Comparing The Value Proposition Of Social Casino, Online Gambling, Fantasy Sports

In the blog addressing  the business of Fantasy Sports and Social Gaming and their relationship to Online Gambling  the question was raised about Fantasy Sports and Social Gaming as being  proxies for  "real" online gambling. This question is difficult to answer without an understanding of the "economics/analytics/operations" of these three game genres  and how  the three  business models are measured to determine the health, cost of acquiring a player and the value of a player over time. Essentially, based on the analytics how similar or how different are these models from each other and how would you gage the similarities or differences for the purpose of acquisition, partnerships or mergers.

 For the most part all three, and in fact, most online game genres use the same  or similar analytics to determine how games are performing from a financial perspective.  This helps to place the businesses within a single context for evaluation. However, the importance of specific measurements differ form one model to the next with certain combinations being more important then others.

The following are some common terms and categories that are used across online game genres and can, and should be, be used to determine what is the best business given the specific circumstances  of a business owner.

Customer Lifetime Value(CLV)/User Lifetime Value(ULV)/Player Lifetime Value(PLV) -  The CLV of a player is determined using a number of feeder  calculations such as the average amount of time a player remains as a member or part of a game community and the average amount  of spend(coin in)a player contributes during the average lifetime of a player. This term is used consistently across gaming categories. CLV can be an excellent number to compare the different game business models because it evaluates players over a lifetime as opposed to coin in on a specific day or for a particular campaign.

Cost Of Player Acquisition - The cost of acquiring a player is obviously a big part of  determining how a game business is operated, how much working capital is required to "seed" a gaming site and what methods will be used to acquire the players going forward. The methods for acquiring players are diverse and in some cases very different  from one game genre to another. Obviously the Customer Lifetime Value(CLV) should be greater then the cost of acquiring a player or a business will not survive.

 Affiliate Marketing - Affiliate marketing is mentioned as a special player acquisition marketing method outside of the general player marketing/acquisition  category because it is a unique form of marketing and used heavily in the online gambling sector. Affiliates can also be used in social casino and fantasy sports. However, the notion of an affiliate in social casino is more likely a public  affiliation with an existing online gaming property as opposed to an organization that exclusively operates an affiliate network. In the online gambling sector affiliates can and do  obtain player leads from other gambling business such as Sportsbook resulting in   a higher likelihood that the gaming business acquiring the leads  will obtain access to a class of players that have some history of gambling/wagering behaviour and, therefore, conversion.

Social Media - Clearly Facebook, Twitter ,Tencent in China, VK in Russia and other business that encourage connections between participants are excellent ways to acquire non-gambling players. Most of the social media platforms shy away from encouraging gambling references.   However, there are clever ways to  indirectly acquire gamblers through social media. Facebook itself is an odd social medial platform because it also hosts gambling applications in certain jurisdictions where it is acknowledged as "legal" to do so. Gaming applications  in particular have been a big revenue generator for Facebook and Tencent because they  provide a virtual currency platform that is primarily used to provide virtual chips for purchase in gaming apps.  It could be argued that Facebook and Zynga could never have gone public with  stock offerings without gaming and virtual currency purchases. "Virality" is a term used to describe the propagation of  friend notifications  within a member/players social media network. This is some times called the "K" factor. Initially, Facebook allowed uninhibited connection within their network. Zynga was the first gaming site launched in Facebook during this period. They took great advantage of this "free" marketing. Facebook has since stopped virality for all intense and purposes and shifted to an advertising model resulting in the growth of their revenue stream and the increased cost of marketing gaming properties within Facebook and leveling the playing field for game businesses operating within Facebook.

Good Old Fashion Online Marketing - With virality all but dead within Facebook and Twitter evolving into more of a paid advertising platform for business and gaming properties, old fashion online marketing has become the standard way to acquire players,  Essentially, ads must be purchased in these platforms to drive player acquisition. This trend may also give rise to "affiliate" marketing for social media players given the increase rise in the cost of acquiring players within social media platforms. However, the affiliate cost has to take into consideration the actually revenue per player in these environments.

So, given the marketing standardization for gaming across the globe,  the continuing dominance  of Facebook as "the" social networking platform and the entrenchment of online gambling regimes in Europe and in the United States  how are the three gaming models standing up in terms of player acquisition and revenue per player? Should these models converge? Should they stand alone. Which model is more economically viable?

