As per ggbmagazine.com, when real-money iGaming seemed ready to explode, casinos had little interest in social casinos. Now, however, it’s the social casinos that are outperforming even the most successful iGaming site.
It took years for the gaming industry to come around to online gambling. The entrenched power players in the gaming industry were fearful the upstart industry would become a ubiquitous competitor in what was already becoming an increasingly crowded market in many locales.
Fast-forward to 2016 and the gaming industry, with few exceptions, has fully embraced online gaming, so much so that you’d be hard-pressed to find a major gaming corporation without an online division.
Far from the cannibalistic threat they envisioned just a decade ago, online gaming, whether real-money or social, has proven to be a valuable asset, a complementary product that can create a new revenue stream for the casino, and/or used as a marketing tool capable of bringing new players to their brick-and-mortar properties. This is particularly true of social gaming.
Social gaming was initially seen as a placeholder of sorts, a way to create an online footprint while casinos waited for real-money online gaming legislation to be passed. What they soon found was that far from being a placeholder, social gaming turned out to be a boon, a versatile product that could be deployed in a number of different ways. The gaming industry’s Swiss army knife, if you will.
The Fuse Is Lit
Social gaming first shed its cottage-industry label in 2009, spurred on by the rise of social media giant Facebook, and the silent dreams harbored by millions of people to be virtual farmers and demolish shoddily built structures with the assistance of a cartoonish avian species and a catapult.
And Angry Birds and Farmville weren’t outliers. Subsequent social gaming successes, ranging from traditional-looking slot machines and skill-based puzzle games like Candy Crush, to eSport crossover megahits like League of Legends, gave the gaming industry pause, and a glimpse at the possibilities that could be found in the social gaming market.
In 2016, social gaming has infiltrated virtually every sector of the gaming industry. Yet, social casino games still have a lot of room for growth and future innovation, as the ancillary benefits to traditional gaming, beyond revenue, are just starting to be fleshed out.
Social Gaming Is Already Bigger Than You Think
When it comes to headlines and buzz, social gaming tends to take a back seat to its sexier cousins, real-money online gaming and daily fantasy sports. But compared to social gaming, the DFS and regulated real-money online gambling industries in the U.S. are small potatoes. In fact, social casino products (a single segment of the larger social gaming industry) absolutely dwarf these two industries.
Industry-leader Caesars Interactive Entertainment, a Caesars Entertainment subsidiary that operates the popular line of Playtika social casino games, is on its way to generating $1 billion in annual revenue, some 13 times more than CIE’s real-money online gambling products generate, and 10 times the combined 2015 revenue of media darlings DraftKings and FanDuel combined.
The social casino market generated an estimated $3.5 billion in revenue in 2015 (exceeding Eilers’ $3.3 billion prediction at the beginning of the year), with revenues expected to jump to $4.4 billion (which would represent some 4 percent of the entire gaming industry’s revenue) by 2017, according to Eilers Research.
If we take an even wider view of social gaming, beyond social casinos, the numbers are even more impressive. The global social gaming market is expected to reach $17.4 billion by 2019, according to Transparency Market Research. Candy Crush generated $1.4 billion in 2014. League of Legends, a “freemium” eSport game, is also expected to cross the billion-dollar revenue mark in 2016. These are not simply billion-dollar companies, these are billion-dollar games.
Monetizing Players: The Freemium Model
The bulk of the revenue generated at social casinos comes via the purchase of virtual chips.
The chips have no value, although as noted by Kevin Vonasek, chief product officer for the Americas at NYX Gaming, social play can be tied into a brick-and-mortar casino’s loyalty program, allowing a social player to earn points while playing at the casino’s social casino.
“NYX will emphasize the ties to brick-and-mortar casinos in its social offering as a key differentiator,” Vonasek says. “We’ll cater our product to operators that want to leverage the social space by providing a channel for their gamblers to do so, with products that they’re familiar with and by enticing them back to the property. Gamblers will spend money on virtual coins, if they are getting credit against the land-based loyalty program.”
Even though the social casino provides a fresh supply of chips to players every day, some users simply don’t want to wait, others want to risk more chips. This is where the word freemium comes in, and players become monetized. Freemium games are games that are free to play, but the user can, if they so choose, purchase additional items (in this case, casino chips) for a nominal fee. A player simply punches in a credit card number and spends a few dollars and receives thousands or tens of thousands of chips. For the players that monetize, it’s a small price to play if they are enjoying the game.
Unfortunately, monetizing a social game isn’t easy.
During a panel discussion at G2E 2014, Monty Kerr, the chief product officer and co-founder of PlayStudios, said that only 3 percent of their customers monetize—that is, they purchase additional items for an otherwise free-to-play game. However, he noted these monetized players tend to stay monetized and continue to spend money, as Kerr indicated 80 percent are still active and monetized players two years later.
Despite the low monetization rate, social casinos are playing, and winning, the numbers game thanks to the sheer number of users they attract and the loyalty these players have when it comes to their favorite games.
For example, Knute Knudson, International Game Technologies’ vice president of business development and tribal relations, says IGT’s social casino platform, DoubleDown Casino, sees over 1.9 million players log on every day, and over 4 million players each month, according to data he provided at G2E 2015.
Monetizing Players: Other Models
There are other monetization models as well, such as in-game advertising and brick-and-mortar loyalty reward tie-ins. As Vonasek explains, “We are not competing directly with products such as IGT’s DoubleDown that cater to the casual gamer; rather, we’re providing a social gambling product that will appeal to real-money gamblers who want to extend their bricks-and-
mortar entertainment while leveraging their loyalty program.” NYX accomplishes this by being content-agnostic, giving online players the same game options they find at the brick-and-mortar casino.
There is also the opportunity to convert social players into real-money online players for operators in legal markets, or in markets considering legalizing real-money online gambling. “NYX has the most popular regulated real money gaming in U.S., and we will install that in the data center of the brick-and-mortar casino,” says Vonasek, “allowing operators to start with social and be ready for real money.”
To be continued…