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Monday, January 7, 2013

The Merger Of Social Casino, Online Gambling And Land Based Casino Business Models

Over the past two years we have seen the rise of the "social" casino in Facebook and on mobile devices with traditional online gambling businesses jumping in offering their own social games.  Last year we saw the US land based casinos embrace  the "social" casino as an adjunct business and a traffic driver for  land based operations.  In the  last half of  2012 Facebook opened up its platform to "traditional" online gambling operators allowing a few anointed gambling businesses  entry to  Facebook's closed community.  This activity is an indication that  there is inertia hurling social gaming, online gaming and land based gambling forward into 2013.

The attractiveness of combining gaming businesses is driven by the inherent  "stickiness"of  game  play relative to other forms of recreational activity. This is especially true in the online space.  An average hold time of a visitor to a web site is counted in seconds. Player time in a game is much higher given the propensity of some people to spend hours playing a game. Add to this the possibility to have the social games themselves generate revenue and you start to understand the inherent value proposition of investing in game content. The attractiveness of game content extends beyond the casino industry. The concept of "gamifying"  web site, mobile or Facebook apps even if the business is none gaming related is becoming popular with many standard  land based brands such a Coca-Cola and Disney actively engaged and launching game like destinations.

So where will bricks and mortar, social games and online gambling businesses take online game content  in 2013?

Social Gaming, Online Gambling And Land Based Casino Mashup - Certainly we will see each of the independent sectors, social games, Internet gambling and land based  sectors continue to move forward with their traditional business models and lessons learned from 2012. However, a mash-up of all of these models is going to become more important in 2013 taking advantage of the differences, co-existence and potential merger of all of these business models into a consolidated operation. There is a real benefit to combining the the different game models. Player/customer acquisition  and a combined wallet are two important reasons.

Social Games -  Standalone social game companies and social game divisions of land based casinos and online gambling businesses will add more game content, retire game content and modify  existing content at breakneck speed to try to stay ahead of the competition and to satisfy the increasingly impatient social game community's appetite for more content, more creativity and more frequent change to game content.  Social game companies that where exclusively social in 2012 will explore online gambling as a new business model. This may prove challenging for them as my recent blog "Social Gaming Companies Enter The Online Gambling Space: Think Before You Leap" calls out. The transition from social gaming to online gambling is a quantum leap for most social game companies.  It also appears that Facebook is prejudicial about what companies they are going to allow to offer gambling in Facebook with an obvious bias towards existing online gambling companies. 

Online Gambling - Online gambling operators primarily focused on the European market will have to deal with their ever decreasing audience and higher cost of acquisition caused by the country to country regulation model. The number of online gambling operators will decrease as the British government repatriates licensing form the British protectorates (Alderney, Gibraltar,  Malta, etc.). This compression in the online gambling sector will force traditional online gambling businesses that have shunned social games as an uninteresting business model to reconsider it as an alternative and or supplement to their gambling operations. This trend will be fueled by the decreasing likelihood of any meaningful online gambling legislation  in the US in 2013. 

US Online Casinos - In 2012 we saw a flurry of activity by the US casinos to partner with online gambling and social game operators. We  also saw the US casino's directly invest in social game businesses as an adjunct to their land based operations for the purpose of developing an "online" brand for their land based business,  to drive traffic to their land based properties and to develop expertise in operating online gaming businesses.  With  uncertainty about when  online gambling will become legal in the US land based casino operators will continue to develop and launch social gaming businesses to acquire online online players in anticipation of one day being able to convert these players into online gamblers.

Gaming Model Mash-up - Given the afore mentioned activity of the three main stakeholders in online and land based gaming it is clear that a tight merger of social, online gambling and land based gaming into a single roll-up business is going to emerge as a daunting and powerful business model.  The  advantage of  a physical casino presence,  capturing and holding customers for long durations and monetizing them with physical game content and non-gaming revenue activities, combined with social gaming player acquisition and player monetization with virtual currency, plus the acquisition and monetization of online gambling players with their relatively(to social gaming) high online revenue per play creates a daunting revenue and brand recognition engine.  
The one major hick-up to this is who is going to know how to operate and run such a business. Clearly the skills to run a land based business, social gaming and online gambling business  are different. This has proven to be a problem in the past with US land based operators trying to run online gambling businesses using land based executives not skilled in this area. Conversely, it is hard to imagine a social gaming executive or an online gambling executive running a land based operation.

Unfortunately, the proposed business model does not work as a collection of independent divisions because each of these models is co-dependent on the others if the full benefit of this merger is to be realized. Someone has to know all of these models really well and be able to pull together an organization that can collaborate and move very quickly to react to market, regulatory, competitive and technology changes within these gaming domains.

2013 will prove to be a winning year for companies in the acquisition sights of organizations looking to consolidate the various gaming models. Collaborative business deals between social and online casinos will also be popular with both social and online gaming businesses realizing that it will be hard to do both models well and in time to address rapidly developing social and online gambling co-dependency.    Land based casino and lottery operators will increasingly feel  pressured and threatened by mega deals that involve land based, social gaming and online gambling mergers. Cost of acquiring social casino gamers will go up because of the competition for these players. In addition, social casino games will have to add features and functions to them that differentiate them from the standard slot or table games currently seen in Facebook and  on Apple, Android devices.

Kevin Flood is the CEO of Gameinlane, Inc. Gameinlane works with companies in the social, Internet gambling and land based casino sectors developing game content and online gaming strategies. Kevin is a frequent speaker at social game, Internet gambling and casino events and conferences in Asia, Europe and the US. Kevin is currently working with organizations to determine their acquisition and merger strategy as it relates to the growing interdependence of the various game content and delivery platforms.

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