Could Google Become the Ultimate Commodities Trading Platform?

Jan 12th

Many SEO Book readers have seen Google Trends before, but did you know that Google Checkout also has a trends feature? Google has those touch-points, email data (now with a mailing list feature), AdWords bid data, conversion data, analytics data, and search referral data.

A recent research paper reviewed Google's internal Prediction Markets [PDF]. Three key quotes from that research...

Biases

Google's prediction markets are reasonably efficient, but did exhibit four specific biases: an overpricing of favorites, short aversion, optimism, and an underpricing of extreme outcomes. New employees and inexperienced traders appear to suffer more from these biases, and as market participants gained experience over the course of our sample period, the biases become less pronounced.

Arbitrage opportunities

As further evidence of short aversion, in order book snapshots collected each time an order was placed, we found 1,747 instances where the bid prices of the securities in a particular market added to more than 1, implying an arbitrage opportunity (from buying a bundle of securities for $1 and then selling the components). In contrast, we found only 495 instances where the ask prices added to less than 1 (implying an arbitrage opportunity of buying the components of a bundle for less than $1 and then exchanging the bundle). The median duration of these arbitrage opportunities was about 2 minutes.

The effect of proximity

An important caveat to our results is that they tell us about information flows about prediction market subjects, many of which are ancillary to employees' main job. this may explain why physical proximity matters so much more than work relationships - if prediction market topics are lower-priority matters so much more than work relationships - if prediction market topics are lower-priority subjects on which to exchange information, then information exchange may require the opportunity for low-opportunity-cost communication created by physical proximity. Of course, introspection suggests that genuinely creative ideas often arise from such low-opportunity-cost communication. Google's frequent office moves and emphasis on product innovation may provide an ideal testing ground in which to better understand the creative process.

Google's new mailing lists wipes out the need for many boutique email services. They know what features they are going to roll out before anyone else does. And they have market moving data before others do. Google's AdSense is the fuel that drives web innovation. And they can decide at any time if a competing service is no longer viable to push it toward its demise.

Virgin real-time data + arbitrage identification algorithms + understanding investor flaws + algorithms to target mental flaws + direct and indirect market influence = $

As I see it, competitive forces between traditional publishers, market saturation from the bottom, and market influence from the likes of data hoarding companies like Google are going to quickly commoditize anything that is sold as information. To survive you need emotional touch-points that consumers share.

A friend of mine was a leading affiliate for an information product, selling over $300,000 worth of someone else's service. How did they reward him? They cloned his sales channel and killed his business model. Everything that is not a memory, brand, or experience is becoming a commodity. What prevents you or I from becoming a commodity?

You become what you surround yourself with, and when you push out you attract the right people or the wrong people. Threadwatch, for example, attracted the wrong people, or perhaps the wrong mood and tone from the right people. But you could also engineer the silicon valley in your industry if you work hard enough.

In the information age, where marketers

  • have granular controls
  • can remain anonymous
  • can market brands in minutes
  • leverage reverse billing fraud and computer destroying viruses
  • can distance themselves from the fraud via affiliate programs or pushing blame on algorithms

there are a lot of scams to be wary of. Especially when there is so much information being produced to where content is published in biased sound-byte format to whore for attention. The stakes for calling someone out are big, because you need attention to profit, and unfortunately, the structure of the web has changed:

Google and it's copy-tition were designed 10 years ago. But the web has changed significantly in the past decade. Google was built to index a web that no longer exists... a web where people still engaged in social linking behavior, for one thing.

But there are lots of experts who keep learning and change with the markets. Some people give because they like to learn and they are not driven by short term profits. Teach a man to fish, etc.

Each day we chose who we want to listen to, who we want to be like, who we want to like us, and why we want them to like us. Those relationships are the only thing that prevents us from becoming commodities.

"You're lucky in life if you have the right heroes. I advise all of you, to the extent that you can, pick out a few heroes. There's nothing like the right ones." - Warren Buffet

My web heroes thusfar are Tim Berners-Lee and Seth Godin. Who are yours?

Published: January 12, 2008

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Comments

January 12, 2008 - 2:18pm

Aaron Wall is my hero...

January 12, 2008 - 2:33pm

I don't like the word hero unless it has something to do with Blood, Guts, Farting and Bravery but in my world I really admire >

Bill Gross and Ringo - Aaron I do admire your insight and thoughts.

By the way how can I get an SEO Book (which is great everyone) update? I did pay for the original many moons ago and have been a good boy not sharing, stealing or reselling it like some bastards I see around

My Missus is really getting into this and I'd like her to get the latest :)

Cheers

david

January 12, 2008 - 3:17pm

Hi David
Email me for an update. seobook [At}gmail

January 12, 2008 - 3:04pm

wow... that's a really long post to read saturday morning with your head still pounding from the night before...

if i have to say a name i would probably say Jeremy Schoemaker, probably cause it was the first person that through his blog and webradio show made me thing about making money online like something more than making $1 a day with adsense.

ps.

i recently bought the SEObook... you owe now a lot of sleeping hours ;)

January 12, 2008 - 4:44pm

Great post and insights Aaron...

