Increasing the number of low value customers
Last week, one of the biggest online betting sites, Betfair, released its results for the fiscal year ending April 30 and it showed a huge loss. The reports posted the previous year showed that Betfair had a £54.2m profit but the big changes through which the company has been going during the last year has resulted in losses of £49.4m. The year in transition showed revenue go down by £1.5 million to reach £387 million while earnings went down by 15% to £73.3 million.
The company has been focusing its efforts on regulated markets and thus distancing itself from potential customers from grey markets, such as Germany, Cyprus and Greece. This refocus strategy generated costs of just under £20 million and largely affected the final results for the year.
Another £82.4 million where invested into Betfair’s attempt to access the financial exchange markets and give customers the option to trade different currencies over the internet.
Betfair still in a good position
Despite the big costs and bad results at the end of the year, Betfair remains in a position of strength in the online gambling markets it operates in and the future seems to be bright for the company. The simpler products now offered by Betfair and the mobile offering which is currently in the works have resulted in a big increase of customers. In fact, Betfair now has more users than it ever did.
The Exchange will continue to be at the core of the business but the increase in customers means that Sportsbook will be able to offer users a simpler product and a wide range of promotions. This will help Betfair attract even more customers and thus increase its revenue through quantity while the quality remains quite low. The best sports betting bonuses offered by the top sites in the business nowadays can make it very profitable for gamblers to start placing wagers over the internet. Promotions include bonuses on the first deposit, free bets and cash back.
Betfair will most likely continue with this strategy to attract a higher number of customers with a small value and not adopt the one mentioned a while back that would focus its efforts on high value players. While there are benefits for both strategies, it is still too early to know which would be better and only time would tell if Betfair made the right decision. Sportsbook customers will certainly enjoy the new services and promotions but the competition from other companies in the industry remains very tough.
The 80/20 Principle
Richard Koch published a book in 1997 called “The 80/20 Principle” which presents a theory that 80% of the results can come from 20% of the customers. Betfair current Exchange section is based around this model but things look to change in the other direction with the new strategy that focuses more on the number of customers.
Online gambling sites are a great example of how the principle works since there can be countless players that enjoy slots over the internet while benefiting from large bonuses. With high percentages offered on the first deposit, casual players tend to spend a lot of time playing for free and this doesn’t do much in terms of revenue for the company. However, a few high rollers or VIP users putting down large amounts of money can bring in the big commissions.
Bet365 has always been focusing on taking in large volumes of bets, with coverage provided for sports around the world, and the company has had great success over the years. In fact, Bet365 hinders big players by limiting the amounts of bets they can place and focuses more on attracting a high traffic with low wages through its flagship product InPlay.
Betfair’s decision to no longer squeeze more money from the big players and instead focus on having more quantity over quality does seem to be the favored choice in the industry right now.