Fantasy Sports - A Bloomberg study indicates that $70 USD is a consistent amount to acquire a fantasy sports player with an expected lifetime value of $100 USD.

Social Casino  -  Another study comparing social gaming to "real" online gaming in 2012 indicated that in 2012 Zynga generated about 2 cents per player with a player base of   9.2 billion active users.  The question is what was the cost of acquiring and retaining those players? Their current stock price may reveal the reality of that business model.   Compare this with a UK online casino operator  generating 48 million USD with only 40,000 active players.

Online Gambling In The United States - With all eyes and wallets pointed to the new and emerging legal online gambling roll-out in the US(Nevada, Delaware and New Jersey) we see some disappointment with the projected numbers versus the  actual numbers. However, if you look at revenue per player in the gambling sector versus the social/freemuim sector the evaluation takes a decidedly different tact.  Cost of acquisition must also be taken into account in the comparison. The online gambling sector relies heavily on an "affiliate marketing" strategy to acquire players. The cost of acquiring a player via this method is pricey.  Affiliate marketers can charge up to 50% of a players revenue "coin-in" or a flat fee of up between 600 to 800 USD. However, these players have proven to be "transactors" in the gambling domain.

It is clear that although the statistics that determine the health and welfare off the three primary gaming models are consistent, the variation in the numbers can be extreme when comparing the three models. This should also indirectly imply how different these models really are despite the fact that they are all included in the "gaming" universe. This obvious, but some time overlooked, observation is sometimes lost in the merger and acquisition process when a gaming business in one sector  is acquiring or merging with a gaming business in another game sector. Further complicating multi-dimensional gaming businesses is the differences that exist in the operational models of the businesses and of course the "cultures" of these businesses.

Essentially, a decision to  engage in a new and different gaming model is a difficult one that requires expertise and experience outside of the current gaming model of the business pondering an expansion. Some times it is best to stick to what you know and outsource what you do not. With that said game content can be leveraged across business domains and delivery platforms. The expectation of being able to up-sell into another model or allow a player to retreat to another model to retain them has not proven to be successful.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin, has developed, launched and operated Internet gambling sites in Europe.   Kevin and Gameinlane   develop "social and real money" casino games for third parties. 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. Kevin can be reached at kflood@gameinlane.com.

Methods And Challenges Increasing Social Casino RPU(Revenue Per Game)

Understanding the characteristics of a game that contribute to revenue opportunities for a social casino game are always challenging. Many factors influence a game's ability to generate revenue.  In the highly competitive, and in many cases  "me too" world of social casino game content, where much of the content is very similar, game publishers are challenged with ways to differentiate and  increase revenue from a game that result in comparatively higher revenue. The following are general categories to consider with the objective of increasing revenue for an existing or new social casino game.

 Game marketing and game content are the two general areas that game developers and publishers focus on to increase revenue from an existing game.  These general  categories are subjects on their own that require different  skills, expertise and execution strategies to properly move revenue higher. Bringing together teams with both skill sets and objectives, that share  the common goal of increasing revenue, and at the same time manage the cost of acquiring players and controlling development expenditures is challenging yet necessary to blend the two initiatives in a common strategy.

Despite the cultural and operational differences that exist between development and marketing, both organizations should collaborate to agree on product/game changes that impact the game "experience" for the purpose of increasing RPU.

Delivery Platforms - Game delivery platforms can and do influence game design and RPU. A web, Facebook, mobile phone, tablet, Google, Apple, Amazon, etc. implementation  impact how and why a game should be constructed and marketed. It is very unlikely that one shoe fits all and wise game developers and publishers will take platforms into consideration when crafting a game for higher RPU.  Preferably ,a game should be specifically  developed for its environment, audience and format as opposed to being "ported"  to different environments.

Game Differentiation - Social casino audiences are an interesting group of  game content consumers. The demographic is skewed to a relatively older segment of online players when compared to other game audiences and their prejudice for game content can be influenced by "traditional" notions  of land based casino  and online gambling content.  These peculiarities  inevitably narrow the range of what is considered a social "casino" game for many players.  This tendency  has resulted in a crowded "me too" marketplace that requires either some differentiation(not too much) to get noticed or a high marketing spend to attract players.

