Industry leaders, academicians, and business representatives leading prediction markets in enterprises recently shared their insights and innovations related to prediction markets, at the Prediction Market Cluster Summit in Chicago on November 6, 2009.

Linda Rebrovick, CEO of Consensus Point, discussed effective uses of prediction markets, based on multiple years of supporting effective enterprise prediction markets in large companies and government organizations.  She explained that effective enterprise markets require 3 key components:  a proven and expert consultant, a solution that targets key business problems, and the right customer environment and implementation plan.  Rebrovick discussed several use cases highlighting customer examples across several industries and business problems. 

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Rami Levy, Distinguished Member of the Technical Staff, Technical Lead and Manager of Motorola’s Open Source Technologies Team, explained how Motorola added the TIX Market, powered by Consensus Point, in 2007 to address the challenges of increasing idea backlog and missed opportunities. Levy explained the evolution of the TIX Market and how, over time, the prediction market has streamlined the innovation process, yielding benefits of 55% decrease in disposition days and 40% increase in idea pursue rates. 

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Robin Hanson, Chief Scientist of Consensus Point, discussed the advantages of prediction markets and how to develop effective markets to efficiently yield meaningful outcomes. 

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Jenny Ambrozek reflects on prediction markets on her blog after attending the PM Cluster Summit last week in Chicago. Below is an excerpt from Amzbrozek’s blog.

Have Prediction Markets arrived as an Enterprise Knowledge Sharing & Innovation Platform?

A small and really smart group of people convened by John Maloney (at the Gleacher Executive Center in Chicago), on November 6 to explore the latest developments in collective intelligence and use of prediction markets.

For those new to prediction markets finding a public prediction market to explore is increasingly easy, for example see the Industry Standard and CFO Magazine. Andrew McAfee lists prediction markets as part of Enterprise 2.0. This Inside Knowledge Prediction Markets Masterclass (co-authored with colleague Victoria Axelrod) describes the prediction market landscape in 2008.

Why did I leave Chicago thinking that enterprise use of prediction markets to tap grassroots employee knowledge for forecasting, and in support of innovation is about to blossom?

Three reasons:

1. High Profile Proven Enterprise Prediction Market Applications

Exemplifying the time for new ideas and technology to find their way into widespread adoption first use of an enterprise prediction market is credited to Robin Hanson (George Mason University professor and Consensus Point prediction market platform provider Chief Scientist) and dates to 1990. 

The wider adoption of prediction markets by companies from Google to Best Buy, Cisco Systems, GE Healthcare, General Mills, Qualcomm and ArcelorMittal, is widely reported including in this New York Times articles. Friday Rami Levy, added to the list in explaining Motorola’s evolved use of a prediction market to filter ideas and speed innovation.

2. Technology Evolution

As a pioneering prediction market provider since 1994, Chicago Cluster sponsor Consensus Point hosts high profile clients Best Buy, Motorola and Qualcomm among others.

Each provider is carving out a niche and extending enterprise prediction market applications.  In the process platforms are evolving, made easier to use and integrate into day-to-day business processes.

3.  Growing Enterprise Understanding

The case has been made for the business value that comes from reaching out and engaging more diverse minds to solve business problems and co-create new opportunities. A host of books from James Surowiecki’s Wisdom of the Crowds (2004) to Yochai Benkler’s Wealth of Networks (2006), Dan Tapscott’s Wikinomics  (2006) and Clara Shih’s Facebook Era (2009) detail the trend. 

While enterprise prediction markets have been the province of innovative companies, the Chicago participants pointed to a diverse and expanding array of new applications.  

Putting prediction markets to work in enterprises demands a wide array of skills from technical understanding for making markets perform within the culture of an organization, to relationship building to engage participants and encourage contribution.  Quantitative skills + tie to business strategy + relationship building + technology are all essential.

According to recent McKinsey Global Survey Results, “The heaviest users of Web 2.0 applications are also enjoying benefits such as increased knowledge sharing and more effective marketing.  These benefits often have a measurable effect on the business.” Prediction markets are one of twelve key components of Enterprise 2.0 technologies.  According to McKinsey & Company, prediction market adoption within corporations has risen from less than 1% in 2007 to 8% in 2009, as large companies are embracing Web 2.0 tools.

To read more about the McKinsey Global Survey findings and the benefits of Web 2.0, visit McKinsey.com - Business and Web 2.0: An interactive feature.  Note: Free registration required to view entire articles, and Premium membership required to access entire study.