Asia Pacific Lottery Association (APLA) 2011 Conference Summary

I had the pleasure of speaking  and attending the Asia Pacific Lottery Association (APLA) conference in Malaysia this year(2011). The main topics addressed at the conference where Social Media/Social Network Integration, Green Initiatives and Responsible Gaming. My primary focus was on Social Media/Social Networks and Social Games. My presentation covered the popularity or social games in the context of the social web with special emphasis on the volume of play that is occurring and the use of virtual currency and virtual goods as a means of monetizing games in social networks. I also emphasized marketing, community building and CS using social media. My presentation can be found online at: http:/bit.lyKevinFloodAPLA2011.

Overall the audience was surprised by the shear number of players, transactions and growth rate of social network adoption around the world. Of special interest to them was the use of virtual currency and goods to monetize social games.

The growth of social network adoption in Asia is much higher relative to other parts of the world driving increasing interest in this sector by organizations like APLA. This is most likely attributed to increased access to the Internet, the proliferation of web enabled devices such as smart phones and the demographics of Asian communities which is skewed heavily to 18 to 24 year old. 

The adoption of the social web as the primary form of interaction is a challenge that all businesses face and especially lottery operators constrained by regulation and a history of slow technical innovation in their sector. In Asia it is even more of a challenge and opportunity because social networks may be the only place lotteries can interact with their potential audience and the audiences are split over a number different social networks.  

The lottery companies have an added challenge and benefit given their "regulated" status and the need to address under age gambling. However, European gambling companies have been using social networks for years to market their products to social network participants indicating that regulated environments do not prohibit a company from engaging consumers in social networks. 

Many of the Asian lottery companies do not have a social network or social media strategy. This was a bit surprising given the statistics previously mentioned. Why have Asian lotteries largely ignoring the most important and potentially lucrative  form of online communication currently available to them?

I do not want to paint all Asian lotteries as having ignored this sector. The Hong Kong Jokey Club for one has been aggressive in this area and witnessing benefits. I am sure there are  others as well.   However, the majority of them are just beginning to understand the significance of this market channel.

So what is it about the lottery world that is holding them back from adopting social networks as a lucrative sales lead and monetization source? What are the opportunities for the lotteries if they decide to engage social networks and social media?

Dependency On Retail Outlets: The lotteries have a long tradition of peddling their products through retail channels. This is their "bread and butter" as we say in the US and they view the world from this perspective. The lotteries have not seen social networks as a big threat to their business. However, things are changing as witnessed by the topic selection for the conference. 

Granted the lotteries should not ignore this retail channel. However, if this focus is resulting in them ignoring the social web as a channel the decision could be dangerous and may result in the lotteries  losing market share to more aggressive online, social media and social network marketing efforts. 

Monopoly and Regulatory Protection: Essentially lotteries operate in a monopolistic environment supported by government regulation. This certainly does explain why a lottery would not aggressively exploit new marketing channels because there is no one to challenge them. Also, regulators themselves may construct bureaucratic obstacles that make it difficult and expensive to initiate new marketing efforts.

I would caution lotteries from relying too heavily on this perceived protective fence. Social game companies and legal online gambling companies are aggressively building games that look and feel like lottery games. This is certainly a threat to the future growth and well being of regulated lotteries.

Illegal Operators:  There is evidence that illegal lottery operators are alive and well in Asia with many of them closely allied with government agencies. If these illegal operators decide to aggressively exploit social media and social networks to attract   players the illegal operators will take market share away from legal operators. It is very likely that they either are or will exploit social media and networks to grow their market share.

Mobile Devices Challenge Lottery Outlets: One of the speakers from the Malaysian police department spoke about the reasons why illegal operators are so successful competing against legal lotteries. One of the reason he gave was service and availability. Illegal operators go directly to a persons house to sell tickets and they also deliver winnings to punters that have won lotteries. Essentially, a person does not have to go to a retail lottery outlet to play a lottery.   

If you think through this further it is not hard to image a time when the majority of lottery transactions are done through mobile devices. Asia is becoming more connected and connected through mobile devices. What a better way to buy a ticket and redeem your prize? Why do you need a retail outlet??? Yes, the bread and butter of the industry could be challenged if mobile Internet enabled devices proliferate.

Attracting the 18 to 25 Year Old Market: It is very interesting that the lotteries want to attract younger age players, realize that these potential players are all interacting in the social web and have not aggressively taken action to address this age group within social networks? I am not exactly sure why there is a disconnect between the realization and execution.  However, it is clear that the disassociation will dissolve as lotteries grasp the fact that all of these potential players are alive and well in social networks.

