Social gaming for gambling industry findings june 2012 v1.0


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A short overview of what social gaming is in the context of betting entertainment

Social gaming for gambling industry findings june 2012 v1.0

  1. 1. Social Gaming in the Gambling Industry June 2012 Latest Move 1.MGM Resorts Planned Social Gaming Website Offers New Growth extension of Group strategy into social gaming 3.Crowdpark Secures $6M for Social Gaming Strategy 4.Is Facebook Entering into The Online Gambling Scene? Change and Growth 5.PWC Global Gaming Outlook 2013 6.The competitive Landscape Online Gaming/Gambling – A case study 7.Analysis of multi-player online game traffic based on self-similarity 8.Analysts say investigation raises questions about the gaming sectors future growth prospects Legal 9.Japans Consumer Affairs Agency is investigating legality of social gaming sales tactics 10.William Hill shuts down Australian betting websiteOn Social Games, Virtual Currency and Gambling 1
  2. 2. The Case that triggers the research BWIN.Party announced their strategic plans in the social gaming space on 30 May 2012.Social Gaming Launched a new social gaming business unit called “Win” and strategy with its own dedicatedMove by BWIN.Party management team and infrastructure. Win will operate on a freemium model, with revenues derived from the sale of virtual currency and virtualOperation model gifts, as well as advertising income from banner ads, paid search and special offers.   1. Adopt a build and partner strategy, that provides the group with both the resources and additional management expertise to execute their planned extension into social gaming.Business strategy 2. Focused on building a meaningful stand-alone enterprise that will operate outside core real money gaming business but which will benefit from the Groups significant resources and assets. 1. The greatest concern is potential regulation of social gambling products.Analysts’ concern 2. Doubtful about the legal basis for "social" variants of gambling games.Competitive 1. Experience in regulated marketsadvantage 2. Expertise necessary to limit access by location and age Establish a competitive advantage in social gaming built on the following four pillars: 1.Experienced management team and proprietary gaming platformSocial gaming 2.Portfolio of new applications online and on smartphone platformsstrategy 3.Original IP in the creation and distribution of social gaming content 4.Best of breed partnerships with leading independent game studios • Establishment of a dedicated social gaming unit, WinMilestone over next • Development of dedicated social gaming technology platform2 years • Release of social sports betting, casino, poker and bingo applications • Launch of a new social gaming destination portal called “Win” will develop products for Android and iOS platforms. 2
  3. 3. How does gaming become a lucrative business? 3
  4. 4. GamificationRide on three waves 4
  5. 5. What is social gaming?Social gaming is a term used todescribe game applicationswithin social networks such asFacebook.Facebook is the largest socialnetworking site (901 million monthlyactive users at the end of March12).Third party applications on Facebookare normally free to users.Every day millions of people interactwith their friends and express theirunique personalities through games,which range from harvesting crops toplaying poker.There are also a growing number ofmobile games that are includingsocial functionality.Social game developers generaterevenue through users who purchase“virtual goods” and “in gamecurrency” during game play.According to the Casual GamesAssociation’s 2012 Casual GamesSector Report, social games revenuesspread are:•20% from advertising;•20% from offers;•60% from virtual goods, which arepurchased using Facebook Credits. 5
  6. 6. Who is playing social games? The Pretty New Face of Online Gaming: Women Everybody is playing: Your mom, your granny, your niece, your daughter. Majority of social gamers is female and they are the ONE buying.Source: White Paper Series - The State of the Social Games Industry: Gamblingto Social Gaming, Social Gaming to Gambling by Crowdpark, Feb 2012 6
  7. 7. Where do they play? Social Gamers are not Heavy Gamers: They are your parents, your spouse, your busy friends, who just had two kids, not avid gamers. The fact is that social network users areFacebook, LinkedIn, MySpace, Twitter, Slashdot, Reddit, Digg, Delicious, StumbleUpon, the general internet user.FriendFeed,, Friendster, LiveJournal, Hi5, Tagged, Ning, Xanga,, Bebo. What they do haveSocial Networking Sites Where Social Games Are Played at US UK incentive to play are brands that everyone hasFacebook 79% 90% played and knows is fun. However, if it is notMySpace 30% 12% something everyone knowsSource: 2010 PopCap Social Gaming Research and likes, your brands name is not too likely to bring you any great benefits.Factors Influencing Social Game US UKSelectionRecommendation from friends, 62% 57%relatives or colleaguesFamiliar with the title/Played similar 48% 43%game elsewhereFeatured on a social networking site 30% 37% 7
