2016 London ICE Gaming Conference Summary

I have to say that  this year's  2016 ICE gaming/gambling conference held at the ExCel center in East London  was the best of the ICE conferences in recent years. The shear size of the show in terms of exhibitors, traffic and interaction was excellent. The special presentations provided in the seminars were educational facilitating good interaction between presenters and the audience. The  degree of online gambling representation was no doubt the  most improved aspect of the ICE experience. 

Exhibitor Vendor Show Room Floor - The number of vendors and  the opulence  of their booths represented on the show room floor was impressive with two extremely large vendor spaces providing for full exposure to Euro gaming. The vendors where large and small representing many of the European countries engaging in both land based and online gambling. 

Online Gaming - As opposed to many other places  on the planet where online gambling is illegal many countries in the EU have embraced online gambling creating formal regulated processes for this sector.  This has resulted in a booming online gambling market in the Euro Zone. In many cases the online business models  rival land based operations. This phenomena is unique to Western Europe as most regions outside of Europe have not embraced this  form of wagering as a legal activity. This appears odd to many due to the obvious transition in the world from terrestrial gaming to online gaming. Europe has acknowledged  this trend by creating a well regulated online gaming environment  supported by government agencies. Essentially, Europe has created an "economy" around this activity that benefits Europeans from a financial  and  player protection perspective.

Its All About Mobile Or Is It? Although most of the vendors are building games on the Android or Apple platforms (Microsoft was also mentioned in  a mobile context?) a number of game publishers indicated that the desktop is far from a dead platform.  In particular, poker and sportsbook were  mentioned in terms of desktop usage during game play. Essentially, any game that requires, encourages or enhances game play by having a number of windows open at one time works better in a desk top environment.    

The Importance Of Sports Wagering - Sports wagering by "punters" is clearly a mature form of gambling in Europe with sportsbook vendors competing aggressively to acquire and retain  punters/players.   This form of wagering has become extremely important as an online activity with many punters wagering exclusively at online venues and not in betting shops which are declining in numbers. This transformation is driven by the sophistication of online punters  and the  demographics of the online sports wagerer which is skewing towards a market dominated by 20 to 40 year old punters.  The popularity of online sports wagering has positioned sports books as a treasure trove of leads for online casino customers.  Sportsbooks are also the source of many leads for other gaming properties. However, the cost for these leads is pricey. Consequently, purchasing these leads has to be justified by meaningful revenue per player. 

Land Based Casino Activity - North American has historically been perceived as the big dog in the yard when it comes to large and ostentatious  land based casinos. However, the recent Euro ICE conference begins to questions that notion. Granted, Vegas is still something of a phenomena. However, it is clear from ICE that Europe has taken  a very serious approach to build and design casinos that appeal to a larger audience. This was demonstrated by the number of slot machine companies as well a  casino businesses addressing the outfitting of these land based venues.  

Big Data, Artificial  Intelligence, Machine Learning And Player Profiling - Game engagement and especially online gambling generates a lot of data.  However, making sense of this data for the purpose of retaining players, increasing revenue per player and acquiring new players has  been challenging using traditional reporting tools  and  linear data  analysis.  Data scientists are now using Artificial Intelligence /Machine Learning  techniques to improve the mining of rich game data generated from player activity.

These presentation brought back memories for me having spend   two  years at the AI Lab at  the Massachusetts Institute Of Technology MIT working with Patrick Winston and  Randal Davis and being exposed to Marvin Minsky's work   at the beginning of the AI craze.  This investigation resulted in a spin off company called AI Squared started by myself and the other team members working on the project. Out task was to decipher machine data created by electronic control modules in cars, large lorries/trucks, aircraft and medical equipment for the purpose of determining how to detect and address failure in these domains.   Essentially,  not a dissimilar problem from determining what players are doing and why based on their game play data.

The  takeaway for AI/machine learning being used in the gaming industry is to profile customer behavior to determine what makes them stay in the "game, drop out of the game and increase transaction amounts. Ultimately, AI analysis of player behavior and profiling  should lead to increased revenue per player, player retention and the customization of the player experience based a players behavior.

Social Games/Social Casino  Meet Real Money Gambling - Many traditional land based and online gambling business  have either launched or are launching "social casino games" in addition to their current "real" money gambling content. This trend has been going on for some time with completely  separate businesses and business models being created to address the  free to play(virtual currency) casino  game model. Social game business leaders were clearly on the exhibit floor and in the seminars. This is an area that should be investigated more closely by ICE organizers.

There are also two US based companies CashBet and  Betable    that are helping social casino business enter the "real" money gambling market by converting their games to real money play on their platforms. This is a very big opportunity given the amount of social casino developers and publishers that want to explore online gambling with their existing content without having to reinvent their game or launch online gaming platforms of their own. It also will result in new and perhaps more experimental online gambling content. This direction can only help to grow the overall industry.

