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iGAMINg BUSINESS
iSSUE 75 JULY/AUGUST 2012
SOCIAL GAMING
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SOCIAL GAMES
The world of social gaming and gambling has become the new frontier for iGaming companies with many operators already making headway via strategic acquisitions. But do we really understand the social gaming opportunity? Aideen Shortt, author of the iGaming Social Marketing and Strategy report for iGaming Business, gets under the skin of the industrys new opportunity.
Mark Zuckerberg is on record as describing social gaming as the next big thing for 2012. Its hardly surprising since, presently, over half of Facebooks global user base use their accounts for social gaming of one form or another. Social games benet from free play, enabling the majority of users to play without barriers to entry, while providing an effective monetisation path for the minority. Monetisation of social games comes in three key formats: 1. Virtual currency 2. In game advertisement 3. In game branding The primary form of monetisation is through the sale of virtual goods. Virtual goods are in-game items that users purchase for a variety of reasons and represent over 90 percent of revenues earned by leading social game developers today. Functional virtual goods are items, power ups, boosters, or other in-game goods that provide a player with some functional benet within the game. Decorative virtual goods are items that allow a user to customise his or her online experience to make it more personal. Consumables are goods that do not confer a lasting, ongoing advantage to a player. For example, a health or energy pack in a game. have a different lifecycle as monetisation can happen quickly in order for the player to catch up with others who have been playing for longer or are more successful. However, revenues can trail off as players learn to generate virtual currency without paying for it. or not a company can acquire enough people at the outset, serve them sufciently well from their technological platform with a compelling game, and yet pay less for this entire endeavour than the small group of monetised customers who are willing to pay to play. The costs of social gaming are heavily front-loaded a robust technology base (xed costs that scale in proportion to player growth) and a compelling, viral game (involving signicant R&D costs) and the point that is often misunderstood is that if you are not protable from the day of launch (which is by far the cheapest acquisition time as it has the benet of the hype, media buzz, and viral nature of social media), a developer will only be serving free players at a cost which is not offset by paying players and, more importantly, if its bad in the beginning it will only get worse because costs scale in direct proportion to user growth. This is why so many social gaming companies appear for a short-while and then disappear just as quickly into the ether. Despite the casual and uffy appearance of social gaming at the front end, the costs and effort behind the scenes are not for the faint-hearted.
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or Zynga.com. This move took place after Facebook began demanding Zynga to pay the 30 percent transaction fee for Facebook Credits. Zyngas prots were negatively impacted and so it started diversifying beyond Facebook. In August 2011, Zynga Poker was launched on Google+ and the company has also developed games for iOS, Android and HTML5 platforms. Google+ is showing signs of eating into Facebooks market by actively offering more favourable terms to Zynga and other developers (ve percent to Facebooks 30 percent), and recently attracted Aces Hangout a social poker game with the nancial backing of bwin.party. In addition to undercutting Facebook on revenues, Google+ has a dedicated games channel which is an appealing feature to developers as although the trafc will be lower, it will be more targeted and likely to have increased conversion rates.
Given the state of ux that the US market is in regarding gambling legislation, now is the time for gambling operators to start building brand awareness and customer bases in advance of the market opening.
Moving to local currencies allows games developers more exibility in price-setting on a granular basis, and two key games developers, Zynga and KIXEYE, are already embracing this development. To date, social gaming companies business models were predicated on (multiple) one-time purchases, not monthly subscription payments where revenues can be projected out for the future, and this provides a massive opportunity for fast and innovative thinking companies in the gaming space. products (social marketing) Bring new customers to the brand Address social gaming as another product/revenue stream Build brand awareness and a database of users in the US market According to market research rm eMarketer, the US social gaming market is expected to be worth $2.18 billion in 2012, doubling by 2014. Given the state of ux that the US market is in regarding gambling legislation, now is the time for gambling operators to start building brand awareness and customer bases in advance of the market opening, something which the large American and European corporates are already doing IGTs purchase of Double Down, Caesars investment in Playtika and partnership with 888 (which owns Mytopia) and, of course, bwin.partys recent declaration of a projected $50 million investment in the social space. There have been several operators, most notably Jackpot Joy, that have adapted very well to the social medium, and treat social gaming products as a standalone revenue stream while using the real estate to advertise the real-money play. A good social product can become as much of a brand as a traditional online casino and we are only at the cusp of seeing the impact and the potential of social gaming as it lters into the more traditional online gambling world.
