Sunday, September 16, 2007

Information economics on Bloomberg radio

Over the summer, I missed an important new part of Google’s strategy for total world domination. They hired one of the world’s leading information economists: Hal Varian, who spent 8 years as dean of the UC Berkeley information school. The general public knows Varian for his NYT monthly column, but my MBA students know him as the co-author of the Information Rules — the definitive MBA text on information economics.

Over the summer, Varian took leave from his chaired professorship at Cal to become the first “chief economist” at Google. Starting with a sabbatical at Google in 2001-2002, he has worked hard to help Google get even better at data mining:

I had a great time working with them on a number of projects, primarily involving quantitative analysis of one sort or another. For example, I’ve studied the Google ad auction quite a bit and that turned out to be very interesting from an economic point of view. …

Hal VarianDuring my time at Google we have built up a world-class group of quantitative analysts, and the economics team will complement these existing resources. Google has a great infrastructure for data analysis, and a management team that is very receptive to quantitative methods and willing to invest in this area. So what more could you ask for?

In addition to working on analytics, I’ve also worked on various business strategy and public policy issues, and will continue to do so as the occasion arises. This set of issues will only get more important to Google as time goes on, so I expect that this will also involve a fair amount of my time.
I learned of Varian’s new title when a PR person from Bloomberg Radio sent me notice of its interview with Varian, part of its interview series “Bloomberg on the Economy.” Tuesday’s podcast talks about the economics of data storage (improving faster than Moore’s Law), his new job, Google’s perchance for data experimentation, general macroeconomics. In general, he sounds aligned with Google’s party line (e.g. China censorship, its laissez-faire attitude towards copyrighted material).

The series also had two interviews Thursday following up on Varian’s June 28 column on the allocation of the value from the iPod, based on recent research done by Jason Dedrick, Ken Kraemer and Greg Lindenat the Sloan Foundation’s Personal Computing Industry Center.

One interview was with my good friend Jason Dedrick of UC Irvine, who talked about the allocation of the $150 wholesale price of the iPod to the trade deficit: the money is recorded to the China bilateral deficit, but most of the money gets passed to component suppliers to Korea, Japan, Taiwan. A related interview with Greg Linden of UC Berkeley compared the value flow of the iPod with that for laptops.

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1 comment:

Seth said...

I just completed preliminarily researching a similar value component analysis for the AppleTV (40GB) which retails in the Apple Stores for $299. Based on tear-down analyses reports by three reputable industry sources (Portelligent, iSuppli & Arstechnica): costs of components, integration, assembly & test inputs into the product total ~$237.00. After accounting for (estimated) distribution costs, I calculated Apple generates a gross profit margin of ~11% for those sold via the Apple Stores – and a gross loss ~1.5% after (estimated) wholesale discounts are provided to retail channel distributors other than Apple Stores.

J. Dedrick, et al’s iPod analysis demonstrated a clear competitive advantage for Apple via the iPod – I found not so much for AppleTV – at least “Version 1.0.” Stay tuned….