Fantasy Sports -  What is the status of fantasy sports in Europe? Information disseminated at the conference did not clarify the state of fantasy sports in Europe. It was not obvious to me  why fantasy sports has not taken off in Europe(or has it?). In North America it is very popular and frightening to legislatures with a number of US states banning the activity. However, in a regulated gaming market like Europe why is this not a big business?   A resent article explains  that the complexity of regulation and the fear amongst traditional European sports books may be the reason that fantasy sports has not being successful in Europe. A more obvious reason my be that regulated sports wagering itself is attracting this audience making it difficult for fantasy sports to get off the ground in Europe?  It would have been a good idea to address this issue in one of the seminars. Fantasy Sports is not going away and if the sportsbooks are not careful they could be surprised by an aggressive  startup in this sector. Also, this entire debate begs the question about "skill" games versus games of chance. This is a very real debate in North America and Europe will have to address it as well.

Gambling Startups - ICE has been very good at giving new gambling startups an opportunity to "pitch" their business models at the conference.   This year was no different.  The one striking standout this year was gamevy that won the best startup award. It is an interesting combination of skill, change and simple lottery style gaming. Their graphics alone where impressive indication the value of good game presentation and acceptance. It looks like this company is going to establish some good deals based on their exposure at the show.

Apple iWatch/Wearables As  Gambling Content Delivery Platforms - I actually did see a few business launching simple slot style games on iWatch. However, I can not say they where all that impressive in terms of the game play or reliability. The Wearables certainly would appear to be an interesting way to address casual gamers and to use as  notification devices for sports book activity and transactions. However, it still remains to be seen how iWatch or Google/Android fit into to gambling ecosystem. I suspect we will see more experimentation providing the population adopts this format as a general use platform and as a possible entertainment platform

Overall, the ICE conference was impressive and worth the trek to the docklands to take in the show. Clearly gambling is big business in Europe and especially online gambling where it may have superseded land based gambling in Europe in terms of revenue and participation. The show also demonstrated the professionalism associated with the gambling industry and the dedication of government and regulators to properly manage these venues and at the same time preserve the player experience.  All of this points to a growing online and land based business environment  in the Euro Zone.

Kevin Flood is the CEO of Gameinlane, Inc. Gameinlane  has developed, launched and operated Internet gambling sites in Europe,  social casino,   freemium and subscription gaming in the US.   The company engages with land based casino  operators, online gambling operators, social casino operator and game developers to assist them in determining their strategy and implementation  of game content in an online context.   Kevin has worked for and with US land based casino operators helping them evaluate social casino and iGaming platforms for the purpose of joint ventures and acquisitions in addition to launching online gambling operations in Europe. Gameinlane is also startup "friendly" understanding the unique value new gaming companies bring to the marketplace.  Kevin frequently speaks at gaming conferences around the world providing him with a unique perspective on this very interesting business sector. Kevin can be reached at kflood@gameinlane.com  and or twitter  at @kflow1776.

2010 GiGSE Montreal Conference Summary

Accolades go out to Ewa Bakun for pulling the Montreal conference together and reigniting the debate over the direction and form that online gambling will take in North America.

The GiGSE conference brought together individuals and companies interested in the state and direction of online gambling in North America. The original conference had been suspended after the enactment of US gaming legislation in October of 06. The shocking, confused and abrupt way the legislation was enacted caused the online gambling industry to take a step back, propelled the industry into react mode resulting in a lack of cohesive, and in some cases, rational discussion and debate about the next steps in the march to a realistic approach to managing online gambling in the US.

With the passing years the true impact of the the 06 bill have been realized with individuals and companies adjusting accordingly. It now appears that the US and Canada are beginning to recognize that online gambling is not necessarily "evil". In fact, it is a mainstay of online entertainment that can be a meaningful source of revenue for state, federals and local governments.

Legalization Environment - No doubt the biggest question in the attendees minds was the question of the form and time-line for legalization of online gambling in the US.

The States - It appears that there is legitimate interest and actions being taken by several states to push ahead to legalize online gambling within state boundaries(intrastate online gambling). California, New Jersey and Florida are leading the pack engaging consultants, drafting laws, exploring regulation and in some cases voting on legislation to legalize online gambling. It looks like New Jersey is the closest to actually enacting legislation. This renewed interest in legalizing online gambling within state borders is being driven by the budget crises that almost all US states are facing. They all need to find new sources of revenue and they are looking at online gambling as a means to generate this revenue.

It is unclear how the states will recognize online gambling revenue. Discussions include license fees, transactions fees, regulatory review fees, etc.

