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The Business of Social Games and Casino

How to succeed in the mobile game space by Lloyd Melnick

Month: April 2019

The Halo Effect and How to Avoid It

The Halo Effect and How to Avoid It

Several months ago, a colleague read and commented on
The Halo Effect by Phil Rosenzweig
, and although I have mixed opinions of the book it contains some great lessons on avoiding biases that lead to misjudging the causes of success or failure. Since reading the book, I have extended these ideas to both understand what activities to replicate and how to communicate better cause and effect.

The Halo Effect drives people to over-simplify why a company or product is succeeding, often misattributing it to leadership or a visible initiative. It can lead to negative consequences by driving incorrect hiring and firing decisions or causing incorrect strategic pivots. The Halo Effect is driven by basic psychology, Rosenzweig points out that “social psychologist Eliot Aronson observed that people are not rational beings so much as rationalizing beings. We want explanations. “

The Halo Effect is attributing a company’s success or failure to its leader or a specific strategy or tactic. People may look at a successful company and believe its acquisition or HR strategy is responsible for the success. This belief then becomes common and other companies replicate the strategy but experience different results. The problem is that the success was probably due to many or alternative factors and just copying one, which may or may not have contributed to the success, does not create the same recipe for success. You may actually be copying part of the strategy or leadership that does not work.

It is the same with individuals. If a company is successful, people are quick to credit the CEO. Articles and books are written about the leader but in reality the company was probably successful because of many factors, both external and internal. Not only then are those who copy the behavior of the CEO disappointed with their results, the successful CEO himself may find failure one year later even if they have not changed.

I have seen this issue many times in sports, both in business and other areas. A manager or coach can be brilliant one year and stupid the next. Yet the manager is the same person, with the same philosophy and strategy. Either the previous success was misattributed or the failure is. I remember when Claudio Renieri shocked everyone as Manager of Leicester City when they won the Premier League in 2016, only to be fired the club in 2017.

Ranieri

The reality is that the success is a combination of factors (including luck) and his strategy was not singly responsible for success or failure. This argument is not simply academic, as it impacts who the club hires and releases. Extended to the business world, it impacts who you put in leadership positions, promote or remove.

There are many factors that contribute to the Halo Effect. Most managers do not usually care to review discussions about data validity and methodology and statistical models and probabilities. They prefer explanations that are definitive and offer clear implications for action. They want to explain successes quickly, simply, and with an appealing logic.

There are multiple reasons that the Halo Effect is so widespread. First, it is impossible to experiment or test real life scenarios to determine actual cause and effect. Second, people love a story and the Halo Effect creates a nice (albeit inaccurate) success story. Third, many, including data analysts, mistakenly equate correlation with causality. Fourth, people often neglect to look at the overall ecosystem and try to simplify a situation to a vacuum. They look for one answer when the reality is much more complex. Finally, people often neglect to account fully for the impact of competition.

You can’t experiment to determine business success

When looking for why a company succeeds, you cannot replicate the methodology an app or game developer would use on why a feature works. There is no way to bring the rigor of experimentation to questions like why a company tripled in revenue or experienced a sales decline. If you want to know the best way to manage an acquisition, you cannot buy 100 companies, manage half of them in one way and half in another way, and compare the results. Without the ability to run a statistically significant experiment, people search for other ways to understand success and failure.

Reinforcing this problem is the confirmation bias, since there is not objective data people pull the data that confirms what they believe is the cause. People do not recognize good leadership unless they have signs about company performance from other things that can be assessed more clearly—namely, financial performance. Roswenszweig writes, “and once they have evidence that a company is performing well, they confidently make attributions about a company’s leadership, as well as its culture, its customer focus, and the quality of its people….But when some researchers took a closer look, they found that …the scores … for a given company turn out to be highly correlated—much more than should be the case given variance within each category. Furthermore, many of the scores were very much driven by the company’s financial performance, just what we would expect given the salient and tangible nature of financial results. “ In effect, they back into confirming their original hypothesis on the cause of a success (or failure).

