Is Zynga Relevant Any More?

At the recent Casual Connect conference in San Francisco there was much discussion about Zynga’s  past, present and future influence on the social/freemium game market, US Internet gambling, gaming related IPO’s and funding of social game companies. The question at hand is how relevant is Zynga at this time in respect to these associations?

The answer to this question requires an understanding of how Zynga rose to prominence in the social gaming and casino space and why  they have recently struggled to maintain that position.

Zynga was the first application to be launched within the Facebook environment in 2007. The fact that the first application to be released in Facebook was a game and an inherently social game outside of the Facebook environment is quite significant because of the  unfettered virality that Facebook provided Zynga in the early roll-out of application content within Facebook. Poker was an  especially interesting first Facebook application because poker is “social” outside of the context of a social network.  This perfect storm of the first Facebook application launched, poker being a naturally social game, combined with unfettered access to Facebook members( virality) and no competition in the environment for months resulted in Zynga acquiring a high percentage of the Facebook community in a very short time. This situation made it difficult for other game publishers to release games and even social games like bingo and poker in Facebook to match the Zynga lead.

Zynga continued to leverage this lead by introducing a series of games such as Farmville  and Cityville into the existing network of players that had and were playing Zynga poker. This further reinforced the dominance of Zynga as a social game publisher and perhaps the only “relevant” game publisher in Facebook that mattered in the early days of Facebook.

Facebook and subsequently Zynga went public riding the Facebook popularity craze. Post IPO, financial analysts and purchasers of Facebook stock realized that “monetizing” in Facebook via advertisement revenue was not as easy as expected and at the same time Zynga began to struggle keeping their MAU(monthly active users)  and revenue to the growth expectations of the market.

Facebook reacted to the advertising revenue challenge  by further restricting  application”virality” to only a few connects per member and eventually to a meager single referral. The purpose of this restriction was to force application providers to “advertise” their properties to attract players as opposed to obtaining them through  free virality referrals.

This change had a significant impact on Zynga. Prior to this change Zynga was paying virtually nothing for players and generating revenue from them through virtual currency transactions and in game “branding” deals. Zynga began to advertise increasing their cost of acquisition. Competitors with new and more interesting game content emerged  out flanking Zynga in terms of game popularity. More importantly  player attrition began to exceed player acquisition decreasing Zynga’s MAU’s.

Mobile Strategy – It is no secret that Zynga was late to mobile because they were concentrating on games within Facebook and attempted to leverage Goggle+ as a new emerging social platform to grow a game community instead of entering the new and emerging mobile game market. Again Zynga poker  was the first game in Google+. However, Google+ failed as a truly social platform undermining Zynga’s growth strategy .  Meanwhile other game content providers rushed into mobile and have dominated the mobile game market ever since. For the first time in Zynga’s history they had to compete on a new platform without a strategic advantage and no early lead. Clearly, this has been a struggle for them and it remains to be seen how well they will do in this environment.

Given Zynga’s history, the evolution of Facebook and the importance of mobile gaming should we still be looking at Zynga as a bell weather for social/freemium gaming and for the emerging introduction of Internet gambling in the United States?

Certainly from a generic investment in social/freemium gaming as a category probably not. Zynga does not represent the current crop of game companies within Facebook or in a mobile environment.  There are a number of very successful social/freemium game companies that are worth investing in and there are new start-ups cropping-up all the time that compete head to head with Zynga and are winning.

Internet Gambling – Zynga has never invested a tremendous amount of resources in Internet gambling.  Despite this they have been viewed as a big threat to existing European Internet gambling poker rooms and have scared away a number of US based social casino game publishers from considering entering the Internet gambling space.   Zynga recently announced a new internet gambling strategy that indicates they are more interested in fixing their social/freemium game business. This is a wise   decision because it is becoming more evident that social/freemium players have different motivations for playing relative to “real” poker players. Gaming platforms that are truly “gambling” centric are much better suited for “real” gamblers. Sorting all of this out and getting current Zynga poker players to “convert” to real money play will require more work to Zynga’s freemium game content and sophisticated player profiling.

So should we count  Zynga out all together from a investment perspective or as a reinvented game company that can compete in the brave new world of social, mobile and US internet gambling?

I would suggest that we should not count them out for a number of reasons.

Cash War Chest – The IPO brought in a significant amount of working capital for Zynga  giving them resources to re-invent themselves and once again develop new and interesting games that players will engage with on a number of gaming platforms and environments.

