Some trends in online gaming - A look at some data

We have been taking a look at some some technology and gaming trends by analysing Google search and news data since 2004.  Here are the results:

Software License v. Software-as-a-Service

 

There is clearly enormous interest in software services (or SaaS), which has been consistently outpacing the traditional software sales model in terms of interest.  SaaS is also outpacing traditional software implementations in terms of sales.  Why?  Businesses want safe, secure, on-demand and affordable software solutions.  Therefore SaaS, along with cloud computing, a technology megatrend fuelling SaaS, will continue to grow.

CRM v. Analytics

There has been a major shift in interest from traditional CRM software and activities to analytics i.e. statistics at speed, scale and simplicity, a topic we discuss in this whitepaper.  The 'one-size-fits-all' approach to marketing and consumer services is being replaced with more customised, personalised and relevant targeting and services.  Not only are companies benefiting from sales growth through the use of predictive analytics but also consumers are benefiting with more personalised and relevant services.  Analytics as a technology trend will continue to gain momentum as more organisations start leveraging data more intelligently.

Internet Gaming v. Social Gaming

There has been huge interest in social gaming in the past two years, and whilst Google searches for internet gaming still remain higher than for social gaming, the news volumes for social gaming have been considerably higher, reflecting the massive interest and growth in social media and the growing social gaming industry.

Online Poker v. FarmVille

Building on the last trend, it's interesting to see just how much interest FarmVille generated when it was launched in comparison to online poker, for example.  The only time that online poker news has matched that of FarmVille was in April 2011 following 'Black Friday', the US indictments against Poker Stars, Full Tilt and Absolute Poker (if you are interested in poker news then try following Stuart Hoegner and Kim Lund on Twitter).  It's also interesting to think about this data in terms of the product lifecycle of social games i.e. are they relatively short-lived, in that the data suggests that after an initial large spike, interest begins to tail off.  Google's data doesn't go back far enough for us to analyse consumer search and news data when online poker first launched however the comaprisons from the last 7 years provide interesting insight.

The Forces Shaping the Online Gambling Industry

Whilst the online gambling industry has witnessed tremendous growth in the past 10 years it remains a very young industry, currently capturing c.6% of the gambling industry’s total gross gambling yield of c.$336bn (Barclays Capital). As the industry continues to grow and mature, an increasingly complex operating environment is presenting both challenges and opportunities to operators. This blog entry seeks to examine the key forces that are shaping the online gambling industry today.

Regulation

The regulation of online gaming markets is opening up opportunities for legalised online gambling in European markets, which is primarily being driven by the need for governments to effectively manage the taxation of the online industry. The regulatory map in Europe remains complex and in flux following a series of European Court of Justice rulings during the past 2 years. The spectrum of regulation across Europe is wide, ranging from online gambling being banned, such as in Germany, to liberal regulatory regimes like in the UK. In between are countries that have regulated online gambling with varying licensing and taxation regimes.  Whilst growth of the online market in Europe will continue with the further opening of markets, online gambling in all forms remain illegal in the USA.  Despite opposition to legalising online gambling in the US, it is expected that the trend towards regulation will continue over the next 2 years.  Whilst a more uniform regulatory playing field in Europe remains at least 5 years off, Michel Barnier’s Green Paper on European online gambling is due to be published at the end of this year and is being eagerly awaited by the industry.

Technology

At the 2010 EIG product development was highlighted by Mark Blandford (Sportingbet founder and Valhalla Investments) as more important than marketing as players demand richer, more varied and more mobile gaming experience. Advances in technology is allowing game developers to take 3D gaming to new levels, and this trend of enriching the user experience will spread to the online gambling sector. The number of mobile broadband subscribers is rapidly increasing i.e. there were 257m subscribers in 2009, which is predicted to expand to 2.5bn by 2014. Operators are also investing heavily in developing advanced analytics solutions to better understand customer behaviours to make marketing campaigns more targeted and meaningful. Whilst there has been a large focus on customer acquisition in the past 5 years, operators are now focused on reducing player churn during key phases of the customer lifecycle. No one operator will be able to develop market-leading technology capabilities across all these areas in isolation therefore best-practice collaborations with specialists will be required to remain competitive. Potential new competitors are emerging as social media technology platforms mature and attract more users and gamers, with the distinction between legalised gambling and gaming with virtual currencies becoming increasingly blurred.

