2009 - year of the product 07/04/2009

Joanne Christie

Iconic musicians are inevitably associated with their most popular songs. Indeed, some performers complain that it’s hard to play new material at concerts because fans only want to hear the golden oldies. But if they want to stay relevant and commercially viable, artists have to find a way to mix the old with the new. Indeed, in all forms of entertainment it’s necessary to strike a balance between providing consumers with something that’s familiar enough to pull them in, yet fresh enough to keep them returning; and online gaming is no different.

While operators have enjoyed many years of positive growth based on their current product range, there is a growing awareness that they need to up their game. Even hit TV shows reach the end of their lifetime at some point, and as many egaming firms are realising with poker, sometimes it’s better to axe something than keep trying to revive it when it’s way past its glory days.

Adding new products is one way to keep pulling in the punters, but it seems views are mixed on whether products are going to be the key driver of growth this year.

“Evidence suggests you need to introduce new opportunities. You can’t run with the same games continually,” says Jim Humberstone, head of sportsbook at Sportingbet, although he adds that some games do have long-lasting appeal. “Sometimes when you look at the figures, you’re very surprised that the numbers are still good for games that you would ordinarily consider to be fairly old and well past their sell-by date. It tends to be very simple, numbers-based games that seem to be unendingly popular with customers, whereas some of the more exotic games don’t bring in the same numbers.”

Game developers obviously sit squarely in the camp of those who believe new products are the lifeblood of continued growth in the sector. Indeed, their entire business model hinges on it, says Tobias Nissen, business development director at Jadestone, which has recently launched a series of dice games.

“All companies have more or less the same products: they all have a sportsbook, they all have a casino and they all have poker and so on. I think that actually shows that the industry is quite immature,” he comments. “Because all the companies have the same products, essentially they compete with pricing, things like rakeback and so forth. We believe that this will change and we believe that the next war will be a content war because I think it is quite obvious that the way to attract players is to give them new stuff.”

Warren Murphy, managing director of Sporting Index, sees things differently. He believes operators should focus on improving their core products, rather than adding new things to the mix, particularly in light of the current economic situation.

He says: “I think there will be innovation going forward, but I think that in these sorts of times you really need to focus on doing what you do as best as possible. Sometimes you lose sight of that doing all these weird and wonderful things for innovation and actually that can take your focus off your core products and your core offer. If the market does take a turn and it really does filter through, then core products are the things that are going to get you through, not weird and wonderful products.”

Petter Nylander, chief executive of Unibet, has a similar view on innovation: “I think it is evolution, not revolution, when it comes to new products. So it is more of the same, with some kind of underlying innovation within the established products.”

David Trunkfield, head of travel and leisure strategy at PricewaterhouseCoopers, thinks there are changes afoot in online gaming, but in a slightly different direction. “I don’t think there is going to be any big shift in the types of product that people are putting out in the market,” he explains. “I think a more interesting change that will happen next year is that there will be more of a blurring of business models. Traditionally, you had people that were B2C businesses and they were focused on serving consumers, and then you had people who were more B2B-focused, and they provided platforms and liquidity to people who were focused on the consumer. Those distinctions have been, and are going to carry on, breaking down.”

Trunkfield cites 888’s recent moves into white-labelling as an example of this “blurring”, and suggests there is much more to come on this front.

Hit predictions

With many operators already running sportsbooks, casinos, poker and bingo, some feel there is no obvious next step in terms of new product development. Brian MacSweeney, managing director of software development firm Boolabus, says the classic offline games have had their first wave of growth. “There is no undiscovered popular offline game to be brought online. Easy growth is over,” he says. Trunkfield agrees: “Unless someone comes up with a whole new way of betting that hasn’t existed in the offline world, it is hard to see where a whole new category would come from.”

But Dermot Smurfit, chief operating officer of skill game solutions provider GameAccount, says there are still untapped revenue streams out there. “There is no new poker, but there are a huge variety of games that people also want to play for money.”

Sportingbet’s Humberstone reckons that embedded games will be a key growth area in the future.

“We offer instant games that sit on the sportsbook alongside in play betting and I think we will see a further push on those types of games,” he says. “We are certainly seeing evidence that the embedded games that are readily available to sportsbook customers are popular. It’s no secret that their emergence alongside in-running products is because, behaviourally customers can bet on the two things at the same time. They are betting from the same wallet and the product combination is one of those betting experiences that we think goes together quite well.”