Information and knowledge is quickly becoming a commodity...

Every day more people wake up to the fact that all they have to do is:

a) know how to search Google
b) be persistent

in order to solve all of their problems and in essence discover the meaning of life.

This article titled Is Google's data grinder dangerous? pretty much sums up the end result of this paradigm shift...

Everything is being commoditized - China has already done so with physical goods and now Google is doing the same with knowledge...

From a capitalist's point-of-view, it's the race to the bottom - from a socialist's PoV we're approaching nirvana...

I think the truth lies somewhere in between... Ultimately, the only things that can't be commoditized are imagination, creativity and caring... Luckily for the human race, these are all areas in which we excel, and really, where most of our ability to create value lies...

Those who recognize this will do well in the transition period that began in the early 90s and continues to accelerate everyday - those who don't will have to turn to Google to figure it out :P...

For those who are looking to amass resources that can be distributed as they see fit in the future, I think there is one main area of focus - domain names (specifically those relating to local information/commerce as those related to global results will be are more competitive and thus have less upside potential)...

This ties in with your statement about 'memory, brand, or experience', as domain names facilitate the creation of brands and are much easier to accumulate/build/distribute than memories or experience... :)

There will be many huge corporations that crumble before our eyes in the next few years as more efficient and effective ways of doing things come about and become known to the general public... Micro and longtail will live on and 'mass' anything will become the least valuable and most commoditized...

I think the disruption that is occurring will ultimately lead us to question our values - with the ultimate outcome being an improved human experience and all of us living happier lives and reaching our full human potential more frequently and at a younger age...

As far as heroes go, it's hard to choose an avatar without knowing the real person behind it, thus those who are most open and willing to share their mistakes as well as their successes are those I tend to favour...

Right now, I really like Steve Pavlina and have learned so much from him in the past year...

I think you are on the right track too Aaron and I really enjoy the experience you bring to my life... Keep up the great work!

- Colin

January 12, 2008 - 9:03pm

What really is a commodity? I used to toss the term around very loosely but in recent weeks I thought about it more closely.

When we refer to it in terms of the internet and information it would seem to relate to being diminished in monetary value. The Encyclopedia Britannica used to cost a boatload of money and was out of date before you even received it. Now you hear breaking news about someone's death on CNN, go to Wikipedia and their article already has closed the final year of their life. Its instant and free (and it had little to do with Google, which means Google does not have a monopoly on this phenomenon.)

Is that really a commodity, in the strictest sense of the term? How about food and oil? These are commodities but they would seem to share none of the traits of Wikipedia. Is a content publisher with Adsense plastered on their pages a commodity?

Given the paper on Google's internal Prediction Markets, which certainly could involve trading in actual commodities, the two concepts appear to be mixed.

January 12, 2008 - 9:14pm

Hi Andrew
I think I use the word commodity as it relates to information in the sense of the loss of perceived value and/or the loss of ability to be a sustainable business model with sustained profit margins.

January 12, 2008 - 10:47pm

Great post Aaron, your blog has improved dramatically recently. Steve, thanks for that wonderful article from LAT.

1984 is one of my favorite books. I was raised in communism before moving here (US), and every time I read that book I discover new correlations to what is happening in the world.

Since joining the online marketing community I think 1984 deserves another read through. I have a hunch that Google's ambitions will have a lot of similarities from creating "newspeak" or keywords to monitoring your every action online.

January 13, 2008 - 9:04am

Hi Aaron,

Google offers many innovative tools and services that are on par with fee-based services. Yet, I ask, how many people here feel that Google reaches out to you---aside from launching new content based gadgets? Let's say that another mega search engine rolls-out (as good or even better than Google) with customer driven service and transparency would you stay with Google? Why?

The question now becomes: is service next on the commodity list? Many companies are competing on service these days and we have come to expect great customer service wherever we go. Yet not all companies are equal at providing good customer service due to the subjective human-related nature of the field. When I think of service, I picture the old ma and pa shops that I now see in paintings representing what seems to be an American pastime.

I believe customers will start to place a heavier emphasis on businesses that focus on brand experience, innovation, customization, inspiration, and transparency (Much like SEO Book). The race for the minds and hearts of consumers worldwide has already started. Which companies and service providers will come-in first place? How? To be determined...

-----------------------------------------------------------

P.S. I am sorry to hear about your friend Aaron. The company may have been able to copy his model of generating sales but they cannot copy his innovative mind. I am sure he will bounce back from such an experience and only bring forth better and more creative ideas to the market.

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