Electrical engineer Martin Piotte and software engineer Martin Chabbert of Montreal decided to enter a million-dollar contest to improve Netflix's recommendation engine after they read about it in a 2008 Wired magazinearticle. Now, the duo is in the lead, having nearly achieved the contest's objective of creating a recommendation engine 10 percent more accurate at predicting user ratings than the company's own Cinematch system.

Team Pragmatic Theory's most recent submission, posted in the wee hours of Tuesday morning, shows a current improvement of 9.78 percent, giving the pair a slim lead over last year's leaders, BellKor in BigChaos, a team that includes AT&T engineers, with Netflix' seven-figure prize tantalizingly close to being won.

"For a long time, we weren't sure if 10 percent was even achievable," said Piotte by e-mail. "Now that we're getting closer, it seems highly probable that it can be done. Right now, we're feeling very motivated and excited. The focus for us is no longer 'if' someone will make it to 10 percent, but rather 'when.'"

He credits his team's "ability to translate intuition about user behavior into usable equations" for its top position on the leader board, as well as accurate coding. "In a sense, formulating equations for collaborative filtering is like the game of Go: Although the rules are the simplest possible, the depth and the complexity of the game is phenomenal," he explained.

The home stretch, as the top teams draw near the prize-winning 10 percent marker, is proving difficult.

"They're dramatically close to the finish line, but it's kind of like the last 100 yards on Everest, where you're low on oxygen," said Steve Swasey, Netflix vice president of corporate communications. "This is not easy, which is why whoever does this is going to get a million dollars."

The rules of the Netflix Prize, initially offered in 2006, are simple: Using anonymous user data provided by Netflix, the contest's nearly 50,000 entrants, from 183 countries, are attempting to create an automated system that predicts how users will rate a sample set of films 10 percent more accurately than Netflix's in-house system does. Before claiming the $1 million prize, the winning team will have to share its method with Netflix and "describe to the world how you did it and why it works."

Netflix, whose business revolves around the delivery of shiny discs, is looking for new ways to stave off growing competition from on-demand cable and internet video as it pursues its own streaming strategy. A more-accurate recommendation system would help the company deliver more on-demand movies and television shows, in whatever form customers prefer, giving it a crucial advantage over the competition.

The teams competing for the Netflix prize shared their techniques with one another earlier in the competition. Although they remain on friendly terms, according to Piotte, as the top teams have drawn closer to the magical 10 percent number they're more reluctant to share their findings.

After all, $1 million is a lot of scratch.

This contest is the latest example of companies successfully crowdsourcing R&D work by offering a prize for the best solution. Other examples include the X Prize for reusable space vehicles, and the DARPA Urban Challenge, whose winner once chauffeured me around in Las Vegas. (Even Obama's people are following suit, minus the cash incentive.)

The winners of the NetFlix Prize will grant the company a nonexclusive license to use their algorithm, meaning that after winning, they can turn around and license their algorithm to Netflix's competitors — quite a generous policy, on top of the cool million it will pay to the winning team. "It's part of our belief that the internet should be open," said Swasey.

"First, we want to verify for everyone that the code did what was claimed; that means looking at it," reads Netflix's FAQ. "And then we want to use it if we can. We're a business, and we want to make sure we can capitalize on the discovery. But we don't want to impede the winner’s ability to capitalize on it as well. Actually, we hope they can build their own business and license it to others as well. That is the point, after all."

Netflix's rules originally forbade Quebec residents from entering the contest, due to a local law against contests involving money. Luckily for the Pragmatic Theory team, the company amended its rules after determining that Quebec residents are in fact eligible under the law.

When asked what they might do with the $1 million if they win, Piotte responded, "Il ne faut pas vendre la peau de l'ours avant de l'avoir tué," which roughly translates as, "One should not sell the bearskin before the bear has been killed."

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