Branding – Zynga’s brand is still very strong and attracts players to their games and sponsors that want players to experience their products and services. The Zynga brand itself will drive revenue and continued sponsorships from well known consumer oriented companies.

Active Players And Dormant  Players – Despite Zynga’s sagging MAU’s it  still has access to a large pool of existing and dormant players( if properly farmed) to offer  new and interesting games too. Mining these players will require more effort then they are currently investing in the recapture effort. However, there are a number of clever ways they can employee that should help them to regain player market share.

There are headwinds that Zynga must face and overcome to reassert themselves as a leader in the space.

Build Creative Innovative Games – Historically, Zynga has not focused on building new and creative game content. They have copied existing and successful game content models and moved them into a truly viral Facebook environment. This is not going to work anymore and they need to create a game development environment that fosters a creative license to experiment and take risks in game design. Creating successful mobile games should be their primary focus.

Marketing/Advertising Differentiation – Zynga has never been a great marketing company. Instead, they have leveraged their first mover status in Facebook to acquire players and to leverage them over a number of Zynga games.   This methodology for acquiring players must change quickly giving rise to an organizations that deeply understands marketing and brand identity outside of a viral context.

Overall, Zynga is far from being irrelevant in the game space given time and a reinvention of their organization they could once again return to prominence. However, they are certainly not the leader in social/freemium game space that they once were and other game publishers/developers should not be judged based on Zynga’s performance. This is especially true in the mobile space.  Zynga does not have a “mobile platform culture” and needs to reinvent themselves in a mobile contextual world.   Savvy investor should evaluate the gaming space at a macro level for growth, revenue and innovation trends before making any substantive  investments in this space.  The international popularity of social/freemium games should be taken seriously especially in Asia and South American countries. These markets are potentially better places to invest gaming directed capital if an investor really understands the dynamics of those environments.  Internet gambling is still an interesting area providing the US legalizes internet gambling on a much broader scale then its current roll-out in the US is trending. Zynga holds some strategic advantage in the sector because of its brand awareness. However, their brand will most likely will be exploited by established  third party Internet gambling operators as Zynga tries to regain momentum in the social/freemium game 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.


Is Zynga Relevant Any More?

Gauging The Impact Of A Regulated Social Casino Game Sector

The saber rattling has begun with government officials and legal experts threatening to “regulate” the social/freemium gaming sector. Fears of a potential crossover between “real” Internet gambling and social casino are driving the call for regulation. European and Australian legal and government officials are especially concerned about the threat of problem gambling amongst under aged social and freemium game players. It appears that legislation restricting access to social casino games is inevitable. With the unfolding of legal Internet gambling in the United States it is only a matter of time before the US also takes a position on social casino regulation. Many social casino operators appear to be oblivious to the onslaught of a regulated environment and the nature of the restrictions that will be potentially placed on them. The impact on social casino revenue, player access and cost of acquisition could be significant if regulation constrains player access, game content, iteration on gaming content and affiliations with “real” Internet gambling operations. So how should the social/freemium game sector react and prepare for a regulated industry?

Regulated European Internet Gambling Model Influence - Europe, and especially the UK has a long history of regulating Internet gambling. There is a well established body of law, processes and procedures that have been created to control and enforce Internet gambling law. This regulator regime will most likely be the canonical model used to create and enforce social casino gaming regulation. A study of this regulator model, its architects and enforcement will provide social casino operators with a good idea of what is to come and how to react to it. Within this body of law are a number of key components that could have a direct impact on social casino operators.

Problem Gambling Assistance -  Perhaps the first and  most benign regulation that will most likely be enforced is the need for social/freemium casino operators to post problem gambling help group information during the registration process,  in the game  or  upon entry into a game.

Age  Restrictions - Influencing underage players to gamble is another very sensitive area that has been addressed in the “real” gambling space and will be part of any regulation of the social/casino industry.   The age requirement will probably be 18 years of age. So anyone below that age will not be able to play social casino games.

In most cases social casino operators are not asking a player for their age details. Even if they are or do it is unlikely that players are going to give an honest answer to this question.  They may also object to the need to give detailed information about themselves such as government ID numbers. In some cases the players are not old enough to have these ID’s.

