Predictive markets: Can they work for the enterprise?

Best Buy, Corning, Google and a bunch of other companies are dabbling in prediction markets for corporate decision making and there may even be a little return on investment given that traditional forecasting methods aren’t better.

Prediction markets are speculation hubs where traders predict future events. In the enterprise, prediction markets are a handy way to aggregate community knowledge, according to a report released by Forrester Research. Prediction markets have also been hitting the roundtable circuit as Google and Best Buy shed light on the approach at a recent event chronicled by Dave Greenfield.

Applied to the enterprise, these markets could get interesting. The use of prediction markets is another milepost in the enterprise 2.0 movement as social technology gathers momentum. According to Forrester analyst G. Oliver Young Qualcomm is using prediction markets to come up with product ideas and new features. Corning is using them to forecast retail sales of LCD TVs. Meanwhile, enterprise prediction market vendors–Consensus Point, Inkling, Gexid, NewsFutures and Spigit–abound.

The most common uses for prediction markets revolve around sales projections, features, project management, competitive analysis and market conditions. Obviously the third one applies the most to information technology management. If used correctly I’d argue that prediction markets could prevent IT projects from becoming full-blown failures. Why? Prediction markets cut through the pressure to report only good news. And I also have a hunch that many IT projects have rank and file workers that can tell you what’s really going on. The problem is these people aren’t consulted and certainly aren’t encouraged to say “hey this project makes no sense.”

Too often IT gets projects thrown at them from above without much of a reality check. Could prediction markets change that equation? Perhaps. Even if the answer turns out to be a definitive “no” prediction markets are worth a shot.

Also see: Eight pitfalls of predictive markets