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Monday, July 15, 2013

What Does Zynga's Launch Of An Internet Gambling Business Really Mean?

There has been much  commentary in the press and on blogs about Zynga's  anticipated and perhaps rather late entry into the Internet gambling(iGaming) business.  This topic has been discussed for years and it is finally here. Although Zynga is the 600 pound social/freemium game company in the room they are not the first cross over company to have a social/freemium business and an Internet gambling business under one roof. Gamesys' Jackpotjoy was one of the first "true" crossover entries into the combined social and iGaming  realm. However, Gamesys has come from the opposite direction having been in the  UK Internet gambling business for some years. Betable is an example of a hybrid introducing third party freemium game content within their Internet gambling platform.   From all indications Zynga's predecessors have not witnessed a meteoric adoption of gambling by the social/freemium sector. So the question remains why now for Zynga and what are the long and short term goals for the initiative?

 Bwin.Party  Launching A Zynga Branded Internet Gambling Business - The fact that Zynga is using a Bwin.Party gambling platform and not a Zynga gambling platform indicates how tepid Zynga's iGaming launch really is. In press releases Zynga is very open about this acknowledging that their social game platform, development resources, games, marketing acumen, etc. are not iGaming  enabled and not appropriate for Internet gambling. It also appears that Zynga is not actually operating the iGaming business. Essentially, Zynga's overall resource commitment to the  iGaming business sector is relatively insignificant. The details of the business deal between Bwin.Party and Zynga are unclear. However, it is most likely a flat annual fee and a revenue share where Bwin.Party receives most of the proceeds.  

Zynga iGaming Launched In Facebook And Not On Mobile Devices -  The launch of a Zynga iGaming in Facebook and not in a mobile device environment is somewhat counter to Zynga's stated goal of gaining more traction on mobile devices. One of Zynga's biggest strategic business mistakes was not giving more consideration to the growing mobile market.  Their stock and their revenue growth have been negatively impacted by their singular focus within Facebook. So, once again we see Zynga investing in the Facebook platform with their iGaming business. 

This decision could be interpreted in a two different ways. On the positive side Zynga is admitting that Facebook is their home turf. They have a big audience in Facebook and their social poker product and audience  could be used as an up-sell vehicle into their gambling product. The "convergence" approach could be a big win for them if they can prove that a meaningful percentage of their current social poker players can be converted to the iGaming product.  Historically, selling leads to iGaming operators in Europe has not proven to be fruitful for either Zynga or the European iGaming operators. Essentially, Zynga does not know how the profile of a Zynga poker player maps to the iGaming environment. They have never invested any significant effort in sorting this out. Will they invest energy and resources in social/freemium/igaming player profiling going forward?

Cost Of Player Acquisition And The UK Internet Gambling Market - The UK has perhaps the most mature regulated Internet gaming market in the world. This has a positive and negative side to it for Zynga. The positive is that the population is very comfortable with Internet gaming and the government has put into place a number of safeguards to protect the public form abuse and problem gambling. The process of hosting and operating a gambling operation for the UK population is clear and well mapped. The downside is that the iGaming market is highly competitive with player acquisition costs going as high as $600 USD.  Party is quite familiar with this but Zynga is not. So it will be interesting to see how Zynga will react to this market reality. Party and Zynga are certainly hoping that Zynga's social player DB can be leveraged to decrease the average cost of acquisition. Remember that Zynga is not launching an Internet gambling business based on their own platform. Party is launching their platform decoupled from the Zynga social player audience.  

iGaming Revenue And Analyst Expectations - Zynga has wisely down played  any predictions on revenue from iGaming. Despite this business analysts are insisting that the iGaming channel could be a significant revenue stream for Zynga. Zynga has been very clear in their communications and by their rather limited resource investment into iGaming that the Bwin.Party deal is an experiment with the goal of learning what the iGaming world is all about. They have no stated public revenue expectations from iGaming.

US Legal Internet Gambling - Clearly Zynga is most interested in  the US Internet poker gambling market and not in the UK market. This first introduction into the UK market will be an interesting yet limited learning experience for Zynga. The UK launch is essentially a Bwin.Party product with some Zynga branding. If Zynga wants to win in the US iGaming race they will have to be more aggressive and actually invest time money and resources into Internet gambling. The fact that they are not going to get much operating experience in the UK is a bit of a concern. Clearly, Bwin.Party, 888 and others will be much better prepared for the legalization of gambling in the US. 

In conclusion, the Bwin.Party launch of a Zynga branded iGaming platform in the UK is an experiment for both Bwin.Party and Zynga.  Zynga is not going to commit significant resources to this effort unless they see a working business model in the UK.  Zynga will learn something from the UK launch but not nearly enough to build and launch its own Internet gambling poker product for the US market. It may be that they will also concede this gambling market to Bwin.Party as well. 

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:

Mike Sandalis said...

Good overview.

If this is Zynga's mind set I think this is a smart move for both sides. You know, there is so much going on in this space right now I think we'll look back and see that it's still very early in the game. They'll grab a ton of learning.

Very smart that they chose Bwin-Party iGaming IS a whole different ball game.