Measuring the prediction market industry – a proposal
April 23rd, 2009
“In God We Trust; all others must bring data.”
There has been more discussion recently on Midas Oracle, here and other blogs about the value of enterprise prediction markets. Part of this is because we don’t have a good measurement of value, and partly because a lack of information.
When it comes to value, there’s one great way to determine if a prediction market is valued by a company: they keep using it! No matter what people “think” the value of an enterprise prediction market may be, if the actual customer is willing to pay for it, the tool is valued.
But another big part of why we’re even having this discussion is because there’s no clear perspective on what’s going on with the industry. Why? Think of the parable of the blind men and the elephant. (Quote from Wikipedia).
A group of blind men (or men in the dark) touch an elephant to learn what it is like. Each one touches a different part, but only one part, such as the side or the tusk. They then compare notes on what they felt, and learn they are in complete disagreement. The story is used to indicate that reality may be viewed differently depending upon one’s perspective, suggesting that what seems an absolute truth may be relative due to the deceptive nature of half-truths.
So the problem is, we’re all talking our of our collective a**es.
There’s no way we can talk intelligently as a community unless we have a shared understanding of what’s actually going on in the industry.
The measurement
I propose that we start by looking at two measurements: retention rate and customer growth rate. Retention rate measures how long a customer stays active. This should be a relatively good indication of the value a prediction market provides to a client; the longer they pay for it the more valuable it is to them!
Customer growth rate is exactly that, how quickly the industry is growing and finding new clients.
While rates won’t provide a total magnitude on the size of the industry, it should provide a good proxy of value to customers and growth of the customer base. It’s not the sum-total of what can be measured right now, but I think it’s a solid first step.
A proposal
I hereby make a public proposal. In order that the entire industry can talk about a common set of data, I volunteer to act as the point of contact for data aggregation. Enterprise prediction market vendors would only need to provide limited data, and would get in return a comparison of their own company’s statistics to the industry at large. The public would get the aggregated statistics (only, no company-specific details) on the retention rate and growth rate of the industry.
The information that would be required of the Enterprise Prediction Markets software vendors is:
A list of clients (who don’t have to be named, code names/numbers okay) and for each of those:
- Date (by quarter) when the client was first invoiced
- Date (by quarter) when the client was last invoiced
I believe that invoicing is a good proxy for measuring the start and end of a prediction market, but if a software vendor would like to use other measures that’s fine, as long as they fairly represent the start and end of a paid prediction marketplace.
Thoughts?
I’d be interested in your thoughts on this. So far I’ve gotten some solid interest from some of the software vendors, but am posting this here to gather some additional interest. (Yes, a little public pressure.)
I think that if we’re confident enough in the prediction market industry, we shouldn’t be afraid of the data!
PS- Because of a recent spate of comment spammers, I’m moderating all comments so you see a bit of a delay before your comment shows up here. But once I approve it, you won’t need to wait if/when you comment again.