Pick any group of highly successful companies and look backward, relying either on self-reporting or on articles in the business press, and you will find that they are said to have strong cultures, solid values, and a commitment to excellence. This does not prove these cultures are actually strong, but they are viewed as strong due to the company’s success.

People love stories

Marketers have known for a long time, as have entertainment companies, the power of stories. Rather than explaining the features in a pair of runners that would help in a soccer match, a good marketer will explain how the shoes are developed in conjunction with world-class athletes, who then go to the factory to test them. This type of story is much more compelling (even if false) than an objective review of facts. The same problem contributes to the Halo Effect.

People love to hear how the charismatic leader led the company from a start up to a Unicorn. These stories sell books and magazines (or generate web traffic). The tendency to attribute company success to a specific individual is hard to resist. We love stories because they do not simply report disconnected facts but make connections about cause and effect, often giving credit or blame to individuals. As Rosenzweig writes, “our most compelling stories often place people at the center of events. When times are good, we lavish praise and create heroes. When things go bad, we lay blame and create villains. Facts were assembled and shaped to tell the story of the moment, whether it was about great performance or collapsing performance or about rebirth and recovery. “

The book uses the examples of Cisco and ABB to reinforce the point about the power of stories. Both companies were written about in glowing terms, with many trying to replicate the approaches of John Chambers at Cisco and Percy Barnevik at ABB. As long as Cisco was growing and profitable and setting records for its share price, managers and journalists and professors inferred that it had a wonderful ability to listen to its customers, a cohesive corporate culture, and a brilliant strategy. And when the bubble burst, observers were quick to make the opposite attribution. The same happened with ABB, where Barnevik went from revered business leader to scandal plagued miscreant. The reality was neither Chambers nor Barnevik changed, the story changed to fit the new performance.

Equating correlation with causality

One of the most dangerous manifestations of the Halo Effect is equating correlation with causality. While the correlation may be useful for the purposes of suggesting causal hypotheses, it is not a method of scientific proof. A correlation, by itself, explains nothing. Rosenzweig writes, “by looking only at companies that perform well, we can never hope to show what makes them different from companies that perform less well. I call this the Delusion of Connecting the Winning Dots, because if all we compare are successful companies, we can connect the dots any way we want but will never get an accurate picture. “

Companies that consider themselves data driven and even business intelligence teams, often fall into this correlation trap. They start with a success (or failure), either their own or another company, and then dissect it by looking for correlations between the success and a certain activity. Eventually you will find something, even if the correlation is coincidental. If you are starting with a hypothesis, I guarantee you there will be one relationship that “proves” your hypothesis, no matter what you are claiming (and how accurate you are). A good data scientist can even prove a statistica significance to almost anything, they will find some test that “proves” their claim.

I always laugh at the articles written around the World Cup or Super Bowl about how the region or league of the winner will impact an election or economic growth (i.e. if a California team wins the Republicans will win the next election). Obviously, it is just random luck but there is so much activity occurring at any time there will be some correlational relationship. The sporting event, though, is not driving the activity (there is no causality) and is no more likely to predict an up economy as a coin flip would.

People fall into this trap because they are looking for an easy answer. Rather than understanding all the factors that contribute to a drop in registrations in a region, the analytics team will point to a new product introduction that occurred roughly the same time. For them, it is problem solved. Only when their sales continue to fall or extends to other regions do others begin to see that the problem is much more complex.

Single explanations often do not exist

Another issue driving the Halo Effect is that most results are not driven by one factor. So many things contribute to company performance that it is impossible hard to know exactly how much is due to one particular factor. Even if we try to control for many things outside the company we cannot control for all the many different things that go on inside the company.

All of us can probably think of examples that show this phenomenon. In my case, I was once asked during an exit interview why I quit. Rather than one answer, which the interviewer was expecting, it was a series of experiences over a year. There were several triggers but you could not attribute it to any one variable, as much as the HR person was hoping. Another example is when one of our products out-performed projections. While it would have been easy to explain it as one brilliant decision, and that is what the CEO was looking for, it was a combination of product changes, changes with the competition and a platform shift.

