BetFair, Sim Exchange = Vertical Prediction Exchanges, First

The Sim Exchange’s founder (Brian Shiau):

Chris [Masse] speculated on whether the simExchange will become a more generalist exchange, like BetFair, which began as a horseracing market before transforming into a general prediction market.

The simExchange is indeed exploring the possibility of expanding beyond traditional console and PC games, such as the immediately close tangent of downloaded games, such as Xbox Live Arcade and Wii Virtual Console games, and new online games, such as Second Life type games. However, our focus continues to be developing a strong prediction market in which the video game industry and gamers can rely upon to gauge video games.

BetFair was at inception a British horse racing betting exchange (real-money prediction exchange), and it as been expanding into other sports (soccer, cricket, basketball, football, rugby, tennis, etc.) and a little bit into politics and financials. On the other hand, the Hollywood Stock Exchange can be described as a betting exchange that hasn’t expanded much beyond movies and movie stars. (Previous: US presidential election prediction markets: HedgeStreet or Hollywood Stock Exchange??)

Of course, the difference between the Sim Exchange and BetFair is that the latter provides its service to play-money speculators… for free. How would the Sim Exchange finances the managing of non-game event derivatives? Let’s look at the Inkling’s business model for a partial answer. Inkling is unique in the prediction market scene in that it is an unmanaged prediction exchange: only the users (e.g., ABC7 San Francisco) do create, run and expire the prediction markets —the exchange managers don’t create and expire anything. In a way, Inkling resembles Second Life, whose CEO made the determination early on not to be a game creator —Second Life is in the business of selling/renting lands (servers), only, and does not create itself any content. Look at it this way: Inkling does not pay for event derivative management —it does outsource that to its users. Just like TypePad.com or WordPress.com do not pay for blog content creation —they outsource that to volunteers (the bloggers who live as a sub-domain). The two Inkling managers, instead, focus on creating their great on-demand software, and on servicing a fistful of corporate customers, which puts food on the table.

The Sim Exchange could look into the eccentric Inkling’s business model for inspiration, if it decided to move beyond video games. In a Web 2.0 world, user-generated content (here, event derivative) is King. One idea (among many others) would be to have Brian Shiau et al. creating and managing the prediction markets on video games, while letting qualified users designing and managing prediction markets on the topic they have a strong interest in. In the case of Midas Oracle (as a group), we would love to partner with one or more betting exchange(s) so as to do prediction markets on the prediction market industry, among other themes. (Previous: Midas Oracle Opportunities For Your Business)

Just one idea among many… Do the Midas Oracle readers have any suggestions to Brian Shiau?

Previous: An invitation to join the simExchange beta

Previous: Are Nathan Kontny and Adam Siegel of Inkling Markets being EXPLOITED by Paul Graham’s Y Combinator?