After spending three days at ICE, the largest B2B iGaming show in the world, I wanted to share some of the highlights. While there was nothing dramatically different this year, it reinforced several trends:
There are many red oceans
I have written many times about blue oceans and red oceans, the former being spaces in the market where your competitors are irrelevant, the latter where you are competing directly with others. In the iGaming space, there is very little creativity and almost all the companies are just trying to be a little better than their competitors. There are a few silos in the industry, and within each silo the companies are largely interchangeable. Virtually all the companies, large and small, are imitating each other and adding minor twists around the fringes. The concern with this situation is that in a red ocean it is very challenging to maintain your margins and generate long-term growth.
Content as a commodity
The iGaming industry is evolving to a position where content is becoming a commodity, in part driven by the red ocean mentality. Technology and globalization is also contributing to this situation, as the barriers to entry are exceedingly low for content development. A good artist and designer anywhere — Chicago, Bangalore, Vilnius or Jakarta — can create a beautiful slot. While math is critical, there are many great mathematicians who can make the beautiful slot into a decent game. Not only does good content flood the market, it allows operators to create their own content cost effectively and skim a large part of their revenue into machines that do not generate third party royalties.
While this problem runs counter to the concept that content is king, content is not king if it is virtually the same. Content that stands out still enjoys premium pricing and attracts more players and operators. Great content cannot be replaced with quickly made internal product. Very little content, though, falls into this bucket and most is competing for an increasingly small revenue pool.
While this situation is bad news for content creators, it is great for operators. The plethora of slot providers puts the basic supply and demand formula in favor of operators. They can negotiate more favorable royalty deals or build their own competitive machines with minimal cost.
Platforms offering zero value
Consistent with the glut of content is a glut of platforms and aggregators. In the video game space, there are many “publishers” who will license a game, take a share (sometimes very significant) and just submit the game to the AppStores, adding virtually zero value.
In the iGaming space, many people have created platforms where they aggregate slots content and distribute it to operators. The problem is that many of these platforms or aggregators have few relationships with operators, and even the operators who have integrated them put the content in the back of the virtual store. There were many stories at ICE of slots developers who have generated dollars or only cents from an integration with a platform. Just as in the video gaming space, content providers need to do their due diligence before selecting a platform.
Lots of people speaking American
For many years, G2E has been the gambling show that Americans went to while ICE was largely for Europeans, but I heard many American accents this year. Additionally, some traditionally US focused companies — Everi, AGS, Scientific Games, etc. — had large presences at ICE. It shows the US companies, particularly content providers, understand that the online real money market (which is dominated by Europeans) dwarfs the US land based market. Europe provides a great opportunity for many of these companies, though it also means more content on the market.
Not everyone got the memo about crypto
While the bloom is off the crypto rose almost everywhere, particularly tech, many iGaming companies are still operating on the momentum it had twelve months ago. Throw the word crypto on a mediocre offering and expect it to be worth an order of magnitude more. This approach is consistent with how the industry reacts and copies rather than seeks blue oceans, so I am confident that next year there will be very little crypto left and they will be chasing the next one year old trend.
The promise of virtual sports
Not all the news is bad. The quality and breadth of the virtual sports offerings is very impressive. Walking through the virtuals area was like being at a sports bar with multiple TVs showing live events. The rendered virtual sports are often better than games available for console, like Madden or FIFA. There are also some great offerings that put together video clips of live events and create a virtual event. I expect virtual sports to be a big growth area online (both real money and social) in the next few years.
At ICE this year, there was little new and many companies copying each other, competing in a red ocean.
There is a glut of slots content, driving down revenue for slots providers but potentially providing a cost savings for operators.
Virtual sports represents the best opportunity for growth, as the quality of the content is improving exponentially.
When I listed my expectations for 2019, the one that generated the most conversation was that the convergence between Real Money Gaming and social casino would accelerate. The underlying driver of this convergence is that both ecosystems are strong and have many learnings to offer. Real Money casino is a $10.6 billion business. Meanwhile, social casino is a $5.4 billion industry that has grown every year since 2012 and is projected to continue growing 7-12 percent per year through 2022.