Rosenzweig writes, “the new CEO does something—such as setting new objectives, or bringing about a better market focus, which may help improve the corporate culture, or overhauling the approach to managing human resources, and so on. The improved performance we attribute to the CEO almost certainly overlaps with one or more other explanations for company success. Which brings us to the nub of the problem: Every one of these studies looks at a single explanation for firm performance and leaves the others aside. That would be okay if there were no correlation among them, but common sense tells us that many of these factors are likely to be found in the same company.”

The competitive impact

Related to the impact of multiple variables on performance is the competitive environment. I can be a great leader but if Jeff Bezos and Satya Nadella lead my competitors, my company would probably not perform very well and my leadership would be used as an example of what not to do. Now say I am exactly equally competent but I run an airline. My competitors are not exactly rock stars and we probably out-perform them. Then books and articles get written about how strong my leadership is and what aspects should be copied. In either case, I am doing the same thing but the Halo Effect attributes much of the result to my leadership. Same can be said for HR policies (open office, free lunch, etc) and any other driver of success. If looked at in a vacuum, the Halo Effect creates very misleading results.

As Rosenzweig writes, “the Delusion of Absolute Performance diverts our attention from the fact that success and failure always take place in a competitive environment. It may be comforting to believe that our success is entirely up to us, but as the example of Kmart demonstrated, a company can improve in absolute terms and still fall further behind in relative terms. Success in business means doing things better than rivals, not just doing things well.”

Success is short-lived, especially now

The final point that Rosenzweig makes is that success is short lived. He points out that only 74 companies on the S&P 500 in 1957 were still on the S&P 500 in 1997, forty years later. Of the 74, only 12 outperformed the overall S&P 500 index (they survived but did not thrive). Thus, what makes a company great today probably will not make it great tomorrow, but more realistically it probably is not one thing and as it evolves so will the company.

Next steps

The Halo Effect is a result of our attempts to over-simplify the world. Success and failure are driven by multiple factors and there are no shortcuts to achieving great results. While we can learn from others, we need to remain diligent and make sure not to draw simplistic conclusions. At the end of the day, there is no easy answer and no silver bullet to generate success, it comes from repeatedly make smart, data driven decisions consistent with a coherent strategy.

Key takeaways

  • The Halo Effect is attributing success or failure to an individual or specific action, which is often misleading.
  • The Halo Effect is caused by an inability to do experiments in the real world on the success of a business, people loving stories, mistakenly equating correlation with causality, looking for a single answer to a complex problem and neglected the impact of competition.
  • There is not one simple answer on how to succeed or how to avoid failure, but you must make a series of good decisions based on data.

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Author Lloyd MelnickPosted on April 30, 2019February 27, 2019Categories Analytics, General Social Games Business, General Tech BusinessTags Halo Effect, leadership, Stories, StrategyLeave a comment on The Halo Effect and How to Avoid It

Why Coin Master May Not Become a Franchise

Why Coin Master May  Not Become a Franchise

With the success of Coin Master, and the disruption it is causing in the social casino space, many are looking to understand and replicate its success. Although Coin Master is unquestionably doing great and has found a Blue Ocean, it would be the second largest social casino product if it was officially classified in that category, you need to proceed with caution if you plan to imitate it.

I will be writing in the near future about the Halo Effect and Survivor Bias, two heuristics that often lead to flawed decisions. With both of these heuristics, people look at a success and draw conclusions from that success in retrospect and are not repeatable (i.e. Monday morning quarterback). They miss, either consciously or subconsciously, many of the factors that led to the success and are necessary to replicate it, while potentially attributing the success to dynamics that actually did not contribute positively.

