Multinomial Concepts, Essay Example

Recently, Netflix CEO Reed Hastings admitted that Hulu Plus might cut into Netflix’s streaming video profits. But, he said, “Once Hulu Plus has a few hundred thousand subscribers,” the company will determine what consumers like about the service. Based on that understanding, Netflix will incorporate the Hulu Plus features that consumers like into its own offering.” (Reisiner) But if Hastings waits until Hulu Plus is successful, then Hulu may gain an edge over Netflix in the streaming video market. Netflix might be able to beat Hulu if Hastings, instead used a Multinomial Decision Tree to predict whether or not adopting some of the features of Hulu plus would make Netflix more or less profitable.

According to the StatTrek tutorial, a multinomial experiment is one that has the following properties:

The experiment consists of n repeated trials. Each trial has a discrete number of possible outcomes. On any given trial, the probability that a particular outcome will occur is constant. The trials are independent; that is, the outcome on one trial does not affect the outcome on other trials. (Statistics Tutorial: Multinomial Distribution)

Such an experiment might have come in handy for Microsoft. Recently, the software giant has begun to make use of a crime lab in Dublin to target software pirates. Microsoft loses $10 billion dollars a year to pirating, but using a crime-lab to combat piracy is also costly. In order to determine which methods of piracy prevention might be more effective, Microsoft could use Multinomial concepts. Microsoft could, for instance, perform an experiment consisting of 50 repeated trials to see whether or not a particular lab detected piracy.

In the trials, the lab would be given a disc that was either counterfeit or not and it would be asked to determine whether or not each disc was genuine. 25 of the discs would be genuine, 25 would contain pirated material. Lab testers would not be told which disc was which. The outcome for each trial would be either yes (1) or no (2).  The probability of each test would remain the same after each trial and would be independent of the other tests. In this way, Microsoft could determine whether or not investing in processes at the Dublin crime lab was an effective use of finances and whether or not the lab’s tests were accurate (Bass).

Works Cited

Bass, Dina. “Microsoft Crosses Swords with Pirates.” 22 June 2010. Bloomberg Business Week. 26 July 2010 <http://www.businessweek.com/magazine/content/10_31/b4189040984263.htm?campaign_id=rss_topStories>.

Reisiner, Don. “Netflix CEO talks PS3 streaming, Hulu Plus.” 22 July 2010. CNET News. 26 July 2010 <http://news.cnet.com/8301-13506_3-20011335-17.html>.