Traditional Slot Content -  Traditional land based slot game developers have taken advantage of demand for traditional slot content online and have successfully moved   land based content verbatim to the online domain. This in itself confirms consumer preferences and the challenge for studios without an inventory of copyright protected slot content. Assuming traditional gambling content is the preferred game content for social casino players the real objective is differentiation within this constrained universe. This either limits or encourages creative license in the development process. However, extreme divergence from the norm is seldom popular.   

Non-Traditional Slot Content - Many social casino companies produce games that have non-traditional themes. These themes have to be clever, not alienate the core audience and target a very specific demographic that may or may not be the core group of traditional online slot social casino players. For example, we have seen "virtual world" implementations that immerse a player into a simulated casino floor. However, these implementation have struggled because it appears that consumers want quick  access to  game play and many are not familiar the land based casino experience. This indicates that  game model experimentation should be part of the development process suggesting that committing to a particular social casino genre without  some player feedback before committing to a new genre is advised.  This also implies that  iteration on themes may result in finding a niche market that does not require an excessive marketing spend to acquire. If successful the mining of a relatively untapped gaming market segment could be lucrative.

Non- Slot Content - Despite the fact that slots are the most popular online social casino game content other forms of casino game content such as craps, roulette, blackjack, poker, pai gow, etc. are also popular forms of social casino. There are significant differences in how best to monetize this array of games because there is such diversity in the  game mechanics for no-slot games. For example, is there a dealer involved, how many people play at a time, how are games and events started, how do players communicate in a multi player environment?   These factors all require unique and special attention to adequately address optimizing a game for revenue generation. Essentially, each  game category requires  special consideration and a careful examination of the market for the game  to determine the potential audience size and propensity  for revenue.

Cultural and Demographic Sensitivity - Be aware of your target audience and or the audience that is most likely to be attracted to your form of social casino content. This may seem obvious but many social casino publishers do not differentiate content, offers or promotions  based on the sex,  location, religion, culture or language. What encourages players in your target audience to transact and when are they most likely to play?  What game content could be offensive to your audience and what content will encourage them to play? Careful and limited use of text is advised to decrease the possible friction points across language and cultural boundaries.

 Buying And Promoting Chip Purchases - Promoting chip buying is a science  based on an understanding of your player.  Players will be motivated to purchase more chips in a number of ways. A player may be enticed by  a beginner player  offer, an in-game play offer, an exit offer or cascading offers. A player may also be distracted by offers,  and  may not understand why they need more chips at certain points of the game.  One of the common faults of many  social casino games is that they do consider a players "state" and when a player will most likely transaction.  What is the players chip inventory and is the amount used to determine where and how chip offers are generated?  Some  games will constantly encourage a player to buy more chips when in fact they already have a large amount resulting a player ignoring chip offers. Essentially, the game is not player aware ignoring the "state" of the player or the historical chip buying propensities of the player. Investment in programming and analytics to fully understand your "players" and where they are in terms of their wallet will result in a better placement of chip offers during game play.

Coordinating  Marketing Programs And Content Modifications - Frequently game marketing programs to drive traffic and  increase RPU  are not complimented with content and game changes to specifically address a campaign.   In some cases the operation and development staff are not aware of a marketing program, its intended audience or the expected RPU.  Running generic marketing campaigns are OK. However, crafting "informed" campaigns will result in higher yielding efforts. Making a development and operations  staff aware of special marketing campaign goals may generate some creative ideas that could quickly be implemented by the development staff.

Analytics - Initiating   marketing programs or  game content/mechanic changes without a way of measuring there impact on player behavior, game response or RPU is obviously not a wise decision. An analytics system that specifically addresses the game domain and audience that a company is targeting is an investment that any serious game publisher will have to make to determine the efficacy of new product development  and changes to games that are intended to influence RPU. Both marketing and development should have access to the analytics for evaluation. The analytics should be customizable to address the specifics of your game and the way your organization tracks RPU.

Game Development - To be effective at increasing RPU a development organization must be prepared for frequent, short  and rapid development cycles. They must also be prepared for roll backs, quick changes and code redeployment to address market pressures and the achievement of RPU goals.  Game platforms need to support A/B testing  experiments where some traffic is driven to one instance of a game and some traffic to another instance allowing for comparison of different versions of a game. The goal is to allow and encourage experimentation where the staff is comfortable knowing that they have explored a number of options. 

