GIGSE 2013 Three Worlds (Internet Gambling, Social Casino, Land Based Casino) That Have To Learn To Work With Each Other

It became apparent  in this year's GIGSE conference series how important it is for all three major gaming stakeholders in the  iGaming space to work more closely together if any of them are going to reach their full potential in the evolving world of online gambling in the USA. Certainly, iGaming business models that focus on their own particular silo, post legalization of online gaming in the USA, can have successful businesses. However, as time progresses and more operators begin to launch multi-disciplinary gaming models  these mash-ups  will create a formidable challenge to singularly focused gaming business models. 

 Each of the three main gaming business sectors have their challenges and advantages when it comes to the gaming eco-system primarily because games as entertainment have evolved to the point where  there are a number of options for players causing the marketplace to segment. This is especially for players seeking an online  gambling  experience. One can argue that social gaming is not gambling for a number of reasons. However, these reasons are irrelevant because so many players are experiencing "gambling" style games in a social gaming context that  this form of gaming does and will have  have a very significant impact on Internet gambling and land based casinos in the US.

So how should each of the three main gaming silo's  move forward as the US opens its doors to regulated Internet gambling?

Internet Gambling Companies – This group is dominated by European operators that in some cases have been in business for 20 years. These operators know their European consumers well, have mature marketing programs, great fraud detection and management systems and a close relationship with European gambling regulators and political proponents of European gambling.  However, they do not understand the US consumer gaming market, do not have preferential relationships with US regulators and have not necessarily targeted US social  casino players.

One of the big challenges they will face in the US is the acquisition of US players and the "creation" of a brand that online players will know and trust as one they will engage with for Internet gambling. I suspect this is going to be harder then most European Internet gambling operators would like to believe. This is the case because the  US businesses that have the best brand awareness for respectable and trustworthy gambling operations are the US land base casinos. Granted these companies have done a less then stellar job in creating "online" brands. However, they are the brands that US gamblers know and trust.

The European Internet gambling companies may also be surprised at how important social gamers will be in the US. Granted there are all kinds of pessimistic numbers about the overall conversion rates of social gamers to "real" money gaming.  However, the size of this market and the branding and advertising potential social gaming will provide is significant. When Internet gambling actually becomes legal on a  large scale in the US  social gaming will become a major source of players and brand awareness for the operators of online gambling properties. 

Land Based Casino Operators – Unlike Europe, in America land based casino's are the known "gambling" brands and they do have very close ties with state and federal government legislators. They also have existing gambling licences meaning that they have been vetted making them an easy choice for US officials to grant online gambling licences too.  From a branding and consumer perspective they have a reputation for "safe/legal" gambling.

However, they do lack some very essential Internet gambling skills and  expertise. Ironically, the success of their land based businesses has made them heavily focused on their land based operations business model making it difficult for them to adopt to a very different Internet gambling business model. Making these two models  work together within the casino industry has been historically very difficult.

 In addition, there are two very different  land based casino models operating in the US. The Vegas and Atlantic City operators represent one group of large well branded gambling companies with national awareness. There is also another category of regional casinos that serve smaller regional markets which include the Indian tribal casinos. These casinos are successful in very well defined smaller regional markets.  However, these brands are not know on a national bases. However, they have an extremely loyal local brand awareness.  The existence of all these casino brands and the interest of these regionally branded to attempt to acquire their own online players could prove to be  difficult.

The net net of this is that the know gambling brands in the US have little online branding presence or expertise in the broad online gaming arena. Granted many of the larger casinos have launched social gaming properties and they are gaining experience in this area. However, there are many casinos that have not engaged in this area and may not be able to because of their size and regional focus. Of course for the most part none of them have significant online gambling experience requiring them to team with companies that understand this model.

Social Gaming/Social Casino - This is certainly an interesting group of companies that also have a very different business model. expertise, etc. then the afore mentioned groups.  These companies are accustomed to rapid changes of their games, the introduction of new games and the retirement of others.  They exist in a highly competitive, non regulated world where anyone or group from single developer shops to large gaming companies compete head to head in the marketplace. These companies are the kings of micro transactions, virtual currency and virtual goods. Social game companies have and are launching social casino games with essentially the same content as one would see on a casino floor. They are not subject to any regulation or oversight group. They can do whatever they want and change games and games content as the market dictates.

The social casino companies are engaging players in a form of online gambling despite  gambling regulators denial about this form of online entertainment. The only difference is that "cash-out" is not possible. Social players are learning how to play casino games in the social freemium context. Also the numbers of players are in the millions of concurrents at this point. Ironically, this form of gambling may in fact be more insidious then "conventional" online gambling.

Although there has been much debate over "conversion" of social gamers to gamblers the shear number of active social gamers requires a very low conversion to make  social games  a viable source of Internet gamblers. Also, social gaming in and off itself can be used for "branding" only and to generate revenue. Something both the land based casino's and Internet gambling companies need.

On the flip side the social gamers would like to partner with the online gambling and casino companies. They see these other two groups as having the cash reserves necessary to help the social casino companies fund and fuel their social games business and to further leverage the investment they have made in social games.

The notion of all three of these groups collaborating together to take on  US Internet gambling has theoretically been contemplated. However, practically speaking  executing on this merger will be difficult despite the fact that this mash-up is an obvious winning formula. The reason for this is the operational and cultural  differences and bias of the three groups. In many ways they all speak different languages, act differently and interpret the gambling world in different ways.

In conclusion, despite the excuses some  organizations  will use not to effectively take on the US Internet gambling world holistically there will be organizations that do take this seriously. The ones that are  serious first movers in these mash-ups  will consolidate the space quickly. Unfortunately, the "wait and see" parties will find themselves in a bit of a predicament wondering what happened and how did this market consolidate so quickly leaving many out for the market resulting in a  few really big winners.

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.

 

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.