Googlenomics: breaking down the auction process in AdWords. Wired takes an in-depth look at the making of the auction process behind "what may be the most successful business idea in history," AdWords, which brought in $21 billion last year. The key innovation began when the company had no cash and just 200 employees, and decided rather than sell online ads the Madison Avenue way, Google would auction its sidebar slots all-at-once. From there, Hal Varian, Google's chief economist, applied game theory and an old idea from the 80s called "two-sided matching markets" used to assign job candidates to new positions or students to dorm rooms. To address advertisers who lowballed their bids to avoid paying more than the company below them on the page, Google decided the winner would pay the amount (plus a penny) from the bidder with the next highest offer. The other major determinant in the process is the quality score, used to ensure that the ads that show on a user's results page truly match what they were searching for. Google will only disclose part of its formula, which includes relevance of the ad to the keyword the user typed in, caliber of the landing page the ad will link to, and the percentage of times users click on an ad when it appears. Look out for our upcoming piece on Google TV ads, which uses the same auction theory to help smaller companies by TV ads, in the June issue.
For eBay, "mini-Wal-Mart" in, auction out. The Wall Street Journal published a feature today about the evolution of eBay's business model, with its increased focus on fixed-price sales accompanied by dwindling attention paid to the fading auction model that helped drive its massive growth in the early days. (Apparently auction is the word of the day). Caught in the move are myriad entrepreneurs whose "clashing experiences show how eBay's turnaround strategy is generating an identity crisis for the e-commerce giant," the Journal reports. Fixed-price sellers like Jack Sheng, who describes his online company eForCity as a "mini-Wal-Mart," are prospering while plenty of auctioneers head for the exits. "The folks running eBay now don't understand the auction business," says one former eBay auctioneering loyalist.
Startups trim the fat with open-source software. Interesting story today in the Boston Globe about Massachusetts-based Acquia, a one-year-old startup cashing in on the free software, Drupal. The company provides service and support for the open-source Web site management tool, and since the software is free, they can price their services without the onus of pricey licensing fees. As the founder points out, in this economy ""free' commands a lot of attention."
Want to work for a VC-backed startup? The National Venture Capital Association announced last week that it was partnering with StartUpHire to collect data on venture-back jobs across the country, says peHUB. There are currently more than 10,000 jobs at more than 2,500 U.S. companies listed, which can be searched by geography, industry, and even investor. Thirty percent of those are in software, 18 percent in IT services, and 8 percent are in business products and services. Unsurprisingly, California is home to 37 percent of the jobs listed.
What the Sotomayor Supreme Court pick means for business. Home Depot founder Bernie Marcus has an op-ed in today's Wall Street Journal, arguing that outgoing Justice David Souter, while liberal on some issues, often came down on the side of business owners. Marcus, a staunch conservative on economic matters, urges entrepreneurs to give Obama's pick close scrutiny. That scrutiny is just beginning for Sonia Sotomayor, whose rags to riches story and whose renown for saving the 1995 baseball season, make her an attractive pick. The New York Times has a nice roundup of the judge's key opinions, including a ruling that said that government contractors could be sued in lawsuits against the government and a curious Second Amendment case involving not guns, but nunchucks.
Twitter gets a TV show, if not a business model. Twitter has partnered with a production company to create a reality television show that uses the micro-blogging platform. Details are sketchy but Valleywag takes a snarky guess at what it might look like: "Let's just imagine for a moment MC Hammer tweeting about sitting in a booth at a Denny's in Knoxville, Tennessee with Ashton Kutcher, which would then spur Twitter users/show competitors to race to get there before both of them can polish off their Grand Slam Breakfast plates and win a $1000. Wow, that's television gold baby!" Meanwhile, Twitter cofounders Biz Stone and Evan Williams, who we profiled in March 2008, finally get the Wall Street Journal treatment.
Mint.com hits the mainstream This weekend's The Medium column in The New York Times Magazine dives into the popularity of Mint.com, a website that helps consumers track how much money they have, how much they spend, and how much they owe, by pulling data from your bank accounts, credit cards, IRAs and 401ks (you have to hand over your password). "It comes off like a patient and discreet friend who knows your awkward financial secrets and stands by you anyway," say The Medium's Virginia Heffernan, who also points out that under "Ways to Save," users will find ads from American Express and Discover rather than real advice on saving. We profiled founder Aaron Patzer in our 30 under 30 list last October. Check it out his site for yourself.
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