MS&E 235, Internet Commerce. Spring 2008-09.

Instructor: Ashish Goel

TuTh 2:15-3:30; Skilling 193. This class is on SCPD.

There will be a few optional televised discussion sections during the quarter; location and date TBA.

Discussion Section 1: Thursday, 4/16, 4:15-5:05, in Skilling 191.  Problems.
Discussion Section 2: this Thursday, 4/23, toward the end of class after some lecture.  Problems.  Solutions

Final Review Office Hours:

Professor Goel: Friday 5:30 - 7:30pm
TA Caleb: Monday 10:00 - 12:00noon


When: Today

Where: Terman Auditorium, 7-9 PM

What: Closed Book, Cumulative

Essential Class Information


Lecture Notes

Problem Sets

Project Information

Resources and links

Guest speakers

If you are auditing the class, please subscribe to msande235-spr0809-guests by going to

You can also see last year's web-page.

Essential Class Information

Contact information:

Instructor: ashishg at, Cell phone: 650 814 1478, Office: Terman 311.

Course assistant: Caleb Tolman. Email: calebj at, Office: Terman 479.

Unless you need to very specifically contact the CA or the instructor, send email to msande235-spr0809-staff @ (effective Apr 4)

Office hours: Ashish: Th 11-12. Caleb: Tu 4-5.

Text-book: None; we will make lecture notes available a few days after each lecture.

Class description: The technology, mathematics, and economics of Internet commerce. Topics include: models of Internet commerce; online advertising; product recommendation systems and personalized marketing; pricing and delivery of digital media; web tools; piracy, copyright, and peer-to-peer networks; rating and reviewing of online businesses; and co-evolution of Internet technology and commerce. Hands-on exercises;  group project.

Grading: Project 35%, Homeworks 25%, Midterm 20%, Final 25%. If you score more than 100, you get an A+.


Project groups: Due Apr 14th.

Midterm: Apr 30th, in class (except for SCPD students, of course, who can take it at their work place).

Interim project report: Due any time during the quarter. The sooner the better if you want feedback.

Project presentations: May 28th and June 2nd. At least one member of every group must be able to come to campus.

Final project report: Due June 4th.

Final exam: Tue June 9th, 7-9pm (from the registrarís exam schedule)

Topics (subject to change; some of these will be covered informally by guest speakers).

1)      Advertising and marketing

a)      Push vs pull models; cost-per-click vs cost-per-action vs cost-per-impression

b)      Technical topic: auctions (advertising auctions, truthful auctions, eBay auctions)

c)      Technical topic: decision making under uncertainty and the multi armed bandit problem

d)      Technical topic: long tails

2)      Reputation, prediction, and recommendation

a)      Reputation systems in practice

b)      Technical topic: Eignevalue methods, eg. PageRank and HITS

c)      Technical topic: Prediction markets

d)      Technical topic: The arbitrage primitive

e)      Technical topic: Singular value decomposition and collaborative filtering

3)      Social networks

a)      A survey of social networks

b)      Social robustness; privacy vs functionality; anonymized consensus

c)      Technical topic: the social cost of cheap pseudonyms

d)      Technical topic: spread of influence in social networks; function follows form; and viral marketing

e)      Monetizing social networks

4)      A brief description of the client-server model

a)      Email and the web

b)      DNS and Akamai

5)      Peer-to-peer systems

a)      Piracy vs copyright

b)      Technical topic: the architectures of KaZaa, BitTorrent, and Skype

c)      Technical topic: Pricing of digital goods

Lecture Notes

Lecture 1
Lecture 2
Lecture 3
Lecture 4 slides
Lecture 5
Lecture 6
Lecture 7
Lecture 8
Lecture 9
Lecture 10
Lecture 11
Lecture 12
Lecture 13
Lecture 14

Problem Sets

Homework 1
Homework 2
Homework 3
Homework 4

expected chain length data

gittins spreadsheet

Practice Midterm
Practice Final

Project descriptions: The projects must be done in groups of three or four. Each group turns in an interim and a final project report and presents the project in class. For the Google Online Marketing Challenge the lengths of the reports are determined by Google to 2 and 10 pages. For all other projects, the interim report should be around 5-7 pages and contain a brief description of your approach to the project, a summary of your progress, and a detailed outline of the final project report. The final project report has no page restrictions, but around 15-20 pages is probably sufficient. All project reports could be on the class web page and hence in the public domain. But you must maintain confidentiality of any external data that you are provided and omit that data from the public part of your report.

