Nigel Eccles (HudBud CEO – Previously with McKinsey, Betdaq, and BetFair-Flutter)

HubDub is developing a web application which will change the way people discover, track and interact with news stories.

His startup: HubDub – (What they are brewing: a news aggregator using some kind of prediction market mechanism.)

More info:

What we are developing is a social news aggregation site. Elements of it are similar to Digg but as a whole it is a totally unique concept (partially based on experience developing betting exchanges). The site will provide a whole new way of interacting with news and the site in turn generates its own news out of user interactions. Initially the site will be US focussed as it is the bigger market. The primary revenue stream would be advertising however there are a number of other very significant revenue opportunities once the site reaches some scale.

And, yes, they do have a blog.

The Flutter story itself is well documented (for example here) so I won’t repeat it, apart from to note that it was one great rollercoaster ride. What I did want to write about was functionality of letting users create their own markets or as we called it freeform betting. The original flutter concept was that we would create a mass market platform that would allow users to bet with anyone on anything. Note flutter wasn’t an exchange, each bet had one and only one counter party. The primary focus was on the social element of betting with other people not on value or the trading experience you might get on an exchange such as Betfair. When we initially launched the site we started by letting users only bet on markets we had created with a focus on sport and entertainment (we coincided with the first Big Brother which was a big betting market in the UK).

However the plan was always to quickly roll out functionality that would let users create their own bets. We soft launched that functionality as a tool for customer acquisition whereby visitors who arrived at the home page where offered the opportunity to create a bet and then email it to a friend. We would pony up £5 (about $10) for each side. When the event closed we would then email the two participants who would agree who won the bet (with an escalation process if they didn’t agree). Sounds great, but in practise even though it was free money it just didn’t take off the way we expected. Why not?

In 1999 the UK government commissioned a report into the prevalence of gambling in the UK population (you can read it here). One of their findings was that only 11% of the UK population had a bet with a friend in the past year and only 4% had a bet with a friend in the past week. These 4% were our target audience; this wasn’t a mass market audience. To make it even worse, in 2000 broadband penetration was paltry and even when people where on-line they were still not comfortable putting in their credit cards. So when you multiply the 4% by the percentage of people online times the percentage of online users ready to get their credit card out you end up with a very small user base.

But what if we had stuck with it (clinging on during the downturn), what sort of market could you achieve today with much more internet savvy audience and higher broadband penetration? Well the UK has a over 18 population of about 50 million; 4% of which is about 2 million punters who bet with friends every week. The report also tells us that the average number of bets per week was 1.4 and we can infer an average bet size of about £10. Therefore we have 2.8 million bets per week, £28 million in weekly turnover and an annual market of about £1.4 billion. Ooooh , now it gets interesting. But wait, that’s turnover, at a 5% commission this market would be worth £70 million to us if we could get everyone to bet through us. However, that is obviously very unlikely. Nearly all personal bets happen face-to-face in a transaction that goes something like this:

• Punter A “That US soccer team are a bunch of numpties, they have no chance”.
• Punter B “They will still cream your Scotland team”
• Punter A “You’re on – a tenner?”
• Punter B “Done”
• Then they shake hands.

Notice they don’t then run to their PC and type in the details of the bet. They have another pint and then watch the game. Sometimes bets don’t get collected but generally that isn’t a big issue. Now, there is a potential market with regards bets between friends who are remote from each other. Generally, the same exchange that happens above gets transacted by email, text or phone. Now what percentage of 2.8 million bets per week are remote bets? Well the prevalence survey helps us again. It found that the place bets were struck broke down as follows:

1. Place of work (25%)
2. In the pub (25%)
3. At sports ground (19%)
4. At home (17%)
5. At friends home (16%)
6. Elsewhere (9%)

Now if we assume that you are very unlikely to have a remote bet in the pub, at the sports ground or in someone else’s home. Also let’s assume that 20% of bets at work and 10% of bets at home are remote bets (which feels very optimistic). Therefore we can estimate that only about 7% of those 2.8 million bets per week are remote bets meaning the annual potential commission would be £5m. Worse still, to achieve that revenue we would need to sign up 2 million users which equates to £2.50 per user per annum in revenue. You need a very low customer acquisition and service cost to make that business work. You could argue that you will only target people who only bet with friends online but there is no evidence that people like that exist. Betting is a social activity and is technology independent.

Despite this, there was a boom of person-to-person betting sites in 2000, to name but two others, Betswap and Betmart, both of which came up with a very similar model to flutter totally independently. Even late last year a new site, Gottabet, launched. Having worked at Flutter, looking at Gottabet was like watching Star Wars Episode 1, the same idea but more modern technology (no Jar Jar Binks thankfully). Which leads me to my final question, why do internet entrepreneurs and investors seem to love this market? I think it comes down to the simple fact that internet entrepreneurs and investors tend to be young, competitive internet-savvy members of that 4%. And while it makes sense to build a product that you yourself would like, it is always important to make sure that you aren’t too atypical of the rest of the population!

For Gottabet I see if they can develop a bet creation process that is as simple as a text message or an email then they could take a chunk of the remote private betting market but it will be a challenge. Additionally, they could focus on the other part of their proposition which is challenge bets for play money. If they can become the ubiquitous challenge bet widget (which they can then market to the US) then they could be in with a shot at an advertising funded model.

This post has been cross posted from my blog at Big Hand Small Map.

- Flutter was bought out by BetFair in December 2001 —a “merger”, they said.

- Justin Wolfers knows Vince Monical too well. PDF

George and Ned during their summer 2007 internship at BetFair (which lasted one week):

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George and Ned:

We met Kirsten Rawlings who is in charge of the [usability] project. She showed us the company’s latest equipment, the technology was incredible. It included high Tec cameras, eye tracers and a one way mirror.

George and Ned interviewing Martin Cruddace:

How many people work in the legal department?
There are nine lawyers in all. We need this amount as Betfair is a huge company and rapidly growing. Detailed advice is needed as betfair needs to act legally.

George and Ned interviewing Anthony Carlos:

Obviously you deal with a lot of high rollers. What are the characteristics of a winning gambler?
The characteristics of a winning gambler… I would say the main attribute is total professionalism. Those that are successful approach it in a very professional way. We don’t have any successful gamblers who take it purely recreationally. They have different styles and mechanisms and different approaches to how they make money, but essentially it’s down to pure discipline.

George and Ned interviewing David Yu (the BetFair CEO):

How did you come to Betfair?
I was working for Flutter which was started by two Americans [David Yu is American too] and was based in London. Flutter was behind Betfair but growing. I spoke to the founder of Flutter and asked him how the company was doing as my wife was renting a house in California. He told me they were going to merge with Betfair. I rang my wife and told her to forget about renting a house in California and get on the next plane to London. I was working at Betfair a month later. [...]

You later became CEO (Chief Executive Officer), moving from one hot seat to another. Do you enjoy these stressful roles?
Yes, I do. The CEO job is tough because the solutions to your problems are often very unclear, whereas in technology you generally know what you have to do. Betfair is a very big and complex business and heading it up is extremely challenging, but it’s also great fun.

What do you think has got you to the top?
A good manager has to build a top class team around him, and this is particularly important for a CEO. At Betfair there is a team of nine senior executives who are all very good in their areas. [...]

BetFair = great company.