At GDC this year I met a number of social casino operators that were attending the conference. One of the major topics that these operators wanted to discuss with me is how would they go about establishing a relationship with a US land based casino operator. I was being asked because they were confused over the behaviour of the land based casino's approach to social gaming, which by the way, the GDC audience refers to as "Free To Play" and not social games, with free to play being the more appropriate characterization of the space.
After some cursory discussion on the topic of the land based casino approach to iGaming and free to play games I realized that the social casino and iGaming people really do not fully understand US land based casino operators. The most important thing they do not understand is the role the land based casino operations model has on their Internet gaming strategy.
For the purpose of clarity on this subject I would like to set the historical context for why US land based casinos act the way they do when it comes to iGaming and free to play casino businesses.
Land Based Casino's Are Defined By Their Core Business - This may seem obvious, however, it is remarkable how little online casino operators understand the land based casino business model and its impact on them. For the most part very few people in a land based casino operation have practical hands-on experience with online Internet or gaming businesses. This has certainly changed over the years. However, it is far from where it could or should be and this knowledge gap has an impact on land based casino iGaming and social gaming strategy and execution.
This is important because for the few people in a land based operation that do understand the iGaming space it is hard for them to get the land based organization behind it and to interact with it in an effective manner.
Land Based Casino Operations - Running a casino is a bricks and mortar activity that involves physical items, such as buildings, restaurants, actual living breathing people, taxi cabs, physical slot machines, snail mail marketing campaigns, etc. Land based casino's operate their businesses with amazing efficiency. These businesses are so efficient because they do not want employees to think out of the box. They want them to execute according to a formula and directly with the public not through the filtered lenses of the Internet. The casinos have a lot of people on their staff that they have to keep focused on the mechanics of operating hotels, restaurants and the casino floor. Quick change in an environment like this is difficult, risky and potentially expensive.
Conversely, iGaming and social gaming businesses require adaptation, frequent changes to product and agile processes to compete in the online marketplace. Essentially, iGaming and social gaming can be threatening and confusing to many land based casino employees because it operates differently from their core land based business model.
Lack Of Internal Project Or Internet Gaming Expertise - For the most part the US land based casinos have not made significant investments in staffing their own Internet or Internet gaming organizations. You can see this reflected in their web sites, in the deals they have with Internet gaming related companies and in the way Internet gaming content is integrated into their web sites. In the absence of Internet/E-commerce expertise it is hard for land based casinos to make substantive or informed decision when it relates to iGaming or social casino deals and partnerships. This lack of experience usually results in deals and relationships that do not significantly result in the integration of the two business models or deals that focus on the benefits of online gaming for the land based operation.
Primary Short Term Social Gaming Goal Of Land Based Casinos - Because of the absence of Internet gaming expertise within the casinos the casinos will have the tendency to focus on how Internet gaming will help their land based operations. There are two primary goals that land based operators currently have for social gaming. One is to drive more traffic to their web sites and hopefully to their land based operations. This is primarily done through an association between the game and the land based loyalty program granting points for online play that can be used in the casino. The second is a marketing objective to associate the casino's brand with online game play. This is a form of "gamification" where games are added to the web site to provide stickiness and potential up-sell of online players into land based casino activities.
Primary Internet Gambling Goal - The casino's Internet gambling strategies have been primarily influenced by the legal status of Internet gambling in the US. The back and forth nature of US legal Internet gambling has certainly confused and frustrated everyone and especially, the land based operators who realize they need an online gambling strategy but which one? iGaming is currently not legal in most states and it is difficult to tell when there will be a critical mass of legal online gamblers in the US. However, some day there may be enough liquidity in the US online gambling space to make a real business out of it. However, because Internet gambling is a closer match to the core land based casino model, primarily due to the regulated nature of online gambling in the US and the potential ability to leverage land based licenses into the online space, the casinos are very interested in Internet gambling. Also, the Internet games themselves are more likely to be clones of the land based games. In addition, the casinos may have a strategic advantage in online gambling that they do not have in social or free to play games. The moral of the story hear is that the social or free play business model has not been top on the list of gaming models to consider. However, the vacillation of legislators on the likely outcome of widespread legal Internet gambling has caused casino's to take a look and get invovled with social gaming. However, the integration or lack of well thought out integration into the casinos themselves demonstrates their rather lackluster approach. Yes, Caeser's has purchased social gaming properties and MGM has MyVegas. However, look at the integration of these models into their core business. To be polite they could have done a much better job.
The Impact Of Regulation - The US casino's are heavily regulated resulting in an homogenised set of gambling offerings that are identical across the casino landscape. Essentially, meaningful changes in the games or the delivery mechanisms are rare and highly subject to being copied quickly by competing casino's and vendors.
This is obviously very different from the world of iGaming, social gaming and free to play where everything is constantly changing. Technologies change on a regular basis, different game formats appear and disappear. Most marketing is done online, the social graph is important, competition is fierce with numerous companies of all sizes competing in the space.
