May 30, 2011 12:01 AM | about stocks: ITMTF.PK

The last commentary I wrote on Intertainment Media (INT-TSXV, found here) created a small amount of controversy, mostly because I’m short the stock. For some reason it is viewed as acceptable if someone who is long a stock writes a positive article outlining the huge potential (or is quoted in an article as such), however if you are short a stock it is viewed in a negative light when you explain your rationale.

I want to address the issue of the Fund I work for being short. The Fund doesn’t randomly select securities to go short or long, we find compelling stories and make investment decisions based on our due diligence on these stories. Being short, I have continued to look for reasons why I may be wrong, and if I found something, I would happily change my position to avoid losses. I am available to be convinced as such.

All of the information in the commentaries I will be posting is derived only from readily available public information. In fact the commentaries just contain what I would consider to be the basics of due diligence before making an investment in a company of this type.

It appears that the entire value (and recent run up in the stock) proposition for Intertainment is Ortsbo. In fact, with over 300 million shares on a fully-diluted basis, one could argue that over $300 million of market value was created largely on the basis of Ortsbo.

So let's try for a moment to figure out what about Ortsbo could be the source of this value. Undoubtedly, it hinges on two things: (1) the great technology and (2) the supposed growth in users.

Whether or not INT or Ortsbo has intended to do so, many longs have pointed to the fact that Ortsbo's great real-time translation technology has the potential to change the world. I disagree. I am not sure what type of technology INT has licensed from SaaS Technologies, but the main technology that Ortsbo appears to be using is directly powered by Google Translate.

Google Translate has an API, [which is simply a web development tool] (search for Google Translate API to find the code and download pack for Google Translate) that is available for free to developers. We know this from basic due diligence, but perhaps the most illustrative thing would be a table of results that compares Ortsbo, Google, and Babel Fish translations. The most important thing to know about translation is that there is no “right” answer; as translation is not exact. Because of this computers have a difficult time translating from one language to another and it is very unlikely for translator software to have the same results on more complex phrases unless they use the same engine. In any case, here are the empirical examples:

So one might say, maybe Google Translate is using Ortsbo's technology. Maybe so. Well I went one step further, checking out exactly what technology the Ortsbo website is accessing when the translation occurs. Please find the video of this process at the following link: http://vimeo.com/24242121.

Instructions on how to follow the steps in the video (for Chrome, IE9, and Firefox) please click here. If you have a position in Intertainment (short or long) I strongly recommend you follow those directions, to see for yourself and to make your own decisions.

So you might ask: What is the issue? Well for one, Ortsbo does not own one of the major technological pillars it uses. But furthermore, it is not disclosing this fact. Not only does this hide a key piece of the puzzle from the public (investors included) but it also appears to be in direct violation of Google’s Terms of Service.

Google allows you to use their Translation API free of charge. However, Google has strict rules governing this use, with its terms of service publicly viewable at the following link: http://code.google.com/apis/language/translate/terms.html.

As you can see in rule 2.3, the Google terms of service mandate that those using its Google Translation API place the “powered by Google” attribution prominently and in close proximity to the translation box. I have not seen this on the Ortsbo webpage (or any of the linking pages), nor was it present in the above video.

If Google’s Translation API is being used, it appears that sales of the product (in some form or another) would also violate term 1.4 which states:

I am not sure exactly what the plans for Ortsbo are from a revenue perspective, but they should hope the technology they may be selling does not depend on the Google Translate API.Google’s legal department has been sent a copy of this commentary. I do not know if they will take any action, but if you see a “powered by Google” appear on Ortsbo.com, you will now know the likely reason why. But in the end it is less about whether a logo appears or not, and more about the fact that the technology, on the translation side, does not appear to be proprietary in the least and Ortsbo appears to have left this detail out of the public domain.

"Important: The Google Translate API has been officially deprecated as of May 26, 2011. Due to the substantial economic burden caused by extensive abuse, the number of requests you may make per day will be limited and the API will be shut off completely on December 1, 2011. For website translations, we encourage you to use the Google Translate Element."

This will not necessarily shut Ortsbo down as they could migrate to a different API, such as BabelFish. However, it does illustrate the dangers of relying on others for your technology.

Ortsbo offers to use these apparent Google translation services for a host of instant messaging platforms. These platforms range widely in popularity but the top three are MSN Messenger, Google Talk, and Facebook chat. Each of these platforms offer what are called APIs (application programming interface) for free to any developer that wants to use them (search Facebook chat API or Google Talk API or Live Messenger API for the code if you want it). These platforms offer these APIs for free because they want as many people and as many webpages using the chat service as possible. They are intentionally designed to be customizable and easy to use so that web developers can easily integrate them into their site. Depending on your level of programming background or familiarity you can see in the code that each of these APIs has a send message function. Ortsbo most likely works by inserting a translation function immediately before the send message function.

All in all, it appears that the entire Ortsbo technology is just a set of free and publicly available APIs that have been stapled together. To use an analogy, there is the hard work that the Google developers did for Google Translate on one page and there is the hard work the Facebook developers did for the Facebook Chat API on another. Ortsbo appears to be the staple that is holding the two pages together.

Surely this report will be brought to the attention of Intertainment’s CEO Mr. Lucatch. In further reports we will further support our thesis with other evidence that things may not be as they seem with Ortsbo. Clearly the Company does not appear to have been 100% forthcoming with users, investors, or Google for that matter, about the source of its translation technology. I would ask why not? There wouldn't be anything wrong with using the translation API if they disclosed it, as required, to users and investors. Lack of disclosure always makes me nervous.

Mr. Lucatch, in response to Google shutting down several of its APIs (including Google Translate), posted several times on the Ortsbo Facebook page that "... the announcement by Google does not affect Ortsbo." If Mr. Lucatch could please explain how this is true, given significant evidence to the contrary, it would be much appreciated. To be clear, if Ortsbo switches to a different translation API or creates its own, then we would consider it to be "affected" by the announcement.

Just to be clear, as I mentioned at the beginning of this posting, being short, I have continued to look for reasons why I may be wrong, and if I found something, I would happily change my position on this blog and the Fund's position to avoid losses. Once again, I am available to be convinced as such. If convinced, I would happily even consider reversing the Fund's position.

Stocks: ITMTF.PK