Suggested projects (you are free to devise your own): 

1) Google Online Marketing Challenge (teams must be of size 4)

Student groups will receive US$200 of free online advertising and then work with local businesses to devise effective online marketing campaigns. They will outline a strategy, run their campaign for 21 consecutive days, assess their results and provide the business with recommendations to further develop their online marketing. Each student group will choose a business that (a) has a website, (b) is not already advertising using Google AdWords, and (c) agrees to have a campaign devised and run for the purposes of the Competition.

Projects will be evaluated by Google on three criteria, two short written reports and the most effective Google AdWords campaign for their business. We will use the same criteria. Details are at You do nor have to submit an interim report to us -- just the two page proposal described below, and a copy of the two reports you submit to Google.

There is a special timeline for this project. You must submit a two page proposal by April 21st. The best four proposals will get a surprise prize on the 23rd that will help you with the challenge (subject to the proposals meeting a quality threshold). You must start on May 1st, and be finished in three weeks. The midterm is on Apr 30th to allow you to focus on the online challenge. You have to provide a pre-competition report to Google and also a post-competition report.

(see acknowledgments)

2) Build an Internet-based business (same as last two years: here is an article about this project from the Stanford Daily)  (An example from previous years)

Each group must invest no more than $225 (suggested but not mandatory breakdown: $200 in advertising, $25 in operational costs) to build an Internet-based business. The projects will be evaluated on (a) Strategy and execution [20 pts] (b) Whether the group generated revenues [7] (c) How much revenue the group generated [4] (d) Whether the group turned a profit [2], and (e) How much profit [2]. We would suggest investing $100 each towards advertising on Yahoo and Google (or MSN or any other combination of two venues that you prefer) to attract customers into an Amazon associates site that you create for selling products of your choosing, but feel free to use any other legal, socially responsible, and ethical business model. You can reinvest your revenues into advertising/operations, but if your net out of pocket expenses hit $225, you MUST stop. Submit an interim progress reports and a detailed final report including accounting and receipts. Donít panic if you go bankrupt Ė as you can see from the relative weights, it is more important to have a convincing strategy and good execution than to be too narrowly focused on turning a profit, which is hard in so short a time. Try to invest gradually so that if one business idea is not going anywhere, you can try another to at least generate some revenue (for example, a blog that attracts ad-sense revenue). Start early. Discuss your project with us early and often. And remember, content rules! You should have no direct inventory. You have to submit an expense summary and an honor code statement by all group members that you did not exceed the prescribed maximum.

3) Think of an innovative new social primitive, auction, or  interaction mechanism.  Design and conduct simple experiements to test your idea  on either Facebook or Twitter. You do not have to  code  an application, but in that case, your experiments must be all the more innovative and concrete

The instructor has some ideas, which he will be happy to share.

4) Write a paper on mobile commerce. Specifically, address the issue of whether mobile service providers will be able to monetize the mobile Internet, or whether they will become dumb-pipe providers. This may seem like less work than the other projects, but please be forewarned that we will use a very tough standard to judge this project -- it should be of publishable quality and something that would be valuable to an industry expert, not just to  a casual reader.

Projects 2009 (in no particular order):

Chance Bets
Coupa Cafe

Dumb Pipes Debate
Click it, Sell it, Buy it

Twitter Topic Spread
Rotten Pakoras
GoodMeals for Life
Liar's Dice


Yahoo! Inc.

Google Inc.

We would like to acknowledge Yahoo! Inc. and Google Inc.  Both companies have graciously allowed our students to participate in their sponsored search academic programs.  They have also provided subsidized credits that allow our students to affordable study keyword strategies.  And they both have staff who have gone out of their way to accomodate our late schedule -- with much effort.  We give much thanks.

Resources and links

Check out, which is an example of a business which has succeeded in monetizing the long tail.

Listen to this clip (

and read this article ( for more details.

The Interactive Advertising Bureau has an interesting article on the rapid growth of internet advertising:  Internet Advertising Revenues Surpass $23 Billion in í08  (


An article by Chris Anderson explaining long tails:



Guest Speakers

Please note that guest lectures are fair game for exam questions. Also, we will take attendance. Any on-campus students who do not attend the FULL lecture will have to turn in a 500 word report (individually written) summarizing the lecture.

Thursday 14 May: Richard Chatwin from Adchemy.  We are glad to have Richard come speak to us.

Tuesday 26 May: Ali Diab from AdMob.  We are glad to have Ali come speak to us.

Abstract:  Mobile advertising is not new, but the application of rigorous scientific analysis to the problem of how to maximize revenue from  mobile ads is.  AdMob is pioneering the application of statistical  methods and data analysis and AdMobís VP of Products, Ali Diab, will  explain some of the approaches and techniques that AdMob uses to optimize ad selection and ranking, as well as other important factors,  like budget estimation.