Thursday, September 16, 2010

In Racing, It's 2004...... Again

I have been fascinated with Internet business since I started working in it, late last century. Reading timely books on the subject and then seeing what transpired today is a wonderful mind-stretching exercise. Sure, stories like the DEC chairman who in 1978 said 'I see no reason why people would want computers in their homes' are comical to read, but they are simple business strategy commentaries. The Internet - and the changes it forced on business, and how business adapted to that change - will be the topic of business books for centuries.

I have always been enthralled with the music industry and their response to the inevitable - downloadable songs. As we all know (circa 1995), you would pay $18 for a CD with 15 songs on it, and the recording industry was super-happy. Getting you to pay for 14 rotten songs and one or two good ones for $18 was an excellent model, since they controlled it. However it was hit by a sea-change in 1998.

They did everything they could to stop it, but the power of the consumer and the change in deliverable made this a futile pursuit. Several years after this occurred, the industry read the writing on the wall, but it was simply too late. Steve Jobs, and others, reaped the windfall.

I had a fun time reading similar about racing. I have long watched Betfair fill a consumers need with laser-like execution, fixed pricing, technological development and innovation and lower prices, since about 2001. When I first mentioned it to someone in racing, the conversation was short; "they are pirates and must be stopped". It was, in effect, the exact same conversation Steve Gordon had with Sony Music, as detailed in his book The Future of the Music Business: How to Succeed With the New Digital Technologies.

I glanced back and re-read an article, first published in 2004 in a gambling magazine, about "Racings Response to Betting Exchanges". It is a real eye-opener, because everything in the article is now considered common sense. However, what I find even more interesting (some would say disturbing) is that now - six full years later - we are still talking about the same things, like they are somehow even debatable.

Santayana said "Those who cannot remember the past are condemned to repeat it." We see that each day in our sport it seems.

For a copy of the article, which I think anyone with even a cursory interest in racing and the Internet, should enjoy, it's here. Again, it is from way back in 2004.

Some quick highlights:

We live in a cocoon, but this is not only about us.

** "Internet-related technological change isn’t some isolated one-off phenomenon that affects just the racing industry. The Internet is realizing its promise: it is wringing inefficiencies out of industries across the economy, lowering consumer prices for goods and services through more perfect information."

Would you believe Wifi wanted to be blocked and licensed too? Have you been to a coffee shop lately?

** "This, too, is probably in its early stages. Wi-Fi- yet another technological innovation-lets consumers bypass cable modems and DSL and get high speed connections just about anywhere–in many cases for free.

Does that sound like file sharing? It should. A couple of weeks ago Verizon lobbied Pennsylvania’s legislature into passing a law that would prevent Philadelphia from creating free or nominal cost Wi-Fi access points everywhere in the city–which would pretty much invalidate Verizon’s DSL service business model in Philadelphia."

Low prices, which we all have taken advantage of each day when we buy things on the net, is not just for those items; it's for racing too.

** "You will also find lower prices. Much lower prices. Betfair’s business model derives revenue from a commission on the peer-to-peer bets it matches: this commission seems to range from 7% to 9%. That is, of course, very much lower than the north-of-20% takeout that is commonly deducted from pari-mutuel wagers in the United States. Serious horseplayers are among the most price-sensitive consumers of any kind in any industry, and Betfair’s pricing is irresistible. Offshore betting services and rebate shops also offer lower prices, of course. Downward pressure on the price of betting horses is a structural change in racing’s market environment; betting exchanges contribute to this pressure but it would exist even if the exchanges shut down tomorrow."

More at link

I truly believe our business is going to be written about for many years, and we will be studied in business classes over and over again. Unfortunately, I feel it will be for all the wrong reasons.

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