The Federal Government - Congressman Barney Frank has pushed ahead developing legislation to legalize online poker on the basis that it is a skill game and not strictly a game of chance.

The general consensus is that no legislation will be passed in 2010 on a state or federal level. The November elections could result in a reshuffling of state and local elected officials and we will have to see how that impacts the initiative going forward.

The Indian Nation - At least in California the Indian tribes are not united in their approach to the legalization of online gambling. The tribes have worked hard to establish their land based casino operations and the move on the part of state governments to legalize online gambling is making them nervous putting some tribes on the defensive. Essentially, the tribes want their sovereign rights to be recognized making sure that they get their fair share of online gambling proceeds.

This defensive position is unfortunate. Given the unique status of Indian tribes in the US they could have taken a more aggressive stance by challenging current state and federal authorities by moving aggressively to launch online gambling operations within their borders. I am sure it would start a firestorm of debate and challenge. However, in the end they may win the battle and significantly change the destiny and well being of the Indian nation.

What is Canada Doing? - I was really surprised that more attention was not paid to what the Canadians were doing in regard to online gambling legislation. After all we did have the conference in Canada and many Canadians did attend. With that said I spoke to a number of Canadians at the conference and it is apparent that the provincial governments and the Canadian government are moving ahead as aggressively if not more so then the US.

It appears that Canada wants to legalize online poker. I suspect they may actually do this well before the US government. If this is the case it will be interesting to see how the US reacts and what they will do when US online poker players begin to play poker on a Canadian site?

The individual provinces are entertaining online gambling for the same reason the US states are. They need new sources of revenue! The initiatives in the provinces appear to be built around their current lottery systems with the desire to add more gaming "content" with the goal of attracting more players and to further monetize existing lottery players by allowing them to play other games. This move appears to be part of an overall initiative to make lotteries more accessible online.

How Will New Legislation Impact Existing Online Gambling Operators? - It is no secret that Poker Stars and Full Tilt have largely ignored US law and are doing very well monetizing US players, building strong brand awareness and acquiring US players at a rapid rate. Many US and Canadian players assume online poker is legal and have no notion that it is not.

This puts many other operators at a disadvantage providing they wait until legislation occurs before entering the US market. If legislation does take two years to be enacted will the game be over for any new legal entrants? Even if the law prohibits gambling operations from outside a state or a country are players going to care instead going strait to the offshore operators that they are familiar with?

The US Casinos - Harrahs' head of Online Gaming provided the audience with insight in how the US land based casinos are approaching legal online gambling. Clearly, Harrahs, on the back of the WSOP brand is off and running building brand awareness, developing operational acumen and obtaining gaming platforms to make a go of it when and if legislation passes in the US. The one thing that people should recognize is Harrahs is already off and running in Europe and no doubt soon to be introduced in Asia. So they are not waiting around for the US laws to change. Harrahs is already in the online gambling business.

It is unclear what the other casino companies are up to and if they are even seriously interested in the online gambling space. Without any concrete evidence to the contrary the wait and see strategy may not be the wisest strategy for them. Waiting to the last minute may simply be too late if other online other gambling brands have already staked out their turf and have acquired large chunks of existing or potential online gamblers.

Entrepreneurs And Investors - There are certainly many investors and entrepreneurs creating new and interesting games and gambling models that have great potential for attracting a broader audience of players to online gambling propositions. Certainly the traditional online casino games will be part of the offering. However, they will not be the only games offered online. Expect casual games, fantasy sports, new mobile game models, iPad games and "social games" to be part of the mix.

Conclusion - It was great to participant in a revival of a coordinated interest in the newly emerging march to the legalization of online gambling in North America. Clearly, the world has changed since October 13, 2006. What we see happening is not necessarily what we expected after the enactment of federal gambling law giving rise to new optimism and acceptance of online gambling as a legitimate business.

The industry is still facing head winds and the vagaries of the legislative process. However, progress is being made with most of the attendees recognizing that legalized online gambling in North America is inevitable. It is just a matter of when and how.

Why Is It Important To Prepare For Legal Online Gambling In The US?

I am not sure if online gambling will ever be legalized in the US. If it occurs when it will occur, what form it will take or what restrictions will be associated with it. However, if one believes or hopes that it will occur waiting until the last minute to jump in could be a dangerous strategy.

Why?

Branding - Just because a company has an online gaming brand in Europe or Asia does not mean it has a recognized online brand in the US. Building brands online specific to a market is important because it establishes credibility and potentially results in an aggregation of online players prior to the legalization of online gambling in the US. This prior aggregation of online players can provide an advantage to online gaming brands when legislation changes. When the change occurs the online brands can market to their online players converting them to online gamblers.