Virtual Currency/Virtual Goods - I did get a number of direct inquires from lottery operators on this topic. This interest is well founded given the special place lotteries find themselves in their communities. Many virtual currency systems are designed for social causes and to stimulate interaction among various groups in society. They are also used as a legal means to monetize social games. People can legally transact in Facebook using virtual currency and virtual goods. These are many ways that lotteries can use the virtual world to increase sales, revenue per consumer and to promote brand identity.

Social Responsibility -  Lotteries engage in social programs to assist and enrich their communities. In some cases the history of lotteries has emerged from  lotteries that where created specifically to  raise funds for social causes. Given this historic emphasis lotteries should explore the numerous web related socially responsible focused organizations. They are too numerous to mention all of them. With some of them focusing on micro-funding, corporate sponsorship, organization building, donations, etc. I have direct experience with a few that the lotteries should consider as models or potential partners.   SocialVibe.com is very interesting because it merges corporate sponsorship and advertising with socially responsible investing.  I became aware of this because of the clever way they use rich media to monetize their visitors. Taproot.org   is an organization that works with non-profits to help them staff and execute on projects. Taproot engages a pool of pro bono consultants that they attract from well established companies and place them into projects for non-profit organizations. I have worked with them to integrate their service into social networks. 

Social Games And Lotteries - Many social game companies offer a number of social games and monetize players over the full range or their game portfolio. The concept is simple and effective. If you spend the time and money acquiring a player why not monetize them across a range of games to increase revenue per player. Lotteries should consider this strategy for obvious reasons. 

Generate More Revenue Per Player

Engage In The Social Web

Offer More Content To Attract More Players

Social Media - If a business does not have a Facebook fan page, is not developing a community within a relevant social network and does not use a tool like Twitter to communicate and interact with its target market market then the business is really missing out on relatively inexpensive ways to engage its customer base. Also, social networks and social media will evolve. Lotteries need to engage in these social tools if they want to keep pace with the march of the social media phenomena. 

Overall the APLA members get the importance of the social web for their world, businesses and consumers. The challenge going forward for them is where to start and how do they keep pace with the  rate of change in this sector. This is a good question. My recommendation is that the more you work with these social tools the more you will understand how they work and how best to exploit them.

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.

The Online Gaming Ecosystem

The online gaming space is evolving quickly. The speed and sophistication of this evolution is being fueled by an emerging ecosystem that rewards companies and games that take full advantage of it and punishes those that do not. The success of this ecosystem is manifest in the large and ever growing player numbers associated with online games.

The online gaming ecosystem is no different from its biological equivalents. It contains a hierarchical food chain, participants and intertwined environments. It fosters complex interactions between feeders, food sources and climates. Success in the ecosystem requires recognition of the rules of the ecosystem and adaptation to the ever changing nature of the ecosystem. There are winners (survivors) and losers (extinction) in the game ecosystem. Those that do not take full advantage of the system cease to exist or become marginalized. Those that do take take advantage dominate and consume ever more resources within the ecosystem.

There are a number elements contained and interacting in the ecosystem.

Players - Players are consumers of the game experience and act as monetizing (fuel) agents.

Games - Games are the honey that keeps players engaged and inclined to invite other players to participate.

Game Platform - Game platforms are micro environments within the larger ecosystem that attract large numbers of players to locations within the ecosystem.

Social Media - Social media is the communication mechanism that players use to communicate amongst themselves. It is also a communication mechanism facilitating communication between game providers and players.

Social Networks - Social networks and social media are closely allied. Social networks act as connection, invitation and retention tools for players, game platforms and individual games.

Free Play- Free Play has traditionally been used by game providers to entice and expose players to games. In the emerging ecosystem free play is primarily used as a tool to acquire and retain players.

Virtual Currency/Virtual Goods (Micro -Transaction) - Virtual Currency has become a means to fueling (monetize) and funding the ecosystem with relatively small micro-transactions.

Macro-Transaction (Gambling) - Macro Transactions are traditionally associated with gambling. These transactions are relatively high stake transactions.

E-mail - E-mail is old school but still a vital way to stay in contact with the game community, maintain a relationship with players, up-sell players and acquire new players.

Affiliate Programs - Another old style marketing tool that has survived and acts as a means of creating alliances between companies for the purpose of attracting players to a game experience.

