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Tuesday, September 27, 2011

EiG 2011 Milan Gaming Conference: What A Difference A Year Makes!

I attended and chaired a two day session on game development at the 2011 European Internet Gambling (EiG) conference and was surprised at how the European online gambling business community had  changed its positions and attitudes on a number of different topics from the year before.

So what was the catalyst  for this change and what changes are occurring ?

Social Networks - For years the I-gaming industry has dismissed or only partially entertained a relationship with social networks seeing the networks as at best, distantly related to their business and not a significant source of gaming revenue or player acquisition. The argument being that "gambling" was not allowed in Facebook, the potential players were to young, the players would not transact for "real" money, etc. 

Well that has changed evidenced by the opening CEO panel direct acknowledgment that they see social networks as one of the most important initiatives over the next year. More importantly they are actually executing on this plan now by launching exclusive social games and closer integration of their gambling games with their social game offerings.

 Despite all the attempts by gambling operators to dismiss Zynga and other successful social network game companies as low revenue, not real gambling, and not a source of quality gambling leads the numbers are so overwhelming that gambling operators have to take notice. Zynga has a predicted 2011 revenue on the low end of 600 million USD.  Social games in aggregate are now producing more revenue then advertising for Facebook. It is estimated that 1 billion USD and 60% of Facebook's revenue is coming from social games. If you are a CEO of a gambling company and especially a public company you have to have an answer for the social gaming phenomena.  To give the gambling business credit they are actually doing more then talking about their position relative to social networks and games they are  actively engaged in a number of social network and game initiatives.

US Online Gambling - The potential that the US market might open up to online gambling is also driving more awareness of the role of social networks and social games in the US market. The fact that the US market has banned online gambling has resulted in US players seeking a proxy for gambling within social networks and casual games. Zynga poker is the obvious corollary and the most visible one. However, fantasy sports is big in the US with a number of sites launched in Facebook and in standalone web sites. These gambling models may actually remain popular even after online gambling is legalized in the US. The gambling companies will have to launch similar sites or engage in business deals to up sell players to traditional gambling propositions.

Social Networks As A Player Acquisition And Retention Tool - With so many people active in social networks  many of them playing games in social networks the operators are realizing that there is a potential up sell opportunity. Also, the appetite for gambling style social games has been proven (Zynga). If you can publish a game in Facebook that is like a gambling game and you have good profiling business intelligence to profile players you are going to get conversion.

Retention is also very much an issue with gambling operators. There focus on acquiring, monetizing and not retaining players with alternative lower cost or alternate game play results in very high fall off of players. Social games could be an answer to this problem.

Virtual Currency/Goods - The social games that European gambling companies are building are taking advantage of virtual currency/goods transactions. Virtual currency is a proxy for traditional gaming money transactions and is legal because the prize payout is in a virtual format and not a "cash" payout. The gambling companies are starting to realize that this is a better business model then their cash business because players do not get paid for their winnings and their is no concept of a traditional wallet. All of the money stays with the operator.   A previous barrier to gambling companies taking virtual currency transactions seriously was the low individual transaction amounts. The gambling operators, based on the Zynga model, realize that if a game becomes truly social the amount of transactions can be very high resulting in good revenue per game. The other phenomena that gambling operators may be aware of is the social game "whale" phenomena. At the GDC conference in San Francisco this year a speaker identified a class of social gamers  as whales (sound familiar). These social gamers are transacting up to $150,00 USD a year in virtual currency/goods transactions! Granted the number of players in this classification are small relative to the overall social gamer numbers. However, their profiles and gaming behavior is very similar to the high rollers at land based casinos.  These players are getting VIP treatment from the social game operators for obvious reasons.

Social  Gambling Games - The majority of the games being developed by the gambling operators are social games that mimic real gambling games or could potentially have up sell potential into traditional gambling games. Bingo or bingo derivations  are the obvious choice because they are inherently social games and they have gambling cross over potential.