In contrast, regulation has caused the land based casino business to consolidate into a small number of operators owning and controlling a number of casinos all with the same essential game content. Innovation in the gaming space is infrequent with extraneous businesses such as entertainment, hotel and restaurants playing more of a role in the evolving customers experience. Thus, the reason for non-gaming revenue now exceeding gaming revenue on the Las Vegas strip.
This means that the iGaming, social gaming and free to play business and operational models are unfamiliar to most land based casino staff making it difficult for these two worlds to be able to speak the same language, have similar business objectives and to execute on an overriding Internet gaming strategy. The moral of the story is to learn to speak the language of the land based casino and address the needs of the land based operator before you start a dialogue with them. The social casino culture is particularly alien to the land based operators.
The Land Based Casino Family - Casino operators like to work with people that have been on the inside working with land based casinos and not as much with companies and people on the outside with no land based casino history. A good example of this is the team that has created MyVegas for MGM. That team is populated by people that have a long history working in and with the land based casino operators. Some of them have actually operated land based casino's and built slot machines!! This prejudice makes it difficult for a company with only iGaming or social gaming background to do deals with the land based operators.
Buy Versus Build - The land based casinos have a strong propensity to buy versus partner/build. This is for obvious reasons given their lack of expertise in the online space. There are two notable exceptions, MGM's association with MyVegas and Wagerworks and the Harrahs(Caesar's Place) launch of the Luckyme property in the UK. Harrahs eventually changed its course and purchased Playtika. The major slot machine manufacturers have a similar history with the purchase of Wagerworks and DoubleDown By IGT and Aristocrat's recent purchase of a social gaming company Product Madness. Wynn also put a bid on PokerStars but had to back off the deal because of the US justice departments claim against PokerStars. Essentially, going at the casino companies with some kind of business deal that requires the casino management team to integrate content into their web sites or implement changes to their staff and processes is probably not going to be well received. Whatever it is it has to be almost turn key for the land based operator.
Backend Casino Management Systems - The casino companies all use a "backend" systems to manage the transactions on the casino floor. These systems are supplied by three main slot providers, Aristocrat, Bally's and IGT. The propensity to purchase slot content and outsource backend functions to these companies also makes the casino's dependent on them and familiar with them. Therefore the casino's have a propensity to look to them first for any gaming content and information processing. Consequently, companies looking to do iGaming, social gaming or free to play gaming deals with casinos may want to first contact the slot game manufacturers first before approaching the casino's themselves. However, be careful about revealing any proprietary content or processes during the initial discussions.
It is obvious that the land based casino and online game companies have a bit of a disconnect when it comes to operating models, staffing and business processes. This also means that approaching a land based casino operator with an iGaming, social gaming or free to play model has to made with this in mind if progress is to made. Knowing someone inside the land based casino world is helpful and an endorsement from that individual should be obtained. Any social, free to play or Internet gambling operation should be able to stand on its own without any involvement with land based casino operators. Ironically, this may setup a purchase of an Internet gaming company instead of an affiliation.
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.
2 comments:
Great insight.
A few things I would like to add. The first is the differentiation between stand alone casinos and corporate casinos. With MGM/Caesars you will run into the same departmentalization that large corporations tend to have. The difference in the casino business is job protection. I have been in meetings when I was on the casino floor side and on the internet side. The floor people see online as taking away jobs. I would suggest that anyone who wants to do a deal with a brick and mortar casino should find out the name of the casino floor manager and include him in the process. If you think he can be shut out you are wrong. The casino floor is still a cash cow and the floor manager will have direct access to the property president.
The second problem has been the attitude of many on the igaming side that they know everything and the brick and mortar are dinosaurs. Remember, they might not know much about the internet but they know how to run a business and take care of customers.
The last thing to add would be on why there have been so many "interesting" deals between igaming and land casinos. There has been a tendency on land casinos to turn over negations to the Internet Marketing people instead of the casino people. Most of the land casinos hired people right out of college to work in their internet departments and they do not have the business or gaming experience to make long term strategic judgements on integrating land and igaming operations.
Robert Peterson
Casino Online Marketing
Nice post Kevin. A couple of additional thoughts. The igaming business comes out a hyper-competitive space, whereas the land based business comes from and industry where anti-competitive legislation determined profitability to a large extent. This makes for very different cultural paradigms. One is very risk averse and relationship focused, where as the tech world moves at a faster pace with a great cultural appetite for risk.
The customers of the two businesses are very different. iGaming tends to have low levels of personal customer interactions. Land based casinos are extremely high touch, especially for the high end players that generate a lot of the profits. The kinds of computational consumer modeling that works for Zynga can help for land based casinos, but the key to success is creating a sense of status and relationship with patrons. Internet casinos fall somewhere inbetween.
Customer overlaps are an interesting issue. We have seen some overlap -- especially for social casino gamers. This topic could use more study.
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