Conclusion - Increasing game RPU is a mix of creative marketing programs, flexible game platforms, detailed understanding of the target audience and development organizations that can respond to frequent changes in game content.   The days when a game could be developed and launched without the ability to frequently change the game, where the game developers or marketing staff exclusively drive game design and changes is long gone. The social casino space is an especially intriguing and competitive  space because it is unregulated and familiar to "high" transacting social gamers.   However, consumers of social casino content have been heavily influenced by what they consider to be "traditional" gambling content constraining the creativity of game developers and increasing the competition to acquire, monetize and retain players. This odd mix of freedom and constraints challenges organizations to think in different ways about game content, marketing and methods for growing RPU.

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.

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.

  

What Is The Better Business Model Social Casino Or Internet Gambling?

There has been much focus placed on the enticing possibilities of converging social casino and Internet gambling  for the purpose of increasing revenues for social game companies and decreasing the cost of player acquisition for Internet gambling businesses. The underlying implications of this merger is that the two models are better off merged and the social casino business is best utilized as an acquisition tool for online gambling businesses. 

A contrarian view is that both models are better off focusing on their core businesses and acquiring and monetizing players in their respective silos.  This strategy implicitly acknowledges that these business are inherently different in terms of players, acquisition costs, markets, etc. and perhaps the cross over of the two models is  not worth the effort because the business operations and players are very different.

A further inherent assumption is that social casino as a standalone business is inferior to a "real" online gambling business. The revenue per player in online gambling stands out as the primary reason for the presumed superiority of this model over the social casino model. Social game operators in particular are intrigued by the large bets that online gamblers sometimes wager and also loss to gambling operators. They are also  fascinated by the relative low number of players(with the exception of poker) required to generate a profit in a gambling business.

Conversely, online gambling companies are envious of the ability of social casino companies to operate gambling style games in an unrestricted and unregulated way. They are also amazed that a no payout  gambling model works so well and attracts so many players. People actually put money into blackjack, slot machine games, etc. without any hope of receiving an actual payout?? 

So , what is the superior model assuming that there is no cross over or conversion of players in either direction?

The answer to this question lies in the ratio of cost to revenue and the inherent risk or lack there of in each of the business models. Potential future growth in each sector is also a factor in determining a superior business model because with growth comes future potential increases in revenue.

Internet Gambling Model - The Internet gambling model is now an ancient model that has not changed fundamentally since the advent of regulation in Europe. The legal Internet gambling model is essentially a European business model operating for about 20 years. In the last few years the model has changed a bit with the emergence of a country  by country regulatory model. This model has changed the cost/revenue ratio and has resulted in decreased revenue and viability of liquidity based gaming models such as poker and in some cases bingo.

A number of things make the Internet gambling business a challenge to operate cost effectively and to grow in terms of players and revenue.  The country by country model significantly increases the cost of operation and player acquisition costs  resulting in consolidation of gambling businesses. Essentially, the Internet gambling model has followed the classic trajectory of a maturing industry with very few new businesses entering the space.   This also means that competition within the sector decreases and the surviving businesses form a pseudo monopoly in the marketplace.

For the surviving Internet gambling businesses the business model is actually a very good model because they can begin to negotiate hard with existing vendors because there are so few alternative. Also, players have very few choices and will be forced to play on the few properties that still exist. Innovation in the business decreases because there is no need to innovate so existing employees and platforms can remain relatively unchanged. However, revenue growth is hard to manage and is essentially related to population growth of the legal aged gambling public.

If the the United States or any other major market opens in the future the small number of existing European Internet gambling operators will most likely take the lions share of those markets providing the regulatory regime is identical or  essentially the same as the European model. This will be the future growth opportunity for the gambling sector and a reason why existing gambling operators are spending so much time and effort to get into the US market.

Social Casino Model - The social casino model is obviously very different. There is no regulation in the sector, social casino games are played by people all over the world, the number of players concurrently playing social casino games completely dwarfs the numbers that Internet gambling host.

Social casino games are constantly evolving with fierce competition for existing and new players. This sector will produce all kinds of hybrid games that mix standard casino style game mechanics with features from other gaming sectors such as virtual worlds and video games. Game features change at a moments notice based on player behaviour and monetization of players.

