In five years, the online gaming divisions of U.S. gaming companies could represent as much as half of the market cap of many well-run online divisions. For the major players, this could represent billions in market value. This, however, does not necessarily mean it will come at the expense of the land-based business, as many often suggest.
As online gaming trickles into the U.S. and land-based operators find themselves with the privileged licenses to conduct online gaming, there will be a race to ensure each casino’s database of players becomes loyal to their online offering rather than a competitor’s. This battle will be fierce, and not all land-based operators will be equal winners.
The astute operators who become efficient at search engine optimization; convert free-trial players into depositing players; have a tight product that loads fast, is easily navigable, and has a great selection of games; and perhaps above all tie their land-based offering to the online offering in a relevant way will gain an outsized share of the online business. While there will be winners and losers in the race to compete online, this does not mean that online as a category will eat into land-based gaming.
Over the last decade or so, the land-based gaming industry has been forced to beef up its non-gaming offerings as gaming itself has become somewhat commoditized. As competition increased, simply having slots or blackjack tables was not enough of a differentiator to get customers through the door. Operators stepped up their game and added more bars, restaurants, showrooms, shopping and special events. The properties basically became places you would want to visit even if there were no casino.
When we look at the impact online gaming has had on land-based gaming in Europe, we see more evidence that online is not a threat to land-based. The casinos in Europe are a far cry from being the complete offering they are in the U.S., and they have still seen growth over the last decade in the face of the online gaming industry’s rise to power. But while there is no evidence that online gaming has hurt land-based growth in Europe, the winners of the online gaming race are almost exclusively pure-play online operators with no land-based operations. So the land-based sector as a whole has weathered the storm just fine, but it is not necessarily getting its share of the massive online pie.
Now let’s explore how the gaming companies in the U.S. can ensure they get their piece of the pie and even use the online business to bolster more visitation to their properties.
The first step to winning online business is to recognize that the skills it takes to win online business are very different and almost certainly not present in most land-based gaming companies today. This is easy for the land-based casino executive to dismiss—I know I did.
But now, having held executive roles in the biggest land-based operations in the world and now the biggest online casino in the world, I can say with certainty that winning in each space requires radically different skills and thinking. If a major online operator in Europe announced plans to build a $2 billion property in Las Vegas, most industry observers would rightfully consider them as good as dead. It is likely their stock prices would reflect this. They simply do not have the skills to compete against the likes of MGM Resorts, Sands, Wynn and Caesars. It is not by accident that online winners in Europe have never operated a land-based casino. It is because the businesses are very different, even if they do share the same customers.
Driving Online Play to Property
With the core skills in place and a full online offering (one that offers players an enjoyable online experience that is optimized for desktop, tablet and phone, for Android, Apple and the lesser operating systems, and for all major internet browsers), the land-based operators can focus on making the online business drive play to the properties.
Without these online fundamentals in place, there is no chance of creating a cycle where play online augments play offline. The primary reason is that players will simply not tolerate a slow app that is thin on features and games. We live in a world where few will go to page 2 on a Google search, or wait even six seconds to load before abandoning.
Online gaming is no different. It is easy to overestimate how easily the loyalty of players to the property will translate to getting their online play. All over America, people shop at their local Wal-Mart then go home and shop online at Amazon. With a strong online offering in place, there are significant opportunities to use this business to drive land-based play.
Customers already understand the loyalty programs at their favorite casinos. They usually have some understanding of the benefits of the different tiers, what they can earn, what days are double point days, and what sort of offers they get from the casino.
This is especially true for the most valuable players. This sort of mindshare is an incredible benefit to the land-based operator when building an online business. This benefit, however, comes with great player expectations.
Players will expect their online activity will be earning them points, comps and perks, and that they can elevate to the next tier if they play enough online. When this single view of the customer is taken and a player realizes he just became a platinum player by playing blackjack on his phone, it is a near certainty he will be coming to the property more often to cash in on those perks. Furthermore, he will receive better offers from the property, which will further drive play to the land-based operation.
In an effort to further bridge the worlds of online and offline gaming, casinos can make their physical table games available online through live gaming. This concept of playing live table games online has become the dominant form of online table games played in Europe. The dealer in the casino conducts the game as normal, while the activity is streamed via live video to players who can play along online.
With this service available online, players can play with their favorite dealer from anywhere. This not only brings an enhanced level of integrity to the online player, but also creates a deeper loyalty to the property as they never have to bet anywhere other than their lucky table. Since they are being rewarded for play no matter where it happens, they get better perks on property and a virtuous cycle is created that drives both online and land-based play.
With all that said, it is still easy to think that players have a fixed gambling budget—that if a portion of it goes online, then it must come at the expense of the land-based business. This is just not the case. They are very different activities.
Online play happens when one has a few free minutes and wants to be entertained. It therefore is competing with social gaming, online shopping, browsing through Facebook or playing other online games. Going to a casino is more of an event, while playing online is an activity. They do not compete against each other. In fact, the big losers in a world where online gaming is legalized are likely to be the social online casinos, which currently serve as an outlet for the pent-up demand for real-money online gaming.
It is not going to be easy to launch a whole new division and seamlessly blend the worlds of online and land-based operations, but for those that do this well, the prize will be huge. It will also be in addition to their land-based operations, not at the expense of it.