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December 2009
Business jungle, Spotlight
The Next Big Thinker
To survive the downturn, many companies are turning to prediction-market providers like NewsFutures to give them the edge. Lucy Fitzgeorge-Parker reports
When recession hits and budgets are cut, consultants are usually the first to suffer — particularly if they failed to spot the signs of impending disaster. But for NewsFutures, provider of corporate prediction markets, the downturn has been an unexpected fillip. “Given the increasing uncertainty about the future, and the fact that futurology models have been blown to pieces, a lot of people who are looking for information have decided to go to the frontline: the crowd,” says company president Emile Servan-Schreiber.
Prediction markets tap into that collective intelligence through gambling. In their original public incarnation, they enabled participants to bet on the outcome of events such as the presidential election or the Best Picture Oscar by trading candidates and actors like stocks. Even when little cash changes hands, the results still regularly trump the best guesses of experts and pollsters: the Iowa Electronic Markets, a student training tool, called the final vote count in last year’s US election to within half a percentage point.
NewsFutures was initially modelled on the same lines. Founded in 2000 by Servan-Schreiber, a cognitive psychologist, and financial software specialist Maurice Balick, the Paris- and Baltimore-based firm ran political prediction markets traded in play money, both on their own account and for customers such as USA Today, and relied on online advertising for revenue.
Then in 2004, James Surowiecki’s seminal book The Wisdom of Crowds put collective intelligence at the top of the corporate agenda and sent executives scurrying to prediction-market providers in search of innovative business solutions. Initially, the focus was on internal forecasting; companies set up markets that allowed staff to bet anonymously on anything from sales figures to store opening dates.
But despite enthusiasm from early adopters, such as electronics retail giant Best Buy, Servan-Schreiber says forecasting through prediction markets is problematic, partly because the “crowd” of informed participants is typically more like a handful, and also because the process frequently gives in to internal politics: “Often people aren’t even looking to find the truth. They just want to massage the data in the right direction.”
Today, the vast majority of NewsFutures’ customers use its software to test and prioritise new ideas. Big pharma has been the frontrunner with this technology, with companies such as Eli Lilly and Pfizer harnessing the power of prediction markets to make quick decisions on where to focus R&D budgets, but consumer goods companies are also waking up to its potential to deliver speedy feedback.
Instead of funding pricey and complex consumer panels, firms in fast-moving sectors such as food and technology are finding they can farm out their concept-testing to employees and their families for a fraction of the price — and increase their sample size at the same time. It can also eliminate some of the subjectivity from the selection process, says Servan-Schreiber: “The success of consumer panels depends a lot on the person doing the mediation. It’s like psychotherapy: if you get a good mediator it’s great, but a bad one can do more harm than good.”
Prediction markets also offer unique opportunities for bottom-up ideas-generation. In 2007, NewsFutures set up an internal market for InterContinental Hotel Group’s technology department, and 200 employees were recruited to come up with ideas and wager on which were likely to be the most and least successful. Bets could be changed and ideas added at any time over a two-week period. In total, 85 ideas were submitted and two proposals for enhancing the group’s booking tools were adopted, one of which was so innovative that it was the subject of a Google case study.
For firms, such projects offer access to a pool of ideas normally out the reach of senior management. For employees, the attraction, says ServanSchreiber, is the “four Rs”: reward, recognition, relevance and relationships. Material rewards are usually token — an iPod, a small cash prize — but successful contributors often also get the chance to work on or manage the winning projects. Add the kudos of public recognition, the opportunity to vote on issues that directly affect workers and the warm glow of participation, and it’s easy to see why stafffind prediction markets appealing.
Servan-Schreiber suggests that it may not be long before participatory technologies become a prerequisite for employees reared on a diet of blogs and wikis. “A whole generation of workers has grown up with the internet and everything it entails,” he says. “It means they expect to be heard and to be part of the conversation all the time, including at work. They expect that people will listen and take them seriously. Prediction markets provide an answer for that yearning.”
Unsurprisingly, leading technology firms are already following NewsFutures’ example; Hewlett-Packard and Google were early adopters of collaborative forecasting, GE generates ideas across its global network through “imagination markets” and Microsoft is developing its own prediction-market software.
Despite the fact that NewsFutures’ client list includes manufacturing companies such as ArcelorMittal and Renault, many in traditional sectors still need persuading of the benefits of participatory processes, says Servan-Schreiber. “Implementing a prediction market within a company means changing the way information flows by widening the people in the know and accepting to be occasionally second-guessed by the market. Some corporate cultures aren’t ready to accept that yet.”
His message for these companies is that resistance is futile; prediction markets are, literally, the future. “We are in tune with collective intelligence and participatory process; prediction markets can easily involve thousands of people. Our industry is surfing a huge demographic wave and that is what will make us ubiquitous.”
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