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Home >Industry >Advertising >Personal digital assistance to be next big battle: Google’s Varian

Hal Varian is the chief economist at Google Inc. and perhaps the world’s first economist to specialise in information economics. Apart from authoring two microeconomic textbooks still in use in many countries, including India, he has also authored Information Rules: A Strategic Guide to the Network Economy and The Economics of Information Technology: An Introduction. In an interview, he discussed the future of news, the economics of information, and the way access to and dissemination of information is changing behaviour. Edited excerpts:

The hierarchy of information is changing. With legislation like the Right To Information Act, a lot of information is available and being disseminated. There’s clearly an attempt to control this information that we can see. How has this fight over information played out in other markets?

We are seeing the democratization of data everywhere. Data has become widely available to people; you add some analysis to the data and you get information; you add some understanding to the information and you get wisdom or knowledge. In the US, we have the Sunlight Foundation in Washington that’s specifically focused on government and political data. Google has an organization in California supported through its grants programme, whose mission is to make government data available to everyone via the web. Google very much supports this democratization of data and we’ve done lots of things to try to improve access. It’s nice because once people have access to the data they can analyse it in various ways, you can have a debate, an informed discussion; you can shed some light on what’s going on.

How does increased access to information change the way people take decisions, whether buying decisions, or decisions related to who they vote for?

It’s interesting, if you look at political advertising, I think it’s still true that TV has a huge emotional impact on people, it hits the emotions first, whereas the textual material allows for a more analytical approach. You can have an intellectual discussion about the merits of this policy or that policy.

Marshall McLuhan, the media theorist, had an interesting idea, he said the reason that video is so compelling is that the producer controls the time. So, if you were reading something you might pause and say, ‘Wait. Is this really true?’ but if you’re seeing it, it just moves on at its own pace. One of the very, very interesting things about YouTube is that it puts the user back in control. So you can actually pause and think about whether it makes sense, you can fast-forward through the dull part, so you get a different dynamic on viewing online video to TV.

Infographics can be extremely powerful in understanding what’s going on, and they can also be misleading like every other form of statistics. As they say, there are lies, damned lies and statistics, but what’s important is that there’s a public discussion that can take place.

Is it worrying at all that all this data is becoming accessible at a time when there are significant doubts about the ability of people to interpret it? Math skills have eroded.

I would agree that our education system both in the US and likely in India has not caught up with the modern world. It probably makes sense to have statistics lessons at high school level so people can understand what is a standard deviation, what is a margin of error.

I think it makes sense to have training in search: How do you search for information? How do you judge its credibility? These are very important skills and yet people are just picking them up by chance. One thing that I’m very excited about is things like the Khan Academy.

I have a concept called combinatorial innovation, where you have lots of components and there’s a period of exploration, where people try out these different combinations to figure out what works and I think that’s what we are seeing now with video, Internet and education.

What will happen to brands now that consumers have a lot more information than they did? What happened to the non-tangible part of decision making? Do our decisions become more rational?

It’s absolutely true that in today’s world the brand remains extremely important, so I don’t think the quantitative analysis overrides that issue, but it can measure it. So we have techniques to measure brand lift and brand association. If you look at Google shopping, you see that searches are very often associated with a brand. People will do their research on the Internet, understand the reviews and the features, and then go and look for that brand, so there’s a much more informed population of shoppers now than there used to be.

What’s the implication of informed consumers for news providers?

News is such a popular activity on the web. People are looking at it on their phones throughout the day, and I think the challenge that newspapers face is how do you fulfil that need for being important now with the in-depth analysis that requires some time investment?

At the same time, the price of tablets is coming down so dramatically that they are going to be available to a huge part of the population soon. If revenue is price times quantity, then quantity can go way up because of the tablet, so access to news is going to increase the readership.

It’s a combination of continuous access via the mobile device and then the more in-depth leisure time via the tablet. We will see physical print slowly going away, it could take years, but the advantages of electronic access are so great. It’s immediate, there’s no constraints on volume, it’s delivered right away, you can have sound, you can have text and it’s interactive. I think we’re going to eventually see it winning out.

People will pay for content, I think, it’s just a question of what the business model is, whether it’s an advertising model or a subscription model. Content is a very broad term, people are quite used to paying for subscriptions to video and audio but not so used to paying for print, but why is that? I think we will see more subscription-based and pay per access models for print online.

Is there a danger of information overload for consumers?

It’s a changing world and people are learning how to deal with that information overload. I’ve compared it to calories. For a million years, human beings were short of calories, they didn’t have enough to eat. They were constantly on the verge of starvation. Now of course, we all weigh too much, we all have too much to eat. It’s the same thing with information, people were starved for information, but in the last 50 years we have a glut. It’s a sort of information obesity, we don’t know how to manage it. Technology is also part of the solution. You want to be able to organize, access, get viewpoints on it, share it and that can all be done by the technology.

Google is very interested in personal digital assistance. The next big battle for hearts and minds is going to be in this area with Siri as an example, Google Now, IBM Watson, there are huge advantages in this domain. It’s going to become a completely normal thing to do.

What’s the one most important work being done in the area of information economics?

One field that’s emerged in the last 10 years that is very important is called algorithmic mechanism design, sometimes people call it “market design" or “option design". When you add a computer in the middle of a transaction, the computer can shape how that transaction takes place.

One of the prime examples is the Google ad auction. When I first went to Google in 2002, I asked Eric Schmidt what he wanted me to work on and he said, ‘Why don’t you take a look at this ad auction? I think it might make us some money’. It’s been a huge success, but that design is really a tremendous advertisement for game theory. We have got a whole group of people now working on that area, we had the AdWords auction, we had the AdSense auction, the content auction, the IPO (initial public offering), the spectrum auctions, now we are having top-level domain auctions, all of this is becoming the normal market form, not only for advertising but for many other things.

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