Interview with Hal Varian: Some Nuggets

Nice piece.

On combinatorial innovation (emphasis mine):

We’re in the middle of a period that I refer to as a period of “combinatorial innovation.” So if you look historically, you’ll find periods in history where there would be the availability of a different component parts that innovators could combine or recombine to create new inventions. In the 1800s, it was interchangeable parts. In 1920, it was electronics. In the 1970s, it was integrated circuits.

Now what we see is a period where you have Internet components, where you have software, protocols, languages, and capabilities to combine these component parts in ways that create totally new innovations. The great thing about the current period is that component parts are all bits. That means you never run out of them. You can reproduce them, you can duplicate them, you can spread them around the world, and you can have thousands and tens of thousands of innovators combining or recombining the same component parts to create new innovation. So there’s no shortage. There are no inventory delays. It’s a situation where the components are available for everyone, and so we get this tremendous burst of innovation that we’re seeing.

On how Google gains attention advantage:

We have to look at today’s economy and say, “What is it that’s really scarce in the Internet economy?” And the answer is attention. [Psychologist] Herb Simon recognized this many years ago. He said, “A wealth of information creates a poverty of attention.” So being able to capture someone’s attention at the right time is a very valuable asset. And Google really has built an entire business around this, because we’re capturing your attention when you’re doing a search for something you’re interested in. That’s the ideal time to show you an advertisement for a product that may be related or complimentary to what your search is all about.

Regarding data analysis and future:

The ability to take data—to be able to understand it, to process it, to extract value from it, to visualize it, to communicate it—that’s going to be a hugely important skill in the next decades, not only at the professional level but even at the educational level for elementary school kids, for high school kids, for college kids. Because now we really do have essentially free and ubiquitous data. So the complimentary scarce factor is the ability to understand that data and extract value from it.

I think statisticians are part of it, but it’s just a part. You also want to be able to visualize the data, communicate the data, and utilize it effectively. But I do think those skills—of being able to access, understand, and communicate the insights you get from data analysis—are going to be extremely important. Managers need to be able to access and understand the data themselves.

On the positive and negative sides of technology:

…you get a new technology in and people are excited about the positive sides of it. Then you see there are also some negative aspects. And you’ll have a regulatory infrastructure that arises to deal with those. I think everybody is very excited about the intended aspects of this technology—the fact that you can personalize, the fact that you can monitor, the fact that you can provide products that are more closely suited to a consumer’s interests and needs. What people are worried about are the unintended consequences, the downsides, the negative sides, the security, the identity theft, the possibility of extortion or embarrassment. These are the problems: not what people want to do but what could happen if these technologies weren’t appropriately managed.

On Google’s ad business:

I think the people who originally designed the model way back in 2001 had a very, very useful insight. They recognized that the content provider has impressions to sell. So you’ve got some space in your TV show. You’ve got some space on your page. You’ve got some space that’s available to put an ad. But what the advertiser wants to pay for is clicks or conversions or visits. So they don’t really care how many impressions they show. Normally, what they care about is getting people into their store and, ultimately, getting people to purchase. So you have to build a system that allows the publisher to sell impressions but the advertiser to buy clicks. And I think we’ve managed to accomplish that in a nice, elegant way.


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