Aideen Shortt is a freelance researcher and consultant in the gambling industry and has recently authored the iGaming Social Marketing and Strategy report for the iGaming Business Group. For more information email aideen.shortt@gmail.com
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Conversion
One of the driving forces for iGaming businesses entering the social gaming sphere is to ensure the conversion of social gamers to hard gaming platforms. This has traditionally been carried out via banner ads within the social game which links to the destination website of the iGaming offering or by leveraging a brand presence on Facebook, such as through the use of a fan page, to achieve soft crossovers. That said, due to the quality of the data provided by Facebook, a new opportunity for conversion is being explored, where the data collected on users game play activities and preferences allows iGaming businesses to provide, for example, geographical or temporal localised conversion offerings. To illustrate this further, if you know from Facebook data that a user supports Manchester United and you know that this team has an upcoming game, then, based on this information, you can offer a personal sign-up incentive for that particular user. However, when considering using any of these conversion approaches, iGaming businesses should be fully aware of Facebooks Platform Policy constraints and advertising best practice. In addition, they should ensure that their use of data is covered in their Privacy Policy and conforms with local data protection laws. As the Internet moves towards further personalisation of content, companies are having to get to know their users better in order to remain competitive. With that in mind, the value of collecting data from users continues to increase. This, of course, should be done within a platforms guidelines, in compliance with local laws, including data protection laws, and with terms clarifying the ownership of its users content.
User consent
This information, however, is accessible to developers subject to Facebooks strict guidelines (the Facebook Platform Policies) that clarify how its users data can be used by developers. In this respect, Facebook requires a developer to supply all users with a privacy policy and to obtain express consent from them before collecting or using their data for any specic purpose. This express consent is obtained by way of permissions whereby users tick a box consenting for their information to be used before they are able to use an application. (The requirement of a developer obtaining consent from users before using their data is not an uncommon requirement for application market places Apple places a similar requirement on its developers.) Regardless of the privacy policy agreed between a developer and a user, Facebook still places overriding restrictions on how data can be used by developers. So, for example, Facebook restricts developers from selling-on any data they collect. Also, Facebook restricts
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Social gaming
In respect of the ownership of data, clause 2 of the Facebook Statement of Rights and Responsibilities states that the users own all of the content and information posted on Facebook. With regards to Intellectual Property (IP) content, such as photos, Facebook has a non-exclusive, transferable, sub-licensable, royalty-free, worldwide license to use such content. But what about the data provided by users within a social gaming application, such as communications or images? It seems that developers have tried to address this point in their terms of use. For example, Zynga states that users own any content they provide to Zynga, but that Zynga is granted a worldwide licence to
Opinion
games tend to be around the $1 mark due to the familiarity of the gaming mechanism involved. However, once you have crunched the real statistics, there is a substantial business opportunity. Both Ceasars Entertainment and International Game Technology have spent hundreds of millions of dollars on social gaming for one reason: because there is a solid business case behind it.
have decided on your strategy that your site is differentiated from the rest. It could be the new killer app or maybe you will have secured a fantastic brand to leverage the familiarity and popularity of your offering. You may decide to push a more generic offer and then, once you have pinged the social player, build something bespoke based on the players actual needs playing into the right emotive triggers: achievement, recognition, reward and social standing within that specic gaming community. You will also need to make sure your site is accessible on mobile devices. One of every two minutes of mobile Internet in
Both Caesars Entertainment and International Game Technology have spent hundreds of millions of dollars on social gaming for one reason: because there is a solid business case behind it.
