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Monday, March 18, 2013

Wake-up Call For Social Game Entering The Internet Gambling Market

I recently wrote a blog about social game companies entering the Internet gambling market. This blog generated a number of questions prompting me to add more details about the prospect of moving a social gaming company into the Internet gambling space.  These questions have an attached aspect of awe and excitement   combined with a sense of bewilderment on where to start and what to expect.  In point of fact, the Internet gambling business is very different from a social casino's  business model requiring changes in the product development life cycle, financial structure, organizational culture, marketing approach and regulatory position of the company.  Essentially, most social casino and social game companies that want to enter the gambling space will have to "mature". The maturity step is very similar to a company going public with much more attention on public scrutiny and accountability for all employees and contractors within an organization.

This is not to say that social game companies should not enter the gambling space. However, it should be done after careful consideration and preparation. In most cases an exhaustive  study will convince most social casino operators that Internet gambling is not for them and that is OK. The ones that do decide to move forward need to understand and address a check list of items.

Mature Legal Internet Gambling Market - The legal Internet gambling market is actually very small compared to the social gambling market making it a highly competitive space relative to the social game market. The UK in particular is a very mature Internet gambling market with well established companies having been in the market selling product for decades. I mention the UK because many  social game companies are looking at the UK as a first step into Internet gambling. Growth in the UK gambling market is tied to population growth unless an organization can offer a "new" gambling product that is not currently being marketed in the UK. Offering yet another Bingo or Slot game is not considered "new" to the UK gambling population.  An example of a new and unique UK Internet gambling product that did make a difference 10 years ago was  JackPotJoy's  bingo product. They introduced a cleaver "rake" model style of bingo that took advantage of the natural "social" nature of bingo. The rake was important because it provided a revenue stream from every game played. The speed of the games and the frequencies of the games also increased the excitement of the game and the amount of money being "racked".   Fast poker or speed poker also comes to mind as an innovation in the gambling market. However, generally speaking iteration and new Internet gambling games are rare requiring social game companies to compete head to head with established content and  companies.

Cost of Acquisition - I am not sure social casino companies really understand the gambling player acquisition model. Given the highly competitive nature of Internet gambling and its rather small player population relative to social games acquiring a "gambler" can  be expensive. It is not uncommon to pay anywhere between $300 and $600 dollars to acquire an online gambler!!   Granted an individual gambler will contribute much more to the bottom line then a social gamer thus making the Internet gambling model viable. However, that first hurdle of acquiring them in a crowded market requires significant investment.

The Pace Slows Down -Legal Internet gambling is subject to rules, regulations and public scrutiny not currently found in the social gaming space. There is very little a legitimate Internet gambling operators can do privately. The odds of winning, the age and location of players, the finances of the company, employee background checks, etc. are all subject to some kind of review. This leads to a general slow down in the amount of product released to the public and the degree of product iteration that is tolerated. In essence your competitors will be able to copy your new product or your model quickly.

What Social Game Companies Have That Internet Gambling Companies Do Not - Social games can attract large numbers of players relatively quickly using the social mechanics of Facebook and the rapid growth rate of mobile game play.  Unencumbered by regulation, social game companies can reach large audiences and iterate quickly to address competition and changing consumer preferences. Social game companies can grow and shrink staff and budgets  quickly because they do not have to maintain any fixed regulatory cost structures. Social game companies launch and decommission games quickly. They can host in the cloud, use open source, leverage big data platforms and generally take advantage of new advances in tech very rapidly. This means they can keep their cost low, acquire  freemium players quickly and change as market conditions evolve. Essentially, social game companies can build large gaming communities quickly.

Conversion Of Social Gamers To Gamblers And Gamblers To Social Gamers - The key to the success of social game companies entering the gambling space is the conversion rate of social/freemium players to  "real" gamblers. Although current experiments in upgrading social gamers to real gamers is relatively small averaging between 4% and 5% those numbers could actually be meaningful as long as the social games themselves continue to attract large numbers of players at  low cost relative to the cost of acquiring a real gambler. The other important role a social game can play in relationship to gambling is the retention of a gambler once they have exhausted funds or are fatigued. The current drop off of gamblers from a traditional gambling property are quite high for obvious reasons. Once their funds are depleted it may be a long time before they have funds again. Social games can play an important role in the gambling ecosystem if they can continue to monetize a fatigued gambler and potentially hold them in the system long enough for the gambler to replenish their wallet and return to gambling.

The gambling space is clearly not the place for many social game companies. However, it can be a very lucrative and a potential game changer for a social game company that enters the space with the proper mindset and goals. An Internet gambling business going social is also an interesting challenge if they do not rethink the relationship between gambler and social player and learn how to move those players bi-directionally keeping them in the fold. A social casino company should not be discouraged by the significant change to their business model to enter the gambling space.  Just be aware of the challenges and opportunities and map out the investment required to be successful in the gambling world. Make sure it is feasible and what you really want for your social game company.

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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