May 25, 2009

The Secret of Googlenomics

I just read an amazing and insightful article in wired about the 'Secret of googlenomics', which was an riveting introduction to the auction based principles that have become the core of almost everything at google. And even more importantly represent a possible future for many other modern elements of the future economy.

Most of the article references a presentation given by google's chief economist, Hal Varian, who's career was inspired by Isaac Asimov's books The Foundation Series: "In Isaac Asimov's first Foundation Trilogy, there was a character who basically constructed mathematical models of society, and I thought this was a really exciting idea. When I went to college, I looked around for that subject. It turned out to be economics."

I was also inspired by Asimov's theory of 'psychohistory' when I read those books back in the early 90's, but unlike Hal, I thought the idea was entirely impossible, and so I stuck with reality and studied pure science. Perhaps I was wrong, as google's mathematicians now do take into account everything from the weather to peoples fashions and buying habits, to predict the best adverts to use on search results.

I strongly recommend reading the entire article at For a taster, here is the concluding paragraph:

There's a wild contrast between this sparsely furnished residence and what it has spawned—dozens of millionaire geeks, billions of auctions, and new ground rules for businesses in a data-driven society that is far weirder than the one Asimov envisioned nearly 60 years ago. 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? Varian, of course, knows that his employer's success is not the result of inspired craziness but of an early recognition that the Internet rewards fanatical focus on scale, speed, data analysis, and customer satisfaction. (A bit of auction theory doesn't hurt, either.) Today we have a name for those rules: Googlenomics. Learn them, or pay the price.

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