You have to decide on your strategy and build the site with that specic audience in mind: perhaps you want to reach unregulated gaming markets, maybe you want to push out your brand in soon-tobe-regulated markets, or perhaps you want to try out new and innovative gaming formats? Whatever your strategy, speed to market is vital. There are rumours that fty new casinos will launch on Facebook in the next six months, so you need to be sure once you the UK is spent on Facebook. Cloud-based server technology will be a prerequisite, you wont need concurrent user scalability in the tens of thousands, you will need it in the hundreds of thousands. It is an accepted statistic that the online real money gambling industry has reached its current level of circa 55 million active users in just over sixteen years. The top ve social casinos in Facebook have reached that number in just six years; food for thought.
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A Fourth Wave of legal gambling, based on new technology is rapidly spreading... State lotteries will be the rst to adapt social games to play for money.
So, pros have followers who tweet them what their opponents hole cards were. New Internet and mobile phone games measure their success not in years, but in days, or even hours. An important measure of a games success is one-day retention: how many players still want to play the game the next day. But seven-day retention is critical, because long-term is dened as one week. And a week is a long time. Operators change online games many times during a day. Social games are often reexive; they change in response to the actions of the players. Sometimes, this is done to make the game more difcult, if the operator thinks
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But the games themselves can at least be made more interesting. I asked a 22-year-old what she would use for money if she went to a casino, since she, like everyone she knew, never carried cash. She replied, Why would I go to a casino? Slot machines are stupid. And they are stupid, to a woman carrying far more sophisticated games in her pocket. Casinos would not have to worry, if it were only the e-generation. But, apparently, the typical social game player is a 44-yearold woman, a prime slot machine market. And the fastest growing demographic for Internet and mobile games is men over 55. (Of course, that may be because everyone else is already playing online.)
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the biggest, the Louisiana Lottery, also known as The Serpent. States without lotteries, like New York, found they were powerless, because tickets could be shipped everywhere, quickly, by train. So, these states passed laws, which are still on the books, expressly making it a crime to sell lottery tickets even if the lottery is legal where the drawings take place. And they asked Congress for help. The federal anti-lottery statutes of the 1890s were aimed at the technological aids of the era. Express prohibitions were placed on sending paper tickets or advertisements across state lines or through the US Mail. But because no one thought about running lotteries using telegraphs or telephones, those means of communication were not included. When rst, radio, and then, television, was invented, the anti-lottery laws were amended to include those media, with some strange results: the California State Lottery cannot advertise over TV in Nevada, which does not have a state lottery, because we do not want the good people of Las Vegas hearing about the evils of Californias legal gambling.
Technology determines whether a form will spread throughout a society, whether the gambling will reach the stage where it is seen as a social harm, and how the law will react.
successfully, with games that could be uploaded from CDs more than 12 years ago. Treasure Tower was technically a scratcher, a paper card revealed the code numbers to be imputed for the game played on the patrons own home computer. Players had to solve puzzles in various rooms they were sent to in a pyramid. If the patron got stuck, he could click on a little man to give him clues; there was no skill involved. Today, almost all of the provincial lotteries of Canada are operating games like Internet poker, or are about to. Before pulling back for political reasons, the DC Lottery was going to offer online games like blackjack, poker and Battleship. The Nevada Gaming Control Board has recommended that the rst licenses for Internet gaming suppliers be issued to International Game Technology and Bally Technologies. They have now been approved by the State Gaming Commission, allowing the companies to manufacture and provide interactive gambling systems. The expectation is that Nevada operators will start operating real-money Internet poker, intra-state, before the end of the year. It is impossible to know exactly what the casino, lottery and other traditional gaming industries will look like, or whether they will even continue to exist. The success of baccarat, the simplest of card games, in Macau, shows there is still a market for non-electronic gaming. Of course, it also helps to have a monopoly in the worlds most populous nation. But China is not the world, at least, not yet. The card table equivalent of ipping a coin cannot compete in the developed world with video poker. As education spreads in China, baccarat will inevitably be replaced by games with at least the illusion of control, and lots of digital bells and whistles.
