BizOrigin

Intrade: Fantasy markets making real money

According to the WSJ’s fantasy political market, today’s top pick for president is Barrack Obama (trading at the highest price), followed John McCain and Hillary Clinton. The most active trading is for Mike Huckabee (largest volume of shares traded).

Fantasy betting has risen considerably in popularity in recent times, with web sites devoted to picking winners in every sport from football to fly fishing. The built in social network of most sites allows users to participate in fantasy betting with friends and family.

 BetFair as the front runners in the prediction markets game. 

BetFair is aimed at the European market and charges commissions on winnings (there is no charge for a net loss). Betfair was founded in 1999 and claims to process 15 million trades a day.

Intrade powers WSJs fantasy political market. Trading on the prediction market is simple. For example, if you think the likelihood of Hillary Clinton becoming president is more than 17% (see table above for Ask price) you buy contracts. If you think the probability is less, you sell a contract. The site charges 5c per trade. Members buy and sell contracts against each other. Intrade charges 5c per matched trade.

The big question is - other than being quite entertaining, are fantasy markets able to predict the outcome of events in a reliable fashion? Given that the betting is probability based, one can infer that with a suitable, unbiased population size, the predictions should be at least as good as those of the experts - similar to the financial markets where the success of the expert predictions of, say, the level of the S&P index in the future, has been no higher than those of the lay person. In a market where the collective thought process actually influence the outcome, it is very likely that the aggregate forecasting ability of the masses will actually provide a more accurate representation of reality.

Earlier we looked at crowdcasting and polling as ways of harvesting collective wisdom. Predictive markets are like 4 dimensional polls in that they have a time component folded in. Like true financial markets, they reflect the quicksilver nature of changing sentiments.

By the way, is the US in recession in 2008? According to Intrade, 65% think so!

Do you spend time on the Fantasy betting or Predictive markets sites? Take our poll on the sidebar.

              No Comments

Hot or Not Valuation - $20M is way too low and is very likely wrong

I am intrigued by the metrics and the factors related to the valuation of online enterprises (see here, here and here). Every time there is a new major acquisition, it gives us a new data point to calibrate the dynamics of the current market conditions and expectations.

Blogosphere is reporting that Hot or Not was acquired for $20M by a Canadian company, Avid Life Media. HotorNot is an online photo rating site that has a dating component to it.

HotorNot’s web strategy gives some insight in to the free vs. paid service models. HotorNot had a paid "premium services" model and they claimed that the conversion rate was very high (as much as 15%; typically it is 1 to 3% for similar sites). Then last April, in a very bold move, they changed their business model and decided to go the completely free route.

The site did see a huge jump in traffic; from 6M visitors per month to 10M visitors/month; the revenue from advertisements and virtual gifts increased, but not to the level that would make up for the lost receipts from the membership plans. Of course, a period of few months is not enough time to gauge the effect of a major transitions, but it was interesting to watch them go through the transformation.

With the free service, came spam; and I understand that they have gone back to the paid premium service model, mainly to protect the users from getting junk mail.

From the Alexa traffic graphs, it seems that they did experience a huge traffic boost but it was not a sustained one; the traffic is back to the pre-free-model levels.

There are reports that HotorNot was acquired for $20M but I hesitate to believe these figures.

Some of the available stats about the site are as follows: Annual Revenue(est.) $5M; profit (est.) $2M; the current visitor count has stabilized to around 5M visitors/month. They also have an established brand and a significant presence on Facebook.

Given these numbers, where would one peg the valuation of HotorNot?

As a comparison, Face book has about 100M monthly visitors (theoretically valued at $15B) and Plaxo has about 2M visitors/month, and was looking for a valuation in the range of $200M.

Another variable that goes in here is that HotorNot is a risqué dating site, and traffic on similar sites does not monetize well.

Even after taking this in to account, I find it hard to believe that HotorNot would receive a valuation of $20M, I think there are some multiples missing here.

If I were to throw out some numbers, I think the total package that HotorNot sold for, might be about $40M, may be $50M (but definitely not $100M).

Well, we will know in a couple of days.

You can add your estimate of the valuation in the poll (current poll is on the sidebar, see here for the results of past polls)

              2 Comments

Predictify the Presidential elections

Question: Who is going to win the Democratic primary nomination
Prediction: Barrack Obama

That is according to Predictify, an online site crowdcasting site that uses the wisdom of the masses to "predict" the outcome of events.

The Preditify process is simple. On the site, you can either predict the outcome of events, or pose a question along with multiple choices, and let the global crystal ball steer you towards the truth.