  8. 8. What are the most popular games? % of all of the players on Year Facebook (social casino games) 2012 13% FarmVille took Facebook 2011 8% by storm in 2009 and gave 2010 6% rise to a sea of rival farm simulations. But those games have begun to decline, and they are giving way to social Many of those play Zynga Poker, joined by other casino games. casino games such as Double Down Casino Only a small number of social games players are paying users Expected avg. Game types revenue per DAU State (daily active user) Lottery Casino, poker & role- Horse 10% Casino 5-10% playing games Hidden object, adventure & 3 – 7% Racing 23% tournament games 18% Puzzle, arcade, caretaking & 1 – 5% simulation games Sport Poker Source: The Casual Games Association Sector Report Betting 18% Social casino gaming is so different from real- 22% Bingo life gambling because users think of it as casual games. The amounts of money placed are far smaller, but it has elicited the addictive 9% factor through a playful manner. Casino games and sports betting make up 45% of online gambling market 8
  9. 9. Business model of gaming 9
  10. 10. Experience shared by Zynga Reynolds, chief game designer for Zynga, the company that made the social game Farmville, shed a little light on gaming development cost and behaviour of social gamers. • Social games cost between US$100,000 to $300,000 to make. • Between 3% and 5% of people who play social games pay money for virtual goods in the game or sign up for advertising "offers" that generate cash for the developer. • Farmville is played by 45.8 million people every day. (2011) Given these ballpark figures, that each person who plays a social game generates, on average, a penny a day. Multiply that penny by the number of days in a year, 365, and you get an average of $3.65 generated per year per person. If you are Farmville, you multiply that by the number of people who play your game on a daily basis: • US$3.65 x 45.8 million people = US$177 million a year The business would be metric-driven, combining intuition and data. This would enable the business to rapidly iterate and drive reach, retention and revenue. Its success factor includes ability to rapidly deploy new games and in‐ game features. It learned what users wanted and modified its games quickly, sometimes overnight, to better provide what the users wanted. Its games have a "significant presence" on sites such as Facebook,Zynga makes nearly 40% of its revenue from those MySpace, Bebo, Friendster, Tagged, Yahoo and iPhone.sales, the sale of virtual goods is the bread andbutter of social game monetization. 10
  11. 11. Business Model of Social Gaming Methodology for revenue estimation Free to play with micro- Most games monetize between $10 and payments business model $30 for every 1000 DAU (Daily active Freemium games is a concept that you can play a users). game for free, but if you pay, you can access premium content. The Apple App Store Monetization of Social Games (Method borrowed from Under the old distribution model, developers only received 30 Lizsa Marinom, CEO of RockYou). Dated Mar 2010. percent of revenue on a game. The Apple App Store gives 70 percent of revenue to the developers. Major risks The game doesnt have the appeal to the targeted Development cost (US$) demographic. The game is not more unique than competing games.In social game development cost boils down to three main areas: The game is fun for a short time, but has little replay Development, marketing and live operation value. Initial Live Operation Total cost of a The game is just not that fun.Development Marketing (4 months) Game Launch$100k - $300k $50k - 200k $12.5k - $22.5k+ $175.5k - $522.5kUsually company will launch multiple games within short timeperiods to experiment with different designs and to establish anetwork of related games that users can migrate between. Ballpark figure provided by Zynga Dated Feb 2010. 11
  12. 12. The challenges of social games Churn Viral Coefficient Revenue Per User In this context, churn is Finally, there is expected The viral coefficient is a defined as the loss rate of revenue per user. This is measure of how effective game players. Social an estimate of the current game players are gaming, because of its lifetime revenue that a at drawing new players – very nature, can have an game player will a key capability enabled extraordinarily high churn generate, based on an by social network rate. Typical estimates estimate of monthly platforms. For example, if are that, on average, revenue per user and the 100 Mafia Wars users are social games have a churn. For example, if the likely to cause five of their churn rate of 50% per average monthly friends to sign up in a month – meaning that revenue is $5 per user, given month, that would half of the new players and churn is 50%, the be a viral coefficient of signing up today will be expected revenue can 1.05. gone in a month. The be estimated as ($5 (the churn for all apps was first month) + $2.50 (the estimated at 62% in the second month) + $1.25, first month by Flurry etc.) or approximately Analytics. $10. Understanding these characteristics is a major driver for a capable business intelligence platform in the social gaming space, these three key metrics drive investment in all areas of the business. It turns out that social games have a different social "graph" - or relationship between friends - than the social network platform itself, depends on the nature of each game. One best example is Mafia Wars game. Improving these interactions by guiding players to communicate appropriately helps to reduce churn. In other words, to make every aspect of the game more profitable by improving the player experience is significantly important. 12
