The blogosphere as an information market

Saturday’s FT ran a piece by Ellen Kelleher about the rise of personal finance blogs. In it the former Wall Street analyst Henry Blodget was quoted:
“The blogosphere functions the same way the stock market does–by incorporating millions of individual opinions into a general consensus. By itself, the influence of any one blogger is small, but if the ideas are persuasive, they will rapidly begin to influence the “blogosphere” as a whole.”

This is a profound remark. The blogosphere indeed functions as a marketplace in information, where spam takes the place of hype, and where a measurable consensus emerges around which companies have good products, and which ones are poor. Where a company’s employees, channel partners and customers spill the beans on how the company is doing 24 hours a day, 7 days a week. The blogosphere can be seen as “setting the price” of goods by forcing those with a bad reputation to discount in the search for buyers. Conversely those with a good reputation can charge a premium.

The interesting thing about this marketplace is that – unlike the stock exchange – the numbers are very hard to extract. You have to use social network analysis, natural language processing and statistical profiling to establish authority and sentiment. Having said that, these techniques exist (we and others are using them) and over time Wall Street and The City will track reputation indices as avidly as they track Standard and Poors ratings. …