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Management Information Systems

A Case Analysis Report On

Prediction Markets at Google


Dated: 14th March 2011

Submitted by Group 1 | Subgroup 2 Vignesh P - PGP27370 Piyusa P Das - PGP27371 Viresh Singh - PGP27394

1. What is web 2.0 and enterprise 2.0?

Web 2.0 is the term given to describe a second generation of the World Wide Web that is focused on the ability for people to collaborate and share information online. The heart of Web 2.0 is how it converts Inputs (User Generated Content, Opinions, Applications), through a series of Mechanisms (Technologies, Recombination, Collaborative Filtering, Structures, Syndication) to Emergent Outcomes that are of value to the entire community. Web 2.0 basically refers to the transition from static HTML Web pages to a more dynamic Web that is more organized and is based on serving Web applications to users. Other improved functionality of Web 2.0 includes open communication with an emphasis on Web-based communities of users, and more open sharing of information. Over time Web 2.0 has been used more as a marketing term than a computer-science-based term. Blogs, wikis, and Web services are all seen as components of Web 2.0. Some examples of Web 2.0 are Twitter, Face book, MySpace, Amazon, eBay etc. Enterprise 2.0 is the term for the technologies and business practices which makes use of web of inter-connected applications, services and devices. Enterprise 2.0 makes accessible the collective intelligence of many, translating to a huge competitive advantage in the form of increased innovation, productivity and agility. Enterprise 2.0 adaptation could offer benefits in several important areas: Fostering collaboration: Many Web 2.0 technologies connect people in ways that make it easier to collaborate. Targeting such connections could lead to increased knowledge sharing between highly skilled workers, refining the information available to them. By tapping into the collective wisdom of the group, this type of collaboration could lead to better decisions and aid in problem solving. Innovation: The openness of Web 2.0 holds out the prospect of breaking down the research and development (R&D) silo and allowing a broader range of collaborators to participate. Traditionally a secretive function, R&D could be transformed by Web 2.0 into something more inclusive and eclectic, engendering new possibilities for creation and discovery throughout the enterprise. Enhanced productivity: Enabling employees to do moreand do it more efficientlyhas always been a fundamental business goal. Web 2.0 has the potential to create network effects that leverage the productive power of the group, improving both the quantity and the quality of work. Because of these potential benefits, some companies are moving quickly to embrace Web 2.0. But others see challenges and barriers that must be addressed before their organizations can realize the new technologies full potential. They see security risks and governance issues as paramount, particularly the development of security policies specifically tailored to Web 2.0. on a more basic level, some are unsure how to measure the benefits of Web 2.0 while others are struggling to understand what Web 2.0 even has to do with their businesses.

2. What are the best ways to encourage traders and trading within internal company prediction markets? Are you more in favour of using hard incentives (e.g cash rewards) or soft ones(e.g t-shirts or bragging rights)? Innovative ideas for new products and services can come from anywhere within an organization, therefore prediction markets within internal company is a good way to gain new perspective and ideas about new product and services from different people. Though cash awards seems a good method for encouraging employees to participate in internal trading markets , sooner or later employees will lose interest, Hence companies have to be innovative while designing the reward programs. It should not only be based on winning, it should be based on participation and enthusiasm shown by employee (by way of designing apps, providing suggestions for improving the trading platform etc) in the trading process. As this is not a full time activity for the employee and not related to performance related measures, cash rewards will not be much helpful for encouraging employees for trading. Trading should be a fun activity and come as a challenge for them which they are intrinsically motivated to take. Soft incentives like t-shirts and bragging rights ( e.g. I told you so) are better motivators for employees than cash rewards. A combination of financial and non- financial incentives help together in bringing motivation and zeal to work in a concern. 3. Is it a good idea to encourage all employees to trade in these markets? Should insiders and/or highly uniformed people be allowed to trade? Do they help the market or Hurt it? As more the number of employees better is the prediction in the trading market, it is good idea to encourage all employees to trade in prediction markets. Although insiders or highly uninformed people may not have all the information to trade, however they will increase the number of participants. The higher the number the better it is for the company to get an aggregate view. Sometimes, the social and cultural issues which may have prevented an employee from sharing information are also, kept aside, because all trades are anonymous. Therefore, all employees must be allowed to trade in prediction markets because they actually help the company and the market. However when insiders and/or highly uniformed people allowed to trade, there may be some problems like employees from non-related subject areas on the trading market may lose on average, and their incentives and motivation to trade will be reduced. Thus, the number of trades in the market will be hurt. Also insiders or highly informed traders may attempt to mislead the market about the outcomes in order to gain personal profit. Hence to obtain better result from the prediction market, the organizations using prediction markets can try to evenly spread information across the organization, reducing the insiders advantage. The organization could also do what happens in the stock market and prohibit insiders or group of employees highly informed about the subject in the market to trade in that specific market.

