Farecast, the airfare pricing prediction service, just announced a new product called Fare Guard. The way it works is simple, but its implications are huge - nothing less than a consumer derivative market for one of our largest commodity products.

So let’s say you search for a trip between LAX and JFK, and Farecast predicts prices will stay about the same for the next 7 days. For $9.95, you can buy a guarantee that will refund you the difference if the price in fact rises contrary to their predictions (with proof of purchase - yes, you actually have to buy the ticket).

It makes mathematical sense on the face of it: if they’re wrong by an average margin of, say, $50 when they’re wrong, as long as they’re wrong less than 20% of the time, they come out ahead on this bet. Over time, they can adjust pricing, there’s some breakage (customers who never buy tickets, don’t bother to check, or fail to submit a claim), and presumably they could bias the system to model conservatively if they really wanted to, since the model doesn’t work in reverse. (It doesn’t protect you if Farecast predicted prices would go up, you buy a ticket, and in fact they go down.) Here’s a pretty interesting blog post detailing their predictive algorithms.

Why am I so excited about this? What this amounts to is in effect a 7-day call option on airfares. I’ve been privately predicting for some time that the travel industry would eventually turn out products like this, given how much consumer pain there is in airfare pricing uncertainty, but I’d always assumed an airline would pioneer it, finding a way to make the revenue earned from price protection (net of revenue lost from “exercies”) exceed the revenue earned from the yield management practices that lead to all that consumer pain.

Frankly, I think overall travel demand would go up under this model, because it could drive more favorable look-to-book ratios across the industry, and pull revenue from non-bookers (all those expired, out-of-the-money options are just free money). Over the long run, Farecast may either want to securitize their aggregate one-way bet anyway, tie it to actual inventory lock-in, or launch a product that lets them take bets the other way - and airlines would make natural partners in these efforts.

But what really excites me about this is the fact that this secondary market is extractedby 3rd parties from published data and can be augmented by social data. Frankly, I’m surprised it’s not illegal (since it effectively is similar to gambling or an unregulated derivative security). It’s not even technically a derivative, since it can’t truly trade independently (e.g., you can’t sell it) and it doesn’t convey control of an underlying asset.

But If Farecast can do this, couldn’t they offer a whole spread of similar products (put options, collars, etc.)? What if Zillow, for $1,000 a month, offered you downside protection on the value of your local housing index falling? What if you could convert any car you owned outright into a lease-like structure, by locking in a residual price option (with adjustments for condition and mileage) with Kelly Blue Book, 2 years before you’re ready to sell it to Carmax?

Car leasing, ARM’s, and cell phone plans prove that consumers can handle complicated pricing & financing models. I’m very excited by the promise of the Web2.0-enabled next generation of that.

Wow, enough’s been written about widgets in the last week to fill a year’s worth of predictions. Fred is for them (subject to user happiness); Nick is apparently against them; and the New York Times just got around to discovering them.

Clearly they’re already the focus of some investor thinking and attention (Yahoo! corp dev folks are even talking about them publicly), and Newsweek has called 2007 the Year of the Widget, so it would be superfluous to call this a prediction from here. But I do think this ties into a broader trend that’s of interest, and that the market may resolve itself in unexpected ways.

This trend is about data visualization, presentation, syndication, and control. After all, publisher widgets are basically just websites - really small websites. And desktop widgets are client apps with small windows. (Though I don’t think client web apps are the future, given that there’s already a very effective client app called a “browser” on most pc’s today that do everything a widget client could do.)

