At the Javien Forum, Ken Kittlitz presents an excellent summary of the DIMACS prediction markets conference that, as I noted here last week overlapped in some interesting ways with the Software and Information Industry Association (SIIA) conference going on at the same time nearby. Ken's analysis is cited in another excellent wrap on the conference here by Mike Linksvayer at Gondwanaland. Commenting on the business prospects for prediction/decision markets, Ken writes:
"Very mixed signals in this area. Of the half dozen or so people or companies trying to sell information markets into organizations (including me), NewsFutures seems to be doing the best. They started five years ago, have nine employees, are self-funded and profitable, and have ten Fortune 1000 customers. Common Knowledge Markets also seems to be doing OK, with three clients. The rest (Incentive Markets, EconOne, and my attempts to commercialize FX) all seem to be struggling. A representative of the Hollywood Stock Exchange (HSX) noted that despite having what is probably the most popular play money event market (50,000 *active* traders), they still have difficulty selling information provided by the market to studios and other likely organizations.
On the other hand, Hedge Street got CFTC approval last year to allow real-money trading in commodity futures (price of oil, housing prices, etc.) by individuals. They have been running for about six months, have 30 people in the Bay Area and a development center in India. Many of their events seem thinly-traded thus far, though that may be explained by their currently short time horizons (three months for housing price events, for example) which should be fixed in the near future." [links added]
Taking several big steps back, (a luxury I'll enjoy while I don't have a particular platform horse in this race), it's worth noting that "mixed signals" are a normal, if not prophetic, characteristic of embryonic (or 'emerging') industries. The King of Strategy writes:
"The emerging phase of the industry is usually accompanied by the presence of the greatest proportion of newly formed companies... that the industry will ever experience... Buyers' of the emerging industry's product or service are inherently first-time buyers. The marketing task is thus one of inducing subsitution, or getting the buyer to purchase the new product or service instead of something else. The buyer must be... persuaded that the risks of purchasing it are rationally borne given the potential benefits." (Michael Porter, Competitive Strategy, 1980)
To which the Crown Prince of Innovation has added:
"There is a big difference between the failure of an idea and the failure of a firm... the vast majority of successful new business ventures abandoned their original business strategies when they began implementing their initial plans and learned what would and would not work in the market. The dominant difference between successful ventures and failed ones, generally, is not the astuteness of their original strategy... [but getting] a second or third stab at getting it right. (Clayton Christensen, The Innovator's Dilemma, 1997)
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