  13. 13. Legitimacy of on-line gambling 13
  14. 14. On-line GamblingSource: THE SOCIAL AND ECONOMIC IMPACTS OF GAMBLING: FINAL REPORT, Nov 3, 2011 14
  15. 15. The Legality of On-line Social GamblingThe Legality of On-line Gambling/Sweepstakes In which jurisdictions do William Hill shuts down Australian betting website, 5The U.S. has criminalized most types of “gambling” June 2012 online casino operatorover the Internet. Both federal and state laws get their gamblingapply to Internet gambling in the U.S. Australias Interactive Gaming Act of 2001 makes it license? illegal for any company to provide casino and pokerIn terms of regulatory developments in specific games to Australian residents. Violators can becountries, the UK remains the largest online penalized with fines up to $1.1 million a day. Nogaming market globally, having legalized it in company has ever been tried for violating the Alderney2005. UK citizens can legally place bets on Web Australian law. Anjouan Antiguasites licensed in territories that are included on Bahamasa “white list” of approved jurisdictions. As a result, Belize Virtual currenciesmost online gaming activity in the UK is Canada (Mohawkconducted through offshore sites. territory) Some business models use a form of “gambling” or Costa RicaIn 2009, France proposed new laws to regulate sweepstakes for users to acquire virtual currencies. Curacaoand tax Internet gambling. These models can run afoul of the gambling and/or Dominica sweepstakes laws. GibraltarThe German Interstate Treaty on gaming which Grenadacame into force on January 1, 2008, banned all Due to general lack of awareness of all of the potential issues surrounding virtual currency, many companies Guernseyforms of online gaming and betting in the country, Isle of Manwith the exception of wagers on horse racing. simply emulate other organizations without knowing that they too are not in compliance. JerseyAlthough widespread, online gaming is illegal in Liberianearly all countries in Asia Pacific, and there has Money Transmittal Licensure Norfolk Islandbeen little change to regulation in the region Panama Virtual currency models that allow for value to be Seychelles Maltain 2010 or 2011. The culture of legal gambling in transferred to third parties, including but not limited tothe region is very much focused on destination Vanuatu redemption of virtual currency for real world money orresorts such as Macau, and now Singapore. goods, can trigger the need for such licenses.Philippines is the only country where online and Such licenses can be very expensive and difficult tomobile gaming is permitted. obtain. Another option could be partnering with aGenerally, state and territorial legislation prohibits Taxes Gibraltar- and Ukraine-on-line sports wagering and lotteries unless the based developmentoperator is licensed in the relevant jurisdiction. Various countries have imposed or are considering studio as part of their imposition of a tax on gains from virtual goods and investment (up to €40m ), virtual currency transactions. For example, China has e.g. BWIN.Party .Source: The casino and online gaming market to 2015 imposed a 20% tax on such transactions. 15
  16. 16. Virtual CurrencyVirtual Currency Model Facebook Credits (1 July 2011)Components The virtual currency on Facebook’s platformHow virtual currency can be Facebook Credits can be purchased in 48 currencies.acquired: That means one can buy anything on Facebook’s platform via Paypal.• Purchased with real money• Earned by in-world actions Significance – Successful conversion• In sweepstakes and contests Games will monetize better. Conversion of social games• “Gambling” users to real money gaming is the goal that has received• Release of user information the most attention by gambling operators because of its• Survey participation obvious moneymaking potential.• Acceptance of exposure to advertising Facebook gift cards• Gift of currency from others Other than in the U.S and UK, Facebook Credits gift cards are also sold in over 500,000 outlets in five SoutheastWhat it can be used for: Asian countries, India, Australia, and New Zealand.• Virtual goods and services Can minors buy Facebook Credits? in virtual worlds/games Currently those terms state: “If you are under the age of• Cashed out for real money 18, you may make payments only with the involvement of• To buy real world goods a parent or guardian.”• Traded for other currency Legal riskWhen it can be acquired: Social gaming seems A class-action lawsuit has already been filed by a relatively constrained on• At time of purchase of Arizona-resident against Facebook on 8 March 2012, a Facebook, as acquisition virtual goods woman sought a refund after her son’s purchase. costs of active user keep rising, e.g. Zynga’s cost• Pre-purchased for later use High cost for developers - With Facebook’s standard per acquisition increased Facebook Credits payment method, developers must fivefold in 2 years, fromWho it can be used with: share 30% of all Facebook Credit revenues with $0.3 in 2010 to $1.5, in• Virtual world operators Facebook. 2012. The trend in 2012 is to push distribution to• Third parties Facebook Now Gambling Friendly other platforms (Web, social, mobile). 16