What we’re seeing in the explosion of activity around widgets and embedded apps on MySpace is really the convergence of several trends that I think will all be (or continue to be) important this year: The portability of data streams, and the corresponding ability to aggregate them from around the web, apply rules to them, and ultimately control them at the consumer level. This broad trend leads to:

• New ways of visualizing data streams, especially as led by widgets right now. I’m also including “widgety” experienes like Netvibes here - but this is just a small part of a much bigger trend, as are Ambient devices and RSS-enabled rabbits. To build on the above comment about really small web pages, widget carriages are ultimately just like blog templates - rich presentation layers into which you pump your choice of content. People have lots of data available and will need lots of ways to view it.
• Social transparency and syndication. I can choose what content I expose in “publishery” applications, and I am almost automatically “publishery” in my social applications and digital self-expression because my friends can consume and subscribe to my stuff in reader-like ways. I have increasing ability to apply degree-based rules to this publication (let my friends but not my contacts see data, etc.).
• Data and content pushing upstream into communications. Aren’t IM windows and “you’ve got mail” pop-ups just desktop widgets? I can already subscribe to RSS alerts in IM and integrate messaging at the user & data level into my Yahoo! email in a way that provides a rich, seamless experience. I already consume my RSS feeds into my Outlook client (via Newsgator). There will be much more of this.
• On a related note, presence. That tv commercial where the guy’s watching a show on his laptop, big screen, and mobile window will happen for internet apps and presence-based communications first.
• Information control and data productivity. New apps and platforms are emerging to let users apply these trends to each other. Wesabe lets users do something interesting and valuable by combining a feed of their personal financial data and a social pool of user-generated content about merchants and transaction types, with a high level of security and control. Touchstone is about creating a high degree of control and intelligent automation over how communication and presence data are presented and consumed. These are platforms that allow user data mashups, and you don’t have to be a developer to leverage their power.
• I will probably post at greater length about the specific problem of productivity and Getting Things Done, but the kernel of the idea is, more and more of our communications are digital, more and more of our “to do’s” live in emails and IMs, and more and more important actions and decisions in our lives can be driven off of open-standards-based data and content (like digital wallets. . . or automatic mortgage re-fis). Managing personal and business productivity against all this data is thus more and more of a challenge - and a huge business opportunity. We’ll see how far Microsoft moves the ball forward with Vista - my bet is I still won’t be able to get my RSS, email, calendar, and to-do list to play perfectly with each other even in the same application, let alone across windows.
• That also touches on the issue of synchronization. Much has been said lately about web-based apps vs. client apps. It’s kind of a no-brainer to me that we need the power of the real-time web in all of our business applications now; lightning-fast access to our document data; access to our data via all our windows, even when we’re offline; automatic synching of docs modified offline; and always-safe, always-secure automatic backup of our precious data to the co-lo of our choice, be that an internet cloud or an expensive box in the basement. What’s so hard about that?
• Smart systems. By the way, I really don’t want to have to spend weekends at a time reorganizing my digital photo collection and figuring out 1,001 Lifehacker iTunes hacks.
• Oh, did I mention search? Hehehe.

Quite a few folks around the blogosphere are pointing to the troubles of Backfence.com as a nasty bellwether for local community journalism. I’ve left my response on PaidContent, but here’s the text of it:

As someone who has studied this space closely (I was the lead business and product person during the first year of New West and currently lead “long tail” publisher strategy for Yahoo! Publisher Network), I would like to point out that “local news, community and citizen journalism ventures as a business” are alive and well.

As anyone who’s successfully built a community-based company will tell you, it’s authentic community cultivation first, features second—and those features should be highly driven by the desires and quirks of the community—and marketing third . There are plenty more features del.icio.us users want, and that Upcoming.org have steadily rolled out, just to name two examples (one of which is highly local), yet these communities were successfully growing from day one.

In the community journalism space specifically, I would point to Metroblogging (http://www.metroblogging.com/) and New West (http://www.newwest.net) as two companies with somewhat different approaches that are both doing swimmingly. Metroblogging is in over 50 cities internationally, Comscore is tracking respectable enterprise traffic growth, their organic search engine ranking is terrific, and they’ve been on the front lines of breaking or monitoring some hugely important stories such as Hurricane Katrina. My own alma mater New West, while I’m admittedly not objective, continues to raise the bar for the quality and comprehensiveness of online-only local journalism (having won several online journalism awards), continues to develop recognition and loyalty as a community hub within its regional footprint, and, though it has not thus far positioned itself as a venture-scale business, is as far as I know tracking handsomely as a business.

