Betfair Case

Background:

"Just as energy is the basis of life itself, and ideas the source of innovation, so is innovation the vital spark of all human change, improvement and progress." (Levitt).

Innovation is the lifeblood of a modern society. Certain innovative ideas are seen as revolutionary at the time of conception because they go against the established order. Innovations have the power to improve lives, to change the way in which whole industries operate and to push the frontiers of science.

Innovative ideas are developed for many reasons. Two such reasons are that an entrepreneur spotted an unfulfilled gap in a market or because he was simply disillusioned with the established way of carrying out a process, (Johnson, 2010). These two reasons can indeed be credited as the reasons for the birth of the innovation I shall be discussing.

The online betting exchange idea was first conceived in by Andrew Black in July 1999 because he was disillusioned with the 'house advantage' bookmakers enjoyed and because he spotted that no-one in the market offered a peer to peer betting system, (Black, Success Stories, 2003). With the help of Edward Wray, Black launched the company Betfair, trading as a website in June 2000.

The online betting exchange revolutionised the way money was wagered online. In an industry where once the bookmaker was king, Betfair has passed the crown onto the consumer.

Attempting to build a business on the back of one innovation requires balance between creativity and commercial realism. There must be compromise between the different needs of the company in order for the balance to be struck.

Betfair needed investment in order to be able to take its betting exchange to market. An unsuccessful attempt at raising venture capital left the company facing financial problems. To combat the investment issue, Black and Wray changed their approach to funding their business and implemented a different capital raising mechanism. Black and Wray sought out wealthy individuals to pitch their idea to and would leave presentations having secured £25,000 from each investor, (Black, Success Stories, 2003). The success of this scheme in generating a high number of investors gave the company the money to start building a business. However, the amount that Black and Wray were able to raise was a mere $1-2m which paled in comparison to the $44m, (Gabbay, 2007) that Flutter, a firm which copied Black's idea and was threatening to go to market before Betfair, had raised in venture capital.