Sunday, October 12, 2008

The Next Step: Prediction Market Business Ideas

Silicon Alley Insider, which has recently become as obsessed with prediction markets as we are (Politickr likes to take at least some credit for this, dating back to its early days at SAI last year), is out with a few suggestions about how to turn prediction markets into an even bigger business:
  • Provide political stock options to campaign employees -an admittedly far better motivator than pizza for overworked staffers on all those long nights (A good idea considering Politickr has learned from several very high-level campaign strategists that trading in markets like Intrade has become a popular hobby among staffers during this election cycle)
  • Policy Hedges - SAI's post doesn't mention it, but there are already several startups in the works planning to do just this. By repackaging trading stats and selling them to lobbyists and hedge funds, companies are hoping to make money off those eager to hedge on policy.
  • Campaign Financing - Does it make sense to give my gas money to this guy?Do certain events/strategies lead fat cats to give more? Individuals and campaigns alike could look to the markets to make funding decisions.   
Here are some more ideas we've been toying wth:
  • Campaign Resource Allocations - McCain's recent decision to pull his dwindling resources out of Michigan, where he was seeing ever-diminishing returns, was likely made on the basis of polls. In the future, however, market analysis could provide much greater clarity on these types of questions. 
  • Vetting VPs and Strategies - Currently, political prediction markets only ask questions like whether Romney or Palin will be picked as McCain's number two. One could imagine markets that examine the effects of rumors and other pereceived weaknesses on the campaign, which would be helpful to strategists war-gaming October surprises.
  • Opposition Research - Does it make sense to spend money digging up dirt on a potential competitor who can't seem to raise money? Is it a good idea to bring up your opponent's tenuous ties to a 1960s radical at a time when voters are clamoring for change? Instead of asking focus groups, the campaigns could ask the markets.   
As political prediction markets explode in popularity, a host of cottage industries will inevitably develop. Since Politickr is already planning a few of its own, we don't want to give away the farm. But here are a few ways to take advantage of the boom:
  • Political Prediction Market Consultants - The pollsters of the 21st Century, perfectly suited for the 24-hour news cycle. There's nothing the cable networks like more than charts and numbers. Some day, campaigns will hire consultants to run their internal markets and keep track of their options. Some day, these specialists will appear along side the James Carvilles of the world doing campaign analysis.
  • Prediction Market News Agency - This is an idea I've been pushing with Henry Blodget at Silicon Alley Insider. With Intrade, IEM, Betfair, Hubdub, iPredict, Predictify, Hollywood Stock Exchange, News Futures, Media Predict, and others generating data daily on people's tastes in everything from politics and entertainment to tech and media, someone should be analyzing the info and generating stories for public consumption. After all, what good is having tomorrow's political news today if there's no one writing the article? This is what Politickr hopes to offer as soon as possible, provided it can secure funding.
  • Equity Research for Political Prediction Markets - Traders are thirsty for info that can't be gleaned from reading The New York Times. Politickr can only track so many pundit predictions. Who will emerge as the Morningstar of political trading?
  • Trading Training Sessions - Wherever Politickr goes, it talks up the potential of political prediction markets. Most people are intrigued, but very few have ever heard anything about them. To that end, they need to learn more and feel more comfortable before they invest. Politickr plans to start offering training sessions and meetups for beginners in coming days.
  • New Markets - If the CFTC, which is currently weighing whether to grant markets full legal status in the US, goes as far as Politickr hopes, the impact will be enormous. New, U.S.-based trading exchanges will proliferate. Real money markets will emerge to help lawyers track the potential success of lawsuits, to assist tech companies in designing the next hot gadget, to predict which restaurants will succeed and even which amateur porn stars will make it big. While many of these markets already exist, participation is limited by the fact that traders can't yet put real money on the line in the US. 
  • Prediction Market Think Tank and Lobbyists - The research suggests that prediction markets are more accurate than polls, but more studies are always needed. Someone needs to speak for the industry and lobby legislators on its behalf. 
If you, like us, are convinced that there's huge growth potential here, we strongly urge you to join us. We are working on many of these ideas, as well as one other highly secretive plan that we're keeping under wraps for now. We need your help and your ideas! If you're interested in getting involved, leave a comment, drop us an email, or join our Political Prediction Markets group on Facebook - Let's move the industry forward!


nigeleccles said...

Nice post. We've been working hard on pushing our data out to news agencies and sites. It would be great to talk to you some time about the news agency idea.

Drop me an email to nigel [at] hubdub [dot] com.


Keegan said...

I really like some of your ideas, and would love to chat with you more about them. My company - - works with campaigns and non-profits to better track and engage topics of interest of them online. I think some of the work we do would work well for equity research.

Shoot me an email if you would like to talk further -

- Keegan