Not to put too much faith into the unscientific Gartner hype cycle, but it does feel like a time of backlash responding to some early over optimism. As cooler heads prevail, and the technology speaks for itself, I think we’ll start to see some solid success stories.

The industry failed because its aficionados (Robin Hanson, Justin Wolfers and James Surowiecki) oversold the benefits of the prediction markets. Overselling didn’t work in the past, and won’t work in the future. It’s time for Dave to wake up.

Due to gambling laws and stigma, the PM industry has tried to distance itself from gambling, betfair, etc., probably mistakenly.

I like an analogy of Playstation versus Wii. Just like Wii opened up video gaming to a mass audience including women, I think there’s room for simpler/friendlier sites like smarkets that can open up gambling to a much wider audience than sites like betfair that seem to cater mostly to men familiar with gambling jargon.

4 more important factors:

1. Robin Hanson, James Surowiecki and Justin Wolfers have exaggerated the usefulness of the prediction markets, hence putting the bar too high.
2. Robin Hanson, James Surowiecki and Justin Wolfers were clearly the wrong leaders. They pushed the enterprise prediction markets, which proved to be a mirage. John Delaney was also the wrong leader to follow. TradeSports-InTrade was a big operator; InTrade is a niche player. All the leaders failed. All of them. Including David Pennock (who has the backing of an Internet giant). On top of that, the prediction market people let the San Francisco clown pollute our turf; he has now decamped for a greener turf, of course. We need better leaders. We need leaders with a better compass.
3. Real-money prediction markets are still illegal in most countries (including in David Pennock’s one).
4. North-American aficionados of the prediction markets (and that includes Paul Hewitt) have always lambasted UK-based BetFair, for silly reasons (just look up Pennock’s prose, above, for one instance), instead of making it the hero of our field. On the other side of the Atlantic, the BetFair management has never joined and supported the prediction market community.

The result is the Waterloo that David Pennock describes in his post, and no solution is proposed (other than the tired mantra, “yes, we can”). [Not a slam to research scientist Dave, just a parting way to get the debate going. ]

Accountability
Meritocracy
A marketplace to reward information release
Real-time updates
Accuracy
Increasing ease of use, as the technology matures and diffuses
Self funding

- How far in advance can prediction markets make accurate predictions?
- How will we know the point in time when a prediction is ‘accurate’?
- Why are there wildly different predictions of the same outcome in different prediction markets?
- How do we know which market is accurate?
- Is it a matter of prediction market efficiency?

The real benefit, in my opinion, is that prediction markets provide a better measurement of uncertainty around the outcome than do traditional forecasting methods.

• Slow innovation: Aside from a few cosmetic tweaks, reliability improvements and the Starting Price feature, Betfair hasn’t innovated much over the last few years. For a company that boasts several hundred developers, it should be able to release more major new features. Betfair gets very little traffic from organic search and has no social features apart from a forum.
• Outdated tech platform: Betfair’s website can be quite slow at times. If you look under the hood, there’s a tangled web of javascript libraries, iframes, caching servers and images. Over the years, it has grown into a technical server farm behemoth that is difficult to upgrade and maintain.
• Tax on top traders: About a year ago Betfair introduced a ‘Premium Charge’ on their most successful traders, taxing their profits up to 20%. This runs contrary to typical volume rebate schemes where the more one trades, the smaller the transaction costs one incurs. The company claims the tax is to offset the cost of bringing new punters to the platform, but appears to outsiders as a clear move to increase revenue taking advantage of Betfair’s position as a monopoly.
• Expensive transaction costs: Betfair takes 5% of traders’ winnings. If a trader bets £100 and wins £1000, Betfair will charge £50 for the transaction. This is very expensive in a world of $8 online stock executions. As betting exchanges become more financial in nature, these transaction costs will shrink substantially.
• Market Size and Competition: As Greg Wood from the Guardian wrote recently, horse racing liquidity has hit a ceiling. Will Betfair be able to maintain the revenue growth? With high costs and a smaller profit margin than Paddy Power, Betfair has found itself in a bit of ‘grow or die’ situation. It will need to find ways to entice more customers to join its platform and spend their betting dollars with them. Betfair is looking to new sports — particularly football — and overseas markets like the US, China and India as opportunities for growth.
• Headcount: Betfair has a tech team close to 500 people. While there is strength in numbers at times, the most successful tech projects in history started with small, nimble teams. The more tech people involved on a product, the less agile a company can be. Adapting to changing tech trends can be a crucial ingredient to remaining competitive in today’s internet startup world.

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PS: Give me the name of the idiot who booted Mark Davies out of BetFair.

“We believe a market in domestic box office receipts would substantially widen the number and breadth of financing sources available to the motion picture industry by lowering the risk inherent in such financing,” Burns wrote.

Robin Hanson is in favor of movie business futures.

ADDENDUM:

- “Geithner also rejected the ban on creating a movie futures market, saying you don’t want ‘Washington bureaucrats’ stifling innovation.”

- Jason Ruspini sends us the link of the Senate bill.