Place your bets HERE! What are the odds I make another blog post this year?

For the record, I'm a believer in prediction markets. A winning bet on a pair of Steelers Super Bowl tickets to prove. Prediction markets power remains largely unrealized. Google had potential to capitalize on the phenom, yet there are some critical factors for success which Google didn't meet to make GPM a viable product on a mass scale. The factors REQUIRED for successful prediction markets are:

1. Statistically significant volume.
2. "Liquid" market.
3. Meaningful financial incentives. (increasing marginal utility)
4. Low barriers to trade / complexity.
5. market manipulation controls

In addition to the necessary above, an internal champion to drive product strategy / marketing makes sufficient the viability of the products future.

Let's take approach one assumption at a time.
1. Statistically significant volume.
- 48% of volume by 13 traders
- 3 month trade volume (450k shares) is less than .00001% of Dow Jones DAILY volume
- even w low volume accuracy impressive. (Degrees of Freedom is significantly met)

2. Liquidity.
- no downside or loss to play. a real futures market is ZERO sum game. This was not designed to be zero sum, but encouraged trading with $1K incentive for volume trader. (didn't Wall Street have same moral hazard with encouraging volume trades?)
- computer bots provide market clearing function! Identifies and eliminates arbitrage opportunities quickly. I though computer trades were adding to risk/ volatility on the exchanges?

3. Low utility payout.
- $1K is meaningless to GOOG millionaires

4. Low barriers / complexity.
- rolled out too many bets (95 markets / quarter)
- dumb down bets. very narrow scope on bets (how many people could competently bet on success of individual internal projects)

5. Market manipulation.
- because of low utility and high percents of narrow traders the GPM are subject to manipulation by a single or multiple players
- lack of regulation / exchange rules

Finally, the suggestions to "launch" the product were nearly all internally focused: "internal emails" "bigger prizes" or "party" only one was arguably forward looking to integrate with social networks.

For now, Google has missed the boat on this. A second chance would largely bet on the talent that produced the beta software remaining largely intact and could only be sealed with a product champion in the "fast" growing organization. The success of any software project is highly dependent on retaining the people involved with originally creating the intellectual property.

There are legal risks to mention as well, especially with 2ndary markets that these exchanges create. FirstDibz / OptionIT encountered those first hand which forced the shut-down of those exchanges. These are highly unregulated and present high risks to the "credibility" of these markets. TicketReserve is taking a platform / hosting approach (like eBay)

I have more than a few practical examples of this. I'll save my thoughts on application to my football pool for class.