AP – Santa Cruz – 27 Jan 08 18:00 – Recent huge growth in the BlogShares stock market has fueled rumors of a systemic problem with the market. Gains on the order of 25% have been realized since last Friday’s news of a crash broke. Some individual stocks are up tens of thousands of percentage points.
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Game Director Suburban Wolf could not be reached for comment. Through his spokesman, Director Island Dave expressed optimism that the future of the market was “bright and sunny.”
Despite the comforting words from Island Dave, we can report that all is not well with the market. An anonymous source intimately familiar with the inner workings of the market, who asked not to be named because he was not authorized to speak with media, said, “We’re [expletive deleted]! We’re totally [expletive deleted] man! We are so [expletive deleted] that the word [expletive deleted] doesn’t even begin to describe how [expletive deleted] we truly are.”
Only time will tell, but the recent volatility in the blogs market would indicate that troubled times may be ahead.
AP – 2 hours, 44 minutes ago – BlogShares ended a tumultuous week with a sharp decline Friday, backtracking following two weeks of stunning gains as investors turned cautious and cashed in some of their winnings.
Pundits on the afternoon business channel programs unanimously declared a profound shift in market dynamics. “It’s as if blog valuations have been turned on their ears,” said analyst Ken Adams on the Fox Business Channel’s Neil Cavuto show. “We don’t completely understand the phenomenon, but it’s clear that the business cycle has shifted.”
Once mighty Wonkette and it’s affiliates were among the first to feel the pain, with values dropping precipitously through early after-hours trading. Rumors place the losses somewhere near 90% before all is said and done, and cash flow for these companies appears to be severely restricted.
Rob in China, spokesman for the Blogshares Securities and Exchange Commission, could not be reached for comment. Exchange director Suburban Wolf, meanwhile, deferred comment until after his pedicure.
Operation Potent Wind is designed to introduce two new effects on the Blogshares economy: an increase in blog values, and more variation in value among the various blogs. The first phase involves elimination of one of the game’s oldest features, a B$ 25,000 cap on outgoing link values. In the graph below, you can see that the distribution of blog values follows a power law between B$ 0 and 25,000, but then ends at the original limit.
(click on the graphs for larger versions)
Our first step toward eliminating the cap was to double it to B$ 50K. We decided that this would be healthier for the game than simply letting things float, as it would give players time to adjust to the new conditions. The chart below shows the end state distribution after this change — about 75% of the formerly capped blogs were now at their “natural” state.
At this point, we had originally planned to implement a new algorithm for blog link value, and eliminate the cap, but I felt there was additional value to be gained in stretching out the transition. The next chart shows the impact on outgoing link values seen from increasing the limit to B$ 100K – we get even closer to a true power law, but it’s possible there is still more room for improvement.
Looking at the 700 or so blogs stuck at the outgoing link limit, we can see that over half have no outgoing links, and only 112 have more than a single outbound link. This means that we are probably at the point of diminishing returns, and don’t need another step in outgoing link value before moving on to Phase 2.
One final chart in this post – the daily valuation of the total blogs market since we started Potent Wind. For the first week or so of Phase 1, you can see a generally stable trend, followed by a huge leap on January 6th. In the early part of the project, we allowed blog values to propagate naturally as players indexed their blogs. This effort concentrated on the few hundreds of blogs with the most value, and gave us a relatively stable market value for the first time in recent memory.
On January 6th, we fed the remaining capped blogs directly into the spiders, and realized a huge leap in overall blog value. We then let things settle for another week, and raised the cap again. You can see from the chart that blog valuation appears to be accelerating upward, with a glitch on January 1th caused by the elimination of a top-5 blog from the game.
Our next step will be to introduce the new algorithm for outgoing link values. We will be removing the limits, and players should see a whole new class of blogs grow in value.