Referrals - To a large degree referrals have been replaced by social networks. They survive (barely) because in a few cases financial incentives do garner players.

Ad Networks - These environments foster both monetization and promotion of games. The Ad monetization us usually found in the free play zone.

Working Capital - Working capital is also a fuel to grow large game networks. The sheer size of successful gaming communities requires sophisticated game platforms to hold the players. Working capital is required to build and maintain the gaming infrastructure. This is especially important in the early growth phase of the game platform.

Regulations - This is the voodoo (threat) of the gaming world. Regulations are frequently ambiguous, subject to interpretation, ever changing and unclear putting into question if a game is or is not legal. Despite the sometime confused and questionable effects of regulation they need to be respected because the consequences of ignoring them could be devastating to an online game business.

The game ecosystem has become an important force because it is changing the rules on how to grow online gaming communities. More importantly the "business" of online games is becoming "big" business. It is no longer the domain of relatively obscure and self contained MMOG economies. Games have gone mainstream and are attracting serious player numbers and revenues.

Social networks and social media are two parts of the ecosystem that have radically changed the gaming landscape. However, these are not the only elements that have changed the ecosystem. The definition of a game has expanded resulting in greater number of games and game styles to play. The virtual currency/goods purchase and exchange trade has created a new monetization mechanism. Its low transaction cost lowers the barrier for players to engage in gaming financial transactions.

Acquisition/Retention Changes - The ecosystem has changed the way players are acquired and retained. In the old days Ads, affiliate programs, email and referrals where the primary means of acquiring players. Retention was the domain of the game experience. The slide below illustrates how games are now embedded within social media and social networks. Acquiring and retaining players requires a player to pass through the social networks and social media rings of the ecosystem. Without these outer rings of support game communities would not be growing at the same rate.

The illustration below shows how the ecosystem also helps to move players laterally in both the acquisition and retention directions. The free play component becomes very important in the ecosystem. Free play is a great entry point for players and also contributes to the higher retention rate. Easy and free is a comfortable place to hang out, play games and socialize with your friends. It also acts as a good transition stage to micro-transactions. This transaction state is one of the reasons the new online game offerings are generating so much revenue.

The next illustration shows the monetization ladder that has developed within the ecosystem. The revenue per player is relatively low for free players. However, if you effectively move players up the ladder from micro transaction to macro transactions you will experience maximum revenue realization from your player pool. The key is not to view players as only free players, micro-transactions or macro-transactions. Any player can and will become part of each group. In the new ecosystem they are encouraged to do so for the purpose of retention. Why completely loss a player from the system just because on a given day they are not interested in transacting at the high or lower levels?

The slide also illustrated that despite the relatively low number of macro-transactions in the system their overall revenue contribution is high. This makes perfect sense if you have had any experience operating a gambling model.

The complexity of the ecosystem is what makes it work effectively. It provides a number of options and states for players. It does not have a single goal of only getting the maximum amount of revenue per player or have the most players in the game. It supports all of these goals. Certainly game operators can have offerings that do not include all of the elements of the ecosystem and be successful. However The game businesses that combine and manage all of the elements in a coordinate manner will be the big winners.

The emerging online gaming ecosystem does present challenges for traditional macro-transaction game operators that have done so well monetizing players with relatively small gaming communities. Regulation makes it difficult for them to access and retain players through social networks. However, social mediums such as Twitter and Youtube are still open to them if they position themselves correctly. Also, some existing large social gaming properties have demonstrated clever way to move players acquired in social networks over to macro-transaction models (this is a topic for a future blog). The risk for macro-transaction operators if they do not participate in the ecosystem is marginalization outside the system and within their own communities.

In conclusion, the games have begun so to speak. A relatively complex gaming ecosystem is emerging and evolving giving rise to very large gaming communities with significant revenues. There is still plenty of room for evolution and experimentation. However, as the larger social networks such as Facebook begin to dominate the social network space and social game sites like Tencent create large inventories of games and players it will become harder survive in the ecosystem. On the positive side the evolving concept of a game and the likely emergence of new social networking models will change the ecosystem equilibrium and offer opportunities for lessor known and new social gaming operators.

Asian iGaming Conference Macau 2010 - I will be making a presentation on the Online Gaming Ecosystem on February 23rd. If you would like to view the presentation it cane be accessed at:
http://bit.ly/AsianiGamingPres

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.

Building A Startup Company On A Lean Budget

In my previous blog entries focused on early stage startup challenges I discussed the necessity for entrepreneurs to self fund their own startups. The following are some tips for how an entrepreneur can build and launch a company with minimal funds.

