While projections for the social casino (free to play slots and poker) industry continue to be overwhelmingly positive and the industry has never seen a revenue decline on a sequential basis, there is an ominous KPI that nobody is discussing. While the industry continues to grow, that growth is from better monetization, not bringing new customers into the market. This fact potentially puts a ceiling on potential growth or worse portends to a future decline.
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.
Recently, I came across an article, Segmenting slot machine players: a factor-cluster analysis by Sandy Chen, Stowe Shoemaker and Dina Marie Zemke, that provides even more insight into why people would spend money on a social casino game. While the research was about real money slots players, it shows their motivations are often non-financial; that is they are not playing to make 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.
This time of year always makes me chuckle at the arrogance of some but more the desire of others to accept proclamations of what the new year will bring. I am not a big fan of predictions. First, regardless of experts’ success or intelligence, there are too many variables to predict accurately what will happen in 2018. As much as I respect Bill Gates, Warren Buffett, Mary Meeker, etc., they cannot predict the future. If they could, they would even be wealthier (who has not played the mental game of what you would invest in if you could go back in time five years). It’s the same underlying reason why the best and brightest mutual fund managers cannot regularly beat the market indexes they are targeting.
Second, and a little more sinister, most people who claim to predict what will happen in 2018 are little more than fortune tellers you would meet at a State Fair (or social gaming conference). The predictions are generally broad enough that regardless of what happens next year they will be able to pull some “victories” from their predictions. It may be things as simple as bitcoin will have a volatile 2018 to there will be at least one major acquisition in the video gaming space; these are either broad enough that you can always claim victory or predictable by anyone who looks at the past trends. The point is, they are not providing any information that is actionable unless they get lucky. Again, if they were so visionary, they would act on it rather than talk about it.
So with that said, it is time for my predictions. Seriously, rather than predictions, I do feel it is helpful to look at trends that have gained momentum in 2017 and are likely to have a disproportionate impact in 2018.
The convergence of micro-segmentation, AI and machine learning to create extreme personalization
The most important trend that is gaining momentum is personalization. Various related technologies are allowing game and technology companies to optimize experiences for every individual. From Amazon showing you products you are most interested in to Supercell pairing you with a player whose gameplay style best complements yours, everyone will have an experience personal to them in ecommerce, gaming and pretty much anywhere in 2018.
Three related technologies are driving this personalization: micro-segmentation, artificial intelligence and machine learning. Micro-segmentation allows companies to create hundreds or thousands of different clusters of customers and then provides the best experience for each of these segments. One segment may be players who have monetized 3-6 months ago and continue to play but not spend and are more open to free offers than sales; micro-segmentation will help create offers to optimize their experience and make them more likely to spend. Another segment might also have spent at some time 3-6 months ago and remain active but these players are more likely to spend if encouraged to play at higher stakes. Micro-segmentation allows companies to create the best path for each player.
Machine learning allows for more and better micro-segmentation, as it automatically creates hundreds, thousands or millions of segments. And artificial intelligence then determines what to offer each micro-segment.
The key takeaway is that customers will get very personal experiences on the successful sites, apps and games in 2018. They will then come to expect experiences and offers tailored to their needs, directing their money to those that deliver.
I wrote in 2016 about the increasing importance of voice recognitionand this is likely to accelerate in 2018. Providing directions verbally is much more natural and simpler than having to type them. While the technology is still largely a novelty, everyone uses Alexa or Siri but primarily to listen to music or set a timer, in 2018 voice recognition will become more integrated on how you use/consume technology. In particular, I see it becoming a central part of the social/mobile game user interface, it will be much easier to play a game by speaking to it rather than typing or navigating with a mouse.
Big change in social casino
I have been in the social casino space (online free to play slot, poker, etc) for almost five years and have seen it mature and continue to grow revenue but it is still largely the same as it was in 2012. The interface, gameplay mechanics even art have changed very little. Companies have gotten better at monetizing their players but the games have not evolved. Even land-based casinos look more different now than they did five years ago than social casinos do.
While I do not expect an entirely new gaming mechanic to surface, one or two companies will innovate and create a very different product that not only steals existing market share but also brings new customers into the market. There is enough money in social casino that new entrants will try to innovate to build a competitive position and the company(ies) that is able to create a new market space will be the next Playtika.