Prof. Rose is recognised as one of the worlds leading experts on gambling law, and is a consultant and expert witness for governments and industry. His latest books, INTERNET GAMING LAW (1st and 2nd editions), BLACKJACK AND THE LAW and GAMING LAW: CASES AND MATERIALS, are available through his website, www. GAMBLINGANDTHELAW.com. Copyright 2012, I. Nelson Rose, Encino, California. All rights reserved worldwide. Gambling and the Law is a registered trademark of Professor I. Nelson Rose, www.GAMBLINGANDTHELAW.com.
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What has been your assessment of the launch so far what sort of data/ feedback have you been able to glean from your beta test?
The feedback has been that our players love Zynga Bingo. Since its launch, we have added new features and well continue to do so. One thing in particular that weve seen players enjoying are the Achievements, which reward players for playing in different ways.
What are your plans for the bingo site in the future and what sort of development can we expect?
We are always looking at new social
What are the specic challenges in creating content for the Facebook platform in terms of technology, design and playability?
I think we always ask ourselves how we can use Facebooks social graph to its greatest potential to make games that people love to play with their friends. We want to create an experience that ts into what they are looking for on Facebook. Its also an evolving platform, so it always keeps us thinking about our design and how to make our games as compelling as possible.
We want to make Zynga Bingo a beloved, long-lasting social game. Weve achieved that with Zynga Poker, and we think weve done a great job with Zynga Bingo so far.
Zynga Bingo. Zynga Poker was our rst social game and we have built up a great relationship with our players by improving the game with the features that theyve asked for over those ve years. features and are constantly listening to our players. We also play a lot ourselves, so that also helps us brainstorm. So, in terms of what is next, Id say to watch this space.
In terms of template, I know your studio team in Austin created the bingo platform, but was this purely in-house design and build or was there a period of research to see how the best current bingo software works online?
We designed and built the entire game
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What are your expectations for Zynga Bingo? Do you think it will have the same sort of appeal as your successful poker brand?
We want to make Zynga Bingo a beloved, long-lasting social game. Weve achieved that with Zynga Poker, and we think weve done a great job with Zynga Bingo so far.
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Social gaming is a hot topic in the real money gaming industry at present. How do you see the social gaming environment developing into the future?
I think we are just at the beginning. Zyngas vision is to bring play to the world and get a billion people to play together. We want to make play a daily habit for everyone, everywhere on any device, on any platform.
Why do you think the social demographic is keen to embrace casual applications like bingo and casino? Or rather, why do you think Zyngas gaming products have been so successful?
In the case of our casino franchise, weve taken games that people know and love. For generations, people have been playing these
Finally, what can we expect from Zynga Casino in the future are there any developments to follow on from the bingo launch?
We recently announced the next game in our Casino franchise, Zynga Elite Slots, which is a story-based slots adventure. Players will journey through the
Rather than brands like Zynga moving into real money gambling, do you foresee traditional gaming brands adopting non-gambling strategies for the social space and its demographic?
I think gamication is a huge strategy for all types of brands, regardless of industry. An example is how Nike+ inspires people to interact with its brand and its friends by challenging and rewarding runners after they accomplish milestones.
I think we are just at the beginning (with social gaming). Zyngas vision is to bring play to the world and get a billion people to play together.
games with family and friends, and weve been able to make them super-accessible and social in a new way. We then offer lots of surprises and heightened game experiences for our players that they learn to expect. As a company, we are always looking to innovate and invent new social game play. enchanted forest, ght the evil witch, discover lost treasure in the Atlantis, build a CityVille skyscraper or test their mettle in a showdown in the Wild West. The game will offer new stories and game features on a regular basis after the initial launch, so stay tuned.
