We were excited to read an excellent white paper we recently downloaded from our friends at Moxie Software (formerly nGenera). Called “Building the Collaborative Enterprise,”iIt includes 10 questions to ask about business opportunities through collaboration. Question #8 out of 10 stood out to us: “Are we pooling our judgments to obtain the best possible forecasts and predictions?” The ensuing discussion is all about prediction markets.

Prediction markets are an emerging way to aggregate individual opinions and insights into remarkably accurate forecasts. In a prediction market, participants trade “contracts,” essentially bets on future events, such as the outcome of an election or success of a new movie. The system is very similar to stock and futures exchanges, where participants buy and sell contracts based on their expectations. Contract values are proxies for the underlying probability that an outcome will occur, as expected by the market participants.

Effectively used by companies such as Hewlett-Packard, Google and Yahoo!, prediction markets are being implemented in a growing number of organizations. Common business questions include: What are sales for a given product going to be next quarter? Will the price of a particular raw material be higher or lower in three months? How many customer complaints are we going to receive by a particular date?

Prediction markets provide an innovative and efficient way to mine and aggregate otherwise buried information and insight. They offer a powerful new way to harness collective intelligence – turning unspoken views and tacit knowledge into tangible, quantitative predictions about the future. While the structure of these markets may vary, they all share the same goal: better information revelation. The assumption is that with the right motivation, large numbers of diverse participants can do a better job of predicting future events than the smartest individual.

This is a nice summary of the concept of prediction markets, including wonderful examples of the kinds of questions that emerge in successful implementations. We’d contend, though, that prediction markets are no longer “emerging”; they’re in the field and yielding success. Just ask our customers, many of whom are experiencing improved forecasting guidance by getting collective answers to questions similar to those provided as examples by Moxie.

In the process of getting to a more collaborative enterprise, our Foresight platform can build much stronger capacity for pooling judgments. As Moxie notes, in this series called Boardroom Imperatives, the business outcome is accurate business forecasts. If this outcome appeals to you, let us know.

This year’s Enterprise 2.0 conference was full of new product announcements and represented continued evolution in the value of Enterprise 2.0 solutions to businesses. The most striking realization for us was the increasing focus on Enterprise 2.0 solutions from players of all sizes, including companies as large as Cisco and CSC.

For instance, Cisco used the conference to announce an Enterprise 2.0 solution called Quad and shared that the net benefits of Cisco’s own internal use of Web 2.0 collaboration solutions were more than $1B in FY09. Cisco Quad leverages existing technologies such as Unified Communications and Telepresence and expands with business focused flip video and social software. To us, this seems like it is collaboration from the application down through the architecture.

Other items of interest:

• Andrew McAfee discussed some concepts from his book, Enterprise 2.0, and revealed that Gartner predicts that as of 2010 social software is an enterprise reality. This, of course, is backed up by McKinsey survey results on Enterprise 2.0.
• nGenera announced a human-centered enterprise collaboration solution, called Spaces, designed in collaboration with IDEO. Spaces includes a user configurable interface and plug-in architecture, allowing data access via interactive mini applications. This strikes us as collaboration from the middleware/web services layer out.

We’re already wondering what features Enteprise 3.0 will have. If you’d like to set up a market to test your ideas on that front, let us know.