Saturday, August 15, 2009

The Value of Statistics

Ian Ayres

Crosspost from Freakonomics:

Last week’s excellent Times article on the high salaries being paid to statisticians is just one sign of the market value of number crunching. As I wrote in the afterword to the paperback version of Super Crunchers:

In 2007, there were three major acquisitions of “business intelligence” firms: in April, Oracle purchased Hyperion Solutions Corp. for about $3.3 billion; in October, SAP purchase Business Objects for $4.8 billion; and, in November, IBM announced its $4.9 billion purchase of Cognos. These multi-billion dollar acquisitions of firms whose sole product is number crunching is powerful evidence that data-driven decision making has market value.

To this list of billion-dollar purchases we can now add IBM’s acquisition of stat software provider SPSS for a mere $1.2 billion.

But in some ways, an even more eye-opening market test is for a much smaller amount. Microsoft shelled out $115 million to buy, a company that crunches numbers to tell you whether you should buy an airline ticket now or wait until closer to when your flight leaves. I’ve long been a fan of the Farecast predictions (which wonderfully include estimates of their own precision):


It was a wonderful decision of Microsoft to use Farecast predictions as a central element of Bing Travel. Still, $115 million surprises me. Farecast has terabytes of data but in some sense it is just running something close to a very simple multivariate regression. It goes to show that thinking up the right regression to run can be worth millions.

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