As for Backfence, nobody I know is surprised by their failure to take root given their “if you build it, they will come” approach, their tackling of the three needs above in reverse order, and their business decision to take venture capital to franchise and expand a model they had never proved and were ultimately unable to make work even in a single flagship location. Bayosphere’s failure as a business was equally unsurprising given its failure as a community (not to mention horrible name and design); for all Dan Gillmore’s [sic] evangelism of the abstract opportunity, he was never able to deliver any compelling value-added to San Franscisco’s already-quite-robust online life.

I do anticipate new models will continue to evolve, and I hope the right kind of aggregation will be part of that, but it’s hard to imagine aggregation without some form of social curation. My guess is that will come from the most cohesive, engaged, organic local communities - and my hope is that the startup universe and the folks who track it will continue to encourage these.

With all the talk about the merging of personal publishing and media consumption, I am reminded of a few lines of doggerel an English poetry professor once shared with my very literary theory-weary class:

Do ya wanna know the creda’
Of Jacques Derrida?

There is no writa’
And there ain’t no reada’
Eitha’

On the travel and music front, 2007 kicked off with a terrific trip to Aspen.

Amy and I had hopped the incredibly convenient LAX-ASE route, which at a mind-bending 1 hour and 37 minutes makes Aspen closer than most of the driveable weekend destinations around LA — and at $225 round-trip is almost compulsory. We had blue-ribbon days on the mountain, with great snow, sunshine, some terrific meals, and no serious injuries despite our decision to play with snowboards.

I even got to see Austin stalwart Junior Brown, whom I’d never heard, but who is terrific and apparently well known not only to Austinites, but also to fans of Spongebob Squarepants and the movie version of the Dukes of Hazzard (in which he stands in the mighty big shoes of Waylon Jennings as narrator).

His musical style and stage presence are hard to describe and need to be experienced properly to be fully understood, but here’s his myspace (!!!), on which you can listen to a few choice samples featuring lines like “Cause you’re wanted by the police, and my wife thinks you’re dead”, along with a flickr photo set that captures some of the visual flavor.

There’s still plenty of time to see him on his 2007 tour, so do it!

I’m very excited about this morning’s announcement that Yahoo! has acquired MyBlogLog.

As a beta user of the reader roll and an instant fan of the analytics, I’ve been hooked on MyBlogLog since I started using it and immediately became an internal proponent of this deal, which has been a treat to watch move forward. I’ve also had the pleasure of getting to know the team really well - in fact, Eric Marcoullier and I first got in touch via the “welcome” email he sent, to my personal address, when I signed up. Congratulations Scott, Eric, Todd, John, Steve, and the rest of the MBL team - I’m delighted for you and look forward to working together at Yahoo!

The deal also afforded me a chance to watch some of Yahoo’s thought leaders in action - Chad, Bradley, and Jeremy were the key ones who made this happen, though I was delighted to see how many folks at Yahoo! got it so quickly and made the wheels turn so smoothly. There were other suitors for investment (and a veritable swarm of interest at the Web2.0 conference); even though this is an early-stage company, it’s great that Yahoo! collectively recognized how good a fit this is for our community and publisher services offerings and figured out a plan to preserve this burgeoning community while bringing it into the Yahoo! fold.

I’ve also had a front row seat watching the pros in our corporate development department do their thing. Fascinating - and a very interesting perspective on the value of startups and VC in corporate innovation.

There are a lot of reasons why I think this is cool for users and great for Yahoo! Among other things, it’s a nice little tool for distributed aggregation on the community front. (My more official post on the subject will appear over here shortly.) The MyBlogLog team seems pretty excited about it too; here’s their announcement.

UPDATE: Lots of additional coverage:

• Forbes CES blog
• GigaOM
• TechCrunch
• Yahoo! Developer Network Blog
• And plenty more. . .

Fred W. had an interesting post the other day suggesting user-controlled pages on Flickr that both echoed some things I’ve been thinking about and led me to Scott Karp’s interesting essay on the Death of the User (choice quote: “In most cases ‘users’ in Media 2.0 are defined as the ‘people formerly known as the audience’”).

