Category Archives: finance

economics, finance, prediction markets, search, yahoo

Search engine futures!

6 Comments

I am happy to report that on my suggestion intrade has listed futures contracts for 2008 search engine market share.

Here is how they work:

A contract will expire according to the percentage share of internet searches conducted in the United States in 2008. For example, if 53.5% of searches conducted in the United States in 2008 are made using Google then the contract listed for Google will expire at 53.5…

…Expiry will be based on the United States search share rankings published by Nielson Online.

I think this could be a fascinating market because:

  • Search engine market share is very important to these major companies, with dramatic effects on their share prices.
  • Search engine market share is fluid, so far with Google growing inexorably. However, Microsoft has cash, determination, Internet Explorer, and the willingness to experiment. Ask.com has erasers, 3D, ad budgets, and The Algorithm. Yahoo!, second in market share, often tests equal or better than Google, and new features like Search Assist are impressive.
  • The media loves to write about it.
  • A major search company might use the market to hedge. Well, this seems far-fetched but you never know. Certainly, from an economic risk management standpoint it would seem to make a great deal of sense. (Here, as always on this blog, I speak on behalf of myself and not my company.)

Finally, I have to comment on how refreshingly easy the process was in working with intrade. They went from suggestion to implementation in a matter of days. It’s a shame that US-based companies are in contrast stuck in stultifying legal and regulatory mud.

Addendum 2008/01/26: Here are links to some market research reports:
Nielsen | ComScore | HitWise | Compete

(It seems that Nielsen Netratings homepage is down; getting 404 error at the moment)

Addendum 2008/03/07: If you prefer, you can now also bet on search share just for fun with virtual currency at play.intrade.com.

(Nielsen Netratings homepage is still down, now for over a month. It’s even more ridiculous given that their own Nielsen Online website points to this page.)

commentary, finance, prediction markets

Betting on Sirius and XM to … die

28 Comments

One of the great things about intrade (recently split from TradeSports) is that they are open to suggestions from wide-eyed academics. For example, at Justin and Eric‘s urging, intrade listed several simple combinatorial markets, including baskets of states (e.g., “FL+OH”) in the 2004 US Presidential election and an October surprise market probing for a statistical correlation between Bush’s 2004 reelection and bin Laden’s capture.

Recently, again at Eric and Justin’s request, intrade launched a Sirius-XM merger market to predict whether the two satellite radio companies’ wedding vows will be blessed by the U.S. Department of Justice and the Federal Communications Commission.

The picture of XiriuM as a powerful monopoly threatening consumer choice is, to put it bluntly, laughable.

why would I pay for satellite programming when I can simply hop onto Internet radio?

If the DOJ nixes this merger, it can be due only to a horrible misunderstanding of the march of communications technology. One by one, nearly every communications medium is converging to operate “over IP”: data, voice, music, print, TV, video, you name it. Audio in your car should be no exception. Does anyone doubt that sooner rather than later every car (indeed every person) will be connected to the Internet? Then why would I pay extra (a good deal extra if the naysayers are to be believed) for one-size-fits-all satellite programming when I can simply hop on the Internet and tap into my personalized Lauchcast radio or my iTunes account? Orbital space machinery must weigh a little more heavily on the balance sheet than rack space in Quincy: how will XiriuM possibly compete once Internet radio has equal access into consumers’ cars?

The problem I see for XiriuM is that one-way purely broadcast technologies are nearing extinction. Even if some media don’t directly utilize the Internet or even TCP/IP, they will almost surely use a two-way communications link of some kind. Why? Ostensibly, because consumers want personalization and interactivity. Perhaps more to the point, because publishers and advertisers want better targeting and performance metrics.

The only “way out” I see for XiriuM is to actually become an Internet service provider for cars, much like the (formerly broadcast-only) cable companies did, for example by bundling high speed satellite downloads with a low bandwidth cellular uplink. Even so, I imagine that latency would be a serious problem, as with HughesNet (formerly Direcway) satellite Internet service, meant for use in rural areas with no broadband alternatives.

So, although I have no idea how DOJ will rule, and thus have no advice for intrade bettors, I do know how DOJ should rule: “sure, knock yourselves out”. Plus I have some throw away advice for SIRI and XMSR shareholders:… Sell!

commentary, economics, finance

Irrefutable evidence of inefficient markets

12 Comments

I’m a big believer in the efficient market hypothesis, but IMHO Wall Street’s rapture following Steve Jobs’s sermon and the ensuing iPhone idol worship cannot possibly be explained by rational behavior. Take a look at this graph (via Midas Oracle via Silicon Valley Watcher via ValleyWag courtesy Yahoo! Finance — long live remix!):

Annotated graph of Apple's stock price during Steve Jobs's first unveiling of the iPhone, Jan 2007

Overall, Apple’s stock was up over 11% in the two days following the iPhone announcement. C’mon: no matter how closely Apple guarded the iPhone’s specs, no matter how persuasive Jobs’s rhetoric, no matter how surprised industry watchers were at the blogomediasphere’s glowing reception of the gadget, Jobs’s speech could not possibly have revealed over $8 billion in previously undisclosed information. Certainly non-insiders knew some of the details of the iPhone. Almost everyone knew that Apple would announce some sort of cell phone / iPod combo device. Moreover, the thing is not even going on sale until the summer, and then with a single carrier at a price point sure to discourage mass consumption. I’m an Apple fan, an Apple Computer Inc. investor, a Mac user for decades (and an Apple II user before that), and I’m drooling along with the rest of you over the iPhone. But still, some of that sudden $8 billion re-assessment of Apple’s worth surely stems from irrational exuberance, herding, and/or good old fashioned religious fervor.

Readers may challenge me to put my money where my mouth is and (short) sell Apple. Since I’m not doing that, take all of this with a grain of salt.