Jason Trost on BetFair: They havent innovated much, and theyre too pricey.

Jason Trost:

  • 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  • Outdated tech platform: Betfair’s website can be quite slow at times.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.

BetFairs Mark Davies (the Prince of betting exchange PR) has just gotten a second omelet in the face.

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First, the Financial Times —-and, now, Freakonomics.

The journalistic rule should be that, if you cite one prediction exchange, you should cite the one that is the most liquid on the market you are writing about. For UK politics, it is clearly BetFair.

BetFair has clearly a PR problem.

Cantor Exchange in the New York Times

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Richard Jaycobs uses the adjective “-tremendous”-. But here’-s what the journalo says:

But buyers beware: if “Avatar” is any indication, the public isn’t always so wise about Hollywood fortunes. Most users of HSX.com predicted a flop, and if those users had placed real money on the Cantor exchange, they would have taken a serious hit.

http://www.cantorexchange.com/

http://www.hsx.com/

Betfair the Masonic Lodge

The relationship between William Hill and the betting exchanges has not been a good one. On January 29, 2003, David Harding on the subject of Betfair’s impact on the the over-round said- “Some racecourse markets now return overrounds of only 1.2 to 1.3 per cent per runner. That is not sustainable. I cannot have a price mechanism for 50% of my business being desecrated.

In a recent interview with Betview magazine Ralph Topping, Hills’ current head had this to say of Betfair-

“‘I call Betfair the choirboys of the betting industry – “look at us we’re so innocent” – actually the exchanges are the biggest Masonic lodge there is.   They’re a massive secret society where illegal gambling is taking place. What would throw a spanner in the works is if William Hill came up with an exchange model which could be offered in our betting shops or through our telephone business.”

A fascinating portrayal of one of the most transparent betting companies in the world.

EDITOR’-S NOTE: BetFair’-s Mark Davies has his own take on the Topping statement.

BetFair is the best innovation that happened to horse-race betting.

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#1 innovation of the decade = Peer-to-peer wagering

“-In 2000 two men who liked to play card games and make a bet or two created the Ebay of betting –- an exchange where players could bet with each other.”-

Nate Silver: InTrade is dumb. We need serious exchanges for event derivatives.

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Nate Silver:

But Intrade, although it’-s a product I greatly appreciate, has some problems when it comes to efficiently pricing futures. It’-s hard to get money into the site. The exchange falls into a legal gray zone. Transaction fees are comparatively high. And Intrade is stingy about paying interest on deposits, which adds a cost to having your money tied up. Not that many people have heard of Intrade, moreover, which isn’-t true for the stock market. And because of network effects, it’-s likely that volume/liquidity is somewhat nonlinear with respect to the number of participants in the market. So if these encumberances reduce the number of participants by, say, a factor of 10, it’-s likely that trading volumes are depressed by some multiple of that.