What social casino can learn from Real Money gaming
Content is king
Real Money casinos focus on adding more content (slots and table games) to increase revenue. While social casino operators also will profess content is king and acknowledge that new games are the strongest driver of KPIs, they do not have the singular focus on adding content that their Real Money counterparts have. Most social casino companies are happy releasing a new slot every second week and launching with 20-30 machines. Conversely, the top Real Money casinos often have over 500 slots and introduce new games much more rapidly.
Given the proven results from launching new content, social casinos should look at much more aggressive content schedules. To achieve this result, social casinos will need to move from their reliance on exclusive, homemade content.
Real Money operators can launch hundreds of games because they license the slots non-exclusively, thus providing access to thousands of slot machines and table games. While exclusivity does provide a unique selling point, many of the homemade social slots are not truly unique. They have common themes and standard math, they are effectively a commodity. Thus the exclusivity is only a perceived advantage, it has no value to the player. Rather than recreating the wheel for every machine, social casinos can still create a unique machine every two weeks (or four weeks or one week) but supplement it with non-exclusive content from the many third-party slot developers.
While most social casino operators are focused on creating a strong slots app and then optimizing acquisition for that app, Real Money operators have a more robust model. While they still will acquire slots players for their casino products, they have entire verticals that exist largely to acquire players that can be cross-sold into casino. Virtually all the Real Money Bingo products derive the bulk of their revenue from slots. While sports betting is a profitable real money vertical on its own, all of the major sports betting companies rely on slots to drive LTV and allow for more aggressive user acquisition.
In the social space, the siloes are much stronger. Only Kama Games, which uses products like Blackjackist and Roulettist to drive traffic to its poker offering, regularly uses other casino mechanics to acquire players and then cross sell them to its core poker product. Even the social game companies with strong bingo products generally treat bingo as a standalone vertical with its own P&L, just acquiring players for bingo rather than to cross sell into their slots offerings.
Social game companies need to look more at their ecosystem rather than individual products. This will allow them to acquire more players at a higher ROI.
All successful social casino products are based on mechanics proven in the real money space (either land based or online) but not all real money gaming mechanics have made it to social casino. One of the challenges faced by social casino is that the number of players is no longer growing. While revenue continues to increase, it is driven by better monetization of the player base, rather than expanding the player base. One of the most obvious ways to appeal to more players is offering more gameplay options.
There are several real money mechanics that could benefit social casino companies:
Sports betting. Sports betting is the largest Real Money gaming vertical, worth well over $22 billion. Social casino companies have tried to replicate Real Money sports betting apps with no success; they have failed for several reasons. The products are normally very complicated, not lending itself to a new sports betting player. Sports betting is also very event driven (you are only interested when there is a match you want to bet on), while social games rely on strong daily retention. Despite these issues, given the overall interest in sports, strength of social fantasy applications and lack of Real Money sports betting in some core markets, a creative game designer can come up with the killer social app for this segment.
Virtual sports. Virtual sports is an important but small part of the online real money gaming ecosystem. Technology, however, has made it much more viable and a great option for social casino companies. Virtual sports are similar to slot machines in that winning is based on a random number generator with set odds, they just simulate a real sporting event. Technology, however, has made these simulated games look as good as real sports. The video below from virtual sports provider Inspired Gaming shows these matches look better than what you would see on a gaming console. Unlike actual sports betting, virtual sports are always available to the player so you can create an experience players can return to daily.
Live dealer. Live dealer games are the fastest growing mechanic in the real money gaming space. Companies led by Evolution Gaming, provide games where customers play against a live dealer or host through a video feed. Just as with virtual sports, technology has made this offering much better than only a few years ago, with smoother and higher quality streaming. It is the fastest growing segment of real money gaming and virtually when any B2C company reports its financial results, Live Dealer is the highlight or only bright spot. There are challenges integrating it into social games, bandwidth costs, one-to-one dealer requirements, etc., but as Stars Group showed these issues can be overcome.
Real Money gaming shows that the addressable market is not limited to 40+ women. While 73 percent of social casino players are female, 65 percent of real money gamers (and 55 percent of real money casino players) are men. With user growth stagnant in social casino, appealing to a male demographic can expand the market for social casino.
