Monday, March 08, 2010

How Google Does Business...

1. "What could be more baffling than a capitalist corporation that gives away its best services, doesn't set the prices for the ads that support it, and turns away customers because their ads don't measure up to its complex formulas?". Read how economics underlies every aspect of the Google business model: here in Wired.

2. AdWords is a pioneering variation on a second-price auction.

3. AdWords was such a hit that Google used auctions to place ads on other websites: AdSense.

4. Hal Varian, Chief Economist at Google, has been mentioned on the blog before: here and here.

5. "But the really gutsy move," Hal Varian says, "was using it in the IPO." In 2004, Google used a variation of a Dutch auction for its initial public offering.

6. The Google equivalent of the Consumer Price Index is called the Keyword Pricing Index. Here's a link about Fathom Online's version. Examples of very competitive keywords are 'flowers' and 'hotels'.

7. Quality Scores are important: a penalty is invoked when the ad quality is too low. In such cases, the company slaps a minimum bid on the advertiser.

8. Hal Varian says: "The people working for me are generally econometricians—sort of a cross between statisticians and economists". He's currently hiring a senior economist. The London office also has other opportunities.


Martin Ryan said...

Yahoo! Research say they routinely compete for talent with the top ten economics departments in the world.

Michael Daly said...

Scary!- "We are trying to understand the mechanisms behind the metrics," says Qing Wu, one of Varian's minions. His specialty is forecasting, so now he predicts patterns of queries based on the season, the climate, international holidays, even the time of day. "We have temperature data, weather data, and queries data, so we can do correlation and statistical modeling," Wu says. The results all feed into Google's backend system, helping advertisers devise more-efficient campaigns."