Given its current momentum, it is very easy to dissect Coin Master and say A, B and C can help you make $250k/day. Rather than jump on the bandwagon, I decided to take a step back and look at what Moon Active is not doing well. I may look stupid in twelve months if Coin Master consolidates its position and continues to grow but there are some fundamental issues with the product that suggest it may decline rapidly, despite most social game franchises lasting for years (Slotomania, DoubleDown, Clash of Clans, Candy Crush, CSR Racing, etc.). The issues below suggest Coin Master might experience a much shorter life at the apex.

Slide1

Lack of new content

Social casino products, and social games in general, drive most of their on-going revenue from new content. From the early days of Farmville and Mafia Wars to current top grossing games like Slotomania and Fishdom, new content most consistently contributes to revenue. New content drops are accompanied by much stronger player activity, including reactivating lapsed players and getting lapsed spenders to resume purchases, with little variance (unlike a new feature that may or may not resonate with the audience). This content can be a new slot machine, a new tournament format or theme, new virtual goods, etc., and for different games different content resonates (or falls flat) with its audience. Conversely, I cannot identify one top game where the content is largely unchanged from several years ago, let alone several months ago.

Coin Master, however, adds virtually no new content for the customer. They may add new villages for players who have completed every village, but that impacts very few players and those it does impact it touches very infrequently. Moon Active only has one slot machine that never changes. There are no new slots, new symbols or other new items to rejuvenate the gaming experience.

Deviation from random number mechanics

When I took my first social casino position, after being in traditional free to play games for several years, I quickly learned how strong casino mechanics are at driving monetization. Rather than finding artificial ways to “pinch players” or otherwise drive monetization, slots have generated revenue for over 100 years in a very straightforward manner tied to the core mechanic. Moreover, the random nature of casino games creates a fantastic roller coaster experience for players.

After playing Coin Master extensively, it is clear that rather than a random experience your outcomes are choreographed by Moon Active’s Product Managers. The patterns start to repeat and players see the same outcomes session after session. The hot and cold streaks that are part of gambling, driven by random numbers and the laws of probability, are absent. I have been involved with several social casinos where product managers believed they could create a better (or more profitable) experience than random number generation could and it never works. The gameplay gets stale or players realize they are being manipulated. In the long run (or even medium term as the experience is not as good), players enjoy a true random experience better than one created by product managers.

Uninspired elder gameplay

For a game to thrive for years, it needs to keep a base of loyal and valuable players and keep growing that base. Given user acquisition costs, you cannot grow a game to franchise proportions if you have to replace the entire player base less than six months from acquiring each player. It is this core of valuable players that provide a revenue floor each month that allows you to spend aggressively for new players without creating very adverse cash flow conditions. Most games appeal to their core of experienced players by adding new features or mechanics so the player is not doing the same thing day after day, month after month, year after year. Even in slot games, social casinos release slots with very different bonus games, graphic styles, math and mechanics.

Coin Master, however, is virtually the same game day one that it is if you have played it several hours a day for six or sixteen months. The mechanics do not change or evolve, depth is not introduced, and the experience is identical to past sessions. Even Microsoft Windows apparently evolves at a faster rate than Coin Master.

Poorly crafted advertising monetization

Advertising revenue is becoming an increasingly important part of the social gaming business model, an important additional revenue stream for games that rely on in-app purchases (IAPs) and increasingly it allows products to succeed even without IAPs. Hypercasual games, which now represent about 60 percent of app-store downloads, are almost entirely ad driven. Even more importantly, advertising works with the rest of the game to improve the overall experience and increase retention (watch to earn videos allow players to keep playing or earn premium currency).

Moon Active, however, still approaches driving advertising revenue in the conventional way. It identifies players not likely to monetize through IAPs, then forces players to watch ads. From the structure of how Moon Active uses ads, it is not concerned about users churning due to ads, instead it wants to get as much ad revenue as quickly as possible. This short-term approach is likely to reduce current user return rate (CURR), which is critical to maintain DAU. It is also important to deploy advertising smartly to optimize LTV, as it is better to have someone watch four ads per month for 12 month than force ten ads on them in a month and prompt the player to churn. Similar to the lack of new content and unsophisticated elder gameplay, Coin Master is not constructed to build its player and revenue base month over the long term.

