Significance Of Harrah's Playtika Purchase For 90 Million USD

The iGaming world is a buzz with the news that Harrahs has purchased the Israeli social and casual game development company Playtika. This transaction is quite significant from a strategic and industry perspective.

The subtle significance of this transaction indicates that Harrahs is taking the online social and casual game very seriously. This is important because Harrahs is considered a "gambling" operation and not an Internet social gaming company. Playtika's games are clearly modeled after casino games. However, they are free to play with "virtual currency" transaction options.

This transaction is important because of the size of the payout for Playtika coming close to 90 million USD. It indicates that Harrahs envisages some serious revenue and branding coming from these games.

More importantly Harrahs has decided it is not going to wait for US gambling law to change before it goes online. Harrahs wants to build an online brand now, obtain expertise in managing an online gaming property and establish a close linkage between its off line properties and its new online brand.

Harrahs wants to acquire online players now through social gaming and understand how the social gaming business works. Most of the iGaming industry is still in denial about the importance of social and casual gaming for the purpose of profiling and up selling into Internet gambling offerings.  Harrahs gets it and knows that with 1/2 billion people in Facebook, the average age over 35 and most of them playing Facebook like games there is definitely some serious cross over.

Gary Loveman has always been an innovator in the US land based market and he has been working hard over the years to bring his company into the digital age. Gary is building the business and operational acumen to make this happen. He is moving far ahead of his rivals at this point. Can they catch him?

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes extensively 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.

Significance Of Harrahs WSOP Social Gaming Deal With Playdom Poker Room

At the 2010 GiGSE iGaming conference in Montreal I talked about the need for land based casinos to move quickly and aggressively into the online space if they had any aspirations of being real players in cyberspace. The recent deal that Harrahs cut with Playdom(now Disney) signifies an important step in that direction. The deal is significant because it leverages the WSOP brand, which arguable could be the most profitable online gaming brand of all times, generating more direct and indirect revenue then any other online gaming brand to date. The problem has been that WSOP has not been a big money maker for Harrahs. Instead it has been a big money maker for iGaming brands running online tournaments to get online players to qualify for the land based tournament.

It looks like Harrahs has decided that things are about to change. They have made an interesting end run around the big traditional online poker brands such as Party Poker and Poker Stars by entering the legal online gaming business in the US. Playdom has 42 million players playing on their property. That has to get the attention of the other big online poker sites that want to get into the US market when online poker becomes legal again. Essentially, The Playdom deal expands the WSOP brand from its current online gambling audience to a broader social gaming audience.

The other interesting part of the deal is the way Harrahs will be monetizing game play. They appear to be covering all the basis with sweepstakes(alternative method of entry) payments to enter tournaments, virtual currency purchases and virtual goods sales. Do not forget that Harrahs has been in virtual currency business for some time issuing virtual currency in their Total Reward program. This could lead to an interesting tie in with virtual currency and virtual goods exchanges between Playdom and Harrahs land based casino players.

Party Poker bought WPT last year buying into the legal sweepstakes model in the US. However, I doubt if WPT has 42 million active players.

In another of my recent blogs I researched the growth of the virtual goods market. It is growing a lot faster then the traditional online gambling method of monetization. Yes, the traditional online gambling sites are currently making more then the social gaming sites. However, the virtualization trend is working against them. More and more people are flocking to the easy to play social gaming sites buying, trading and selling virtual items and currency. From the land based casino perspective more people are choosing the virtual world over the traditional physical gaming experiences.

The Harrahs' move should get the land based casinos and online gambling sites thinking about how they should react and position themselves. First online game movers have proven to be hard to catch once they gain momentum. Zynga and Party Poker are recent examples of companies that quickly dominated their respective online game categories. The other land based casinos are no doubt the most vulnerable. Most of them have no online experience, brand, market share or expertise. They are going to have to engage in a partnership like the Harrahs Playdom deal or conduct an outright purchase of a high trafficked and well branded online property if they expect to compete in cyberspace.

Are US Land Based Casinos In Jeopardy Of Losing Market Share To Online Gambling Sites?

The recent holiday retail store and online e-commerce sales numbers highlight the steady march of consumers moving away from purchasing products at brick and mortar shops to purchases online. This year's comparison numbers are lower for brick and mortar shops and higher for e-commerce transactions.

The inclination to transact online as opposed to transacting in a conventional store represents a growing trend for individuals to interact virtually as opposed to interacting physically. The pendulum is swinging steadily in the direction of more online activity.

Is the same phenomena occurring in the gambling sector?

Online gambling has been alive and growing since the mid 90's. Some of the earliest e-commerce sites were gambling based. The growth in online gambling has been brisk despite the attempts by governments to render online gambling illegal.

In contrast to traditional retailers that have embraced online e-commerce by launching online stores of their own the US casino operators have avoided embracing the online model. Land based casino operators have not established online brand identities.

In defense of the US land based operators state and federal regulations have been greatly responsible for prohibiting land based operators from entering the online market. However, casino operators have also been reluctant to fully embrace online marketing of their land based properties and introducing legal options for consumers to experience gambling online.

Conversely online gambling sites continue to grow at an ever increasing rate. PartyPoker estimates that they are adding 5000 US players to their free play model every week. Fulltilt and PokerStars continue to allow US players to wager in their poker rooms.

Online gambling operators such as PartyGaming are now entering the legal online US gaming market through the purchase of the WPT property.

Certainly the recession has had a negative impact on the land based casinos. Their drop in revenues can be attributed to a deflated US economy. However, is this the only reason for their loss of revenue?

Online gambling revenue have steadily grown through this recession. Have they taken market share away from US land based operators and will that traffic return to Vegas when the recession abates?

The synergy between the offline and online gambling experience is strong. Playing online helps educate players on how to play the games and will improve their performance in skill based games at the casino. There is no complete substitute for the land based experience. People want to go to Vegas. So a marriage of online with offline(The Walmart model) makes sense. In fact a marriage of the two is almost mandatory for the land based operators to once again become growth mode companies.

The question is who will move first and if a merger of the business models occur who will initiate the merger? Will the online gambling operators be acquirers of land based US operators or will US operators begin to form partnerships with online gambling operators? What will be the dominate brand? Will it be online or offline?