The fact that social casino's take a players money and never make a single payout to them for their winnings is definitely an envious business model when compared to the situation with online gambling. This enigma also results in less investment in fraud control and cheating or colluding. It also makes it easier to obtain payment processing options because the risks are low for them providing there is not a high default rate on credit card charges made to buy chips that can never be redeemed.

The one possible risk to the free form nature of the social casino model is the threat of regulating this industry if there is an actual or perceived relationship between social casino play and traditional Internet gambling. This subtle yet important point could and would change the economics of this business resulting in only players within a certain age group having access to these games.

In conclusion, there are pros and cons to both business models. There is still far more opportunity in social casino to react to the marketplace, create new game content, enter new world markets and take players from other games. However, the association between social games and traditional gambling could be a dangerous association that would actually negatively impact social casino from a business model perspective providing social casino are subject to gambling regulation and restriction.

Traditional Internet gambling remains a popular past time for many players. However, their player numbers are relatively small compared to social casino players. Growth is difficult and governments continue to move in the direction for more and more regulation resulting in increasing costs to operate an Internet gambling business. Therefore, the Internet gambling  business model is  sustainable for existing businesses and a good model for them despite minimal growth unless new markets such as Brazil or the US open-up.  In this case their may be opportunities for "new" Internet gambling businesses to  also enter the space.

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.

EiG Internet Gaming 2012 Barcelona Summary

When I entered the 2012 EiG convention hall in Barcelona and attended some of the presentations I thought I was in San Francisco and not in Barcelona. I saw more people from the San Francisco Bay area attending and presenting then the usual European Internet gambling cohort I  interact with at the EiG conferences. There were two primary reasons for such a heavily weighted US professional presence at the conference.

Social/Freemium Internet Gambling -   Yes I am going out on a limb here and actually calling Facebook,  freemium mobile and social web games that are traditional gambling games such as slots, blackjack, poker etc. as true gambling games. I realize that this may be shocking to some. However, the amount of interest on the part of the traditional European Internet gambling clearly indicates that the social/freemium gambling game offerings are having an impact on the traditional iGaming community despite the fact that their is no "payout" of winnings or deposits. 

The San Francisco Bay Area/Silicon Valley was so well represented at the conference because this is the area(outside of China,Japan and Korea) that has fully embarrassed the social/freemium gaming/gambling model based on virtual currency transactions. They have been engaged in this activity since 2007 with the launch of several Facebook gambling style games that leveraged the popularity of casino style games within Facebook. Virtual currency transactions soon followed helping to actually monetize these games and eventually Facebook itself forced all the game operators and publishers to use the Facebook  virtual currency system with a draconian 30% Facebook tax on these transactions.

The conference was populated by several groups with different objectives in terms of social/freemium gambling games.

Is This For Real? The presenters answered that question resoundingly with absolutely especially when it comes to the amount of revenue being generated and the shear popularity of these games.

Competition Is Fierce  There are so many slot type games in Facebook and on mobile that it is becoming harder and harder to break even given the cost of acquiring players and the average transaction per player. Player numbers are still remarkable. However, entering the market now will be difficult unless a company is clever in the way they acquire players or the game itself has unique characteristics that differentiate it from the standard Facebook and mobile gambling style games.  

US Legalization Of Internet Gambling - The other reason for seeing so many Americans in the audience was the prospect of legalized US Internet gambling. The European iGaming industry is desperately hoping for some form or US Internet gambling to help recharge their businesses after the collapse of the European Union as an Internet gambling governing body, the demise of the .com model and the emergence of a country by country regulated model. This change has severely impacted player liquidity, cost of operation and acquisition of players.  

The Europeans want answers from the Americans on how they envisage  regulated US Internet  unfolding in the US. Will it be state by state? What state's will legalize and when?  Will certain states share liquidity? Will their be a federal law if so when? what gaming propositions will be legalized.

Unfortunately the Americans do not not necessarily have answers to these questions either. There are so many political consequences influencing the outcome and form of legalized US Internet gambling that no one person has the magic answer to these questions. We will all have to wait and see what happens.

Social/Freemium and Internet Gambling Crossover -  There was an underlying buzz at the conference about the relationship between social/freemium and traditional Internet  gambling. Generally speaking the social gamers in the US have no experience with Internet gambling and have no real experience with Internet gambling operations so they politely deflected the cross over questions. European Internet gambling operators still remain stead fact on their position that their will be little or no crossover between the two.  It is really difficult to defend or challenge either of these positions until we get concrete evidence of operators that have tried and or are currently moving players between these to domains. We may have to wait for legalized US Internet gambling to answer this question given the fact that the US has such a large social freemium game audience playing casino style games.

