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If you were told by your government that you were too successful and that you would have to pay an additional tax, would you be happy?

Probably not.

But this is essentially what Betfair, the world's most successful online betting exchange, recently told its customers.

The company recently announced that it would be adding a "Premium Charge" that is insists will only impact a small number of its customers - less than 0.5%.

The Premium Charge applies when a  customer has, over the past 60 weeks, mets all of the following criteria:

  • The customer's account is in profit.
  • The total charges paid by the customer are less than 20% of gross profits.
  • The customer bet in more than 250 markets.

Not surprisingly, the response from Betfair punters was not favorable despite the company's assurances that very few customers are going to be impacted. And despite rumors that Betfair might be rethinking its stance because of the backlash, The Guardian reports that the company insists it is moving forward.

While a discussion of the specific issues that led Betfair to think its "Premium Charge" suitable are beyond the scope of this blog and would be boring to those who don't use betting exchanges, there is a lesson here that is applicable to any business - how you treat your customers matters and how you announce and implement changes that impact them makes all the difference.

Perhaps the most curious aspect of Betfair's move is the fact that the company has not tried to hide the fact that its change impacts its most successful customers. Its fee page even states:

"In addition to the other charges detailed above, a small number (less than 0.5%) of our most successful customers will incur Premium Charges."

Notwithstanding the justifications Betfair thinks it has to levy a "Premium Charge" on its most successful customers (which again are outside of the scope of this discussion), in my opinion no wise business ever presents - let alone implements - any change that specifically and overtly penalizes its most successful customers and sends the message to other customers that being a "successful customer" has an extra cost.

In my opinion, it's clear that Betfair has put its own interests above those of the customers it knows are its most "successful." And that's never good.

In theory, the most successful and sustainable businesses are those whose interests are well-aligned with those of their "best" customers (i.e. those customers who derive the most value from their products and services). In other words, the business wins when the customer wins.

Of course, businesses realistically cannot bend over backwards for customers all the time when it comes to maintaining a viable, profitable business. But there's a very fine line between running a profitable business and running a greedy business.

Clearly, Betfair's dominant position in the betting exchange market has given it the belief that it can take more from its customers. Incidentally, this type of belief isn't exclusive to Betfair - eBay faced a similar response when it hiked seller fees earlier in the year.

But because of the nature of a service like Betfair and the fact that it has no qualms about blatantly targeting its most "successful customers," the risk individuals take when their success is dependent on a dominant business is especially well highlighted here.

If there is a bright spot in all of this, however, it's that Betfair has just given its competition an opening and I'm pretty sure that other betting exchanges looking for more liquidity will be happy to welcome the over-successful punters Betfair decided to alienate.

Drama 2.0

Published 25 September, 2008 by Drama 2.0

237 more posts from this author

Comments (3)

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John

The article on betfair may be correct, but the successful cutomers are, in the nature of the use of computer time and capacity, probably costing Betfair money by making the use of their site less easy for the non or less successful customers.

The successful customers are almost certainly traders, who dilute the margins available to punters who have found lucrative bets. In other words, they are saving margins for them, and probably in many cases causing losses.

If the normal professional punter, not trader, cannot profit, he will stop betting. Betfair will lose them as customers, and eventually because there is nothing to milk, the traders will also go away.

So, in making trading less attractive, Betfair will keep its core customers.

As a pro punter, I am exactly that, and when the overlays disappear, so will I, as I am not punting for a hobby, or recreation.

about 8 years ago

Drama 2.0

Drama 2.0, Chief Connoisseur at The Drama 2.0 Show

John: your comment touches on some of the issues that I mentioned were outside of the scope of this post, however they are no less relevant to Betfair's situation.

That said, my take is this: Betfair built its business around providing a market. It even offers an API that it certainly must have known would be of the greatest benefit to "traders."

Betfair is now implementing a policy that will artificially alter the structure of its market - not only for the benefit of certain participants in the market but for itself (another discussion altogether).

That's not the way operators of markets should conduct themselves.

One need only look at major stock exchanges to see how markets really function: you have a wide range of participants, from small retail investors to institutions with billions of dollars in capital to market makers. They all bring things to the table (good and bad).

More often than not, the retail investor gets the short end of the stick. Yet you simply cannot eliminate institutions, market makers, etc. because they contribute greatly to the functioning of the market as well and provide retail investors with much of the opportunity that they do have.

Bottom line: Betfair can't promote itself as a true "exchange" but look to alter the exchange's functioning in such a way that certain types of participants are penalized for their participation.

about 8 years ago

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Anonymous

I just wanted to say that I think everyone is over reacting with regards to the Betfair charges.

In my opinion I think Betfair is taking the right step in ironing out any corruption taken by people that are able to manipulate the markets.

It has nothing to do with bots because the development companies get charged £200 per month to get access to the Betfair Developers Program.

It has nothing to do with high refresh rates by the said bots because customers are being charged for data usage.

It is because of a small minority of people that undestand Betfair intimately and they are able to feed off of the majority of rule abiding punters. They just can't say it publicly.

about 8 years ago

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