The European Internet gambling industry is very familiar with this form of player screening. The Internet gambling industry  has also learned that compliance with this restriction is not as strait forward as one might expect. There are a number of vendors that provide age and location services for European Internet gambling industry and they may also be used in the social casino arena. These services are valuable. However, they are based on government databases and government databases rarely cover  100% of a population.   This delta could be very high in the United States and other locations where government ID’s are not mandatory.

Location Restrictions - Where are you social casino players coming  from? If restrictions on social casino require a player to be from a particular, state, province, administrative sector, etc. a social casino operator will have to make sure that only players from those locations are accessing their games. “IP filtering” services or databases with IP addresses are usually used to filter players to determine their location. The services and the databases are actually quite good including proxy server(s) in their databases. However, IP address and associated services are never perfect and do have challenges on state, province and country borders resulting in some players being rejected and others accepted when they should not be. A combination of automated and manual screening processed may have to be used to determine the location  of players given the target market age group of social/freemium gamers.

Submitting Physical ID Documentation - In the event that a potential player’s ID information is not contained in a database then physical ID checks will be required to gain access to game content. In a social setting where many players may be under the age of 18 obtaining this information may difficult. Given this reality do you let the player engage in the freemium game or not and only ask for ID info if a transition to an online gambling venue is possible? This decision may be complicated by an “affiliate” relationship between a social casino and “real” money gambling operation. Which organization will be asking for this information and when? Will it be at the point of deposit of real real money or at the point where a player is transferring money out of their account?

Game Outcome Randomness(RNG)  – Many social game outcomes are not random. Instead the game is created to produce a result at a certain stage of the game. In a conventional gambling environment this is not allowed because the practice could give a player  false expectations about an outcome for the purpose of encouraging a player to play more.   Regulators might require all social casino games to be truly random reducing the ability of a game operator to manipulate the game giving players false impressions about the likelihood of winning. The incorporation of randomness in a social casino game will change the monetization model of a game and potentially the amount of time a game is played.

Managed Economy - Many social casino games do not have managed economies where currency inflation is managed to maintain the overall “value” of a currency. Without management a currency will inherently become hyper inflated reducing the value of the currency. This leads to large accumulation of currency by players without a corresponding increase in the value of their assets. Will this practice be prohibited in a regulated social casino environment? Does the amount of currency accumulated by a player influence their commitment to a specific game?

Change Control And Game Auditing - Social game operators frequently change game content, game mechanics, monetization locations and game outcomes to adjust to the evolution of a game and a gaming community. In a regulated environment  game modification is limited to areas of the game that do not significantly impact the outcome of the game.  Changes that impact payouts and encouragement to deposit and discourage withdrawal  can also be restricted. Games are subject to an extensive audit by third parties to make sure the game is fair and the game “system” cannot be manipulated by employees. Change control will be a part of a regulated social casino industry. Change control in a social/freemium environment may be less restrictive then in a gambling environment. However, it is unclear at this time what the social/freemium change control restrictions and game auditing restrictions will be.

Back Ground Checks For Employees And Investors -  People that work for an Internet gambling operation are subject to background checks to determine if they have criminal records. In some cases executives of gambling companies are subject to financial audits to make sure that they are solvent and their sources of income are obtained through legal channels.   Investors may also be scrutinized to assure regulators that the source of funds is obtained from legitimate sources. Social casino companies may not be subject to this level of scrutiny unless they form alliances with gambling operators.

Converging Social and Real Money Internet Gambling Business Model - The blatant attempt to merge social and real money online casino gambling by an operator or game developer will create a very real wake-up call for regulators and consumer safety advocates. Despite this both social and “real” money gambling operators are working hard to bridge this gap technically, administratively and financially. Will regulators allow a business to own and control both game assets.

Game Hosting/Transaction Environment - Many freemium/social games are hosted in cloud environments and in hosting facilities that are not secured from an Internet gambling regulatory perspective.  Will social casino companies be forced out of cloud environments and into “secure” hosting environments. If so, this may have a significant impact on the cost of running and operating a social casino business. Denial of service attacks and intrusion probes by third party systems and bots is a constant threat in an online gambling environment. Software and hardware systems to deal with this form of disruption is required in a gambling environment. If social casino games can be used to transition players to a gambling venue will these systems also be required for social casino operators?