Posting is free if you want up to 200 responses (after which that poll is closed), or you can post a premium question for which you get charged $1 per response up to the maximum number responses that you want to generate. Premium questions ask for some personal information from users. The overall demographic information is available online and also shared with the poster of the question.

The following were the responses to the predictions for the Oscar for best picture.

Questions range from politics and current events to sports and pop culture.

So can the wisdom of the crowds be trusted? You be the judge

Question: What position will Hillary Clinton finish in the 2008 Iowa caucus?
Prediction: 1st
Actual: 3rd

Question: Who will capture the most delegates in the Republican primaries on super Tuesday?
Prediction: John McCain
Actual: John McCain

The first poll (at the top of this post) which places Barrack Obama as the popular choice for the democratic primary nomination might be suffering from population bias at this point (as they say, time will tell). Young, energetic democratic voters who spend a large part of their time on the web would be expected to support Barrack Obama in large numbers.

Which brings us to the next question; is there any real money to be made on the site? The answer is yes but it depends upon your definition of real. Part of the pot in premium questions is shared with the predictors. The amount depends on their accuracy, level of expertise and how quickly the users responded to the question (ie before the wisdom of the crowds became apparent).

The current top winners on Predictify are listed below. the #1 predictor’s payout is $154 or about $0.05 per question. There are respondents who have higher accuracies and are generating $0.50 per poll. Meanwhile, it would be safe to predict that the users of the site are hanging on to their day jobs!

Question: Would you trust the wisdom of the crowds to make business decisions?
Take our poll (current poll is on the side bar; see here for past polls).

              1 Comment

Twiistup 3

I had the chance to attend the Twiistup 3 event last Wednesday, which took place in Venice, CA at “Air Conditioned.” For those who are unfamiliar with Twiistup, it’s a quarterly event thrown at a nightclub to showcase prominent tech start-ups in southern California. The hip venue, dim lights and flowing drinks establish Twiistup as a step removed from shirt-and-tie networking events thrown at your local Marriott (see pics below). The feel on Wednesday night was more “Hollywood” than “board room,” which is what makes Twiistup unique. And just like a true Hollywood style event, this one wouldn’t have been complete without celebrity blogger Perez Hilton (perezhilton.com) in attendance.

Here are the nine companies that were showcased:

• Askmenow - Mobile and desktop search platform, creators of askwiki
• Docstoc - Professional document sharing community (disclosure: I’m interning at Docstoc)
• Magento - eCommerce platform
• OfficeZilla - Create and manage your own private intranet
• PeopleJam - Social community focused on personal goals and empowerment
• Rubicon - Connects websites with over 300 advertising networks
• SpeedDate - Web-cam speed dating
• ThemBid - Allows businesses to bid for local jobs
• Yellowbot - Local reviews and recommendations

Since I spent most of my time at the Docstoc booth, I didn’t get a chance to look at every single company. Although out of the ones I did check out, I liked SpeedDate a lot. Once you login and click ready, you are instantly matched with another SpeedDate user and thrown into a video chat. The initial chat only lasts 30 seconds, after which you can click ‘yes’ or ‘no.’ If you both click yes, then the conversation continues for 3 minutes. After your time’s up, you are both matched up with new people and the process starts again. By the way, if anyone is still skeptical about online dating, don’t be. Take a look at these statistics from Mark Penn’s 2007 book Microtrends:

• 61% of online Americans do not consider online dating “desperate”
• 1 in 4 single Americans who are looking for a romantic partner (about 16 million people) use an online dating site
• In 2004, online dating sites netted roughly $470 million, up from $40 million in 2001
• 92% of married couples who met online describe their marriage as “happy”

Of the two people that were presenting at the SpeedDate booth, the woman I spoke to was a promoter contracted to do publicity by the company. I’m not sure about the other guy, but it would have been more informative if the actual owners or members from the development team showed up. Regardless, the product looked cool and they were giving away free webcams at their booth. Score.

Webcams weren’t all that were being given away at the event. Perez helped give away three Rock Band videogame packages, which I desperately tried to win. Those couldn’t compare to the grand prize, though. Each attendee to Twiistup 3 was given a token to hand to their favorite showcase company, and whichever company had the most tokens at the end of the night was presented with free web hosting from Media Temple, a $5000 search campaign from Yahoo! Search Marketing, and a 1 on 1 consultation from Clearstone Venture Partners. The winner? Rubicon. Coincidentally, the company won’t have much use for the Clearstone consultation, as the VC firm were the ones who funded Rubicon for $4 million in a Series A round in October ‘07.

All in all the event was a success and lots of fun. I’m looking forward to Twiistup 4 and will be sure to make a post here for our SoCal readers as soon as the next event’s details become available.

              2 Comments