  17. 17. A glimpse of the social gaming scene in China, Japan and Korea 17
  18. 18. Dated 2011 Social Network Players in China China already has two listed social networks on the stock market: •Tencent 騰訊香港 (listed in HK Stock Ex mainboard no.388) and •RenRen (listed in May 2011 on the NYSE), called itself “the Facebook of China”. In the fourth quarter of 2011, Tencent had the largest market share in the Chinese client-based online gaming market. As Facebook’s relationship with its gaming partners becomes rockier, more developers will be looking to China — the biggest growing mobile market with one billion users. China policy Ministry of Culture of the Peoples Republic of China released new regulations (1 Aug 2010) on online games, • Requirement of real names and valid ID. • The other key change is that online platforms are prohibited from selling virtual currency to minors (under 18). 18
  19. 19. The Challenge in ChinaFacebook has been blocked inmainland China since 2009,along with Google, YouTube,and Twitter, as Chineseauthorities claimed that thosesites were used to organize anti-government demonstrations inXinjiang, and Rendezvous citeddata fromsocialbakers in pegging users inthe country who accessFacebook via proxies, tunnels, orvirtual private network softwareat around 450,000, making it the101st-ranked country in terms ofusers. 19
  20. 20. Mobile Gaming in JapanSome figures on social gaming scene in Japan•Fewer than 10 million Facebook users currently.•Spend cash on mobile social games.•Already has two existing mobile gaming and social-networks: Greeand Mobage, each with at least 25 million registered users.•Mixi, a social network often said to be Japans Facebook (also with22 million users), also offers an app platform that works much likeFacebooks for developers. 20
  21. 21. Social Gaming in Korea The gaming capital of the world Online infrastructure The Korean social network games Korean online gaming market is considered most advanced in the world, to grow $2.3 come as more MMORPG-like: a within Korea is at "near heavy client, more complex billion in 4 years and projected to hit $5 billion by 2016. optimal performance” graphics and a variety of in-game contents. Popular Networks: Majority of users use NaverSouth Korea has the world’s fastest and Daum, both Korean based search  Massively multiplayer online role-internet. Average Connection Speed: engines. Cyworld, the second largest music playing game (MMORPG) is a genre and video store after iTunes, has 48% of the13.8 Mbps. Korea has the highestbroadband penetration of not only Asia, of role-playing video games in market share.but also of the entire world. It is the which a very large number ofGovernment ‘s goal for universal, high- players interact with one another Online Gaming: Lineage II, Korea’s mostspeed broadband access. within a virtual game world. popular online game touts 14 million users, double that of the infamous World of MMORPGs are truly the “mass- Warcraft. The best online gamers becomeNationwide broadband coverage and consumer” form of online games in professional game players and are treatedhigh quality mobile phones has allowed like celebrities. which hundreds of thousands ofusers to post online content at will. SouthKorea has 92% broadband penetration players interact with one another Social network: Cyworld is South Korea’smaking it one of the most wired in the concurrently online. This type of largest social network. It operates within theworld. games focuses less on eye-hand framework of Cyworld boasts a dexterity and more on interaction massive 26 million (and climbing) registered with real human players in real time. users, more than half the country’s population. The games create a loyal following The Korean gaming marketing is highly with significant network effects, as penetrated and competitive; some experts in more and more gamers form the area are already saying that this market is communities and relationships with saturated. one another. Gaming addiction is no laughing matter The wide popularity of MMORPGs is While other jurisdictions are still busy regulating what sets the Korean game market the local gaming market, the Korean apart the most from other countries. government already took steps to prevent many gamer deaths stem from exhaustion. 21
  22. 22. An Engaging Marketing Tool? Emotion, brand and customers Gambling operators‘ social gaming push set on Macau’s gambling industry boom MGM , myVegas, will be launched in June 2012, a free-to-play social gaming casino where only virtual money is bet to win only virtual prizes. The group looks to make it an engaging marketing tool. Caesars Entertainment Corp. acquired a majority stake in social media and mobile gaming business Playtika in 2011 for roughly $90 million. All these can be an interesting move for Wynn Resorts and Las Vegas Sands that are looking for new ways to engage customers by tapping the trends of mobile gaming and social media. Regarding online gaming, the Macau SAR does not currently grant concessions for online casinos. The current casino concessions only cover land-based gaming, not online gaming. There is no regulatory framework that would permit the authorization of foreign gambling providers to offer remote services from Macau. 22
  23. 23. Gambling operators foremost dream What is the take of a company to start? 23