Economists Adding Up At Amazon.com, Microsoft, Google
As the tech industry gets ever more data-driven, a “Ph.D. in economics” is more often becoming a job requirement in the sector. Established giants and newer tech firms alike are enlisting economists to help with many crucial tasks. Companies that employ economists include Amazon.com ( AMZN ), Airbnb, IBM ( IBM ), Facebook ( FB ), Microsoft ( MSFT ), eBay ( EBAY ), Yahoo ( YHOO ) and Uber. Hal Varian was a consultant for Google (now part of Alphabet ( GOOGL )) going back to 2002, becoming its chief economist in 2007. And the trend has grown, as tech economists say there’s more demand and appreciation for the work they do. Hal Varian, Google chief economist. Amazon is a leading employer of economists, with “dozens” aboard, says Susan Athey, a professor of the economics of technology at Stanford Graduate School of Business and a longtime consultant to Microsoft. Amazon didn’t respond to a request for comment. Athey says Microsoft is another company with “at least a dozen” economists on staff. She knows of nearly 100 economists employed by tech firms, the big majority joining after 2010. Tech company economists must combine theory with practical application. “We use economic principles and economic theory, but we also use experiments, statistical data and other aspects of the real world to build systems that work and will stand the test of time,” said Preston McAfee, chief economist at Microsoft. These systems can address fundamental business questions, such as setting prices, as well as challenges brought about or exacerbated by the rapid rate of innovation in the tech industry. As firms expand, economists are increasingly working on public policy issues, including privacy issues and intellectual property topics. Economists Must Speak Both Tech And Non-Tech Economists have to analyze large amounts of data. Much of their value to tech firms is in helping to connect the engineering side with the business side. “Economists are trained in the intuition and goals of business, but they are also comfortable with data, statistics and the technical aspects of running a business,” Athey said. “A successful economist is multilingual.” A tech firm today might hire an economist when they struggle to navigate a new marketplace. “You might confront a business problem where you realize there’s no off-the-shelf HBS (Harvard Business School) case study or McKinsey rule of thumb you can apply to manage your unique marketplace,” Athey said. “It’s really an economics research project to figure out the business practices to operate the new platform.” Economists have helped Uber develop its “surge” pricing algorithm — basically, when demand exceeds supply, Uber’s prices rise — and have led Airbnb to offer professional photography services for hosts. While the platforms are new, these problems come down to supply and demand. One of the biggest and most famous contributions of a tech economist is Varian’s work on AdWords. As his first assignment, Varian helped Google develop its auction-based approach to selling ads, still by far the company’s largest source of revenue. Preston McAfee For economists, the fast-paced environment and variety of challenges are among the big draws of working in the tech industry. “I’m in this business because I don’t like routine. I relish having new challenges,” said McAfee. McAfee had been a professor for 28 years before leaving academia to join the tech industry in 2007 as chief economist at Yahoo. At Microsoft, McAfee is working to develop a new business model to sell technology developed by research units directly to customers, among various other tasks. “It’s a new take on a classic research model, and I’m happy to be a part of it,” he said. Google Economist’s One-Year Gig Now In Year 14 Varian had intended to stay at Google for a year while on leave from the University of California, Berkeley, but the excitement of the work at Google drew him away from academia. “We’ve got a great environment here where you have the infrastructure for developing projects and products,” said Varian. “Most of the things we’ve done have been of considerable interest to the company.” Besides AdWords, his other key tasks at Google included helping with its unusual “Dutch auction” style of IPO in 2004, designed to open the process to everyone and not just to favored clients of underwriters. He also collaborates with Google X, the company’s “moonshot” R&D factory, to help develop some of the business models. Michael Bailey, economics research manager at Facebook, looks at academia and tech as a difference between breadth and depth. “In industry, you are working on a larger variety of problems and projects and often need to take more multidisciplinary approaches so you are effectively building more breadth,” Bailey told IBD via email. Bailey, who joined Facebook directly after finishing his Ph.D., said his team is growing and that he expects the tech industry to continue hiring economists at a fast pace. Varian agrees. “A lot of people have developed an appreciation for the kind of economic analysis we do,” he said. The interest is mutual. Within economics, the community of people who study the high-tech economy has grown from a very small number to hundreds across academia, business and government over the last 10 years, Varian says. “We’re developing a new field of practicing economics in the real world,” said Microsoft’s McAfee. “Some of our big successes have been in auctions and pricing, but there are many more of those to come. And I think that’s a very cool thing to be a part of.”