Thursday, 23 September 2010

Betfair's Future

Some interesting comments in this article from the London Standard including comments about rival exchanges, and Betfair's future: First the bad news: customers who love the Betfair website and want a stake in the company's future success will not be allowed to buy shares in the float.

Chief executive David Yu says they thought about allowing retail punters a slice of the pie but decided the “logistics” of such an operation made it not worth the hassle. So while large institutions will get to buy into the company, the rest of us will have to wait until the shares start trading before we can place our bets.

For a consumer-facing business, one that can reasonably claim to have shaken-up a tired industry in the public interest, this is a disappointing call.

Doubtless it would be expensive and fiddly to set aside shares specifically for small investors but not impossible. Google, another internet company with which Betfair would doubtless like to be compared, managed it with seeming ease, earning kudos along the way as an outfit willing to defy Wall Street in favour of the little man.

Betfair's decision suggests a slight lack of care for the customers that have made it the undoubted triumph it is.

In turn, this is how the company could be weakened. Asked what was to stop a rival — Ladbrokes, say — from hiring a bunch of computer whizzkids, devising copy-cat technology and launching a service called, let's say, GambleSmart, the Betfair bosses more or less replied: nothing at all.

They reckon that over the course of the past 10 years many such rival ventures have tried and failed to eat Betfair's lunch.

Yu told me: “We've seen about 50 exchanges come and go. Every single one of them copied the format. The brutal reality is that it is incredibly difficult to do.”

Perhaps. But one side effect of the float is that Betfair now has to make available a huge amount of information about itself that it could previously keep under wraps.

That information — including numbers about sales and profits — is likely to prove mouth-watering to wannabe competitors.

Somewhere in the mind of a net entrepreneur exists the company that will do to Betfair what Betfair did to traditional bookies.

The company is perfectly aware of this. Indeed, one purpose of the float, albeit of just 10% of the shares, is to give Betfair a currency to retain and attract talent. In an industry moving as quickly as this one, it may well need it.

In the meantime, where is the growth coming from?

The company was today flagging a move into online financial trading via an exchange platform called LMAX.

Punters will be able to take positions on financial markets via contracts for difference.

It might work, but this is already a well-populated field for the present size of the market.

A whole new customer base needs to appear for it to thrive.

Such gripes aside, Betfair has clearly been a huge success story. The future is harder to predict.


Anonymous said...

Betfair have rotten customer relations so not allowing them to buy shares in the IPO is just another extension of that relationship with its customers.

Scott Ferguson said...

it's only going to save customers money anyway... the share price will stagnate anyway.

Betfair have been revealing their hand for years via annual reports, there's not that much else to reveal. The barrier to entry of setting up an exchange is enormous - for years we heard that Ladbrokes, Stan James and other firms were just weeks away from launching their own exchange. Betdaq and numerous others have spent fortunes and are still losing money. You can't even start an online sportsbook these days without spending squillions on marketing just to make a tiny splash. Remember Titanbet just before the World Cup? Has anybody heard of them since??

The only way a new competitor can come in and take genuine market share away from them is if it was already highly successful in another region (eg USA or India) and then crossed over. Liquidity is king, but technology and marketing budget are very close behind. People have moaned about BF for yrs and their changing attitudes towards customers... but still it makes little difference. Punter apathy is their biggest asset....