 Social Game Mechanics In Gambling Games - More interesting is the development of traditional casino games injected into a social network context. Clearly standalone casino games have very little chance of being successful in the  context of the social web. Games have to have social components to encourage communication, rivalries, status among peers, etc. to grow a large enough communities to make the economics of social games work.   The components being added to traditional casino games are leader boards,  competitions around the leader boards to encourage players to invite others to the competitions and to provide visibility  and status recognition of players. Essentially, gambling operators are learning how to create communities of gamers. According to one operator the addition of "game mechanics" have proven to be very successful.

Branding/Monetization/Upsell - In the game development sessions I chaired participants where keen on making money in social games that deviated from gambling transaction revenue.   In the ICE Game Monetization sessions this year this topic was discussed with little enthusiasm from the traditional gambling community. That positioned has changed. I am not sure exactly  why. This new position could be influenced by the developers study of social games where branding is one of the most lucrative ways to monetize games. Branding is such a good revenue source for social games because of the "engagement" time of social games. Real gambling games have  the same engagement characteristics. 

Game Development And Mobile Game Influence - The rise of multi platform game deployment and the increased importance of mobile gaming has changing the way gambling game operators are approaching game development. Traditionally games have been developed for the native platform(PC, Web, Phone, etc) to extract as much functionality from the platform to create an optimal game experience. This approach has been challenged by two developments. The market requirement to launch games simultaneously on Android, Apple, Facebook and web is making this approach expensive and increasing the amount of time it takes to realize the full potential for a game.   HTML5 is now seriously being considered as the game development environment of choice to allow for cross platform  near simultaneous  game deployment. It is also being employed to decrease the cost of development. In the CEO panel one of the CEO's  specifically stated that their future games would be developed in HTML5.

Sophistication Of Games -  The area of game development that really impressed me at the conference was the level of sophistication of casino style games. The multi-level and multi-dimensional games being developed are fascinating and speaks to the study of player behaviour invested in these games. The sophistication is not necessarily expressed by increasing complexity. In some cases the game itself is very simple with added emphasis on key aspect of the game that increase game play time and of course revenue.

.Com Versus .Country - Europe has decided it is going to create a country by country regulatory regime forcing gambling operators to offer games only to their residence and excluding gambling operators that do not have licenses within a particular country.   The motivation for this is well understood as each country struggles though the current economic environment looking for revenue anywhere a government can find it.     However, the impact on Internet gambling in Europe will be profound.   Essentially, the cost of doing business will go up, innovation will be constrained and over all gambling revenue will decrease especially for social games that require large communities to keep the games interesting.  This model may also  break down and not be viable in  countries with smaller populations. What will be the options and approach in this situation?

This trend may also be one of the reasons why European gambling operators are going social. They realize that they have to find other less costly. accessible  and lucrative markets to survive and to grow.

Overall, this conference was the first European Internet Gambling conference where I got the sense that the European gambling community understands that it is part of a much larger online gaming community. This realization has given new life to an industry that traditionally defined itself as an isolated online gaming island. The conference was refreshing, with high energy exhibited by the people actually building the games. They where excited about the social gaming opportunity, mobile game development, cross platform development, etc.

 The new and emerging European gambling regulatory model will be challenging resulting in a consolidation in the industry and fewer competitors. US legislators will no doubt be looking at the new European regulatory model and decide if the would work in the US(.state versus .com).

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes extensively about online games and their impact and integration into iGaming and E-commerce environments. Kevin is a frequent speaker at online game events and conferences in Asia, Europe and the US. Kevin and his Gameinlane team are currently working with online gambling, social gaming and e-commerce companies integrating social gaming with online gaming operations and integrate game mechanics into e-commerce applications.   


1 comment:

Kevin Flood said...

The question of age and location verification has come up several times in the context of Facebook's Internet gambling program. I suspect that they will defer to the Internet gambling operators to enforce government mandates. The Facebook contract with the gambling operators will clearly state that if there is any violation in this area that they will be removed from Facebook.