My own thinking on this stems from my continual amazement at the way MySpace, which many observers rightly note as a tipping point in the mainstreaming of blogging and personal publishing, perhaps even more importantly fuses general communication and content consumption with content publication. MySpace is not just outbound; it is email inbox 2.0. (And people wonder why mobile hasn’t taken off.)

At the same time, services like flickr and YouTube and Twitter, and technologies like tagging and RSS, continue to arrive to serve specific types of content production and community well (or at least interestingly). And those of us that have crossed into this world of personal & social transparency (a rubicon it seems) will inevitably continue to experiment with and invest in the most compelling.

This leads to a three-fold problem: As a user, I want to aggregate the things I consume effectively and across all of my consumption devices and venues. I may want to publish my aggregation in various ways in various media, like a blogroll on my blog, bookmarks on del.icio.us, or an OPML file or attention stream in a conference panel bio. (Thus, “distributed aggregation”.) Also, as I chime in with my comments and ratings and other UGC submissions, this becomes part of the publishing side of the problem as well.

As a publisher, I want to streamline my production across many points of access while providing a good, unified experience to some members of my audience. I may want to be able to control my profile pages at Flickr and other places - both to reflect my self-expression goals and to capture data that lets me know how I’m doing - but I don’t want to be responsible for maintaining 13 websites. I want the principle of “write once / publish many” to apply not only to my blog posts, but also to my preferences as a publisher. Thus, aggregated distribution.

Finally, from the point of view of efficiency and value-creation, there is a lot of interesting attention that could be harnessed (and fat in the system that could be eliminated) for the benefit of advertisers, knowledge-aggregation companies like Yahoo! and Google, and, more generally, anyone who wants to communicate with like audiences either in niches or en masse (i.e., media) efficiently. Again, aggregated distribution.

There are more than a few companies playing successfully at solving parts of these problems - NetVibes, and TACODA come to mind along with others, as do features introduced by Yahoo! and Google to blend some aspects of communication (mail and IM, email and RSS). There have also been some interesting attempts that haven’t quite taken root (e.g., Rojo). But there’s a lot left to do to solve the problem of “distributed aggregation” of content publishing, and I think this is a problem that will continue to resonate and drive valuable innovation this year.

Related to this problem of course is the need for an effective way to manage identity and privacy: it’s easy for me if I can have one list of friends not 12, but I don’t want all my business friends to see all of my flickr posts, I probably don’t want all of my business research behaviors impacting my behaviorally targeted advertising, and I certainly don’t want to publish my bookmarks and shopping behaviors related to sensitive personal topics. At the same time, managing preferences and terminology across all the different social venues I participate in is a pain in the ass.

I would expect some interesting entries that come at this problem in ways we haven’t seen before (and probably also better, easier-to-use versions of things we have). I would also expect some of the GEMAYA properties and “anchor tenants” in the core related businesses (UGC, news and content aggregation, search, advertising) to make moves toward more effectively meshing content production, consumption, and identity. Hopefully, there will be both good internal innovation here and plenty of interesting M&A opportunities.

Finally, I’m gonna go ahead and make one actual prediction: that at least one “unexpected” large company will participate impactfully in this reader/publisher/attention/identity fabric.

There’ve been a lot of “big in ‘07″ prediction posts (VC Mike has a good roundup). Although I initially sort of tuned out and didn’t feel the need to pile on my own opinion (after all, New Year’s is a totally arbitrary milepost from which to make industry prognostications), the meme did stimulate me, and a few thoughts have filtered to the top that I want to write about.

Rather than focus on predictions for the calendar year, though, I thought I’d muse on a few ideas - just notes from my own trench, really - that are interesting conversation points and that I think may accrue to be “winning themes” in different segments of the industry, but that may or may not reach maturity in the next four quarters.

I’ll do those in individual posts after this one and over the next few weeks. (I’ve added a new category, “2007″, as well.)

Of course the big overall theme here is innovation, which seems boundless and ever-cheaper, and continues to stimulate the startup community, the internet economy, and the media industry in general. 2007 will undoubtedly make for an exciting year no matter which individuals turn out to be right.

Cross-posted from Auction for Change