PartyPoker and Zynga have US online gaming/gambling brands. They also have accumulated large numbers of free and micro-transaction players. If handled properly, a large number of those players can be quickly and instantly converted to gambling players.

If an operator waits to the last minute to build awareness of their brand they will already be competing in a crowded market with operators that have acquired most of the potential US online gamers.

Land Based Casinos - Having had the opportunity to launch online brands in Europe for land based casino brands taught me how difficult it is to establish online brand awareness for a well branded land based casino.

Branding a land based casino as an online brand can be as challenging as branding a completely new business. Just because you have a "great" offline gambling brand does not necessarily entice players to use your online property. This is especially true if the space is already occupied by well known online gaming brands.

Casinos should start to move online now establishing legal online gaming propositions to begin to build brand awareness, to get an understanding of online player characteristics and to begin to determine how many of their land based players will become online players.

Payment Processing - I work with many legal online gaming companies in the US. They range from skill game, sweepstakes and stock trading models. They all struggle getting payment processors to accept their transactions even though they are legal operations. I am not sure exactly why this is so difficult. However, I suspect the alien and suspicious nature of online gaming is a red flag for processors causing them to hesitate to handle online gaming transactions.

If a company waits to the last minute to establish their US payment processing relationships they could find themselves in a frustrating situation trying to launch an online gaming business without the ability to process payments. If an operator is interested in participating in online gambling in the US they should begin identifying US payment processors and secure relationships now even if they do not intend to launch an online gaming business in the immediate future.

Operational Acumen - Operating an online gaming operation is non-trivial involving technology, software development, legal work, player support operations, and online marketing expertise. Existing online gaming operators will have an advantage entering the US market because they have existing operations and knowledge of how to acquire and retain players. The one caveat might be the requirement by the US authorities to have all of the personnel and gaming machinery located in the US.

If this is the case it is another reason to get started now sorting out where to put the operation, hire staff, setup hosting arrangements, build technical infrastructure and to establish the proper hosting relationships.

Game Selection - Just because an online game is popular outside of the US does not mean it will be popular in the US. We see this in land based casinos as well as online. We also know that a popular land based game may not be popular online.

Each country and culture has its own bias related to game play. The online community has its bias relative to land based play. Operators will have to spend time researching what mix of online games work for the US audience.

The social or casual gaming space will prove to be most challenging for traditional offline and online gambling operators. These games are becoming very popular in the US and could be the predominant gambling type games when it comes to pure player numbers.

Operators will have to spend time researching and experimenting to determine what game and game collections are popular in the US. In some cases this may require operators and game developers to modify existing games, build new games or license games from third parties.

Demographics - Generally speaking online gamers are younger then land based gamers. This could have a significant influence on the games they will play, when they play and how much they wager. Getting an online presence in the US early is important to figure out the age breakdown of US online gamblers. This will influence how to market to the gamers and what game mix works for them.

Game License - With almost absolute certainty operators will have to obtain an online gambling license to operate in the US. With equal certainly the authorities will be more likely to grant licenses to operators that already operate in the US.

The licensing process could be a long drawn out affair that will favor companies that have relationships with federal, state and indian gaming authorities. Gaming companies need to be talking to and working with these groups and agencies, prior to legislative changes, to establish their credibility and make the authorities aware of their operations and the individuals involved in the operations.

Conclusion - The time to start US gaming operations is now if a gaming operator has any chance of being successful in the legal US online gambling business. The development and execution of a successful US gambling strategy will require significant effort, funding and planning to differentiate it from the numerous other companies that want to enter the space. A number of companies have started the process requiring interested parties to accelerate their planning for the "possible" opening up of the US online gambling market.

There is also great "risk" in early preparation for legal gambling in the US. No one is absolutely sure it will happen and how it will unfold. A concentrated investment in one area could prove to be wrong resulting in money spent in the wrong place or at the wrong time.

The collapse of the UK gambling bill is a discouraging historical precedent. Under full support of UK legislators a gambling bill was drafted vetted and moved forward to implementation. A late awareness, by UK constituents, of the bills full magnitude and scope caused it to be scaled back significantly. This caught many land based casinos off guard. They had invested large sums in property purchases and setting up operations. For the most part this investment was wasted.

A wise and thoughtful management team will set aside a prudent amount of funding for US operations and then decide on how best to invest the funds to make sure that it establishes a foundation for moving forward if the US gambling laws change.

When and if an online gambling bill is passed the companies that have established US online gaming brands, operations, and a preexisting player base will be the winners.