Open Source - We have moved away from proprietary software products to the free software world of open source. Open source products allow an early stage company to leverage the work of a team of developers and beta testers(customers) for no cost(or very low cost) to the startup. If your product or service is software based this is a great way to get product in front of consumers quickly with minimal development expenditure.

Cloud Computing - Cloud Computing has obviated the need for large and expensive hardware purchases. The concept is simple. Use someone another company's hardware to run your business. The cost is based on "usage". Usage is defined as data storage, CPU and bandwidth. This is a great way to get your business or your web site hosted for a fraction of the cost of doing it yourself or having a hosting center take care of it.

Beta/Community Programs - One of the biggest challenges for startups is to get validation and direction for their product or service. Engaging end users in a beta program is a good way to get free feedback on the product design, function and quality. Beta testers are extremely tolerant of a shaky early release product as long as their suggestions are taken seriously and they see steady improvements in the product or service over time. These same people will eventually become customers if you treat them properly and you make them feel that they are part of an elite first viewer participant group.

Leveraging The Future Value Of Equity - Although the idea and concept you start out with may have no immediate monetary value the future company based on that idea could have significant value. Savvy individuals will get this and will participate in helping you launch your company in exchange for a piece of the company.

Web Site Development - Irrespective of what your product or service is all companies should have a website that describes the product or service, acts as a launch pad into the product and provides updates for an ever curious Internet community. Putting up an initial web site these days is easy and inexpensive. There are plenty of online services that will provide you with starter templates to get your message out, accept credit card transactions and track your traffic. The most important thing a company should do is get the e-mail addresses of the visitors so you can continue to market to them in the days, weeks and years ahead.

E-mail Campaign Services - E-mail is still a great and inexpensive way to reach out to existing and new customers. There are a number of e-mail campaign platforms that will provide you with the tools to create your own e-mail campaigns and maintain mailings lists. In the initial stages of your company your email campaigns should cost you very little because your lists will be small. If your e-mail lists do grow to substantial size(100 of thousands) then this will be a great problem to have.

Corporate Programs - Many large and established companies with great products and services realize the future value of startup company. They know that if they provide startups with access to their products and services in the early stages of development they will most likely continue to use the company's products and services once the startup becomes successful. It is a shrewd strategy based on the fact that once you build your company around a product and service it is difficult to switch. Mircrosoft and Sun Mircrosystems (now Oracle) are just a few of the big guys that like startup companies. Take advantage of their somewhat self-serving offerings remembering that you may be committing to a long term relationship with the company.

Business Partnerships - Business partnership opportunities are still around and possibly growing because of the recent economic downturn. An existing business needs products and services to put into their sales channel. Developing a new product or service can be expensive for an existing company. If they can get a startup to build a product the existing business can use in their channel they may fund part of the development in exchange for a share of the market. The existing company may also see the startup as a new sales channel for its existing customers.

Social Media(blogs, Facebook, Twitter, Linkedin, YouTube etc.) - Every company despite their size can obtain a significant amount of consumer attention by using free social/viral media channels. Building a presence in these environment is not expensive. The key to successfully using these services is to use them in tandem to get the "Social Media Effect". There is no better way to put a company on the map and to acquire customers then through social media.

Search Engine Optimization (SEO) - Natural search is still a potent and powerful way to attract consumers to your business. SEO is a bit of a black art but there is some science to it. Text is better than graphics, meta tags still have value, recognizable key words in the text matter, links to your site from other sites increases the importance of your site and traffic matters. The more traffic to a property the better the ranking.

IM/Skype/Freeconference.com - Loss the traditional phone set up it is too expensive. If you want to contact someone or have a conference, etc. use a free IM service, conference with Skype or use Freeconference.com if you really need to use traditional phone lines. This is especially important of you are going to do business internationally.

Sweat Equity - Even though the items I have listed are all great ways to keep the cost of launching your startup down they all require "sweat equity". Value = sweat equity + investment. Nothing comes without a cost. This means that startup founders have a unique challenge of having to invest their time for no cost to grow the company.

Scaling Up and Scaling Down - The other challenge for entrepreneurs is the ability of the co-founders to demonstrate that they can "scale up and scale down". Many of the items described require an entrepreneur to be a CEO one day and a web developer the next. Have the suit and tie ready along with the jeans and a tee-shirt. Multitasking will keep the labor costs down.