Facebook/Gamesys Experiment - Many of the UK people in the  audience have tried the Gamesys bingo gambling game launched in Facebook. Overall, the opinion is a bit muted considering the implementation  less attractive then the the web version of JackPotJoy. No one revealed to me the number of players in the Facebook game. However, the lack of real enthusiasm about this gives me a hint that more work has to done. I impersonally would like to hear more about this from people in the UK playing the Gamesys Facebook gambling  game. 

Overall, the conference focus on social freemium gaming was a wise decision on the part of the organizers. I also commend the organizers for moving the conference back to Barcelona. Not to say that Milan is not a great place. However, I would much rather be in Barcelona in October.

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. 

Impact Of Stalled US Internet Gambling Legislation On Internet Gambling And Social Casino Operators

We appear to be in a state of limbo with US Internet gambling legislation. When the year started there was optimism that there would be Federal and or a State legislative changes that would allow Internet gambling in the US. Although some states have made progress in this area the progress has been minimal and isolated to certain states with small populations.  This has been disappointing for a number of vested interests and for some, a relief that they would not have to do anything or change their business models to adjust to actual Internet gambling in the US.

The question now is what should all of the potentially impacted entities do in the absence of any significant change in Internet gambling law in 2012?

Land Based Casino's - This group, with a few exceptions,  for the most part is the most relieved that they do not have to take any action in 2012. They can go along with their traditional land based gambling business model without having to deal with the threat or the opportunity presented to them by a change in Internet gambling legislation. 

Is complacency really a good strategy for these operators? I would argue that complacency is absolutely the wrong strategy for a number of reasons.

Inevitable Internet Commerce Domination - Irrespective of the timing of legal Internet gambling in the US or if it happens at all, Internet commerce and information exchange will dominate consumers mind share in the foreseeable future. For this reason casino operators have to figure out a way to be successful in this space if they have a hope of running successful land or Internet businesses in the future.

The prospect of US Internet gambling forced many of the land based operators to quickly address the deficiencies they have in the area of Internet marketing, social media marketing, player acquisition and retention through Internet channels etc.  The Internet gambling threat actually worked in their favor resulting in new business units being formed and education of key management staff on how best to leverage the Internet to drive business to their land based operations. 

Social And Freemium Gaming For Land Based Operators - One of the positive outcomes of the inevitable reality of Internet gambling in the US has been the exploration of freemium/social gaming as a real option for land based casino operators even if Internet gambling takes years to be enacted. The freemium/social option is a good one for the casinos because it will enable them to develop Internet commerce, marketing and online player acquisition  skills without having to deal with Internet gambling regulations. The freemium/social approach will help the casino operators to develop Internet gaming skills in the absence of any clear direction from State of Federal Internet gambling authorities. It will also allow them to experiment with conversion between land based and Internet gambling/gaming propositions.

Facebook, , Mobile, Web Freemium Casino Operators - Businesses have been operating freemium, casual, subscription, skill based, etc. games for years. We all know about the early gambling type games in Facebook and in mobile environments and their successes and challenges. Now that US Internet gambling has been put on ice  operators in this space will become potentially very important acquisition and strategic partnering properties for any business that wants to be ready when "real" Internet gambling is approved in the US. This space is already extremely competitive  with many properties launching social/freemium style casino games. This trend will continue with the top properties commanding very high valuations. The communities that have been and will be build around social casino offerings are already extremely large and they are growing. Although competition is fierce and revenue per player declining this is still a sector that should be considered as a viable standalone business.

European/International Focused Internet Gambling Operators - For a number of reasons this business sector is currently under extreme downward margin and increasing operating cost pressure in the EU. The recession in the EU is causing some of this pressure. In addition, The EU has capitulated to a country by country gambling regulation regime that has resulted in  increased cost of operation for European iGaming operators and a collapse of the liquidity centric online poker market. These operators desperately need a US legal iGaming marketplace to keep their businesses going. Some European operators have invested in hosting facilities in the US and have sought iGaming licensing in the US to prepare for a change in legislation.