2010 ICE Gaming Conference Review From An American Perspective

I attended the ICE conference in London after a 4 year hiatus to determine what had changed in the online gambling world since my last visit. I was especially interested in how European operators had adjusted to the social gaming and social media phenomena that has taken hold in the US. The following is my assessment of what I believe are the differences, advantages, disadvantages and similarities between the gaming/gambling approaches in the US and Europe.

Social Gaming - Social gaming has taken the US by storm with all kinds of games appearing in Facebook, IPhone apps and other social networks. These games are light weight, easy to access and usually very easy to understand. They have changed the conventional view of what a game is with new approaches to game design, mobility, availability, community integration, social media marketing and content. These games are attracting millions of players on a regular and steadily increasing basis. At the conference I saw very little activity by European game developers or operators to match the social gaming environment. For the most part European gambling/gaming developers are sticking to the classics with some experimentation in "ball" and lotto style gaming. They are starting to build games for a web and mobile audience to facilitate fast download and easy access for online players. The games have improved from a graphics perspective. However, their lack of social media/network integration and "fun" factor still does not allow them to reach the player usage levels of social gaming operators in the US.

Game Monetization - The US and China are aggressively monetizing games through the sale of virtual currency and virtual goods. The popular Zynga poker game in Facebook is generating millions of dollars a month in the sale of virtual poker chips. US online game operators are also using targeted advertising within games to monetize their high number of free players. In some cases European operators do monetize free players through advertising. However, the concept of "micro-transaction" sales of virtual currency and virtual goods was noticeably absent.

European operators continue to monetize their players through wagering, pools, bets, etc. These methods yields a much higher revenue per player then the social gaming sites. However, the number of players participating on these sites is relatively low compared to social gaming numbers. The American gaming companies have still not figured out how to take traditional gambling bets on their properties despite the fact that many of their social gaming players reside in jurisdictions where online gambling is legal.

Age/Location/Identity - Determining age, location and identity is big business in the European gaming community with well established and respected mult-national companies offering services to gambling operators. This form of player "profiling" is noticeably absent in US based "alternative method of entry" (subscription), skill gaming and free play US gaming models.

The age, location and identity vendors are still using government or credit scoring databases as their source of profiling leading to limitations in the depth, breath and refresh rate of player profiles.

To counter these deficiencies companies are looking to promote "net identities" that encourage players to establish their identities for the purpose of facilitating online commerce and for safety purposes. They were also very receptive to new profiling techniques being developed by a cadre of startups in the US. These new companies are using the myriad of social networks combined with some sophisticated information capture and reasoning techniques to develop extremely rich and up to date player profiles.

Social Media Marketing - In the US traditional forms of marketing such as e-mail and advertising are being supplemented or replaced by social media marketing. US businesses are using social network sites such as Facebook, Twitter, Linkedin, MySpace, YouTube, etc. to reach out to consumers and players. It is no longer adequate to only have a Facebook application. All of the social media tools must be used in tandem to maintain constant contact with the ever growing social media audience. New companies such as Involver.com are helping businesses and individuals pull all of these services together to provide instant and viral exposure for individuals and companies.

The European gambling companies seem a bit beguiled and frustrated by this emerging wave of marketing and support products and services. They believe their "gambling" status prohibits them from using these tools. In fact, this is not true providing they understand their place in the gaming ecosystem.

Payment Processing - ICE demonstrated that the European gaming payment processing industry is well developed. They offer a range of products and services for gaming operators and have easy and well understood interfaces into their product offerings. These businesses have matured over time adding mobile payments and pre-paid cards. This is in stark contrast to US payment processors that are confused about the position of perfectly legal online gaming models in the US.

This does open the door for European payment processors to process legal micro-transaction, skill gaming and alternative method of entry (sweepstakes) transactions for legal US gaming operators.

Gaming Law - Ironically, European gaming law is starting to look very much like US gaming law. In the US gaming law is a state's rights issue and not a federal responsibility. The Wire Act is an exception crossing state boundaries. The 2006 federal gambling legislation is in place to support states that consider " online gambling" to be illegal.

The EU appears to be moving in the same direction allowing individual countries to establish their own gambling laws.

The one subtle difference is that the EU and US federal government have different overriding philosophies regarding online gambling. The US government is generally against allowing gambling in the US. The EU overriding mandate to allow free trade amongst member countries inherently supports gambling across country borders.

The Emerging Online Gaming Ecosystem - It appears that an online gaming ecosystem is beginning to take shape. This system combines free play, micro-transactions, traditional gambling transactions, net identity, payment processing, social medial, mobile gaming and social networks in a single interdependent system. Social networks and social media are greatly responsible for breaking down international barriers, creating large numbers of online players and offering a wide array of game and marketing choices. The European, US and Asian(China and Korea) gaming related operators and vendors are all potential very big beneficiaries of this phenomena providing access to large numbers of players leveraging a variety of monetization
options.