4. What kind of decisions are prediction markets useful for? The main purpose of prediction markets is forecasting and finding the most likely outcome for a given event. It has various uses depending on the place of its use, for example if the prediction market is used within a company like in the case of Google, it can be used to find out the worthiness of its various initiatives, create awareness about the various projects in the pipeline among its employees which will in a way help in finding new ideas or improve the existing ideas, and obviously providing a platform for employees to have fun. If the prediction markets are used by media houses, then they can be used to predict the outcomes of various events like election results, winners of various awards, probability of the success of an event accurately than the conventional methods like polls.

Corporate strategy is all about collecting information from many different sources, evaluating the probabilities of potential sources, and making decisions in the face of an uncertain future . Prediction markets can be used to reconfirm the intuitions about the success of projects, being considered. This can be used like a feedback mechanism to fine tune a companys decisions and help in
improving the probability of the success of the decisions taken. 5. How useful are corporate prediction markets? If they prove to be accurate and decisive; how can they be put to use more effectively A market is effective if all the information is freely available to all its participants and only when a market is able to reflect all the information from the past, private and future can it perform efficiently & accurately all the time and every time. As of now Corporate prediction markets may not be able to provide all the information as freely as one would expect to all its participants; some of the related information might be confidential within the organization. The effectiveness of the prediction markets also depends on how well is it designed and how many people take part in the trading. The effectiveness also vary for each event as it heavily depends on the design of each event and when the market is created and how long the market is open, so all these small but important things should be taken care of before we make any big investment into the prediction markets. If the Prediction markets are accurate and effective then the managers can replace the existing forecasting techniques with the prediction markets. Managers can make use of the prediction markets only to an extent like any other prediction technique but the final decision should not be solely on the prediction markets result; this would ensure that the decision making is still with the managers and they would still be accountable for all decisions taken irrespective of the predictions. The biggest use and the most important use of the corporate decision markets would be knowledge sharing and this can be used as a feedback mechanism to fine tune their current processes and would also help in generating new ideas.

6. Will most managers welcome prediction markets within their companies? Why or Why not?

Prediction markets have their own underlying assumptions, advantages and also disadvantages. The predictions may be correct but managers have to make sure the projects are implemented as well as they should be and here comes the role of the managers to take the right decisions every time as the things evolve and progress from one point to another. Managers should have a clear cut understanding in the functioning of these markets to decide, whether or not to consider these predictions in taking decisions. These predictions are useful in re confirming an intuition of the outcome or to estimate the expected value of outcome. In such case, managers should most willingly welcome prediction markets in to their organizations. Prediction markets also encourage its participants to gather more information about the outcome and projects prospective, to edge his peers in the competition. Thus, many criteria, which are unconsidered before, may well come in to the picture. There will always be resistance to change and it would also be expected from the managers, they might start feeling that they have started to lose control over the things they manage and there is a high possibility they may even start to feel that they are being dictated by some of their sub-ordinates or employees who dont even know fully about their business. Considering the huge rates of success, boasted by these prediction markets, it will be very difficult to stop them from entering in to organizations without valid reasons. Hence, managers should ideally be willing to welcome prediction markets in to their organizations, even in case of the projects, that they are responsible for.