BetFair Flashcards
How did the laying and backing mode introduced by Betfair play a significant role in increasing network effects within the platform.
Enhanced liquidity and market depth: The laying and backing model allowed users to set their own odds and stakes, creating a diverse range of betting options on the platform. This increased liquidity and market depth, as there were more potential bets available for users to engage with. A wider range of bets attracted more users to the platform, creating a positive network effect.
Increased user participation: The laying and backing model encouraged active user participation. Users could not only back an outcome but also lay bets, taking on the role of a bookmaker. This engagement created a dynamic and interactive betting environment, enticing users to place bets and interact with other participants. The ability to take on the role of a bookmaker also empowered users and provided them with more control over their betting experience.
Improved odds and better pricing: The laying and backing model allowed users to negotiate and request better odds. Backers could search for the most favorable odds available or even request odds that were more favorable than what was initially offered. This feature attracted users seeking better pricing and increased their chances of finding attractive bets. The ability to negotiate odds and potentially obtain better value contributed to the network effects by enticing more users to join the platform.
Trust and transparency: Betfair’s laying and backing model created a sense of trust and transparency within the platform. Users could see the odds offered by other users and evaluate the market before placing their bets. The transparency provided by the platform increased confidence among users, as they could assess the competitiveness of the odds and make informed betting decisions. This trust and transparency fostered a positive network effect by attracting users who valued fairness and openness in the betting process.
What did Betfair introduce?
The betting exchange model - allowed users to bet with each other rather than against a traditional bookmaker. The exchange worked in the following ways:
Laying: When you “lay” a bet, you are essentially acting as a bookmaker by offering odds for an outcome not to happen. In other words, you are betting against a specific outcome. If you win the bet, you keep the stake of the person who backed the outcome, but if the outcome does occur, you must pay out the winnings to the backer. Laying a bet allows you to take on the risk and potentially profit if the outcome doesn’t happen.
Backing: When you “back” a bet, you are taking the role of a traditional bettor. You place a bet on a particular outcome to happen. If your bet wins, you receive the winnings from the layer (the person who laid the bet). However, if your bet loses, you lose your stake.
Betfair’s role as the exchange operator was to facilitate the matching of bets between layers and backers. They did not risk large payouts like traditional bookmakers since they were not laying bets themselves. Instead, Betfair earned itsrevenue by taking a commission from the winners.
What was the traditional UK Betting Industry?
The traditional UK betting industry, when Betfair was launched, was dominated by licensed betting offices (LBOs) controlled by the “Big Three” bookmakers: Ladbrokes, William Hill, and Coral.
These bookmakers had a combined market share of 60% in 2000. Entry barriers were high due to the licensing system and the substantial investment required to establish a national network of LBOs.
Online betting had a slow start, representing only 0.7% of betting stakes in September 2000. The industry operated in a liberal environment in the UK, with limited restrictions compared to some other countries.
How did Flutter fail against BetFair?
- Flutter failed to recognize the potential of the betting exchange model and focused on facilitating social bets between friends rather than catering to the broader betting market. This narrow focus limited Flutter’s offerings and ignored core betting categories such as horse racing, which already had an established customer base. Ian Davies a racing journalist described them as “a gambling company that had no-one who knew much about gambling” (Ashforth, 2003, p1).
In contrast, Betfair understood the importance of catering to the broader betting market and recognized the potential of the betting exchange model to disrupt the industry. Betfair’s offering was clear and attractive to users, with innovations such as better odds and the ability to both back and lay bets. This appealed to “value punters” who sought improved betting opportunities and attracted a wider range of users.
- Betfair’s betting exchange model allowed for greater liquidity and market depth compared to Flutter’s model, which required a complete match between a single backer and a single layer. Betfair’s model enabled multiple layers to accommodate a single backer’s request, increasing the availability of bets and odds. This created a positive feedback loop where more users were attracted to Betfair, leading to even greater liquidity and market depth.
- Betfair’s commission structure, which rewarded loyalty and retained valuable punters, further contributed to its competitive advantage. This incentivized users to stay on the platform, place larger bets, and contribute to the overall liquidity and activity on the exchange.