The ICE conference demonstrated that the European gaming community has some pieces of this ecosystem figured out but does not have the complete picture or the tools in place to take full advantage of it. In their defense the US operators and vendors do not have all the answers either making collaboration between US and European gaming vendors and operators a likely future direction. It will be interesting to see how much progress has been made when I attend next years conference.

PartyPoker Enters US Subscription Online Gaming Market Party On Or Party Over?

Recently World Poker Tour (WPT) was purchased by PartyGaming. The press associated with this purchase has focused on the sale as a brand purchase by PartyGaming for the purpose of growing Party's business in Europe. Very little press has focused on the fate of ClubWPT.com WPT's US subscription based online poker property. This part of the purchase may have more significant impact on the PartyGaming bottom line and the online gaming industry then WPT brand leveraging in Europe.

ClubWPT operates a US subscription online gaming site. They are allowed to do this legally under US state sweepstakes law. ClubWPT.com is one of a number of US online poker sites operating in this manner. Clubpogo.com, Pureplay.com, and Spadeclub.com are just a few of the other operates running legal US online gaming businesses using the alternative method of entry legal model sweepstakes model.

Although these sites are popular their subscriber base is small relative to the true size of the US online poker market. It is estimated that 10 million US players are still playing online poker either as free players or pay to play players. In point of fact, the real numbers are much higher because the UIGEA legislation enacted in 06 has discouraged US players from engaging in online poker. The numbers could easily be closer to 20 million.

PartyPoker.com, PartyGaming's online poker property has the email addresses for the majority of these players acquired prior to the implementation of the UIGEA and have continued to accumulated e-mail addresses post UIGEA through their free play site. So, what will happen if they decide to drive all of their US players to ClubWPT.com?

PARTY ON SCENARIO - If they decide to leverage ClubWPT.com, PartyPoker.com will become the largest and most profitable US based subscription site dwarfing any other subscription poker site in the US.

From a strategic perspective this could also set the stage for their dominance of the US online poker market if the US government does decide to consider poker as a game of skill and not chance. They will have already re-captured the majority of the US poker players in their subscription model business and will have re-established their brand in the US prior to the legislative change. I slight flick of a bit or byte will allow these players to upgrade to real gambling when the legislation changes.

PARTY OVER SCENARIO - PartyGaming draws attention wherever it does business. If it does decide to enter the US subscription online poker business under the ClubWPT brand it will raise the eyebrows of the Department of Justice and state attorney generals. These lawmakers could decide to tighten the definition of sweepstakes law that would result in online poker being excluded under sweepstakes law. This would spell doom for the existing US online subscription poker operators and would force Party to wait for a redefinition of poker as a skill game to enter the US market.

If Party successfully launches a subscription based online poker site in the US, and is unchallenged by US law makers, then the existing US based online subscription poker businesses would be buried by Party. It will be very hard for the other players to compete given Party's war chest. Party will out spend the other contenders and own the market.

Party's move into the US under the sweepstakes model could also jeopardize the UIGEA being overturned. If the US legal authorities are seriously considering redefining poker as a legal gaming model any attempt by Party to enter the US market prior to this decision could result in the authorities backing off.

PARTY ON OR PARTY OVER -Party is certainly contemplating these scenarios, counseling with attorneys and no doubt probing the US state and federal authorities to sort out what they will do. Their decision to entire the US subscription online gaming market may depend on the likelihood of the UIGEA being overturned and if it is to be overturned when it will happen. Either way all of the potential competitors have a stake in the Party decision and should also be considering what they will do based on the PartyGaming/PartyPoker move.

Virtual Currency Blog "Censored" By Chinese Government

A colleague of mine residing in China recently informed me that he could not access the Kevin's Corner blog. Further investigation revealed that no one in China could access it and the blog had been censored. Apparently, my last blog item suggesting that there could be a link between the purchase and sale of virtual currency and gambling raised some eyebrows in China.

It is no secret that I have posted a number of items on Kevin's Corner relating to the phenomenal growth of the use of virtual currency, the purchase of virtual goods, the sale of virtual goods and the trading of these items in China. A host of Chinese companies have gone public on the back of revenue generated from virtual currency and goods sale. The purchase, sale and auctioning of virtual currency and virtual goods is big business in China despite the efforts of PayPal to stop the trade on their property.

The recent Chinese government legislation banning the B to B trade of virtual currency certainly got my attention which in turn lead to a couple of blog items and a lively debate amongst my blog readers about the true purpose of the legislation. The debate still leaves me a bit uncertain on the legislation's true purpose. Was it designed to stop virtual currency trade from undermining the yuan as the base commercial and trading currency in China or was it designed to stop gambling related to gaming virtual currency's ability to be traded for yuan?