Devices and platforms will become less important
When I first entered the game space, one of the biggest determinants of success was anticipating what platforms (Playstation, X-box, DS, etc.) would become big, getting on them early and not getting tied to a dying platform. Platforms (iOS, Android, Kindle, etc.), however, are becoming increasingly less important. Tools and underlying technology are allowing the best content to be used regardless of device. This trend should accelerate and companies that spend the bulk of their time trying to optimize for the next big thing will lose out to companies looking to create the next great content.
I am one of those people who never really cares about privacy settings, have not read a Terms & Conditions in my life before clicking continue, and never worry about sharing my personal information. I am, however, in the minority. More and more people are concerned about privacy and products that either ignore this fact or try to trick customers and players into sharing information they do not want to share will fail in 2018. Successful products will empower customers to share the information they want to share, which will be different by individual (see first point on personalization). This is also the area where Blockchain can have the greatest impact, even more so than the crypto-currency space.
Not a 2018 trend (or even a 2015 trend) but more of a 2018 fact of life. People virtually never use only one screen. It is not only using your phone or tablet while watching television. It is using your phone while on your tablet. Using your tablet while on your work computer. Watching television while on your phone. Giving Alexa directions while watching television. You get the idea.
Your games and applications need to be sensitive both to people not focusing 100 percent and also provide a good experience as the second device your customer is focused on using. You also need to understand the different use cases and allow people to consume your product in different cases, whether they are also watching TV or working on their computer.
Big players will enter free to play, and fail
Remember how I said the hallmark of a good fortune teller is to include in their predictions something that definitely will happen (ie. there will be a lot of vitriol on Facebook about politics), here is my prediction that will come true in 2018. At least one major multi-billion company not currently in free to play will enter the space either through a new venture or acquisition because it just seems so easy to make money selling virtual goods; and they will fail miserably. It’s happened every year since social gaming took off and will probably happen for the next ten years.
I would love to know what trends you are seeing and how they will help shape 2018. Let me know your thoughts on what we will be writing about this time next year.
- Personalization will dominate 2018. Successful games, sites and retailers will provide a hyper-personal experience to all customers with a combination of machine learning, artificial intelligence and micro-segmentation.
- Voice recognition will go from the domain of Alexa and Siri to become a primary and powerful user interface for people playing games, shopping or doing virtually anything.
- The social casino space will experience a disruptive product that not only takes significant existing market share but brings new customers to the market.
A colleague of mine recently used in a presentation a chart from a Harvard Business Review article and it was so helpful in defining a new product I wanted to share the concepts with everyone. In The Elements of Value by Eric Almquist, John Senior and Nicolas Block of Bain’s Strategy Practice, the authors discuss that while consumers evaluate a product by its perceived value versus cost, most marketers and executives focus on the price side of the equation. They attribute this focus largely to it being easier to manage price, as there are limited variables involved and it is easy to test.
It is more challenging to measure and optimize what customers truly value, whether functional (giving someone more capabilities) or emotional, because it is often a combination of multiple components. While value is always intrinsic to the customer (different people have a different value for the same attributes), the authors have identified universal building blocks of value to improve performance in current markets or enter new markets. Their analysis shows that the right combinations of these attributes leads to higher customer loyalty, greater willingness to try a brand and sustained revenue growth.
In the article, they have identified 30 elements of value (see below), fundamental attributes in their most essential and discrete forms. You can categorize these components in four buckets:
- Social impact
Some are inwardly focused, like motivation, while others help people deal with other or operate in the world, Not surprisingly, the Value Pyramid is related to Maslow’s Hierarchy of Needs. For those not familiar with Maslow’s work, Maslow’s hierarchy of needs is often portrayed in the shape of a pyramid with the largest, most fundamental levels of needs at the bottom and the need for self-actualization and self-transcendence at the top. The most fundamental and basic four layers of the pyramid contain what Maslow called “deficiency needs” or “d-needs”: esteem, friendship and love, security, and physical needs. If these “deficiency needs” are not met – with the exception of the most fundamental (physiological) need – there may not be a physical indication, but the individual will feel anxious and tense. Maslow’s theory suggests that the most basic level of needs must be met before the individual will strongly desire (or focus motivation upon) the secondary or higher level needs.
