Disclaimer: I work in Google's Policy Team, developing multistakeholder cooperations for internet governance & policy themes, hence I want to point out that all the opinions and ruminations on this blog are mine, not Google's.

Saturday, June 11, 2011

Yenta - The art of finding a match

I recently decided that it would be a good idea to get to know a bit more about Google's chief economist Hal Varian, so I searched and watched a lecture in which he explained the basic economics behind Google's search and advertising business model

Given that I work and research in this area for several years I didn't expect to learn too much in this video, rather I figured it might be a good source to recommend to people who just got started. Well, I was wrong: I really learned a lot about the emergence of the system (e.g. the competition with Overture), I learned that academics have already developed an algorithm that is a bit better than the one used by Google (at least back in 2008) and I learned about the magic of two-sided markets and the characteristics, benefits and challenges of a yenta.

yenta - explained Prof. Varian - is a jiddish term used to describe a matchmaker. (A person that facilitates (or arranges) the marriage between a boy and a girl.) Yenta in a two sided market describes the role of a platform provider which facilitates that someone who wants to sell something and someone who is looking to buy something find each other as easily (in terms of time and money) as possible. Trust that the yenta is not biased towards one particular seller is naturally key for the buyers but also for the sellers, who would run away if they found out that the yenta is not treating all offers equal. 

I had always held the believe that Google depends on the trust of its users to deliver the best search results but Hal Varian's analogy of the yenta opened my eyes that the business model *necessarily demands* that Google acts in the best interest of all parties involved. As soon as the neutrality of the platform is compromised, trust would plummet and the very efficient dynamic equilibrium of the two sided market would crash as soon as one side would loose its trust in the yenta.

In this context the principle "Don't be evil" makes enormous business sense.

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