Hygiene

In addition to these large issues, there are many smaller problems (often referred to as hygiene issues) that are likely to impact Coin Master negatively. As the genre gets more competitive, these issues can be enough to get players to switch to other games. Success in the social game space often reminds me of chaos theory, where a butterfly in Beijing can impact the weather in Chicago. Small issues can have big consequences. The hygiene issues in Coin Master include:

  • Stability and tech. People often underestimate the impact technical issues have on KPIs. A small change in loading time or app size, which the player might not consciously notice, often impacts KPIs 10 percent or more. Anecdotally, I have noticed that Coin Master’s slot will crash occasionally, sometimes freezing the player out until there is an app update. Even small crashes can contribute to user churn. Related, the absence of deep linking for push notification, usually a coding or tech debt issue, limits the ability to engage players through CRM.
  • Economy balancing. As players progress through Coin Master, the economy becomes a drag on the experience. While initially a reward (daily bonus, raid proceed, etc.) might be relevant, as the game progresses this relevance varies. As the player advances, less of the features are significant (for example, watching a video has so little value there is no incentive). This problem, coupled with the lack of new content and elder gameplay mechanics, make the game less (rather than the desired more) interesting for established players.
  • Portrait only mode. Coin Master is only available in portrait mode, creating a sub-optimal experience for players on a tablet or large smartphone who are looking for an immersive experience. While some casino games are limited to either portrait or landscape mode, the decision is often driven by an abundance of content (and the need to modify so much art). With Coin Master enjoying an uncontested market space, this limitation obviously is manageable (hence the $250k/day), but again it leaves them vulnerable to a competitor taking away some of Moon Active’s players who desire a landscape experience optimized to their device.

The future of Coin Master

It is impossible to predict the future and Moon Active has found an uncontested market space that protects it from many of its sins. That moat may protect it from the issues identified above and allow it to continue to grow Coin Master. More likely, Moon Active will either address these issues (it now has extensive resources available) or new entrants in the genre will surpass Coin Master.

Key takeaways

  1. Despite being a runaway success, Coin Master generates about $250k/day, some limitations in the product suggest it will not become a long-lived franchise.
  2. Unlike most successful franchises, Moon Active fails to regularly release new content into Coin Master or provide a deeper experience for long-time players.
  3. Coin Master’s deviation from a true random gaming experience, unlike other social casinos, also provides a discernable pattern that will take away from player enjoyment over time.

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Author Lloyd MelnickPosted on April 23, 2019April 21, 2019Categories General Social Games Business, LTV, Social CasinoTags advertising, Coin Master, content, elder gameplay, in-game advertising, Moon ActiveLeave a comment on Why Coin Master May Not Become a Franchise

Why I Am Morally Opposed to Intuition

Why I Am Morally Opposed to Intuition

I recently told a colleague I was morally opposed to intuition and it more than raised an eyebrow, it largely shocked the person I was speaking with. As someone who has been in the game industry for too many years, I am often asked to use my intuition to review game or business ideas, prioritize product features and evaluate potential employees, so it would be easy to move my agenda forward by relying on intuition. Unfortunately, it would also be a mistake.

Intuition is often used as an excuse for not having facts to prove your case. During my first year of university, I learned that I should not rely on intuition. As I developed an appreciation for analytics and statistics, I began to understand the best way to approach making optimal decisions. Bayes Theorem further strengthened the fallacy that decisions should be taken on intuition. Then, as I have I read more about heuristics and biases in decision-making, my opposition to intuition has solidified.

Common Sense and Intuition

In my first year at University, one lesson had a very long-term impact. An English professor, discussing that common sense and intuition should not be used to argue for one side in a debate, pointed out that in the 1800s one of the primary justifications of slavery was that it was “common sense” that blacks were inferior to whites. He further attacked using common sense as an argument, showing that many of the great tragedies and mistakes were justified by common sense and intuition: The Inquisition, Holocaust, Smoot Hawley, etc.

