Featured Researcher - Michael Schwarz

This year, only fifteen Yahoo!s out of over ten thousand employees were honored as Yahoo! Superstars. Michael Schwarz of Yahoo! Research was one of them. “Yahoo! is an ideal place to do rigorous microeconomic theory and turn it into practical applications,” he says.

Here’s another curious detail about Schwarz: he’s the only Yahoo! scientist without an undergrad degree. This does not mean he lacks the perseverance and intelligence needed to get into college. After all, as captain of his high school’s team, he captured first place at the Russian national physics tournament.

So why didn't he finish college? During his sophomore year at the Moscow Engineering Physics Institute, the Soviet Union started to collapse. This prompted Schwarz to move across the Atlantic. "Undergraduate education in the U.S. was too expensive,” explains Schwarz. “Fortunately I got into graduate school without it.”

Eventually, Schwarz found himself at the doctoral program at Stanford University Graduate School of Business, where he wrote a thesis on decision making under extreme uncertainty. His 35-page, single-spaced dissertation was good enough to land him a job at Harvard University as an assistant professor of economics. He stayed at Harvard for five years, becoming increasingly interested in applying his theoretical work to business and policy decision making.

While on sabbatical, Schwarz spent a year as a National Fellow at the Hoover Institution at Stanford, a conservative think tank known for rigorous scientific analysis of public policy. He then headed across the San Francisco Bay to UC Berkeley, an institution with a different political bent but the same commitment to scholarship. His work at Berkeley was supported by the Robert Wood Johnson Foundation.

There he wrote papers outlining how to design markets for medical drug procurement. He then made a pilgrimage to Washington hoping to turn his ideas into reality. “I spent a lot of effort getting my ideas on the desks of senators, only to find they never left those desks,” Schwarz says. “It was a frustrating experience. But I would take up the battle again because using economic theory to design the market for drug procurement will do more than just improve efficiency and save billions of dollars, it will save many lives. The economic theory tools and the challenges involved in designing mechanisms for drug procurement are not dissimilar from market design challenges at Yahoo!. Medical drugs are very costly to develop and very cheap to produce, much like content or software."

Even before joining Yahoo!, Schwarz turned his attention to auctions for online advertisements used by companies like Yahoo! and Google. With a couple of talented students he wrote a paper describing the equilibrium of ad auctions. The paper received a lot of attention in the media, including a full-page article in Business Week, which credited Schwarz and his co-authors with “cracking the Google code.”

Though the paper was largely theoretical, Schwarz was curious about how his theories would translate to the real world. “In 2005, I started talking to folks at Yahoo! to better understand how they were thinking about ad auctions. At the time there were no economists at Yahoo! Research,” he says. “It quickly became apparent that Yahoo! needed an economist. This was the opportunity to put economic theory to work that I’d been looking for.”

Schwarz also loved the fact that Yahoo! Research was staffing up with top notch scientists. “Working at Yahoo! is extremely gratifying because here I saw some of my auction theory work turn into a product in less than twelve months,” he says.

One of the projects he helped initiate was the development of a new quality-based pricing model for the Yahoo! partner network. Under the new model, the cost per click for advertisers is discounted by a certain percentage, depending on the quality of the Yahoo! partner's traffic.

Schwarz works on a wide range of market design related topics. For instance, his purely theoretical work on matching theory might one day help to better organize markets like Yahoo! Personals and Yahoo! HotJobs.

When not helping Yahoo! design the world's best online markets, Schwarz enjoys jogging and swimming. Lately, however, he's been engaged in a new project that consumes all his spare time. “I am helping someone solve the speech recognition problem,” he confides.

And just who is this mystery collaborator? “It's my six-month-old daughter,” he says with a laugh.