According the Almquist, Senior and Bloch, “the elements of value approach extends his insights by focusing on people as consumers—describing their behavior as it relates to products and services….The elements of value pyramid is a heuristic model—practical rather than theoretically perfect—in which the most powerful forms of value live at the top. To be able to deliver on those higher-order elements, a company must provide at least some of the functional elements required by a particular product category.”
Depending on your industry and product, the elements of value will vary. Some industries or geographies will focus more on basic elements, those near the bottom of the pyramid, while others will be focused higher.
Product lifecycle is critical
One area the authors did not explore that I think is critical is product lifecycle. Also, although not a feature of the article, an industry’s stage of development strongly impacts which elements will drive value for a consumer. In an emerging industry, consumers will be much more driven by the functional features. As an industry matures, you no longer will be able to compete on the functional elements but instead will need to move higher up the pyramid. Everyone in the industry will be providing the functional features, so you will have to deliver emotional value. Even there, your competitors will catch up and you will then have to deliver life changing or social impact attributes.
The social slots business is a great example of how the value pyramid has driven success. Five + years ago, companies experienced great success just by providing an online version of slot machines that people formerly only played in casinos. As long as you had a game that worked, priced it correctly (free to play) and made it simple to use, you had a ticket to print money. As the market became more mature, emotional attributes became the factor that generated success. Companies late to the market leap-frogged the Functional leaders by making the products nostalgic (classic slots by DGN or Rocket Games) or better design and more attractive (Hit It Rich by Zynga). As the market gets even more mature and competitive the companies that are experiencing success are those that are introducing life changing elements, primarily affiliation and belonging (such as Huuuge Games).
Using the elements to grow
An area where the elements can help you succeed is by improving on the elements that form your core value, so you can differentiate from the competition and better meet your customers’ needs. The elements can also help you grow your product’s value without overhauling your game or product.
Some companies use the elements to identify where customers see strengths and weaknesses. First, they look at which elements are important in their industry and how they compare with competitors. Then if there are any significant gaps, the priority is eliminating those gaps. Once the gaps are closed, you can then see what elements could create a new gap above your competitors.
To leverage the elements model effectively, you should integrate it into several key areas of your business:
- New product development. The elements framework should provide ideas for new products and enhancements to existing products.
- Pricing. If you are looking to increase your prices, you can soften the blow of the increase by concurrently increasing the value your customer receives from your product. Amazon Prime is a great example, as the service started at $79.99 (I think) with frequent discounts and is now significantly higher but the free shipping is only a side thought, as you get everything from streaming services to special credit cards.
- Customer segmentation. Rather than only segmenting customers by demographic or behavioral group, you can use the elements to segment them by where they are deriving value. You can then focus on delivering more of the elements that these segments want or highlighting the elements that may exist but they are not aware of.
While adding value to increase competitive is not the most unique or newest idea, Almquist et. al., have created a framework to focus on creating the most value for your customers and knowing where to focus to increase that value. If you continue to deliver more value than your competitors, you will succeed.
- There are 30 core elements that drive the value a consumer derives from a product and the more they are willing to spend on the product
- The values are hierarchical, similar to Maslow’s hierarchy of needs, and once a consumer gets the base value they will be more engaged by life changing or social impact elements.
- The value you need to deliver is based on the life stage of the industry. Young industries are focused on functional value while you need to deliver higher level value to compete in a mature industry.
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.
The full presentation can be seen here:
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.
With the growing importance of social casino products to the mobile and social gaming space, it is important to look at an important evolution in the land based casino world that will probably impact game companies. I have blogged many times about international opportunities for game companies, and these opportunities are going to become more important in the social casino space. A recent article in The Economist, “The rise of the low-rollers,” highlights how the Asia-Pacific region is expected to become the biggest market for casinos by 2015 (as recently as 2010, the United States made up nearly half the global gambling market). This evolution is likely to be mirrored in the social casino space. In this post, I am going to lay out some developments on the land-based side and you can extrapolate how it might impact the social casino space.
Macau leads the way
When you look at Asia, you need to start with Macau, the former Portuguese colony now part of China. Described by Sheldon Alderson, the Chairman and CEO of Sands Corporation, as “The Las Vegas of the Far East,” its casinos generated $38 billion last year. Continue reading