Conclusion - There are many ways to keep the cost of your startup down enabling you to launch it with very little initial financial investment. The inexpensive startup phase does require a co-founder to be versatile taking responsibility for a number of different and unrelated tasks. Sweat equity is one of the key ways to control the cost of startup. the more you do yourself the cheaper it will be to launch your company.

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Should An Online Game Operator License Or Build Games?

Online game operators frequently have to make a decision to license or to build games. To a certain degree this decision is similar to a buy versus build decision for any software product or service. However, there are some unique characteristics associated with operating online games that make the decision to license versus build more challenging for an online game operator.

Should All Games Look And Play The Same? - Each game development team will have its own way of developing games that impact the look, feel and mechanics of a game. If an operator plans on licensing games from a number of different vendors it is important to understand what the players tolerance is for differences in game interfaces and mechanics. If the operator develops their own games this becomes less of issue because the operator can control and influence the game experience.

Do The Games Have To Be Integrated Into Social Networking And Social Media Properties? - Social mediums such as Facebook, Twitter, Bebo, MySpace and Hi5 are becoming platforms for game delivery. It is no longer adequate to solely have a web site as a landing page and entry point into a game experience. An operator has to have a presence on social media platforms to reach optimal market share. This places a demand on game suppliers and operators to provide games in social media environments and on web sites.

Thin(web 2.0) Versus Thick Game Clients - It used to be conventional wisdom that an operator had to have a downloadable game client to provide a player with the visual and game play mechanics sophisticated enough to address the demands of players. With the proliferation of Web 2.0, advanced graphic develop tools and full featured web browsers the gap between thick and thin game clients is closing making it possible to provide the same graphic and mechanical experience through a browser. The need to support both thick and thin client game clients needs to be taken into consideration when deciding on the platform of chose. Social Networks are especially sensitive to the need to support thin clients and make it difficult to integrate thick clients into their environments.

Game Platform - Games require a platform to operate on. A platform provides payment processing, reporting, interfaces(api's) to internal and external programs, security, data storage, ad serving, age/location/identity, server side processing, community and social networking features.

When an operator licenses or builds a game system the platform is a much larger and more sophisticated then an the individual games that run on the platform. When an operator "buys into" or builds their own games they are committing to a game platform. Supporting a range of games requires a sophisticated and flexible platform to deliver a wide array of game content.

Development Team - Online games are developed by teams of developers, engineers, project manager and product managers. The teams use certain program languages, API standards, databases, architecture and messaging systems.

Building games is non-trivial and requires a sophisticated technical and managerial staff. Despite the expense and sophistication of a development team, having a development provides an operator with the flexibility to build games and a platform that meets the immediate and ever changing needs of the organization. It also allows the operator to be less dependent on outside resources.

IT Infrastructure/Cloud Computing -Game platforms run on hardware that has to be hosted somewhere. The hosting requires a staff to manage the operation regardless of the hosting environment. Cloud computing has become a new option for game operators obviating the need for hardware purchases. However, the move to cloud computing is not necessarily a good fit for game platform hosting. If a game platform has extreme CPU utilization spikes, rapid increase in storage, inter server communication, database architecture issues and API calls to systems outside the cloud it could rule out the cloud. The important point is to recognize that hosting is a large part of game platform operation that either the vendor or the operator will have to tackle and manage.

Time To Market -Operators are frequently under pressure to get a platform and or games up and running quickly. The pressure to accomplish this goal can have a significant impact an operator's decision to license versus build. There is no single path that will optimally get an operator to market faster. However, there are long term implications to either decision that should be taken into consideration in concert with the decision to get to marker quickly. In some cases the short term goal of getting to market quickly could have negative long term consequences for the organization.

Market Differentiation - It is difficult to differentiate a game property if you are licensing games. There is certainly a way to mix and match games or provide different incentives and promotions to set an operator apart. However, in the end the games you are licencing are the same games that are available to other licensees.

Flexibility And Control - There is an operational and philosophical question that an operator needs to answer before embarking on the license versus build decision. How much control and flexibility do you need to have over your game product offering? This decision is not made out of context without consideration of the other items I have mentioned. However, a decision to license versus build has long term implications in respect to the operators ability to react and move quickly to changing market conditions.

Conclusion - The decision to license versus build games is a complex decision requiring an operator to consider many factors and to avoid the temptation to react to a short term objective that may have long term consequences. Once an operator commits to a certain course it is difficult to change. The decision should be well-thought out evaluating the pros and cons of the decision and the impact on the long term health and welfare of the business.