Legal Commentary

The Value of Statistics

By Jack M. Balkin

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 Farecast.com, 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.

Full post as published by Balkinization on August 15, 2009 (boomark / email).