Offer driven user acquisition
While social casino companies are more sophisticated with their overall digital marketing, Real Money operators are better at using promotional offers to bring in players. Promotions, such as a free money welcome bonus, spin to win, triple winnings their first day playing, etc., have a very strong pull. While the cost in Real Money of these promotions is sometimes challenging, in social casino they are less risky as providers are only gifting virtual currency. These offers are complicated by AppStore restrictions but this challenge is not insurmountable and more creative offers will improve social game companies user acquisition efforts.
While social casino is more reliant on VIPs than Real Money casinos, more than 60 percent of social casino revenue comes from 0.5 percent of players, Real Money operators are much more sophisticated in working with their VIPs. Only a few social casino operators, such as Zynga, have true VIP management programs, most social casinos have one person (who may also be responsible for social media or support) who runs their VIP “program.” Conversely, the most successful real money casinos have a more robust VIP support initiative:
Proactive. While much of VIP management in social casino is better customer support for spenders, VIP management in Real Money gaming consists of proactively reaching out to your top players and understanding them as a process. The VIP team can then anticipate problems or opportunities and provide a better experience to the player.
Rake back or loss return. Many real money gaming companies (both land based and online) refund part of player losses to their best players. This practice allows players to take more risks and helps overcome periods of bad luck. While it is a controversial practice, many in the real money space lament the cost is not worth the effort, it is a strong way to increase loyalty of your most active players.
First class promotions. Why are most fights in Las Vegas, answer is so the casinos can give their VIPs front row seats. Real Money operators will send their top players to great sporting events, sold out concerts, the top restaurants or even a luxury cruise to show their appreciation. While VIPs will often spend over $200,000 in a social game, these VIPs are often rewarded with a t-shirt (if they are lucky). Treating top VIPs similarly to the real money industry will keep them more engaged with social casino offerings.
Hospitality events. Not only do Real Money casinos send their VIPs to great events, they create great events. By creating your own event, you are building something unique that competitors cannot replicate and the player cannot get anywhere else. Thus, they are less likely to churn as they would not want to lose access to these events, while they can always buy fight or concert tickets. It is also a great opportunity for your VIP team to build personal relationships with your VIPs, and the personal bond is often stronger than financial benefits of being a VIP.
By replicating these practices, social casinos can reduce VIP churn and improve their lifetime value to the company.
What Real Money gaming can learn from social casino
Although Real Money casino is a larger business, in many ways it is less sophisticated than social gaming. For many years, Real Money casino operators could succeed by getting a stable product in front of customers. With LTVs upward of $400, they had significant margin of error in user acquisition and product features. Conversely, social casinos continuously had to optimize all facets of their business to continue growing. This optimization has led to the development of many features and tactics that can benefit Real Money gaming.
Providing progression serves many valuable purposes in games. First, it gives people a reason to play, they want to keep moving forward. Even in Real Money gaming, studies have shown over 65 percent do not play to win money, thus progression will appeal to the majority of these customers.
In addition to reducing churn, progression increases engagement. Players want to complete as many levels as quickly as possible. If there are outstanding levels, they will want to reach them as they will want to finish everything open.
Progression also is a strong monetization driver. Candy Crush is a great example of a game genre that did not monetize but by adding progression King.com was able to create a billion-dollar franchise. Progression prompts players to want to keep playing even when they are out of chips, so thus depositing more, and to play at higher stakes, increasing their bet size.
In the Real Money casino world, where players will often jump between casino offerings to capitalize on the best promotions, progression creates loyal and valuable customers.
Social features are another strong behaviour driver that has largely been perfected by free to play games. Social interaction is a core value for customers, driving success across many industries. While many features satisfy base needs, social interaction appeals to a higher need and thus people are willing to pay more for it and less likely to give it up. The success of Big Fish Casino, and more recently Huuuge Games, shows how social features can create a unique and very profitable market position. Outside of the casino space, Clash of Clans is a great example of social features driving billions in revenue.
There are many different types of social features that Real Money casino operators can implement, with some of the most successful including:
Guilds or clans, where players join together to overcome challenges or compete with other groups.
Group challenges, so players have to team together to win rewards.
Chat, to enable players to interact with each other.
Customizable and useful player profiles, so players can know more about other players.
Social shares to unlock gifts.
Personalized videos, so players can share their gameplay with friends.
