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Tuesday, September 4, 2012

Are Social And Freemium Games Stealing Players From Internet Gambling Operators?

There has been a recent surge of freemium and social  virtual currency based gambling style games in Facebook and on mobile devices. The number of offerings and the amount of players is staggering. It is estimated that  Facebook social games have 49 million active users per month. The mobile freemium and social gaming space is even more impressive with projected revenue growth rates of 3.37 USD by 2014. 38% of the US population has played some form of mobile freemium game. 40% have transacted with virtual currency.  In China, Korea and Japan freemium and social virtual currency games are the primary source of entertainment online.  There is a new announcement everyday indicating that traditional Internet gambling businesses and land based casino operators  are launching social and freemium game properties. Conversely, the Internet gambling market is not growing anywhere near the growth  rates of social and freemium games. Increasingly complex  legal regulations are causing the European gambling market to constrict and at the same time the cost of operating an Internet gambling operation in Europe is increasing.   This begs the question as to what the true motivation is for existing Internet gambling properties to enter the social/freemium gambling space.

Social/ Freemium Lead Generation - The conventional wisdom has been that the Internet gambling companies are most interested in the cross over from social/freemium games to Internet gambling games. The notion is that some percentage of social/freemium players will cross over to traditional gambling if properly incentivized. There has been some history with this approach. Zynga has sold leads to European gambling sites over the years. However, the conversion rates of these leads has been poor. Part of the issue with this approach has been the lack of "profiling"  of social/freemium players  to determine what players would most likely convert to Internet gambling players.

Social/Freemium Standalone Business - Two years ago at the ICE gambling conference in London I had the opportunity to chair a number of sessions on freemium/social  games. During this conference the traditional gambling operators that had purchased social/freemium and mobile gaming sites indicated that they were more interested in this space as a separate business unit and had no intention of trying to move players back and forth between gambling and social/freemium properties. This was the first indication to me that Internet gambling properties were seriously thinking about the freemium/social space as a separate business unit. 

Abandoning Internet Gambling Business Completely - This may appear to be far fetched at this time. However, with the increasing difficulty of making an Internet gambling business work in an environment were regulators are more interested in short term tax revenue then they are in the survival of a once thriving business model, i.e. the death of .com and the emergence of .country, I am sure the Internet gambling operators are going to be looking closely at the numbers of both business models. If freemium/social can break even for the gambling companies the operators may just decide to close the gambling operations all together.

Impact Of Potential US Legalization Of Internet Gambling - Since October of 2006 Internet gambling has been illegal in the US. The law supporting that legislation has proven to be unenforceable and is about to be rewritten on a federal and or state level. This means that one day an Internet gambling operator could wake-up to find that it is once again legal to take wagers from  US Internet gamblers.  The problem is that these operators will have to figure out how to instantly acquire these players. Clearly, some of the gambling operators see social/freemium as a way to pre-acquire players, establish brand awareness and if the operators are smart, profile social/freemium players to determine the likelihood of social/freemium players converting to traditional gambling.

Social/freemium games provide a number of opportunities for existing Internet gambling operators. The Internet  gambling operators know how to acquire players, monetize them, retain them and run very efficient  businesses.  Certainly operating a social/freemium gaming site is different from operating an Internet gambling property. Also, the gambling operators are late to the party (no pun intended). However, I suspect they will adapt to the social/freemium world quickly.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes  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:

Steven Kane said...

great stuff, kevin, thanks. more, please!