Facebook Doesn't Make as Much Money as It Could—On Purpose | WIRED: When he joined Facebook in 2007, after getting a master’s in economics at Stanford University, Hegeman helped build the online auction that drives the company’s advertising system. Auctions are the standard way that online services accept ads from advertisers and place them on web pages and inside smartphone apps. That’s what Google uses with AdWords, the system that serves up all those ads when you look for stuff on the company’s Internet search engine. Advertisers bid (in dollars) for placement on the results page when you key in a particular word or group of words. But in building Facebook’s advertising system, Hegeman and team took online auctions in a new direction.
The VCG auction spent decades as little more than an academic exercise. But then Hegeman and Facebook came along and applied it to online ads.
They built a system based on what’s called the Vickrey-Clarke-Groves auction, or VCG, an auction mechanism that dates back to the ’60s and ’70s. Named for a trio of academics, including Nobel Prize winner William Vickrey, VCG spent decades as little more than an academic exercise. But then Hegeman and Facebook came along and applied it to online ads. The VCG system provided a way of building an auction that advertisers couldn’t game for their own monetary gain (at least in theory). And eventually, Hegeman and team modified this complex system so that it not only ranks ad against ad, but ad against all the other stuff on Facebook.
The VCG auction spent decades as little more than an academic exercise. But then Hegeman and Facebook came along and applied it to online ads.
They built a system based on what’s called the Vickrey-Clarke-Groves auction, or VCG, an auction mechanism that dates back to the ’60s and ’70s. Named for a trio of academics, including Nobel Prize winner William Vickrey, VCG spent decades as little more than an academic exercise. But then Hegeman and Facebook came along and applied it to online ads. The VCG system provided a way of building an auction that advertisers couldn’t game for their own monetary gain (at least in theory). And eventually, Hegeman and team modified this complex system so that it not only ranks ad against ad, but ad against all the other stuff on Facebook.