Intuition and common sense are often an excuse for not having facts

If you are trying to get a desired decision but do not have strong data to support your decision, intuition and common sense are ways people try to still get their proposed course of action approved. Many times you are pursuing a fast decision and feel there is insufficient time to collect data. Other times data is not easily available to analyze a situation. Intuition and common sense provide an argument for moving forward quickly on a decision even when there is not data to support it.

This problem is magnified if you are in a senior position. A direct or indirect insubordinate is unlikely to argue their bosses’ or the CEO’s intuition is flawed. It is particularly dangerous for those in the senior position, who will see their “intuition” supported by subordinates, further confirming to them that it is an appropriate course of action. This confirmation replaces data in driving decisions forward, and then the leader has to deal with the consequences.

Decision making biases

Reinforcing the issues with relying on intuition and common sense is the many decision making biases people exhibit. I have written frequently about consumer behavior, particularly Daniel Kahneman’s work, that shows how people often make faulty decisions. These biases include:

  • Confirmation bias.Confirmation bias is when you ignore information that conflicts with what you believe and only select the information that confirms your beliefs.
  • The Linda Problem.When given a story about a fictional person and then potential careers for that person, virtually everyone (from students to very successful professionals) chose a persona that was a subset of a broader persona, thus impossible that the former was more likely.
  • Status quo bias. People to prefer for things to stay the same by doing nothing or by sticking to a previous decision, even if the previous decision will lead to a worse outcome.
  • The narrative fallacy. People try to comprehend information in stories, rather than looking at just the facts they create a story that links them together even if there is not really a link.
  • Dunning-Kruger effect. The Dunning-Kruger Effect is when incompetent or somewhat unskilled people think they are more skilled than they are. As the article quotes, “incompetent people do not recognize—scratch that, cannot recognize—just how incompetent they are.”
  • Backfire effect. The backfire effect is after analyzing something that you or your company are doing, if the results are negative and the action was bad, you or your colleagues refuse to accept the results.
  • Bandwagon effect. The bandwagon effect is what you would assume, the tendency to do things because many other people are doing it. People will rally around a cause, an idea, a candidate, a variation, or a strategy simply because it is popular.
  • Endowment effect.The endowment effect is how people value items they own more than they would if they objectively viewed the item. Somebody might not accept $10,000 for their used car, but if a car dealer offered the same car to them they would not pay $8,000 for it.

Rather than focus on our biases when making decisions, the key takeaway is that people often do not make optimal or rational decisions. When relying on intuition or common sense, data that can offset these biases is neglected.

Common sense usually forgets Bayes Theorem

Related to the biases people experience when relying on intuition is the inability to process statistics well. I have written frequently about Bayes Theorem and how people often infer incorrect probability of a certain result. Bayes’ Theorem is a rigorous method for interpreting evidence in the context of previous experience or knowledge. Bayes’ Theorem transforms the probabilities that look useful (but are often not), into probabilities that are useful. It is important to note that it is not a matter of conjecture; by definition a theorem is a mathematical statement has been proven true. Denying Bayes’ Theorem is like denying the theory of relativity.

By way of an example, I will repeat one I used in 2014. Say you wake up with spots all over your face. You rush to the doctor and he says that 90 percent of the people who have smallpox have the symptoms you have. Since smallpox is often fatal, your first inclination may be to panic. Rather than freak out, you then ask your doctor what is the probability you have smallpox. He would then respond 1.1 percent (or 0.011). Although still not great news, it is much better than 90 percent—but more importantly it is useful information.

The key here is that people do not understand the actual likelihood that something will occur. In this case, your intuition might say you have smallpox. If this then prompts you to fly to a smallpox clinic, you probably made a bad decision. The same happens professionally, where people make decisions by inferring the wrong probability of a possible outcome.

