Social gaming is arguably the most significant development in the casino industry of the past decade.
From billion-dollar destination resorts to regional racinos, casinos across the country have embraced social gaming. The casinos that have resisted social are now giving it a second look, but many are finding that as the social industry grows and matures, the opportunities are shrinking.
Or are they?
When social casino products first appeared on the horizon, the prevailing view in the land-based casino industry was caution and skepticism. What exactly is this new product? How can a casino integrate social into its current catalogue of products? And most importantly, how can a casino monetize a “free-to-play” product?
Most casinos took a wait-and-see approach, while a few forward-looking companies, that harbored no such concerns, jumped into social gaming headfirst. Several years later, these early risk-takers have been rewarded handsomely.
In 2011, Caesars purchased a social startup called Playtika for a reported $85 million. Within five years, Playtika was the No. 1 social casino operator in the world, and one of Caesars’ best assets. Mired in debt and facing bankruptcy restructuring, Caesars offloaded Playtika for the princely sum of $4.4 billion in 2016.
Piggybacking on the Playtika sale, another early entrant in the social space, IGT, sold its social arm, Double Down Interactive, for $825 million earlier this year. IGT purchased Double Down in 2012 for a reported $450 million.
Remaining Opportunities
The two high-profile sales have led to the usual chatter that IGT and Caesars cashed in when the market was at its peak, but few on the front lines share this opinion. Casinos shouldn’t mistake these sales as an indication the social sector has peaked, or that opportunities are disappearing.
The social casino industry generated $3.4 billion worldwide in 2016, with revenue expected to top $4 billion in 2017, according to Eilers & Krejcik Gaming.
“My read is that both parties built a high-demand product and seized the opportunity to benefit from its sale and perhaps pay down debt,” says Gabriel Cianchetto, Greentube’s president of North American marketing development. “These two sales—while high-profile—were made for different reasons, neither of which can be seen as a referendum on the industry.”
Bryan Bennett, senior vice president of AGS Interactive, is of the same mind. “The Playtika price certainly got a lot of attention, but Caesars had some other things going on financially that made it the right move for them to offload that piece for a significant return,” Bennett says.
The truth is, the early opportunities Caesars and IGT jumped at had already vanished long before the Playtika sale. The Double Down and Playtika sales are simply indicative of ongoing changes in the social casino market—a market where the rich get richer.
At the supplier level, the social casino industry has been consolidated around a small group of major players who have maintained their stranglehold thanks to an aggressive M&A strategy and marketing budgets that small or even medium-sized startups cannot rival, some spending as much as $5 million a month, according to Bennett.
“The space has become increasingly difficult for smaller providers,” Bennett says. “The cost of acquisition on the marketing side has just gotten insane.”
According to Bennett, even before the sales, it would be difficult for anyone to create another Playtika or Double Down from scratch.
“It’s going to be harder and harder for new entrants—social gaming-only company—to get into the space,” Bennett says, adding that he believes it’s highly unlikely another social gaming giant will come out of nowhere.
“The ones at the top are going to stay at the top,” says Bennett. “They’ve distanced themselves from anyone else, allowing them to outspend everyone else when it comes to user acquisition.”
But both Bennett and Cianchetto believe there’s ample opportunity for casinos to get in and be successful—depending on their definition of success. Listening to Cianchetto and Bennett, you come away with the feeling that there’s never been a better time to get into the social casino business… provided a casino understands what it can expect to get out of it.
“It really depends on what your definition of success is,” Bennett says.
Defining Social Success
New entries into the social casino space have to realize they’re not going to turn their social casino into a billion-dollar asset the way Caesars or IGT did, but just because you can’t afford your dream vacation doesn’t mean you can’t take a vacation.
In the same way the industry fretted about monetization and questioned the benefits of social casino in the early days, it would be a compounding mistake to see the consolidation of B2C social around a handful of major suppliers as a reason to remain resistant to social.
Casinos that can set their sights lower will still be able to benefit, and should reject the notion that the social opportunities have passed them by—particularly on the B2B front.
“Here is the truth of the matter when it comes to B2B social casino gaming: No one is late because the party has not really started yet,” says Cianchetto. “B2B social is just entering its growth phase, and the opportunity for white label/B2B growth remains strong.”
Seth Young, director of online gaming at Foxwoods Resort Casino—one of Greentube’s casino partners—agrees, noting, “Across the board, data suggests that social gaming is of great benefit to casino operators.”
The key for any casino is to understand where the opportunities are, and how social can work for their business.
