Bet on it: Employee wagers help companies predict the future

Company-sponsored prediction markets can lead to better forecasts at lower costs, Forrester Research says

Google Inc. for the past three years has been allowing its employees to place bets on various questions like if a new Google office will open on time or if a new product will ship on time. The company, which had logged 80,000 bets through March, is aiming to use this method of gathering opinions from employees -- a method often called crowdsourcing through the use of prediction markets technology -- to better gauge their employees' real opinions. And Google has found that its employee bets are usually right.

While Google is one of the most successful Internet companies and can afford this type of Web 2.0 experiment, a recent research report from Forrester Research suggests that other companies can benefit from putting in place prediction markets to more effectively tap employee opinions on topics ranging from if a store will open on time to picking specific features for a new product.

"One of the biggest struggles that most companies have -- not surprisingly -- is predicting the future," said Oliver Young, Forrester analyst and author of "Prediction Markets: Wisdom of the Crowd Comes to the Enterprise," released last week. "Doing that today is a very politically charged system. Simple things like project updates are full of politics, full of meetings. One of the biggest values of prediction markets is you get a lot more people looking at these major questions -- and hopefully get through a lot of that political pressure to really get truthful answers."

The report found that in addition to Google, companies like Best Buy, Corning, HP and Qualcomm, have begun using prediction markets technology to aid with enterprise decision making.

Prediction markets are speculative markets where employees operate as traders to earn points -- and potential prizes and other recognition -- for correctly predicting future events. Qualcomm, the report found, uses prediction markets to gauge the performance of product ideas and features, while Corning used prediction markets to forecast the retail sales of LCD TVs, which are a major consumer of its glass products, the report noted.

Here are some common types of questions used in prediction markets and hypothetical examples of each from the report:

  • Sales projections: How many Nintendo Wii systems will be sold in January 2008?

  • Feature or product evaluation: Which type of minivan seat will be most popular among buyers?

  • Project delivery and management: Will Boeing introduce the 787 Dreamliner airplane on time?

  • Competitive events: Will Blockbuster exit the brick-and-mortar movie rental business?

  • Market conditions: What will be the average cost for a metric ton of steel over the next three months?

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