Recently, I returned to San Francisco from a four week trip abroad(Nepal). Within several hours of my return I was confronted by a colleague telling me that Facebook was going to allow "real" gambling on its platform. I found this interesting but not surprising. Further investigation has revealed that Facebook has been in discussions with legal online gambling companies that have successfully acquired large numbers of social gamers and Facebook gambling enthusiasts in Facebook. 888 and Gamsys are a few of the names explicitly mentioned in the context of the Facebook gambling initiative.
I am not surprised by this because Facebook has been considering online gambling as a revenue stream for longer then people realize.
In 2005 I returned from the UK after having spent 3 years launching and running online gambling sites for US based casino operators. One of the first people to approach me about European Internet gambling was a representative form Facebook. This meeting was very hush hush with the representative from one of Facebook's VC investors leading the charge on questions about revenue per player, cost of acquisition, age and identity checking, the regulatory process, etc. relative to Internet gambling.
I never heard from or saw this investor again. However, it was clear then as it is now that Facebook continues to view Internet gambling as a potential source of revenue.
Fast forward to the introduction of applications on the Facebook platform in 2007 with Mark Pincus' poker application being one of the first applications launched in Facebook(this is a story in and of itself) and the eventual domination of Facebook social gaming by Mark and Zynga. Zynga eventually began to sell leads/players to traditional Internet gambling companies to generate revenue. It is no accident that the first really successful application in Facebook was a social gambling application.
Zynga and other social gamers adopted virtual currency and goods(poker chips) in early 2010 as a means of generating revenue from games in Facebook. By the way they actually copied this model from the Chinese casual game companies that proved this model could work. This step was a big one with the leap from advertising as the primary Facebook application revenue source to a transaction model leveraging game virtual currency as the primary source of revenue. This move also conditioned players to pay for play in Facebook.
Later in 2010 Facebook's counters the social gamers virtual goods and currency initiative by creating their own virtual currency in the form of Facebook credits and forces all of the social game companies to use this currency and pay Facebook 30% of the proceeds! Virtual currency and goods revenue is now 60% of Facebook's revenue exceeding advertising revenue. Facebook realizes at this point that its fate and success are directly linked to games and social game revenue.
In 2009 I started to talk to the Internet gambling companies about the importance of social games as a means of acquiring potential real gamblers. I was not taken very seriously until late 2010 when traditional gambling companies began to realize that social gaming itself was a market they wanted to explore. In 2011 the entire Internet gambling industry is all in in regards to social games with most of them launching Facebook games and Facebook Fan pages. The Internet gambling companies are experimenting with up sell from their social games into traditional gambling venues. They are also using social gaming as a holding area for fatigued gamblers.
The 2011 IPO filing with the SEC has also driven Facebook closer to flirting with allowing Internet gambling because Facebook needs that revenue if it wants to have post IPO(float) revenue to support its stock price. Facebook does not want to be another Groupon with a falling post IPO stock price due to disappointing earnings. Facebook realizes that its overall growth wil began to taper off after its current growth markets in Asia begin to cool off. In a world of slow or slower growth Facebook needs to get more revenue per Facebook member. Gambling is an additional source of revenue they can exploit.
So will Facebook officially allow sanctioned Euro zone licensed gambling operators to take wagers within the Facebook environement from Facebook members in 2011?
I suspect Facebook will explore this if the SEC, US and EU authorities give them the nod. I would be surprised if it happens before the IPO. Expect this sometime in 2011 after the IPO.
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.