Slide1

When to use your intuition?

NEVER. Intuition is an excuse to make decisions without data or without putting the work into looking at the data. If your intuition is actually based on past experience, then this experience is data and you should looked at it as a data point (but only one data point and one that is not more valid because you experienced it personally). To make good decisions, you should review the data and make decisions that increase the probability of the optimal outcome. You also need to just say no when somebody asks you to make an intuition based decision, you can help provide data but never should make the decision on what your gut says.

Key takeaways

  • Intuition is a very flawed way of making decisions but is often the default, particularly for leaders with extensive experience. It is actually a way to ignore data (or avoid the work collecting it) and leads to poor decisions and priorities.
  • Intuition and common sense were often the justification for some of the worst decisions in history, from slavery to the protectionist Smoot Hawley Tariffs.
  • Intuition should never be used to make decisions. Instead, spend time collecting and analyzing data and deriving decisions with the highest probably for a positive outcome.

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Author Lloyd MelnickPosted on April 16, 2019March 20, 2019Categories Analytics, General Social Games Business, General Tech BusinessTags bias, Common Sense, decision making, Intuition4 Comments on Why I Am Morally Opposed to Intuition

What Real Money Gaming companies should learn from the problems faced by EA and Activision Blizzard

What Real Money Gaming companies should learn from the problems faced by EA and Activision Blizzard

In January, I wrote a post on why Electronic Arts and Activision Blizzard’s stock had plummeted and what other game companies could learn from their challenges. While the lessons are relevant to social gaming companies, in many ways they are more germane to Real Money gaming companies, many of whom have also struggled to maintain their share prices.

slide1

Look at the competition holistically

The first problem I identified with EA and Activision was that they focused solely on each other and other console game manufacturers when considering the competition and generating competitive responses. As Netflix stated in its shareholder letter in January, “we compete with (and lose to) Fortnite more than HBO,….When YouTube went down globally for a few minutes in October, our viewing and signups spiked for that time…There are thousands of competitors in this highly fragmented market vying to entertain consumers and low barriers to entry for those with great experiences.”

Real Money Gaming companies do not seem to have gotten the memo, they still focus primarily on each other. Most Real Money online casinos measure their competitiveness by how many games they have versus other online casinos. Sportsbets list their breadth of betting options and in-play bets versus other sports betting apps.

When the US market began to open last year, most Real Money operators looked at each other when developing their American strategy. They copied the partnerships other operators were entering into. They built similar go-to-market strategies. They took their European apps and “adapted” them for the US market.

The sole focus was outdoing their direct competitors. They did not look at how Americans consumed entertainment, how it was different than in their core markets and then build a strategy to compete with these other forms of entertainment.

The US is an example of how the Real Money operators fail to look holistically at the entertainment ecosystem and simply focus on each other. It is why margins continue to decrease and why fewer and fewer new customers enter the ecosystem. It also leaves them very vulnerable to other forms of entertainment appealing to their customers.

Franchises are not forever

The second lesson that Activision Blizzard and Electronic Arts learned the hard way is that franchises are not forever. Many of the biggest Real Money operators still rely on their existing franchise and have not built a sufficiently robust business to deal with downturns in the franchise. You can broadly define a franchise, as I would consider William Hill’s retail locations the same as Farmville, a formerly ubiquitous product that declines over time.

The Real Money space is dominated by one product companies, which leaves them particularly vulnerable to franchise erosion. Many of the operators (both large and small) rely on an individual product for success (often the product and company name are synonymous), and when that product decreases, they are in a very vulnerable position.

You need a pipeline of new products

Consistent with the above point, not only do many Real Money operators rely on one product, they do not have a green light process or plan to bring new apps to market. Often, their product development is focused on improving and optimizing their core offering. If the macro-market for that offering decreases, they do not have alternatives available to compensate.