Game Auditing - Internet gambling games are subject to rigorous code reviews by external agencies to make sure a game is fair, random and not subject to hacking or syphoning by t employees or external bots and intrusion probes. Social casino shops are accustomed to changing code and publishing releases at a rapid rate with no audits or interruptions. This may come to an end if the outcomes of social casino games influence a player’s ability to move back and forth between traditional gambling venues and social casino environments.

Marketing Restrictions - Social/freemium casino businesses operate in a  relatively unrestricted marketing environment. They do not have to take into consideration the age, location, implicit or explicit messaging contained in their marketing campaigns. This may all change in a regulated environment. Any potential reference to “real” gambling” will be subject to scrutiny and perhaps be banned.  Implied or subliminal  references to “real” gambling may also be banned.

There are clearly  ramifications to the association of social/freemium casino style games with “real” money gambling games.  Regulators in the UK and Australia are  already thinking about how they will regulate the social/freemium casino sector because of the implied association with “real” gambling. The rest of Europe and the United States are not far behind.  Social casino/freemium and “real” money gambling operators need to take the potential of a regulated social/freemium game sector into consideration when developing business plans that involve an independent social/freemium gaming business or a convergent one that seeks to transfer players between social casino and Internet gambling venues.  Social/freemium social casino’s should not take the threat of regulation lightly. The impact on their business model could be significant. A proactive self-regulated approach is recommended to demonstrate to regulators that a formal set of legal guidelines in not required.

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.

Gauging The Impact Of A Regulated Social Casino Game Sector

Managing The Land Based Casino iGaming And Social Game Company Relationship

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.

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.

 

Making Games Social Outside Of Facebook

 Facebook has demonstrated how important   social elements and mechanics are for the success of a game within Facebook. The benefits are numerous resulting in higher traffic numbers, better retention and  lower cost of acquisition.

 Facebook has been the premiere social platform that most game publishers and developers have exploited to add social mechanics to their games. These mechanics have allowed games to access significant numbers of Facebook players leading to a number of games becoming very successful within the Facebook environment. This has resulted in a number of game publishers and developers becoming dominate within Facebook by exploiting the players they have acquired through Facebook in one game and moving them to other games in their game portfolio. 

However, there is a tax associated with launching and managing a game in Facebook if that game monetizes through virtual currency transactions. The fee is draconian taking 30% of all game transaction revenue and depositing in Facebook's account receivables.

Recently competition within Facebook for Facebook gamers has become so intense that the 30% Facebook tax is making it difficult for game publishers to be profitable within Facebook. Bottom line game revenue has been challenged because marketing costs are rising(Pay Per Click Advertising) and the required sophistication of games has increased resulting in  higher development costs for games.

Game  publishers have responded to this pressure by taking their games outside of Facebook and publishing them on mobile devices and even as web games. Until recently, these environments historically have not had native social mechanics to drive high traffic numbers without extensive advertising, partnerships and affiliate marketing relationships. 

With the introduction of Facebook "Connect" ironically Facebook itself has brought social mechanics to mobile and web games. Certainly it was not the  original intention of  Facebook Connect to enable game applications outside of Facebook to take advantage of its social mechanics without having to be in Facebook. However, game developers have cleverly figured out that they can get most of the social mechanics they need by adding Facebook connect to their games in mobile and web environments.

Game developers and publishers have added notifications, friend awareness, invites, Facebook pages, Facebook community development, etc to their non-Facebook games. There are certainly other less well know social game  platforms such as Gree that actually encourage the use of their social game platform to launch and promote games. However, given the size of the Facebook community Facebook is the obvious place to go to acquire players. I also suspect that Facebook is less then enthusiastic about how game developers and publishers are using Facebook connect to circumvent their virtual currency tax. However, not sure how they can avoid the exodus from Facebook by game publishers without impacting web sites and Facebook members with legitimate Facebook Connect  intentions.

Mobile games riding on top of  Facebook Connect is a powerful combination with more people accessing games from their mobile devices. This combination is actually making mobile games work from a business perspective.

We will have to see how Facebook reacts to increasing numbers of game publishers and developers exploiting Facebook Connect outside of Facebook.  

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.

 

Internet Gambling's Confused Definition Of Social Gaming

The Internet gambling business community has woken up to the fact that they have missed out on perhaps one of the most important Internet wagering business opportunities of a lifetime by not taking social/freemium gaming seriously. They are now in catchup mode  trying to sort out how to engage with gaming that is not of the conventional regulated ilk.