Team competitions, where players form teams to get higher scores (which could be chips won) than other teams.
Synchronous slot game play.
Social lobby, so players know they are not playing alone.
Visibility into where friends and other players are winning.
Player review of games and slots, similar to Amazon.
Referral program, so your players can also be your evangelists.
Some of these features will work better in certain products than others but a mix of these features will not only create bonds with your players but amongst your players.
Social casino developers provide a much cleaner and smoother user interface (UI) and user experience (UX) than real money gaming companies. Players can quickly start playing and there is virtually no learning curve. It is easy to navigate in the product, take advantage of offers and understand every offering. Real Money, conversely, often overwhelms the customer with choice, increasing the cognitive load. This problem is not only in the lobby but in the products, betting options are often very complex and confusing. Overall, social gaming companies create an experience much more consistent with customers expectations in 2019.
While Real Money gaming companies are great at hosting and managing their VIPs, social game companies are much better at giving them incentives and rewards in product. Virtually all social casinos have an in-game VIP system, where the more VIPs play, the more privileges they earn. This type of automated system provides continuous reinforcement and reminds VIPs why they want to remain in their favourite product.
Within the past year, social casinos have become very adept at creating events that boost engagement. It could be the December Challenge or the Race to the Mountain Top, but in effect it is a collection of challenges and specialized content that is available for a limited time. Often the player has a chance to win an item(s) that is only available by completing the event and will not be available again, creating an incentive both to participate and to visit the game regularly (so they know about the events). These events also break the monotony of playing the same games repeatedly. Finally, they can provide an incentive to try new slots or mechanics.
The most successful social games are now running at least one event daily and this practice can be replicated in the Real Money world. A regular schedule of events increase loyalty, engagement and monetization.
The strength of both the Real Money Gaming and social casino businesses suggest they both have many lessons to offer.
Social casino companies should focus on adding even more content than they do currently (in part by using third party content they do not have exclusively), create an ecosystem based on cross-sell, try game mechanics from Real Money gaming (sports, virtual sports, live dealer), try to engage male players, create more unique new player offers and replicate the high-touch VIP programs found in real money.
Real Money casinos can improve their profitability by adding progression mechanic, social features, more simple user interface and user experience, in-product VIP programmes and daily events.
When I accepted my first job in the social casino (free to play slot machines) space, I did not understand fully (or believe) why anyone would pay to play a casino game (slots, poker, bingo, etc.) if they could not win money. After all, people gambled to win money, or so I thought. It was, however, difficult to argue with the data that showed social casino consistently the most profitable genre in social and mobile gaming. Moreover, I also did not fully understand why people would spend real money for a virtual good (i.e. a virtual tractor) and assumed the two must be related.
Those questions prompted me to do research before starting my position in the social casino, which led to my blog post Why would anyone buy a virtual good? . The post also included information that people gamble for three reasons – economic, symbolic and pleasure-seeking – and only one of them was tied to making money.
Chen, Shoemaker and Zemke segmented slots players into four clusters based on five sets of factors, and by looking at each cluster it provides a good understanding of the people who play and monetize on social slots products. The five factors are ego-driven, learning, relaxation, excitement and financial rewards. Based on how players ranked the various factors, the authors were able to create four distinct clusters that show different types of players. Below, I recap the four clusters, which you can then use to make your products and marketing better fit for your target customers.
The “excitement gambling seekers” cluster
Players who are excitement gambling seekers are playing for the stimulation. Their primary motivation is the strong sensations they experience while playing, the positive memories from winning moments and the thrill of winning or losing. Excitement seekers were the largest cluster of slots players (27.5%) in the research.
The key takeaway about this cluster is they are not playing to win or make money, they are playing for the same reason someone rides a roller coaster, excitement.
The “relaxation gambling seekers” cluster
These customers are playing slots to escape. Their key motivation is to release tension and because the game is fun. They will often credit slots as the best way to relax completely. This cluster is more interested in the experience of playing rather than focusing on winning. This is has more men than women (51.5% to 49.5% respectively). 25.5 percent of slots players make up this cluster.
The key takeaway with this cluster is that they are playing largely for the same reason someone goes to the cinema or reads a book, to relax and escape. As with the excitement cluster, they are not looking for financial rewards.