Opportunity for Every Casino
Social’s best use, particularly this late in the game, is as a marketing and customer analytics tool. Bennett calls this aspect of social casinos “super-serving your existing audience.”
With so many casinos offering social products, trying to go beyond your borders and turn your product into a national brand is difficult, which is why Bennett believes leveraging your brand and your existing database is critical to social success.
“The big thing casinos have going for them is their brand and their customer database,” says Bennett. “My recommendation when I’m talking to casino customers thinking about jumping into the social space is leverage both of those at all costs.”
This is sound advice. Offering a social product not only keeps a casino’s brand front and center at all times, it allows a casino to track customer habits when they’re off-property and leverage the direct relationships they have with their customers through on-property opportunities and email and web marketing.
Bennett offers up AGS’ first B2B client, a small casino in Seattle called BJ’s Bingo & Gaming, as an example of how land-based and social gaming can play off of one another.
“Whenever there’s a break in a bingo game, we have tent cards all over the bingo tables directing them to the BJ’s social app. It’s a great time-waster while they’re waiting for the next real-money bingo game to start,” Bennett explains.
For BJ’s, this raises awareness of its social casino product, making it more likely its land-based patrons will choose BJ’s—a brand they are familiar with—when they’re playing social games at home. “When players leave the casino floor, many are playing social casino games at home,” Bennett says. “They should be playing your social game.”
This is where the true value of a social casino product resides.
“Most casinos have a strong base of loyal guests—some larger than others—but all casinos stand to benefit from learning more about their audience and from having a gaming platform that can also act as a conduit for data capture and new revenue generation,” says Young. “Some casino operators are likely to have more financial success than others, but the benefit that can be driven from a marketing perspective cannot be ignored for any group.
“For over three years, Foxwoods has had an opportunity to provide exciting entertainment options to guests on and off-property.
“We have succeeded in finding new ways to provide the kinds of experiences that our guests have grown to love, and through continued engagement on FoxwoodsONLINE we have been able to drive increased loyalty and interest in visitation to our beautiful resort.
“Beyond this, we have had the benefit of learning more about the games that our guests enjoy, and we anticipate continued success as our program grows.”
The White-Label Solution
Casinos of any size can jump into the social market by partnering with a white-label B2B provider. This can be done with minimal investment, and more importantly, social starts paying dividends on the marketing front almost immediately.
Bennett explains AGS’ new social strategy (which was first launched in October 2016) as taking proven direct-to-consumer content and turning it into a white-label solution that focuses on the casino’s brand and its relationship with its existing players.
“By choosing a white-label solution, casinos can make sure their brand is front and center,” he says, adding that the goal is to “make the customer feel like they’re still on the casino’s property when they’re playing the social app.”
But content is only one piece of the puzzle, and that’s where B2B companies like Greentube and AGS come in.
As Bennett puts it, “Content is important, but you need a lot of the meta-game stuff within the app itself to drive better retention and monetization. Not only can we bring them content that’s already doing well in their casino, but we can also bring all the things that support a social game to keep their players engaged and interested.
“The revenue they’ll make from those players on-property is going to exceed any direct revenue they might be able to generate.”
Has the Direct Monetization Ship Sailed?
But what about opportunities beyond marketing?
A casino can choose to focus solely on the marketing value of social (the low-hanging fruit), but the ability to generate direct revenue, or monetize social, isn’t dead and buried, particularly as the industry continues to evolve.
Whether it’s integrated into another product offering like real-money online gaming, the introduction of new products such as virtual sports, or some yet-to-be-seen innovation, forward-thinking companies will undoubtedly find a way to generate revenue through their social casino.
“I think it is inevitable that most organizations will try to find a way to leverage online gaming as time goes on,” Young says.
As Cianchetto notes, “These days, we promote social casinos as marketing marvels, but the revenue possibilities are equally enticing. With a simple shift, a social platform can pursue new revenue streams through virtual currency, game-play enhancements and more.”
Young agrees, and sees social as a multi-layered opportunity that allows casinos to fine-tune to their specific needs and capabilities. There is no one-size-fits-all solution, and a social gaming program is what you make of it, but the opportunities for growth in revenue, customer acquisition and customer retention are theoretically limitless.
“At some point in the future, the U.S. B2B market may become saturated,” Young says. “If that time approaches, I foresee operators possibly setting their sights on foreign markets. With a little adaptation, social casinos can adhere to a new market’s structure and reap similar benefits.”
Make no mistake about it, the future of social gaming is still unwritten. Casino operators are just beginning to scratch under the surface and understand the various ways a social casino can be leveraged as a moneymaker, and as a supplemental product that bolsters their existing products and offerings.
