Sunday, August 23, 2009

Hal Varian on how Internet is reshaping the economy

Very interesting interview of Google's chief economist, Hal Varian.

About the age of "combinatorial innovations"...

"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... There are no inventory delays."


On advertising revenue sources and its psychology,

"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... we’re (google) 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."


On statisticians being the "sexiest job of the 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."


On "computer-mediated transactions" - the utility of computers in lowering transaction costs and thereby making several hitherto impossible transactions and activities possible...

"Now, in the middle of almost every transaction from person to person or organization to organization, there’s a computer. And the computer can monitor that transaction, record the information, collect the data, and assure that the transaction is carried out the way it was intended to be carried out. So one of the subtle implications of this is you can now write contracts and make contracts enforceable that simply weren’t enforceable before."

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