Consolidation and Convergence

The industry is now entering a phase of consolidation as brand, capital and scale become key levers to entering new markets and attracting customers through competitive prizes, odds and gaming variety and experience. The biggest moves in the market in 2010 included PartyGaming and bwin’s merger to create the world’s largest listed online gaming firm and Betfair’s recent flotation on the London Stock Exchange, signs that access to capital and scale will become increasingly important to succeed. Sportingbet and Unibet are also in discussions regarding a £600m tie-up. As well as revenue generating synergies, consolidation will provide vital cost reduction opportunities through economies of scale which will become increasingly important. Sales and marketing costs typically make up between 30-40% of an online operator’s costs and it is likely that retaining these budgets will remain an important weapon in the battle for market share. Further competitive pressures will result from the continuing trend of convergence, with land-based operators looking to leverage their brands and gain market share in the online sector. Convergence within the industry between B2B and B2C will also continue as online operators look to expand their business models and find new revenue sources to augment existing revenues from players.

Corporate Transparency and Trust

Given numerous corporate crises across many industries over the past few years there is an increasing expectation that all corporations should be ‘whiter than white’ and operate in a socially responsible manner. The online gaming industry has in recent years increased its focus on delivering a socially responsible industry for players. The regulators who license operators have responsible gaming codes of conduct in place that operators must adhere to which are both prescriptive (e.g. age verification, self-exclusion) and open to interpretation (e.g. prevention of problem gambling). Whilst it is difficult to predict whether recent economic and corporate failures will result in a permanent change in the corporate attitude towards CSR or tougher regulations, focus from the media and policy makers will continue to grow on industries with perceived reputational issues, such as gambling. The internet also offers an unparalleled level of transparency to customers, whether it’s comparing operators’ odds, prizes or which organisations they are accredited by. Given increasing competition and very low switching costs associated with online gaming, customer loyalty cannot be guaranteed solely by brand awareness marketing and customer inertia. Brand equity will remain incredibly important and nurturing customer loyalty and trust will play a key role in growing an online operator’s brand value.

The FarmVille Slot Machine - A Billion Dollar Game?

Keeping on the social media, gaming and gambling theme from my previous blog I wanted to highlight a video on TED that gives us a perspective on the future impact of technology and games on us. It’s given by Jesse Schell, a game designer who has worked at Disney and who teaches at Carnegie Mellon. He is quite an energetic and entertaining speaker, although be warned, this TED talk lasts nearly 30 mins... In his talk he makes some interesting predictions about how technology and games will influence and affect us in the future. They will become even more authentic and real and will reward people with points for good behaviour because tracking all of our behaviours will become ubiquitous e.g. taking your medicine on time and walking rather than driving (which will be tracked by the ‘digital shoes’ you will be wearing) will in turn reduce your health insurance. This will come for sure he says!

He also makes a point (which is really a joke...) to Brian Reynolds, Zynga’s Chief Game Designer, telling him he is stupid if he doesn’t develop a ‘FarmVille Slot Game’, where whilst you lose your virtual currency (remember you paid for this in legal currency), it pays out in real money. This, says Schell, will make Reynolds the richest man in the world! OK, so I’m not saying it will happen now but what’s the difference with 'FarmVille Slots' and buying virtual chips and playing poker if the player places equal value to legal and virtual currency? This area will surely get more attention from regulators and academics in the future.

Is playing with virtual currency gambling? Zynga and virtual currency.

An interesting article in TechCrunch on a move by Zynga to patent virtual currency.  Whilst the question of virtual currency and whether it can be patented in an interesting one, I was more interested in a couple of quotes within the patent application.   Zynga state that “in some cases, players want to play gambling-style games, but without the regulated gambling aspects” and that “one advantage of the approach described herein is that virtual currency can be used to purchase virtual items, but neither the virtual currency nor the virtual items can be transferred or redeemed in such a way that would be considered gambling proceeds.”  So purchasing $100 of virtual poker chips with legal currency and winning $200 of virtual currency isn’t considered gambling.  The first thought that sprung to mind was if such gambling and casino style games were designed in such a way that they payout in virtual currency more frequently and thus make the game more fun, then could this lead to more people moving to regulated gambling sites to try their luck?

How sure are you that you will be in business in the future? Health and Sustainability

Over the summer I’ve been talking to a number of senior stakeholders within the online gaming industry on themes related to how to build a sustainable industry. A couple of papers related to my research will be published later this year, however people have been asking me what other companies in other industries are doing to help build customer loyalty through sustainable practices.

