Yahoo! economist rebuilds ad empire with 'Magic Formula'
Why Carol Bartz wears math when it's chilly
Yahoo! CEO Carol Bartz owns a sweatshirt emblazoned with Preston McAfee's math. McAfee is an economist, but he's the sort of economist who's actually useful. In the early-90s, he helped build the simultaneous ascending auction, a mathematical contraption that governments across the globe have since used to license over $100 million in wireless spectrum. And nowadays, as the man who oversees the microeconomics and social sciences research group at Yahoo!, he builds things that are so useful, they wind up on the boss's chest.
"I'm a member of a group of people — you might even call it a movement — who do economics as an engineering discipline," McAfee tells The Reg. "If you look at the humor of economics, it's all about how useless economists are. What economists have traditionally done for the world is block stupid ideas. Economists go to Washington just so they can stop Washington from doing the silly things it would otherwise do. That may serve a greater purpose, but it's still a negative thing to do.
"Economics as engineering discipline is all about building things with economics that are positive — as opposed to stopping things, things that won't work."
McAfee is a disciple of Nobel Prize–winning economist Roger Myerson, whose "mechanism design theory" has been used to build everything from efficient trading systems to reliable voting procedures. "In the same way a physicist develops a theory and an engineer builds something that actually uses that theory, we're the kind of people who use scientific principles to actually make markets or interactions among people work better, work more smoothly," McAfee says.
It's no surprise that he — and so many like-minded souls — wound up at Yahoo!, whose online ad empire is a global market unto itself. The company's Right Media exchange — a display advertising marketplace that matches advertisers with publishers and ad networks — is by one measure the largest exchange in the world, running over nine billion auctions each day. The US-Euro foreign exchange market generates more dollars. And Google AdWords may as well. But there are other things to consider.
"It's not an accident that I and many other [economic engineers] are here," McAfee says. "Yahoo! is more open."
Bartz refers to the McAfee creation on her sweatshirt as The Magic Formula. This epic piece of math — which is also worn by McAfee and his children on occasion — made its debut earlier this year. In short, it's a formula designed to keep Yahoo!'s largest advertisers as happy as possible. It lets each of those guaranteed-contract advertisers pick and choose — in remarkably precise fashion — how their ads are targeted, even though there are more than three trillion possible targets.
"What this formula does is simplify the problem of how do we figure out what inventory goes to what advertiser, when advertisers have all these conflicting needs and desires," McAfee explains.
Yes, Yahoo! has advertisers who only want to reach women between the ages of twenty and thirty. But it also has advertisers who only want to advertise in cities where the sun is shining. There are brokerage houses who only want to advertise when the stock market is up. And, yes, there are those interested in serving ads according to your online behavior. Among Yahoo!'s two hundred largest advertisers, McAfee says, there are three trillion possible categories. And his formula handles them all.
Next page: The magic is that there is no magic
Obviously the YGroups Aren't Part of the Equation..
Though God knows why.
I'm seeing nothing but negative replies on the YahooGroups blog and the Groups' suggestion forum to their new 'facebook' web 2.0 upgrade.
When this shakes down AFTER the full roll out, (the initial release has been such an unmitigated shambles, it's painful to see, when you consider that there are groups going back 11 and 12 years that have lost their entire archives - the numbers of users asking to have their groups returned to the 'classic' mode so they can download and archive their data is heartbreaking in some cases.) and the YG team tasked to 'rebuild' the property hasn't addressed the message retrieval and viewing snafu, the stream of list owners and subscribers leaving for less 'facebook' like listservs is going to become a full on exodus.
It's NEVER been this bad, and some of the things Yahoo did to the E-groups in the past were pretty hair-raising.
Get thee to the YahooGroups blogs (when it's serving, it's been down intermittently most of the day) and read the countless complaints. Even the yahoogroups suggestion board is running about 98% in opposition.
Where Web 2.0, and the "Look at me!" Attention Deficit Disorder 'tweet' crowd meets the Web 1.0, topic-dominated world of listserv users is a spectacular clash of cultures.
I'm betting on the list owners with hundreds of thousands of subscribers being the mathematical monkey-wrench to McAfee's math, once they take their lists of eyeballs for advertisers and go to GoogleGroups.
I already have my GoogleGroup ready if the re-build isn't completely as functional as the original group offerings.. and it's NOT looking good so far.
@can't go wrongwith a bit of mat!
"the current banking crisis is also a product of math engineering"
blaming the current banking crisis on derivatives is like blaming arithmetic for accounting fraud. Sure it has a factor but it's not the whole story!
I don't quite see how that little lot would have any simian spanner effects on McAfee's equations.
The maths still manages pricing and distribution of advertising. The fact that nobody's bloody looking at the ads 'cos some "me too" Web 2.0 fixated arsehat chased away all the eyeballs is an entirely different matter.
"I already have my GoogleGroup ready....". I'd try again there, looking for somewhere less bleedin' edge focussed. Otherwise you're bound to get to do it all over again when Google decides that folding Groups into Buzz or something equally as daft is the next obvious step.