"It's tough to make predictions, especially about the future." That's what baseball great Yogi Berra once said. Noam Danon of startup Qmarkets, disagrees. Thanks to his company's technology, predicting the future just got a little easier and more accurate, for businesses at least.
"Prediction markets" were pioneered by researchers at the University of Iowa. They rely on "the wisdom of crowds" (also the name of a bestselling book on the subject) to figure out what will happen next in a range of areas – like elections, the outcome of sports matches, or, Danon explains, any business decision a company has to make.
"Basically, any question that has a 'right' answer can be answered by a diverse group familiar with the issues involved," Danon tells ISRAEL21c. And that answer will be more accurate than predictions by individual experts, and even more accurate than the results of polls with scientifically determined sample groups.
As counterintuitive as it sounds, researchers have come to understand that prediction markets, where large groups bet on an outcome, furnishes predictions that are as accurate – or more accurate – than those provided by other prediction methods.
The first major Web project to embrace prediction market theory was the Hollywood Stock Exchange, which predicts how popular new movies will be, which actor is expected to win what Oscar, etc. – far more accurately than TV experts. Other sites, specializing in sports gambling and even in political gambling, to predict the winner of elections, utilize prediction market theory as well – and are also more correct, more of the time.
But Danon says that businesses – even small ones – can use prediction market theory to make better choices on what products to produce and promote, how and where to market them, and how much they can expect to earn, based on different business strategies.
"Over the past four or five years, prediction markets have become a buzzword in many large organizations; Google, HP, Nokia, Siemens, the Best Buy retail chain, and many others use them to get an idea of where they should be investing their time and money," Danon says.
"All those companies have large departments that specialize in working out prediction markets within the organization. What Qmarkets does is to bring the benefits of prediction markets to smaller organizations that can't afford to hire a full time staff just for this purpose."
With the reasonably priced software and service packages he provides, Danon says any business with a couple of dozen employees can get a much better picture of where their business is going. At the same time, Danon's service is professional enough for even the largest clients, who can well afford their own, private, prediction markets staff.
"One of our clients has 6,000 employees, and we're talking to several companies with 15,000 or more employees as well," Danon says. "The common denominator between small and large businesses is a desire to tap into the powerful tool prediction markets can be, and we're able to help all of them," he adds.
The Qmarkets model follows the model pioneered by researchers in the field; participants, made up of the company's employees (who are all familiar with company products and the industry), are given a sum of virtual money, which they can invest in a series of outcomes.
So, if a company produces widgets, says Danon, those "investing" in the company's future can decide whether to put their virtual money into widget model A, B, or C, decide which market to target, what kind of advertising campaign to run, etc. Throughout the prediction market, participants can buy and sell their shares, depending on real world market developments, changes in products/personnel, etc.
At the end of a given period, the stock – the specific outcome – preferred by the "investors" becomes the "winner," and the company (if it is wise) adopts the recommended strategy.
"The advantage of a prediction market over a market sales forecast or other gages of the future is the fact that it is dynamic," says Danon. "The investors can buy or sell shares in their preferred outcomes based on where they see the company and industry going, so the organization is always getting the most updated information, so it can always make the most accurate choices."
While the prediction markets method of figuring out what comes next is gaining popularity, there are precious few resources for non-conglomerates to draw upon if they want their company to benefit.
"There are maybe five or six other companies in the world doing this kind of thing for smaller companies," Danon says. He believes the advantage of Qmarkets is its emphasis on sales forecasting, demand planning and innovation. "Plus, we offer our services on the Web in four languages – English, Hungarian, Portuguese and Hebrew."
Danon, CEO and co-founder of Qmarkets, works out of a tiny office in Hod Hasharon, and says he wants to grow, but slowly. "We work with partners in the US, Europe and Brazil, and have clients in several countries, but we don't want to get ahead of ourselves. Prediction markets for small businesses is a groundbreaking industry, and we're happy to be in on the ground floor," he says.