As I wrote last month, companies need a robust green light process to identify market opportunities, particularly prospects to appeal to non-customers of the industry. Creating skins of existing products do not achieve this result; they simply provide a marketing tool and potentially nudge your product positioning. Yet very few Real Money operators launch entirely new products that have a different feature set and market appeal than their existing products.

These opportunities exist if Real Money operators will look outside of their current offering. There is no reason a Real Money sportsbook cannot offer a standalone eSports app or a Crypto sports betting solution or hypercasual sports betting games. A Real Money casino can look beyond its integrated casino to create a Live Dealer app or an app that has progression or social features. The key is for companies to assess the market opportunity, their strengths and weaknesses and create a product pipeline that will help them grow.

New products and new markets are the key to success

As the above analysis shows, Real Money gaming companies suffer the same issues as video gaming companies and firms in many industries. They lose the forest for the trees, focusing on their direct competitors and existing customers, rather than how the industry and world is evolving. These blinders leave them vulnerable as people’s preferences evolve and miss an opportunity to grow exponentially.

Key takeaways

  1. Real money operators need to avoid making the same mistakes that Electronic Arts and Activision Blizzard committed if they want their stock to be resilient.
  2. Real Money gaming companies should not simply focus on each other but realize they are competing with all entertainment companies and build products that expand their market.
  3. Real Money operators normally rely on one offering and do not have a robust product pipeline to deal with declines in their core product.

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Author Lloyd MelnickPosted on April 9, 2019March 20, 2019Categories General Social Games BusinessTags Activision, competition, Electronic Arts, Green Light, green light process, real money online gamblingLeave a comment on What Real Money Gaming companies should learn from the problems faced by EA and Activision Blizzard

A farewell to the stars at Stars

A farewell to the stars at Stars

Almost exactly four years ago (April 4, 2015), I took over the social gaming team at Stars. While we have had some great professional achievements (increasing LTV more than 10X, winning best social poker app, launching Live Dealer games for the first time in the social space, etc.), it is the friendships that will be missed. In that time, I built some wonderful relationships with co-workers and business partners that will sorely be missed.

I learned early that Stars is much more than a company but a family, where people truly care about their colleagues. I remember the outpouring of support when my mother passed away and continue to be encouraged how people come together to help coworkers in difficult times.

There are too many people to thank individually, or even list, for an amazing four years.  I want everyone to know, though, how appreciated you all were and how you have had an immeasurable impact on me.

The most trying part of leaving, however, is the realization that I will no longer be part of the social gaming team. We have built an incredible team, one that is a success order of magnitudes more important than any revenue milestone or gaming award. While the business often faced challenges, I looked forward everyday to working with my team to overcome these challenges. In the best times, and the worst times, we all came together to deal with tactical issues but also to build something special. Everyone on the team remained focused on the team, helping each other overcome trials and leap on opportunities. We worked as a whole, and it is still surreal that I will no longer be part of that great entity.

PSP team

Many of you moved to the island to be part of our adventure and I hope it was as satisfying for you as it was for me. We did many things that were considered impossible and created something special.

Fortunately, I am not moving locations and hope to continue and build on these incredible relationships. I care deeply about my friends at Stars and will work tirelessly to stay close.  The team is in great hands and I am sure will continue to collaborate brilliantly while overcoming all hurdles.

 

 

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Author Lloyd MelnickPosted on April 2, 2019March 8, 2019Categories General Social Games BusinessTags Lloyd Melnick, PokerStars, Stars Group3 Comments on A farewell to the stars at Stars

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Lloyd Melnick

This is Lloyd Melnick’s personal blog.  All views and opinions expressed on this website are mine alone and do not represent those of people, institutions or organizations that I may or may not be associated with in professional or personal capacity.

I am a serial builder of businesses (senior leadership on three exits worth over $700 million), successful in big (Disney, Stars Group/PokerStars, Zynga) and small companies (Merscom, Spooky Cool Labs) with over 20 years experience in the gaming and casino space.  Currently, I am on the Board of Directors of Murka and GM of VGW’s Chumba Casino

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