So as executives become increasingly worried about the impact of sustainability on the corporate bottom line, I’m taking a look at the themes of Safety, Social Change, The Environment, Fairness and Health to see what ideas from other industries can be leveraged to sustain the online gaming industry. A whitepaper will be posted on the Bet Buddy website soon but here is a view on Health and sustainability.

Many companies are now beginning to address sustainability issues beyond their four walls, particularly upstream in the supply chain. For example, Marks and Spencer launched Plan A in 2007 and are considered a leader in developing fair and sustainable business partnerships with their third world supplier.

However, Thomas Singer of SustainAbility argues that few examples exist of companies that have begun to act upon the realisation that their sustainability impact also extends downstream to their customers. Singer argues that the next frontier is likely to be about addressing this downstream impact, and companies that take this leap will find themselves well positioned for sustainability leadership. The first challenge, however, will be coming to terms with the notion that the customer may not always be right.

In the UK, a growing number of supermarkets and food manufacturers are using traffic light colours on the labels of products to help consumers make more informed choices. Companies such as Sainsbury, Asda and McCain say that the introduction of food labelling has had a very positive impact on product development and their customers, who have found food labelling both informative and reassuring. Now customers have experienced the benefits of food labelling, would they expect anything less? See what companies and people are saying at this Food Standards Agency video.

So could a similar approach be used within online gambling? Some say yes. Players are often presented with too much information to be able to make rationale and informed choices & are susceptible to taking the wrong decisions. Therefore, providing players with feedback on their play, such as if their bet frequency has increased significantly, could help promote more sustainable gambling practices.

Consumer decision making is further explored in Sunstien and Thaler’s book ‘Nudge: Improving Decisions About Health, Wealth, and Happiness’. The authors say that everyone’s "Inner Homer Simpson" drives us to make flawed decisions, which I explored in a previous blog.

Saving the world through changing your casino

So we can now bet and lose our cash with a weight lifted from our moral conscience through Green Bet. The way it works is that if you set-up an account and gamble through a Green Bet affiliate, the operator puts aside 45% of its winnings (or your losses) towards a project to develop a Green Tower solar project in North Africa. So, do punters have a green conscious, to such an extent that they are prepared to switch and set-up online accounts with Green Bet affiliates? Well, William Hill online have signed-up, so maybe. The idea is novel and I have no objections to it, however success depends upon enough operators to be willing to sign-up to the programme. Operators are incredibly protective of their brands so my guess is the majority will sit back and wait and see what happens. Also, wouldn’t it be better and more appealing if the players themselves had a say in which charities their losses supported? And whilst I have nothing against solar projects in Africa, what about helping the betting operators to focus on the sustainability initiatives that really matter to the industry and their customers?

Share data and help people live better lives

I came across patientslikeme today. The company’s goal is to “enable people to share information that can improve the lives of patients diagnosed with life-changing diseases”. People are encouraged to share real world, outcome-based data to help advance knowledge and understanding of a range of diseases. The firm also looks to establish data-sharing partnerships with doctors, pharmaceutical and medical device companies, research organizations, and non-profits. The idea is that partnering and pooling together patient data (that patients freely volunteer) can help identify new medical information and trends that can be applied to better treat patients. It’s not clinical science as we know it but it sounds like a good idea to me. Perhaps other data-rich industries can do something similar? For example, some online gambling operators are beginning to tap into the power of data to help gain greater insight into gambling behaviours such as bwin and Harvard’s transparency project. This is somthing we are also doing at Bet Buddy, and although such approaches are still new in online gambling, it will be hard to stop the momentum in the future once people realise the power of sharing data. Watch this space...

Power to the people

Here’s a new service called pownum that allows customers to rate pretty much any organisation. Pownum say that “Whether its sheer frustration or absolute delight, wouldn't it be good to let such organisations know how you feel? Whether we want to express our feelings on organisations' attitudes towards customer service, the environment, their employees or society in general, the harsh truth is we are powerless to be heard.” The idea being that collectively, people can make a much bigger impact and make corporations listen and act.

I did a quick comparison of some of the betting operators to see how punters are rating them: Betfair (6/10), PaddyPower (7.5/10) and 888.com (7/10). I must stress that this is a very new service and the number of people rating these organisations is currently very low, but other organisations are beginning to get quite a few ratings from customers telling them how they feel about them e.g. Waitrose must be delighted that customers are rating it 8.5 (compared with 6.53 for Sainsburys and 4.7 for Tesco).

Social media is still very much in its infancy so the impact of it on companies and society will take time to evolve. But perhaps one day punters will be using services like pownum to tell the world which are the best and worst betting operators and why, which will bring a new transparency to how we choose who we bet with.