The “utilitarian gambling seekers” cluster
These are players who play as a means of socialization, communing with friends or as an escape from everyday boredom. It is referred to as utilitarian because the purpose is functional (utilitarian) and players gamble to satisfy experiential motives. About 20 percent of the players sampled fell into this cluster (which was also the oldest group).
These players place little value in some of the features many social casinos focus on. They do not care about themes or progressive jackpots. One of their most important considerations is the minimum bet of the slot machines.
Earlier this month, I wrote about Robert Thaler’s work on behavioural economics, including his theory regarding mental accounting. Mental accounting is a psychological theory of how limited cognition affects spending, saving, and other household behavior. In particular, people group their expenditures into different categories (housing, food, clothes, etc.), with each category corresponding to a separate mental account. Each account has its own budget and its own separate reference point, which results in restricted movement between the accounts. When integrated with the research of Chen, Shoemaker and Zemke, mental accounting explains how people have a set sum to spend on slots and will chose the purchase that allows them to optimize use of those funds.
The “multipurpose gambling seekers” cluster
The multi-purpose cluster, as its name suggests, play for several reasons. Players in this cluster play because slots are fun but also because there is a good chance to win and it is in their budget. These are players who think (fantasize) about what they will do with their winnings and want to make a lot of money. These players normally do not care about themes around games. About 27 percent of slots players are in the multipurpose cluster.
The takeaway with this cluster is that it combines a desire to win money with the entertainment value of playing. These are the players who might seek a real money alternative when it is available but play free to play (social) slots if they are in a location where they do not have access to real money.
How men and women differ
One other interesting insight in this research is the difference between male and female slots players. Many female players were excitement gambling seekers or utilitarian gambling seekers, while male players were relaxation or multipurpose gambling seekers. Thus, if you target different genders, your messaging and promotions should apply to what they are more likely to find important.
Remember these are real money players
The most important takeaway from the above cluster analysis is that it was done with real money land based slots players, not social players. This is critical because even people gambling in the traditional sense are largely not gambling to make money but for excitement, relaxation, etc. Once their motivations are understood, it is obvious why people would spend to play slot machines where the real money opportunity does not exist. As the authors write, “American slot players were mainly motivated by hedonic and experiential motives…gambling is a type of recreation or entertainment in America.” Hence, why social casino is such a strong and growing genre.
Research shows that there are four types of slots players, with each group having different motivations.
Three of the four groups are driven by non-economic reasons (excitement, relaxation, fun, etc.) to play slots, thus they get the same satisfaction from social casino products that they get from playing real money slots.
Gambling is primarily recreation and entertainment in the US.
For those of you who were not at Casual Connect and missed my talk on Blue Ocean opportunities in social casino and why they are the best path forward, below is a copy of my deck. The key takeaways are
Social casino is one of the bloodiest of red oceans, with excellent well-financed companies competing ferociously. The best path to success is to take a Blue Ocean approach.
Blue Ocean is all about turning non-customers into customers, rather than competing for the same customer.
You do this by looking at what you can remove from the existing product offering, what you can add, what you can increase and what you can reduce. This leads to a new offering that appeals to new users.
I wanted to share with my friends and colleagues the most recent phase of my professional career. Last month I left Zynga and moved to Isle of Man to become Director of Social Gaming at Amaya’s Rational Group (PokerStars and Full Tilt Poker). At Rational, I will be leading and building the team responsible for replicating PokerStars’ success in the real money gaming world into social gaming. In addition to poker, where nobody can question Rational’s expertise, we see great opportunities in social casino, slots and social sportsbet (and, of course, some blue oceans).
The opportunity was irresistible because of Rational’s focus on the player. It has grown to be the leading real-money gaming poker product (Rational was sold to Amaya last year for $4.9 billion) because of a laser focus on making their players’ happy. From my first interview, it was clear they were not interested in the short-term tricks that boost revenue but drive a wedge between the player and the company (all too prevalent in most social gaming companies) what is often referred to as bad profits, and instead creates value by creating the best player experience.
This customer-centric philosophy has not yet been tried in the social space and I find it incredibly compelling. I am excited about what my team and I will be doing soon and will surely share my experiences on this blog with my colleagues.