Either way open discussions about virtual currency trade in China are obviously not welcome by the Chinese government. In a centrally controlled economy the government wants to set currency valuation and to control commerce in a way that can be tracked by the government. Somehow virtual currency trade is threatening their control.

Clearly, virtual currency has proven to be a bit of a challenge for China. On one hand their stock market is filled with companies making million on game play, virtual currency trading and virtual goods purchase and sale. I image it is hard for them to sort out how to keep their new age economy growing and at the same time control the very engine that is driving the growth. I am flattered that someone or some bot decided to block my blog. However, I doubt that blocking my blog is going to stop the proliferation of virtual currency trading in China or the desire for Chinese residents to use virtual currency as a proxy for real gambling.

Virtual Currency And Gambling

Several of my blogs have addressed the emergence of virtual currency as rival currencies to traditional denominations such as the dollar, yen, euro, etc. The recent reaction by the Chinese government to restrict the inter trade of gaming virtual currency because of its ability to usurp the value of their currency created a stir in the online payment and gaming arena.

I received several responses to my comments on the Chinese government move implying the Chinese government was attempting to stop the proliferation of "gambling" by restricting virtual currency trade. Further investigation of the government's announcement did not reveal any relationship between online gambling and the legislation.

However, the debate made me think more deeply about the way online gaming companies are using virtual currency in their businesses.

Casual gaming, MMOGRPG and online video gaming businesses have evolved from granting virtual currency for game play to allowing players to purchase virtual currency. Virtual currency purchases are used to gain access to different levels of games and to purchase virtual items.

So how does this evolution of virtual currency exchange relate to gambling? There are many definitions of gambling and each jurisdiction has its own notion of gambling. However, a good rule of thumb used by the US government defines gambling as a combination of consideration, chance and prize.

If a gaming activity requires consideration/payment to engage in the gaming activity and there is an element of chance associated with a particular outcome and the outcome has monetary value then the activity is considered gambling.

So let's dissect this in the context of the recent evolution of gaming virtual currency. If I can purchase virtual currency using traditional currency (consideration) to play a game of chance that can lead to a prize of more virtual currency then is this not gambling???

To make thing even more interesting if the prize won is a virtual item which in turn can be sold for traditional currency inside the game or outside the game on e-Bay does this make it even more obvious that we have now entered the realm of true online gambling. If the virtual currency won can be traded outside the game universe for other currencies or traditional currencies is this not considered a prize in the traditional sense?

Subscription models such as World of War Craft also fall into this category. The subscription fee is paid in a traditional currency. The fee provides access to a game where play leads to the granting of prizes in the form of virtual goods which in turn can be sold on e-Bay for real cash.

My point here is that it appears the casual online gaming companies are implicitly or explicitly crossing over into the traditional world of gambling. This is creating an interesting challenge for gaming companies, regulators and consumers.

I suspect we will hear a lot more about this in the near future. Many of the online game companies are now generating "significant" revenue form the sale of virtual currency. In many cases this is becoming their primary source of revenue. When one of these companies attempts to go public or is engaged in a purchase by a public company will this bring this issue to the forefront and be challenged???

Optimizing Pay for Play Conversion

In a recent blog I discussed the benefits of using Free Play as a tool to avoid the dreaded credit card fall off problem and to create a retention pool that allowed fatigued Pay for Play players to continue with a game property in the Free Play pool. Another option is to offer a lower risk Pay for Play product that bridges the gap between a Free Play and a Pay for Play offering. Certainly providing a Free Play and Pay for Play product combination is powerful and preferential to a pure Pay for Play offering. However, the step from Free Play to Pay for Play can be too steep for some players. To minimize the risk and perceived player trepidation associated with a Pay for Play offering a lower entry fee option should be considered. This could be in the form of a mirco-transaction for a single game, table, tournament, etc. Or it could be a flat fee payed for a fixed game access period.

A possible critique of this strategy focuses on the lower revenue per customer for Free Play or Micro/Subscription transactions. Certainly this is true but it leaves out the fact that the pool of players interested in playing for free and for a lower committed monetary amount is higher. The illustration below attempts to show that these pool size differentials can be dramatic leading to a nice revenue stream from the two lower risks options. This approach should also take into account the higher conversion rate to Pay for Play and the retention value of these other models. If you combine all of these factors into the cost of acquisition you will find that this triad approach results in a superior return of marketing budget invested.