The European gambling operators(some based in Israel) should continue moving forward with their US ambitions despite the uncertainly with legislation. Licensing is key. Now that the imminent threat of legal iGaming in the US has abated it might be a good time to pick up State   licenses and hosting arrangements for a price less then what they what have paid for three months ago. 

These operators have also begun to embrace  the social/freemium model as a way to keep their businesses healthy in the current confused iGaming environment  and to potentially acquire players in the event that iGaming happens in the US. This has been a very wise decision given the absence of any clear notion of when iGaming will become legal in the US. The freemium model can and will be a business on its own outside of iGaming.  iGaming operators have the skills to dominate this space if they want to.

In conclusion, uncertainty and delay in the enactment of Internet gambling in the US is no excuse for relaxing and complacency. In fact, it is a good time to reevaluate Internet gaming in general and to increase investments in Internet gaming outside of traditional gambling. Waiting for the US Federal or State  governments to act before a business has an operational Internet gaming business model will most likely be an acknowledgement that such a business has decided to concede this business sector to someone else.

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.

 

Are Social And Freemium Games Stealing Players From Internet Gambling Operators?

There has been a recent surge of freemium and social  virtual currency based gambling style games in Facebook and on mobile devices. The number of offerings and the amount of players is staggering. It is estimated that  Facebook social games have 49 million active users per month. The mobile freemium and social gaming space is even more impressive with projected revenue growth rates of 3.37 USD by 2014. 38% of the US population has played some form of mobile freemium game. 40% have transacted with virtual currency.  In China, Korea and Japan freemium and social virtual currency games are the primary source of entertainment online.  There is a new announcement everyday indicating that traditional Internet gambling businesses and land based casino operators  are launching social and freemium game properties. Conversely, the Internet gambling market is not growing anywhere near the growth  rates of social and freemium games. Increasingly complex  legal regulations are causing the European gambling market to constrict and at the same time the cost of operating an Internet gambling operation in Europe is increasing.   This begs the question as to what the true motivation is for existing Internet gambling properties to enter the social/freemium gambling space.

Social/ Freemium Lead Generation - The conventional wisdom has been that the Internet gambling companies are most interested in the cross over from social/freemium games to Internet gambling games. The notion is that some percentage of social/freemium players will cross over to traditional gambling if properly incentivized. There has been some history with this approach. Zynga has sold leads to European gambling sites over the years. However, the conversion rates of these leads has been poor. Part of the issue with this approach has been the lack of "profiling"  of social/freemium players  to determine what players would most likely convert to Internet gambling players.

Social/Freemium Standalone Business - Two years ago at the ICE gambling conference in London I had the opportunity to chair a number of sessions on freemium/social  games. During this conference the traditional gambling operators that had purchased social/freemium and mobile gaming sites indicated that they were more interested in this space as a separate business unit and had no intention of trying to move players back and forth between gambling and social/freemium properties. This was the first indication to me that Internet gambling properties were seriously thinking about the freemium/social space as a separate business unit. 

Abandoning Internet Gambling Business Completely - This may appear to be far fetched at this time. However, with the increasing difficulty of making an Internet gambling business work in an environment were regulators are more interested in short term tax revenue then they are in the survival of a once thriving business model, i.e. the death of .com and the emergence of .country, I am sure the Internet gambling operators are going to be looking closely at the numbers of both business models. If freemium/social can break even for the gambling companies the operators may just decide to close the gambling operations all together.

Impact Of Potential US Legalization Of Internet Gambling - Since October of 2006 Internet gambling has been illegal in the US. The law supporting that legislation has proven to be unenforceable and is about to be rewritten on a federal and or state level. This means that one day an Internet gambling operator could wake-up to find that it is once again legal to take wagers from  US Internet gamblers.  The problem is that these operators will have to figure out how to instantly acquire these players. Clearly, some of the gambling operators see social/freemium as a way to pre-acquire players, establish brand awareness and if the operators are smart, profile social/freemium players to determine the likelihood of social/freemium players converting to traditional gambling.

Social/freemium games provide a number of opportunities for existing Internet gambling operators. The Internet  gambling operators know how to acquire players, monetize them, retain them and run very efficient  businesses.  Certainly operating a social/freemium gaming site is different from operating an Internet gambling property. Also, the gambling operators are late to the party (no pun intended). However, I suspect they will adapt to the social/freemium world quickly.

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.