  How do you assess their talent?  My guess is that 99% of Netflix couldn’t even understand the math involved… How will you build a team?  How long will that take?  How will you know if you have made the right bet once your team is hired?

An Open Beats Closed approach allows you to engage a myriad of already-assembled (or self-organizing) teams in competition to deliver an algorithm that demonstrates success.   How is the Open Beats Closed approach working for Netflix?  They are so happy with the results that they have announced another, more nuanced contest to further improve their recommendation system.    What I find interesting about this revised contest is that they are allocating the rewards over time to the teams that are providing sustained, proven results.  Smart.

From the article:

The new challenge focuses on predicting the movie preferences of people who rarely or never rate the movies they rent. This will be deduced from more than 100 million data points, including information about renters’ ages, genders, ZIP codes, genre ratings and previously chosen movies.

Instead of a single $1 million prize, this new challenge will be split into one $500,000 award to the team judged to be leading after six months and an additional $500,000 to the team in the lead at the 18-month mark, when the contest is wrapped up.