The problem is that in their panic to carve out market share in this space they have somehow lumped all non-conventional wagering Internet gambling in the "social gaming" category. I hear it time and time again that they are investing heavily into "social" when in fact many of the games they are investing in are not social at all?

The worrisome  part about this is that making big bets in a highly competitive space without understanding what social really means could be disastrous for these operators. In point of fact, the term "social" as used by gambling operators really means "freemium" encapsulating all gaming that does not fall into the regulated gambling space.  It should also be noted that even this definition may change as gambling operators invest heavily in the freemium gaming space. Ironically, This will draw the attention of regulators to freemium Internet gambling making regulators  suspicious of virtual currency and goods transaction within games of chance. The operators emphasis in  this space may kill the goose that laid the virtual golden egg.

In point of fact, we need to be conscious of what the gambling operators are really looking for despite the fact that they may not know themselves.  Are they looking to invest in games that are truly social outside of any socially contextual platform such as Facebook and or are they investing in games that are not social and require a boost from a socially contextual platform to become social?

To answer this question we  need to understand what social means and what it does not mean.

What Does "Social" Mean? - It my seem silly to have to ask or answer this question. However, the definition needs to be spelled out to draw focus to what is really important about social gaming.  Social implies an environment that encourages interaction amongst individuals. An extension of this is the tendency for social environments to encourage people in the social environment to connect with other people they know to participate in the environment and for people to become acquainted with people they do not know within this environment. If a social setting is truly interesting to people, a community around that subject will grow quickly, providing that a communication mechanism is either part of the game  or  facilitated by an external communication system that can be leveraged to communicate to people inside and outside the social environment.  

Truly Social Games - There are gambling games today that are social games. Poker and traditional bingo are the two most noteworthy. These games can only function if there are is a critical mass of people playing these games. This is commonly called "liquidity". Yes, there are stand alone video poker games and standalone bingo games. However, historically  poker and bingo started as social games to enhance the dynamics of the game and in bingo's case to actually foster a sense of community. Gambling operators such as Party Poker, Full Tilt, Pokerstars, etc,  are a few of the big gambling names that were able to leverage the inherent social nature of poker  on the Internet. Other non gambling games such as Farmville and Cityville are  freeemium style social games that leverage community social features encouraging players to act in a community way to achieve common goals.

Social Platforms - Platforms such as Facebook and Google+ are social backbones that provide basic social facilitation tools that mimic real world social interaction on a much bigger scale then found in a terrestrial environment. Simple things such as invitation capability, profiles of people, notification systems and meeting places such as forums and  applications that provide meeting places for people to meet and communicate are provided. In the case of Facebook the overall community is very large leading to potentially high levels of interest, virility and liquidity for games.

Anti-Social Games - Slot machine, single player bingo, roulette, etc are not social games. They are played in a solitary way. Because of this they do not have  tendency to create large communities or cannot create large communities without a facilitating" social network.   These games are inherently anti-social because they require that the player concentrate on the game and not other players in the game or how other players are doing. There is no value to the individual player with the exception that Jackpots do require large amounts of players to increase the prize.

Social Games + Social Platforms - The combination of an inherently social game combined with an underlying social platform makes for an extremely powerful combination. Zynga Poker is the obvious example and a  shrewd first application to launch within the popular social network Facebook. Within 3 months they leveraged the open virility components of Facebook resulting in massive adoption of their poker room  blocking out all of the competition for the top application spot in Facebook. Zynga's  Farmville and Cityville where both based on this strategy of first mover virtual world games within Facebook resulting in yet another success story and domination within Facebook of this game category.

Anti-Social Games + Social Platforms - We have recently seen success with anti-social gambling style  games such as slots  combined within social platforms. These games offer an essentially solitary game experience and  combine it with  invites, notification, updates and other community features to enhance the ability and likelihood that even without any real game purpose to engage others in the game the game can leverage the underlying social platform and perhaps its reward systems to encourage others to play the game.

Rapid Growth and Consolidation -An interesting phenomena about the combination of social platforms with games  is that there is usually a quick consolidation of players into only a few popular games. Ironically, the social nature of the game and or the social platform facilitates this process. This is especially true if a game is inherently social leveraging social network features to grow a community.

Can Internet Gambling Operators Compete In The Social Gaming Space? Of course they can. However only if they really understand the social environment and if they  launch new and interesting freemium games or at least hybrids of the traditional casino or social gambling games that are not offered at this time. Sure they can try and buy their way into the social space by spending more marketing funds than anyone else or they can acquire  existing successful social games or game companies. 

