Web Gurus Seek Wisdom From the Masses

By Bob Tedeschi

Internet pundits make a spectacle of their annual predictions for online holiday sales. Now an Internet research group is turning to a new approach to arrive at its forecast: Just ask everybody.

The Sloan Center for Internet Retailing, part of the University of California at Riverside, is scheduled Tuesday to announce a Web site relying on so-called prediction markets to forecast everything from the future popularity of online games to the shopping sites most likely to survive. In doing so, the Sloan Center is using a method of online research that offline companies have used widely in recent months, but one that has not yet been used to study the Internet itself.

“It’s increasingly hard to get people to participate in research studies, but they’re very eager to participate in prediction markets,” said Thomas Novak, the co-director of the Sloan Center. “Consumers are actually coming to you, which seems to me what the Web is all about.”

The concept behind the Sloan Center’s initiative, and the trend in general, is known as competitive forecasting, where Web sites pit users against each other to determine who is the most prescient about a certain topic. Analysts said this method, publicized widely in “The Wisdom of Crowds,” a book by the New Yorker columnist James Surowiecki, yields more accurate results because participants care much more about their answers than in a typical phone survey.

Results of the most well-known examples of prediction markets seem to bear this out. Cantor Fitzgerald’s Hollywood Stock Exchange (www.hsx.com) last year predicted 32 of the 36 major-category Oscar nominees, while the Iowa Electronic Markets, www.biz.uiowa.edu/iem, often predicts election results more accurately than pre-election polls.

While those Web sites operate as futures markets, with participants backing their predictions with dollars or online scrip, the Sloan Center’s eLab gives participants a way to earn gift certificates, but also something potentially more valuable: a reputation.

Users assume an online handle, then answer a slate of questions. The site ranks users on the quality of their answers, and offers a gift certificate of $25 monthly to the top ranked participant. Every three months, the top ranked user wins a $500 gift certificate.

Prediction markets offer unreliable results if too few people care enough about a topic to answer questions carefully, but Novak believes $25 and the promise of e-commerce industry fame will attract at least “hundreds of people” – enough, he said, to establish statistically significant results. In addition, he said he and Donna Hoffman, the Sloan Center’s co-director, have designed the site so people can choose the most interesting questions to pose on the site.

The eLab Exchange hopes to follow the lead of grass roots successes like YouTube and MySpace, in that it will not spend money on traditional advertising.

Rather, Novak and Hoffman will mention the service on discussion boards and blogs devoted to niche Internet topics, and hope it piques the interests of enough readers to build a respectable user base.

Novak said that even though the results of the questions posed on the exchange would be valuable for e-commerce companies, the Sloan Center would not seek to market its data. “We’re academics,” he said. “We’re in this for the fun.”

The same cannot be said for the many other companies lining up to use prediction markets to glean – and then sell – business research. Robin Hanson, an economics professor at George Mason University and a consultant to companies building prediction markets, said: “A lot of new business plans are based on this idea. There’s a big trend in this area, with people thinking this is cool.”

But Hanson said he was skeptical about many of the businesses he has seen forming around the concept, because outside of topics like politics, movies or sports, few subjects would entice people to render carefully considered opinions. “It’s kind of like a job,” he said.

At the moment, the trend is mostly benefiting companies that sell software to create online prediction markets, like Consensus Point in Nashville and NewsFutures in Baltimore. These companies say demand has jumped over the past year, both from organizations like the Sloan Center, who want to create public sites, and from corporations like Best Buy, Hewlett-Packard and others using private Web sites to devise business strategy with the help of their employees.

“You’re now seeing very serious businesses using this for important projects,” said Emile Servan-Schreiber , chief executive of NewsFutures. Eli Lilly, for instance, has used online prediction markets to project drug sales, while ArcelorMittal, the world’s biggest steel maker, has used this technique to forecast a wide range of business trends.

Servan-Schreiber said his company helped businesses build the Web sites, devise incentives for users and craft the questions properly, at a cost that is in the “tens of thousands of dollars per year.”

Zubin Dowlaty, vice president of emerging technologies for InterContinental Hotels Group, recently began using online prediction markets to ask employees which new technologies the company should invest in. In the future, he said, the questions would encompass the full range of the company’s services, and would perhaps be open to the hotel’s customers.

“Compared to polling people, this significantly improves the process of harvesting and prioritizing ideas,” Dowlaty said. “And the cost is extremely low, relative to surveys or engaging a consulting firm.”

While Dowlaty and other executives glean what they can from their internal prediction markets, he noted that they can always peek at the Sloan Center’s eLab eXchange for intelligence from the masses.

Originally published by The New York Times Media Group.

(c) 2007 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.