The other advantage of this combined revenue model approach lies in the conversion overlap of the three transaction models. The illustration below shows that the overlap of the micro/subscription model with Pay to Play players is higher then the overlap of Free Players and Pay for Play players. This makes sense because people that have never transacted or frequently Play for Free have a higher likelihood of staying put as opposed to players that have monetarily transacted in some fashion. This phenomena suggests that offering an intermediary transaction is very important to monetize players in a Pay for Play model. In fact the Play for Free model is growing exponentially and virally through the proliferation of social networks. These social networked players are playing and inviting their friends to play in extraordinarily high numbers. However, a bridge to get these players over to a higher yielding Pay for Play model is required to take full advantage of these ever growing pool of players.

An operator can partner with other operators that offer complementary game proposition. Each of them could focus on a market segment and exchange players. However, this should be a temporary solution unless legal constraints necessitate branding and operator distinctions. Branding is important and brand switching can be confusing for a player. A player would most likely want to stick with one brand and stay within one property.

In conclusion, the online gaming world is evolving quickly with the concept of a game is changing with the total numbers of players increasing rapidly. Many of these players are playing for free, casually and enjoying it. The size and comfort level of this Free Play pool is significant and should be used to build player confidence and retention in a Pay for Play site. The transition from Free Play to Pay for Play can be made more effective if an intermediary, lower risk/reward offering is made available to players. It is preferential that this combination of different experiences and transaction models be provided under a single brand umbrella.

My experience working with Pay For Play and Free Play gaming sites has shown how important a Free Play offering is for the success of a Pay for Play gaming model that requires a player to transact via a credit card payment. There is a symbiotic relationship between models that require payment and those that do not. In a perfect world a gaming operator would actively support both.

The illustration below represents a classic marketing funnel report starting with the initial visit of a potential player to a Pay for Play site driven by various marketing programs.

The illustration represents the consistent drop off of acquired traffic as the potential player begins to be confronted with credit card ultimatums.

Fear and apprehension of depositing money via a credit card transaction over the web is high. Even for traditional E-commerce businesses establishing trust is necessary before a person will relinquish funds from their credit card and commit to a transaction. In the case of a gaming operation this apprehension is even greater because there are no physical goods associated with a transaction and there is no guarantee that the money deposited and the experience provided will result in an equal amount of value being returned. This psychological chasm requires a business strategy that builds player confidence in the operator’s property to the extent that the player will become convinced that a deposit will be reimbursed in the the event that no play is executed or the game experience is fun and fair leading to the prospect that the player can win cash.

I learned this lesson the hard way when I launched a subscription gaming model in the UK, without a Free Play option. The fall off due to a credit card requirement was on average 50%. That means that 50% of all people that made it through the initial introduction steps got to the credit card page and then dropped off. This part of the funnel drop off was the most dramatic of any other drop off through the funnel. To avoid this part of funnel drop off an operator should create an intermediary state that lets a player experience the gaming proposition before they must commit to a credit card transaction.

A Free Play offering is a great way to improve the funnel drop off and to introduce the player to the game property. It provides a non-committal step that gives a potential Pay for Play player play time without pressure to transact immediately. It gives the player a low risk opportunity to enjoy game play and to build trust in the operator’s ability to handle transactions properly.

The Free Play pool is much larger than the credit card pool without free play. This is very important because it provides a Pay for Play operator more opportunity to convert a higher number of players into Pay for Play players. A well integrated Free Play and for Pay for Play environment is critical for a “high” conversion rate. Players should be able to see the benefits of playing for money while playing for free. The Free Play and Pay for Play should be tightly integrated giving players the opportunity to move back and forth from Free Play to Pay For Play. The ability to move freely between the two models should be easily understood. The marketing department should leverage the Free Play option by promoting it in marketing programs.

Free Play also becomes a great retention tool allowing Pay For Play Players to stay on an operator’s property when they do not have the money to transact, they get fatigued or they are unavailable to play regularly. When they do have money and time to transact they can move back into Pay For Play Status. This way the operator does not lose the player when they are not able to Pay For Play.

Free Play is a great way for new players to learn the game and for all players to play more casually and with less stress. It can become fun and give the player an opportunity to try out strategies that they would not attempt in a Pay for Play environment.

The Free Play option should be engaging, have lots of players participating and be fun. Retaining Free Players in important. It is difficult to determine a general rule for when someone might become a Pay for Play player. This means that a Pay for Play operator should not trivialize the Free Play experience. It should be taken as seriously as the Pay for Play option. You never know when a Free Play is going to convert.

You can generate revenue from Free Players through Advertizing and potentially by selling Free Play leads that are not likely to convert to the operators Pay for Play business models. This revenue source can be used to embellish the Free Play experience to make it good enough to play frequently but not so good that is competes with the Pay for Play experience.

In conclusion, Free Play allows a Pay for Play operator to acquire more customers that a pure Pay For Play property. Free Play can also be used to retain players extending the lifetime value a player.