How effective is Self-Exclusion? The story of Joyce May Ross

I’ve been speaking to a number of stakeholders within the industry in the past few weeks about player protection. What I’m hearing is that one of the reasons why the levels of problem gambling has remained consistently low is due to operators offering players the appropriate tools to help them to manage their play, such as self-exclusions and limits. Many stated that these features have proved very effective.

This weekend I read about Joyce May Ross, who is suing B.C. Lottery Corp for $331,000 for failing to stop her gambling after she asked them to through the corporation’s self-exclusion programme. So whose fault was it that she lost so much money? Do lotteries need to do more to help gamblers such as Joyce? And are they the best placed to monitor gamblers?

For the online industry, one of the challenges to implementing effective player protection in the area of self-exclusion is how does one prevent a self-excluded player signing-up to a different operator? Adopting a pan-European approach would make sense, such as developing a common database where operators share relevant data, but implementing such an initiative could prove very challenging.

So back to Joyce May Ross. The question is will more lawsuits follow? You can read the article here.

To regulate (or not)

I was having a chat with Roger Steare the other day about whether regulation in some industries is more necessary than others (Roger is a Professor of Organisational Ethics and a fellow at ResPublica). We agreed in the principle that over-regulating, regardless of industry, doesn’t lead to sustainable practices (take a look at the banking industry). Self-regulating generally leads to more durable settlements, however agreeing on the principles can be challenging. Take a look at the Retail Lending Initiative, a great idea to help promote better practices within the Credit Card industry that failed to get adopted due to challenges in getting stakeholders to agree a common way forward (click here to read more). So what about self-regulation in the gaming industry? I think this does make sense in many respects. There’s a risk that developing acres of legislation will actually encourage the undesirable outcomes that the legislation is intended to stop. And the operators who are already creating sustainable profits in a responsible way will be unfortunately leveled by a system that sets rules that promotes the wrong behaviours (see Tim Cowen’s blog). However, for self-regulation to work, the dialogue must embrace all industry’s stakeholders…

Focusing on safety rather than social values

I read a thought-provoking letter in today’s FT suggesting that if BP had focused as much on safety as they have on describing their social conscience and non-business values then perhaps the tragedy may not have happened. The gaming industry is doing a lot to build progressive CSR policies and practices. But I do wonder whether the ‘greenwash effect’ is putting the industry under too much pressure to report progress against a whole range of CSR indicators and targets which, although important, take emphasis away from the more relevant externalities associated with the industry? Here’s the link to the letter.

Transparency and player loyalty. A missed opportunity?

The dynamically changing gambling industry is posing gaming operators with both challenges and opportunities to creating competitive advantage. Technology is driving increasing demands from customers as gaming operators become more sophisticated and accessible. Player management is becoming increasingly important in terms of generating revenue and preserving player loyalty. The players' experience must become easier, more mobile and uphold responsible gaming standards. Responsible gaming is increasingly coming to the forefront of the industry and regulators will require operators to meet higher standards in the future.

But aren't operators already doing enough? At Bet Buddy we believe they need to take transparency and player loyalty to the next level. Why? Because the relationship between society and corporations is changing. Customer service, the environment and corporate ethics are at the forefront of the publics' mind. Customer service charters, corporate social responsibility reports and environmental policies will not be enough in the future. Trust in business is a brand differentiator. The Edelman Trust Barometer 2010 reported that "a company I trust is the top driver of corporate reputation in the UK". And McKinsey research states that "company CFOs largely agree that environmental and social programmes will create value over the long term for corporates".

At Bet Buddy we believe gambling operators need to place greater emphasis on being profitable whilst also protecting players. Responsible gaming is increasingly relevant to operators' players, authorities and society. It is a critical element of operators' strategies and could become a missed opportunity...

A happy player is an informed player

The other day I was talking to a former senior executive at one of the major online gaming operators and he told me that one of the challenges in promoting responsible gaming is that some players do not want to know how much they are spending, as the truth could give them an unpleasant surprise. He asked “would you want to know how much money you spent on beer last year?” This got me thinking. I calculated that I spent around £1000 last year on beer. Did this horrify me? Did this make me want to cut back on how much beer I drink? No it didn’t. Actually, it made me realise that I do like to drink in moderation as I quite enjoy it. In fact, it made me think that I wouldn’t mind knowing whether my drinking habits and spend remain in my own levels of moderation. For the vast majority of gamblers online gaming is fun. And at Bet Buddy, we believe that a happy player is an informed player. Keep it fun!