June 30, 2006

Fusing Organizations and Market Knowledge

Filed under: Aggregation,Market — admin @ 5:31 pm

Information technology is undoubtedly changing the way the live, but the most radical shift will be in the way organizations connect with the market’s knowledge. We can already see this already occurring. The market supplies Amazon with preferences, and in turn Amazon processes it into relevant recommendations. The market supplies Google with hyperlinks, and in turn Google processes it into better search results. There are two recent incarnations that follow this same pattern. First, Crowdsourcing is where the market actually supplies an organization with goods (e.g. Photography) via the web and in turn the organization redistributes it to those who want it. Second, Freedbacking is where the market supplies an organization with constructive feedback, and in turn the organization can process and make better decisions about product updates.

The market as a vast resource of knowledge isn’t exactly new. In 1945, F.A. Hayek proposed that market price was an aggregation of the market’s knowledge on the scarcity of a resource. Within the last couple of decades there has been an explosion of research and commercial applications of this concept (usually called Information Markets). The most notable example is the Iowa Electronic Markets, a market for predicting economic and political events. A more interesting example is the experiment between HP and Charles Plott where an internal information market was able to forecast future sales better than top sales executives. And now, as mentioned beforehand, we are seeing even more interesting dynamics linking market knowledge and organizations.