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Convergence
Over the last 18 months, there has been a discernible increase in interest in and preparation for convergence, although, in absolute terms, the chasm that divides the two (social and gambling) remains as wide as it has ever been. In May, 2011, Caesars purchased 51 percent of Playtika, the Israeli social gaming company, at a $90 million valuation, purchasing the remainder in December, 2011. In January, 2012, IGT, which makes real world casino games and gambling systems, agreed to pay circa $500 million for Seattle-based Double Down Interactive, a developer of casino-style Facebook games that at least, technically dont involve any actual gambling. Interestingly, both these acquisitions point to a growing belief that the land-based industry in the US is viewing social gaming as a routeto-market in a pre-regulated environment. Regulation to allow online gambling in the US is undoubtedly coming. The tax revenues
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Three steps
It seems to me that there are essentially three scenarios as to how this could pan out. The rst is that social casino games reach a wider, more mass market than real money gambling, and this generates a large user base which could act as a feeder and push players through to real money games. This is essentially what Gioco Digitale did in Italy pre-regulation with its free poker offer. Once regulation happened, a lot of free players switched, allowing it to be sold to bwin ve months later for a considerable premium. In effect, it acts as a pre-regulation land grab and that is why, with America inching towards regulation, there is so much activity and interest being shown by putative US operators. The second scenario accepts that social and real appeal to different audiences for different reasons. They both have viable business models and will, therefore, continue to operate within their own separate verticals.
Facebook
All the while, Facebook is conducting a will they/wont they debate on whether it will open its platform to real-money online gambling in the UK. In November last year, it was rumoured to be in exploratory talks
Cash gambling, it seems, is bad, not only when it lets you lose too much money, but also when it doesnt allow you to lose any. Perhaps we should distinguish between the two types as social and anti-social gaming.
gaming but that is no different from many cash gambling sites that offer players the opportunity to play for free. And the average age of the new social gamer is 50 according to a survey carried out by Information Solutions Group for PopCap Games. Cash gambling, it seems, is bad, not only when it lets you lose too much money, but also when it doesnt allow you to lose any. Perhaps we should distinguish between the two types as social and anti-social gaming. Joost Van Dreunen, managing director of New York City-based Games Analytics and a Professor at New York University (of video gaming no less) does not believe Facebook will ever accept cash gaming. Its like saying, lets advertise Tobacco and make lots of money, he says (although Im not sure it is at all). Indeed, he goes on: theres never going to be a casino section a red light district on Facebook. Its just not in the nature of the company. They have to be wholesome. Whether or not hes right, he is right to acknowledge that en route to convergence, any hybrid of social and cash gaming is likely to be viewed through subjective and puritan perspectives, particularly in the US. It is in this light that any fusion should be considered. What will drive revenues, margins and the success of any hybrid games will not be regulators or operators (directly). For convergence to be a success, it must tap-in to future consumer behaviour. David Abbott, the advertising guru, once likened launching a product to shooting a bird, in that you had to aim in front of it if you wished to hit it. Give consumers something they enjoy playing and enjoy spending money and time on and forgive the expression you are off to the races. More practically, whatever game it is that achieves that must also be able to work across the multitude of different screens and the multitude of different behavioural patterns that appertain to each type of screen. Research has shown that the same people look for different things at different times of the day on different screens: mobile on the move, mobile at home, tablets, laptops, PCs at work and at home, Connected TVs, and so on. Moreover, when you consider that in the US more time is spent consuming mobile media than in reading newspapers and magazines combined, it is an important consideration. The barriers this time are not technological. They are human.
Simon Burridge is CEO of Virgin Games. Having completed his degree in History at Queens College, Oxford, Simon spent 18 months traveling around Africa and France, where he taught English extremely badly to a series of increasingly bewildered Parisian secretaries, waitresses and unemployed, before nally succumbing to the lure of a career in advertising in 1979. In 1999, he was asked by Sir Richard Branson to set up the Peoples Lottery in order to contest the second License, formally becoming Chief Executive of The Peoples Lottery in September, 2000. In 2003, Simon rejoined Richard Branson, working on a number of projects, one of which has led to him starting Virgin Games, of which he is now the CEO.
Margin
However, there are practical issues to be considered too, of which the elephant in the room seems to be one of margin. The margin in online gambling is low at about ve percent, while for virtual chips its 100 percent or 70 percent, once youve given Facebook its mandatory 30 percent. This, to me, is the dilemma. Both industries (social and cash) are looking at it from operatordriven perspectives and are being informed by the current situation on what, lets face it, has already been a roller coaster ride. As Einstein once remarked very few problems are solved in the same context in which they were created.