And it’s this “at the same time” point that could really drive up revenues for operators, says Smurfit. “Time is absolutely critical,” he says. “People only have a certain amount of time to spend online, so while they are on the website, this allows operators to maximise the revenue per player per hour.”

Smurfit says most operators are only willing to add games that have already proven themselves in the external market, though not everyone agrees. Thomas Kalita, chief executive of Betsson Malta, says the company plans to add some “rare” products to their offering in the coming year in a bid to differentiate themselves from other operators.

“We are always trying to find a combination of products that makes our customers really see that Betsson is a very innovative company and that we have some interesting products that they won’t find anywhere else,” he says. “We know that all products might not be successful but we need to keep on trying new things.”

Branded games are another area in which many operators have high hopes for, and Unibet’s Nylander thinks online gambling will evolve in a similar way to offline gambling. “We are becoming more of a mainstream part of the entertainment economy. What you can see is more and more TV stations or movie production houses are now willing to be incorporated into the gaming environment,” he explains. “I think it is useful to look at the land-based part of the industry – if you look at Las Vegas, the reason for going to Vegas is to see a show, to go to a nice restaurant, to go to the pool, and that increases the number of gamblers as well. So people are coming for other triggers and then they realise they can also gamble. We will see our online industry broaden the potential target group in this way as well.”

Gaming investor Mark Blandford agrees: “I think we are going to see more entertainment-led gaming, which is more of an entertainment proposition than a hard £50 on an even money favourite type of proposition.”

The major push of in-running betting in the sportsbook arena is going to continue. Sportingbet’s Humberstone says the company has invested heavily in its new live streaming technology, and expectations are high. “We’ve obviously only launched the service a month ago, so we can’t say a great deal at this point other than that the early signs are encouraging,” he comments.

Sporting Index’s Murphy points out that in-play betting is expensive to implement and operators are under constant pressure to keep up with the latest technology. He reiterates the company’s plan to focus on investing in further development of their core spread betting products, rather than in new products. “We have got a new website that is in testing and we will focus on making sure that is as good as it can be, as well as focusing on mobile.”

Sporting Index has been one of the few firms to make real inroads into the mobile sphere, with Murphy stating that a “good percentage” of their clients access their service via mobile phones. But it hasn’t been easy.

“If you have a website, then there are a few operating systems, but generally a website is a website. When you are developing for a phone, they are all different shapes and sizes and operating systems. These things just present loads more challenges,” says Murphy.

With the mobile phone having been hyped as the “next big thing in egaming” for the past few years without the predicted breakthrough ever arriving, there is understandable scepticism on whether or not this year will see real developments.

“On mobile, people have had high hopes for many years now and nothing has really happened,” says Jadestone’s Nissen. “But I think we are clearly closer to a breakthrough. The growth of the iPhone is certainly very interesting. They have, at least, set a new standard for user-friendliness.”

The bottom line

While it seems many operators agree new games and channels can add to the appeal of their business, many are unsure whether they add to their existing revenues or simply cannibalise them. Is there any point expanding one’s product range if you’re not going to make any more money out of it?

“We spend a lot of time trying to assess whether new products cannibalise or add to existing turnover – one of our favourite tasks is trying to establish what a new product has brought to the business,” explains Humberstone. “Provided what you are doing is based on some kind of track record with other products or similar types of products, then I think you can expect to see some growth out of new products.”

Betsson’s Kalita says cannibalisation is not necessarily a bad thing. “We are not particularly afraid of cannibalisation. Anything that adds to the customer experience in the long run will be good for the customers and therefore our revenues as well. So some products of course might take away some revenues from other products, but our experience is that these changes are not final.”

Jadestone’s Nissen points out that in some industries, cannibalisation is actually a strategy for retaining customers: “You don’t see the same movie day in and day out. You want to see something new. If a new product doesn’t cannibalise then it is not a successful product at all. If I can support my business with a new product that people would prefer to play, I would do it any day.”

Innovation will certainly continue in 2009, but what’s less clear is where it will come from. Some say new products are the key to future growth, while others think it is innovation within their existing portfolio that will give them an edge. Which strategy will prove the most fruitful remains to be seen, but with the added factors of mergers and acquisitions, expansion into new territories, the opening up of new markets and a turbulent economy thrown into the mix, the online gaming industry will have to be at its best to keep producing the results it has done up to now.

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Posted: 07/04/2009