They also need to understand the freemium game business from a revenue per play, cost of acquisition, and retention perspective. Making freermium work requires much higher player volumes than they are accustomed to and there is no regulatory protection limiting competition. At least not yet. 

This is not to say that the Internet gambling companies should not attempt to enter this space. However, their current culture of offering the same suite of gambling games as their competitors in the gambling space will most likely not be a successful strategy in the freemium world.  Just putting the same old gambling game  into a crowded social environment is not likely to be a winning combination. They will have a steep learning curve. However, they do understand that the world has changed and a business strategy that does not include a "freemium" component will most likely marginalize them. Freemium is also the faster moving game sector from a technology and delivery perspective. The gambling companies have consistently been behind the technology evolution curve because they have not been building and supporting freermium games. This will change by necessity if they want to compete with the highly funded startups in this space. It should also be noted that the mobile environment may be the best place to offer freemium goes and not Facebook or Google+. This is an entirely different discussion and will be forthcoming.

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. 

  

Step 1 - US Land Based Casino's Prepare For US Legalized Internet Gambling

The march to the  legalization of  US Internet gambling has begun with states and the federal government grappling with how it will be legalized. It is no longer a matter of, if Internet gambling will be legalized in the US, it is a question of when and how will the legislation unfold. During this interim period of uncertainly many casino businesses interested in taking advantage of the new gambling law are pondering what they should do now to prepare for the eventual passage of Internet gambling legislation. The US land based casino industry is one sector that could benefit the most from the change in gambling law or potentially miss the greatest business opportunity of the industry's lifetime. Given the historical constraints imposed on land based casinos by legislatures and consumer groups the casino operators have done very little in the Internet space relying heavily on snail mail marketing, TV ads and the promotion of their entertainment venues to entice consumers to come to their properties.  This leaves them at a strategic disadvantage relative to other business sectors that have sophisticated Internet marketing teams that understand the online space , conversation rates, cost of acquisition, consumer behaviour, etc.  So what are the first steps they should take to explore the Internet space, preparing themselves and consumers for the big day?

Will Land Based Casino Patrons Gamble Online? - Clearly the answer to this question will significantly impact a casino's online gambling strategy. Speculating about the answer to this question  is a big gamble in and of itself and should be  answered prior to any investment in Internet gambling platforms, strategic gambling partnerships, etc. 

E-mail Capture - Before a casino can assess their land based customers propensity to gamble online they need to able to communicate with them online. E-mail is the good old fashion way to do this. Most people have an account and will provide that to a business. Capturing that e-mail address at hotel registration time or perhaps at the cashier counter would be a good way to build a database of marketable consumers. 

Survey - With the e-mail database underway an online survey would be a great way  to connect online with the existing land based gambling consumer to ask them what their propensity to gamble would be and what a casino operator would have to offer to get them to gamble online with them.

Build An Online Marketing Team And Expertise - Much of the success of online gambling operations is dependent on how well the properties will be  marketed online. In many cases the game content that will be offered by Internet gambling operators will be  identical with marketing  being the only differentiation between casinos. 

Social Media - It is no secret that Facebook and Twitter rule the online world with just about everyone on the planet in Facebook or on twitter. Facebook will also be a strategic battle ground for US Internet gambling.  Gambling will be hosted in Facebook. In preparation for Facebook gambling, to understand how to build community in Facebook ant to effectively market within Facebook requires an expertise different from standard Internet marketing. How do you build an effective Facebook page? How do you build a robust Facebook community, how do you advertise in Facebook and on other Facebook properties? How do you communicate with your installed base through Twitter?

Consumer Profiling - Profiling Internet gamblers is a sophisticated process that relies heavily on a number of data points such as Facebook activity, Twitter posts and communication, search characteristics, game play;  social, casual and  real gambling online and offline, E-commerce transactions, etc. Casino gambling operators should begin to determine how they will combine the profiling gathered from their land based operations with their online properties. This will provide them with an information data source that will help to optimize Online gambling operations.

These are some of the obvious and necessary first steps in the march to launch and manage a successful online gambling operation. In the next installment of this series we will address the question of buy, build, partner, etc. to obtain and manage online gambling games and content. That will be followed by the question should I launch a freemium, Facebook game and or mobile gambling games.  

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.