Tuesday, November 30, 2010

More on economists at hi tech firms

John Horton (who is interested in online labor markets) writes in response to my post about economists at Amazon to let me know about this recent story in the San Jose Mercury News:
Google, Yahoo, other Silicon Valley tech giants add economists to arsenal

"In the wake of the example of UC Berkeley economist Hal Varian, who helped Google perfect the auction process behind its multibillion-dollar search advertising revenue stream, big Internet companies are competing to woo economists away from universities or work with them on specific projects. Yahoo has been among the most aggressive, but eBay, Amazon.com, Facebook and other companies also are recruiting practitioners of what used to be called "the dismal science." Illustrating how crucial companies think those skills are, Microsoft CEO Steve Ballmer personally recruited economist Susan Athey from Harvard.
"Other companies have recognized that economists really have a lot to contribute," said Varian, who joined Mountain View-based Google full time in 2007 after having worked as a consultant for the search giant since 2002. Google has 10 economists, statisticians and other quantitative analysts on Varian's staff, and is looking to hire more.
"Internet companies see the economists as critical in their efforts to fine-tune advertising networks that serve millions of online ad impressions a day, and to better understand e-commerce platforms with tens of millions of buyers and sellers. Economists can also help determine whether new businesses or approaches will be effective."
"Yahoo chief economist Preston McAfee, who joined the Sunnyvale company from the California Institute of Technology in 2007, has long believed that economics could be a practical discipline, like engineering. McAfee now heads a team of seven Ph.D. economists and five game-theory/algorithmic scientists who work with software engineers to create products that aren't just smart but are also savvy.
"Engineers are pretty nice people, and they assume the rest of the world is pretty nice like them," said McAfee. "But that's not the way most people are. And if you build (software) assuming that's the way people are, it will get heavily spammed. So one of the roles that economics plays at Yahoo and other tech companies is to be just a little more suspicious about human nature."

"One of Varian's first jobs was to polish Google's nascent search advertising, in which advertisers bid for keywords that bring up their text ad when someone Googles that term. Search advertising has since transformed Google into a corporate colossus.
"Eric Schmidt said, 'Take a look at this ad auction,' " said Varian, "and I sat down to try to model the behavior of that auction, and wrote the first model ever of what I call a position auction.
"At that time, I talked to my fellow economists and said, 'You know, there really are some interesting things going on here,' and they would say, 'Is that economics?' And now, of course, years later, people say, 'Wow, how did you know that was going to be so big?' And the answer is, I didn't. I just thought it was really interesting and it turned out to be big."

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