As the Harvard Business Review reports, Amazon and some four dozen tech companies have been “snapping up economists at a remarkable scale,” with all of the large Bay Area tech companies, including Facebook, Microsoft, Google, and Airbnb, now employing teams of economists, while many smaller organizations are starting to hire economists or take advantage of the services of an economic research firm.
There are many reasons that tech companies benefit from the expertise of an economist.
Designing Online Advertisements
Oftentimes, advertising inventory on search engines is sold through auctions. Economists can help a business design the auction and advise on everything from the kind of auction to what the reserve prices should be. They can also help solve issues that relate to choosing advertising outcomes like pay-per-click versus the alternatives.
Microeconomists are typically experts when it comes to understanding strategy with the ability to provide a framework for understanding which industry structures are more likely to be sustainable. They can help management think through the incentives for an acquisition and vertical integration. Economists worked on the Microsoft/Yahoo search alliance which looked at the effect of combining the advertising platform with the user base.
Measuring Advertising Effectiveness
Economists also assist when it comes to estimating the returns of advertising by drawing on the tools of econometrics and existing advertising theories in order to analyze its effectiveness.
Navigating New Marketplaces
Tech firms often turn to economists when they’re struggling to navigate new market places. For example, a problem may arise when a business realizes that there is no case study or other rule of thumb that can be applied to manage a unique or new marketplace, making it essential to employ the assistance of an economist. These experts helped Uber create the “surge” pricing algorithm it’s using today, with prices rising when demand exceeds the supply. The fares are able to change in real-time, increasing prices during peak use hours.
As organizations continue to expand, economists are increasingly working on public policy issues such as intellectual property topics, data security, and privacy issues. These policies all play a significant role in economic analysis as well as the understanding of benefits and costs.
An economist can help a tech company design a reputation system. Platforms like TripAdvisor and Airbnb host millions of reviews written by consumers. Online marketplaces rely on these systems for facilitating trust between strangers. Economists can help design a system by focusing on systematic biases that may occur in reviews by making choices that can mitigate them.
Evaluating Economic Impact
Many types of businesses, including tech companies, want to either trumpet or better understand their economic impact. They may do this to lobby for a particular legal or regulatory action, as part of an antitrust case, to build goodwill or even as part of a genuine effort to create positive social contributions. There have been many antitrust investigations against Google, for example, which uses economists to inform regulators, access data, and understand facts to become more informed.