Friday, July 20, 2007

Marketing the New Finance?

In an interview with the Wall Street Journal, the following remark by the famed Hal Varian caught my eye:
Varian: I think marketing is the new finance. In the 1960s and 1970s [we] got interesting data, and a lot of analytic fire power focused on that data; Bob Merton and Fischer Black, the whole team of people that developed modern finance. So we saw huge gains in understanding performance in the finance industry. I think marketing is in the same place: now we’re getting a lot of really good data, we have tools, we have methods, we have smart people working on it. So my view is the quants are going to move from Wall Street to Madison Avenue.

To me, it sounds interesting, but is hardly believable.

Yes, I accept that you can collect an astounding amount of data on people's preferences and consumption. Further, since preferences are inherently unmeasurable, there must exist a vast market for analysis to tease the observable numbers to get to what really matters. Even better, preferences can change, so we can do trends and all that.

However, are marketing firms really the size of the financial industry? Is there potential for them to become that large? Tellingly, Statscan points out that "finance and insurance" is some 25 times larger than "advertising and related services". I can't see top-end salaries closing the gap with that disparity in size. Varian admits as much:
Varian: There’s this old line about Wall Street, this magic moment in a transaction when the money leaves one person’s hands, and goes to another, if you are there to catch a little as it drops off, you can do very well. I’m not sure if marketing has that same characteristic. We see resumes from hedge fund people. You take a bright quant person, that’s a natural place they want to go. But you burn out or decide you don’t really like it or have a change in ideas. People are motivated by other things.

Frankly, I'm skeptical about other things than money as something to motivate a large number of people.

No comments: