Information Madness

Sentiment analysis on social networking sites is becoming a big business in many areas.  For example, the barrage of posts on Twitter last year about Netflix may have tipped off investors to influence a swing in the stocks that affected about eight billion dollars from the movie rental company’s market value in a matter of just three months.

Topsy Labs, a site that searches data on the micro blogging service, analyzed tweets on Netflix’s decision to spilt its DVD and streaming businesses. Just one tweet like `just cancelled my Netflix subscription’ was enough to give signals of a coming drop. It is taking these kinds of results to help build a new service to aid investors in predicting other stock movement.

Information dissemination is now through conversation and not anymore through publication. Topsy Labs is using sentiment analysis by examining the chatter on Twitter and Facebook. Analyzing blogs is also helping predict stock movements, market trends and the expected success of new products.

Data on Twitter and Facebook cannot be treated as a complete reflection of what is going on in the world because it is a matter of people expressing their opinions, even if those opinions are misguided. But generally, these sentiments could at least give a hint of what is likely to happen. Take Apple’s iPhone 4S, for example.  The sentiments on the social networking sites indicated that the sales may be better than what the analysts had expected initially.

The interesting thing is that Topsy’s analysis of Netflix showed that among many factors that could affect a stock’s movement, sentiments on Twitter and Facebook on a given day accounted for more than half of the stock’s move in the next trading session.