Finding Yahoo's Way by Joshua Gans Harvard Business Review 8:30 AM Wednesday April 27, 2011 Last year I had the pleasure of presenting a seminar at Yahoo Research. One of the things that interested me about that part of Yahoo was the fact that it had, in my field of economics, made some very significant hires from academia. In a time where some academically oriented labs had fallen aside, Yahoo had moved in the other direction. And this wasn't some independent and loosely tied research organization. The economists I knew were heavily embedded and yet still publishing freely. My presentation there was actually about just that. While many tend to think of commercial pressures as anathema to scientific openness, Fiona Murray, Scott Stern and I developed a hypothesis that suggested the opposite. When commercial prospects are strong — in that firms can commercialize innovations securely with less threat of entry — they will also be more receptive to allowing their scientists publishing rights. Put simply, when entry prospects are low, you don't have to worry as much about academic publications helping entrants. And why should firms take any risk on publication? Because scientists get personal (and possibly career) value from it and so you can pay them less. The implication that everyone in the audience was sacrificing income for working at Yahoo Research and publishing was lost on no one. But Yahoo Research was more than just a potential source of cheap scientific and engineering labor. At least for the economic part of the group, there was a clear focus — for the most part what they now focused on was advertising. The focus was not exclusive — they had freedom to work on what they wanted — but it was there. Preston McAfee, who leads the group, gave a keynote lecture at the International Industrial Organization Society in April after receiving its prestigious Distinguished Fellow award. The talk focused on advertising exchanges and the direct impact the theory of auction design (of which McAfee was a prime contributor) on the actual design of advertising exchanges at Yahoo. This focus was natural. Advertising was responsible for most of Yahoo's revenues and this is an area the company leads in. Its ad exchange displays billions of ads across a large array of websites. Its sales of display ads exceed those of Microsoft, AOL, and Google/Doubleclick. And each time an ad is displayed, in the quarter of a second between the time someone requests a page and the ad loads, an auction is run for that ad space. In fact, as McAfee pointed out, it is the largest auction platform (in terms of number of units sold) ever. And that means that there is some serious muscle at its heart. Read more.