ni0.JPGNetworked Insights thinks it can do a better job of measuring public opinion than traditional companies like ACNielsen, by leveraging the Internet’s crowd power.

If true, the decades-old market research industry could be in for a shakeup. The company has just raised $4 million in financing.

When industry incumbent ACNielsen assesses a product it typically 1) interviews and surveys a group of people about it, or 2) sends out a field researcher to see how the product performs in public.

The first method requires statistical analysis: measuring the responses provided by people being asked structured, identical questions. The second provides good insights, but ground researchers are expensive and prone to personal interpretations of what they see. (This is simplifying a bit.)

Networked Insights, based in Madison, Wis., says internet research provides a better way for both approaches: People can give their honest opinion of products in their own words, then automatic programs can intelligently interpret the chaos of a million people responding at once.

First, there’s already a wealth of information in places like Amazon.com’s customer reviews. Networked Insights also offers to build online forums and communities for large companies, and pays customers to participate.

Second, once people have discussed the product, through reviews or direct conversations, Networked Insights applies natural language processing to draw out common conversational threads. The results are then structured with semantic tools that tags opinions according to some broad categories — distinguishing, for example, whether the opinion is one relating to brand loyalty (“Hate the taste, I prefer Competitor X!”) or a specific need (“If only it tasted more like tangerines, I’d love it!”).

Tagging allows multiple data points to be lumped together to give a statistical view of a community’s opinion. In the example of the customer who would prefer a tangerine taste, the company could later see how many others wanted the same thing, what percentage of the whole population they represented, and possibly even how badly they wanted their tangerine tinge.

The data resulting from thousands of these interactions, founder Dan Neely tells us, offers a more comprehensive picture of how the public feels than traditional market research. And with all the automation, it’s often less expensive. On average, the method will cost a company $2.40 per customer, which compares to $100 per customer for traditional methods.

One caution: We’ve heard this sort of optimism about technology solutions before, from other companies offering natural language processing and semantic understanding technologies. However, these technologies often fail to live up to expectations. NLP is prone to errors about 20 percent of the time even with the best systems, so without learning more, we’re skeptical that Networked Insights’ approach is perfect.

This isn’t the only company with an idea for cutting into ACNielsen’s business. Another company, Biz360, tells us that it’s developing a similar product. A third, Vizu, relies on polls to offer a much cheaper alternative to market research. And the old guard itself is also moving, as shown by Nielsen’s recent acquisition of Buzzmetrics.

Networked Insights says it has a few clients, including Guild.com, an online home-goods retailer. The company will launch online user communities for 15 companies by the second quarter of 2008, Neely adds.

The $4 million in venture capital, the company’s first, comes from Kegonsa Partners, a venture firm based in Madison, Wis.

For an idea of what a company might see when using Networked Insight’s tools, take a look at the screenshots below.

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