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Sunday, January 1, 2017

Failure Of US And European Legal Online Gambling Gives Rise To Legal Social Casino Gambling Market of 4 Billion USD AND Illegal Online Gambling

I recently revisited the phenomena of the growth of social casino and the demise of "legal" online gambling around the world. The robust  and mature social casino market, now exceeds 4 billion USD!   The illegal online gambling market is hard to quantify for obvious reasons. However, illegal online gambling transaction estimates are in the billions of dollars.   Conversely the legal online gambling market(New Jersey and Delaware) in the US is 8 million USD and the European market is 23 million USD.

So what is going on here and why has social casino and illegal gambling grown robustly and the legal online gambling market so slowly?

What Is Social Casino?  -  It is important to differentiate social casino from other online gambling environments. Social casino is primarily the creation of the Facebook social network. Early in Facebook's history they began to allow application developers to add apps into the Facebook environment. The apps themselves where accessible by all Facebook members without restriction. Zynga poker  was the first social gaming app introduced into  Facebook.  Zynga's poker app was a phenomenal success because poker is an inherently social game and at the time Facebook did not restricted the extent of social connections(viratlity) generated in their environment.  This allowed each user of Facebook to invite all of their friend connections in Facebook to join the game. Thus the term "virality". The success of gaming in the Facebook environment and the onslaught of other gaming apps entering the Facebook environment.

Social Casino Transcends State And Country Boundaries - Freemium and social casino games ado not require licensing and they do not have to respect country, province, state, etc. demarcations. This means that a social casino business can access players all over the world with the same or similar content. However, it also means that there is less of an opportunity to localize content.    

What is Virality? - Although not an official word in the dictionary virality is a commonly used term in the social network world. An application is "viral" or "goes" viral when participants access the app and begin to invite friends within their social network to access an application within the social network. 

Monetization In Social Casino - Facebook and other social and "freemium" online casino properties get around the definition of gambling (chance, consideration and prize) by altering the definition of prize. In a traditional gambling environment a player purchases chips(consideration) or credits in the Facebook environment  with "real" money and wagers those chips in a game of change. The chips can be redeemed or "cashed-out" for "real" money at the discretion of the player. In a social casino environment the chips/credits can not be converted back into cash/real currency. Essentially all converted chips stay in that state and can only be used during game play.   

Accessibility, Licensing And Illegal Online Gambling - The regulation of online gambling or outlawing of online gambling has had an interesting impact on the cultivation of "illegal" online gambling. Clearly the restrictions on online gambling have favored open environments such as Facebook and other "free" to play sites. However, there is an insidious  side to regulation of gaming as well that has driven players from around the world to "illegal" online gambling sites.  Gambling licensing costs can also be a real barrier  to entry. The state of New Jersey requires a $400,000 permit and a $250,000 responsible gaming fee to operate an online gambling business!!  Clearly the illegal gambling properties are not paying these fees.

It is clear that the combination of laws, fees and perhaps that lack of understanding or concern about the consequences of not providing operators with cost effective ways to enter, launch and maintain legal online gambling operations has lead to the success of Facebook gambling apps and unfortunately to a robust illegal online gambling industry. The Facebook gaming phenomena is a welcome alternative to traditional online gambling. However, the rise of "illegal" online gambling activity is not so great.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin spent time at the Machine/Learning Lab at MIT as a technology transfer fellow engaged in model based reasoning, case based reasoning and rule based systems to enhance diagnostics systems.    Kevin has worked for and with US land based casino operators helping them evaluate social casino and iGaming platforms for the purpose of joint ventures and acquisitions in addition to launching online gambling operations in Europe. Gameinlane is also startup "friendly" understanding the unique value new gaming companies bring to the marketplace.  Kevin frequently speaks at gaming conferences around the world providing him with a unique perspective on this very interesting business sector. Kevin can be reached at kflood@gameinlane.com  and or twitter  at @kflow1776.

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