The Future of Internet Gambling
Online Gambling
Oct 9, 2000, 14:31
By Steve Donoughe MBA http://www.gamblingonlinemagazine.com
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In this article I finally get the freedom to sound off about my thoughts of where I think the Internet gambling industry is heading. These thoughts can be seen as the accumulation of my last three years advising companies on Internet gambling, interactive television gambling and the potential for gambling over mobile phones. These thoughts, I should say are purely that, just thoughts and should be taken as the start of a hopefully, lively debate. If this manages to offend anyone I do apologize and hope that you will write an article in response to show me where I've gone wrong.
Please excuse my use of the term 'gambling', which I know in some parts of the world has negative connotations. I use the British definition of the term that describes only the legal forms of gaming, wagering and lotteries. Gaming in this context is used only to describe games of chance. Such confusion is just the beginning of our worries, as you will soon realize as you read on, so please bear with me.
About a million years ago, I studied for a political science degree and since then I have adopted this annoying habit of taking political theories and methodologies and applying them in an extremely amateurish manner to my thoughts about the gambling industry. I do this for no other reason then to try and look well educated and for the sheer delight of when I'm talking at conferences, seeing a bunch of hard nosed leisure analysts trying to get their heads around the Marxist dialectic. Fortunately for my esteemed readers, I have developed only a very simple model for where I see the future of Internet gambling and present it to you here,
Just as in Marxist theory, I believe that the Internet gambling revolution will progress in a number of phases. Each of these phases is caused by a catalyst, which creates an industry with a profile of its own and this in turn has its own winners and losers. Within each of these phases then lies the seeds of its own future destruction and this goes on to create the next phase. Sounds a bit far fetched I know, but lets's see if it makes sense:
Phase name: Wild West
Corporate Technological Industry.
Profile: Large number of small operators located in dubious locations offering poor quality sites. Small number of traditional industry players who have bought their way in to dominate the industry. Oligopoly of content providers who have access to the new media channels of interactive television and mobile phones. Winners - Software suppliers and licensers who service the industry at this phase. Phase 1 operators who have gained a brand name and a customer base. They will be bought by the traditional operators. The content providers who will own the whole chain. Losers - The traditional industry and the customer operators who have operated in the grey areas - the 'prospectors'. Their customers will desert them. Traditional operators who realize that their product can be easily replicated by those who own the content which differentiates the product. Catalysts for change to next phase: Change in US legislation to allow US operators to utilize the Internet. Growth in mainland Europe Internet jurisdictions. Advance of mobile phone and interactive television technology and uptake of usage.
I would argue that even after all of these years, we still remain in only the first phase of the Internet gambling revolution. I think this is because the cyberspace gambling landscape still looks like the Wild West in places with the market remaining inundated with hundreds of sites of dubious quality, location and ownership. This, in part, is due to the never-ending stream of Internet prospectors coming West and searching for that mythical gold-scam that is supposedly Internet gambling. They are enticed by the promises of untold riches given by those unscrupulous characters who sell them low quality generic gambling sites and then demand a large slice of revenue in return for a sub-license in some third world hellhole. I believe that this era of a low quality free-for-all is nearly over, civilization will be soon coming to cyber-town. My prediction is that there are only about three fat years left for the Internet gambling prospectors.
Why? Because in the next phase of the revolution there is going to be a clean-up frontiersville and the main catalysts of this will be the end to the idiocy in the United States Senate and the growth in the number of mainland European Internet jurisdictions.
A real end to all the idiocy of the Senate (or any legislature) is perhaps a bit too far fetched a claim. But, I do believe that when the US legislators and judiciary have finally realized that a strategy of prohibition is not the answer, they will finally write some intelligent laws that will allow for well-regulated commercial exploitation of Internet gambling to take place in the US. Heaven forbid that they should have realized this from the start and ignored various reactionary groups using this as a vehicle for their fundamentalist agenda, but politics is a funny old game. This new liberalization will then allow the existing venue-based operators to take their rightful place at the forefront of the Internet gambling industry and we will consequently see the end of the Wild West scenario we are experiencing today.
What will cause this change of heart by the Senate? It will be the growth in the number of European countries that will legalize Internet gambling. At the moment only a few islands have legalized it, drawn by the revenue and employment potential, but I predict the first mainland country will legalize within twelve months. So as more and more mainland European countries legalize Internet gambling, they will show their American cousins that the very fabric of civilization doesn't unravel when you do this and that, tax dollars can also be achieved. By staying out in the reactionary cold, all the Senate achieves is giving all the home grown businesses to the Europeans and consequently making their own citizens criminals for no good reason. The costs of the first few legal cases and the research, which will show just how prolific the breaking of the law is, should get the Justice Department asking for a change at the very least.
When this happens, we will be at the dawning of the second phase of the revolution - the corporate phase.
In the corporate phase, the existing venue-based operators will bring their brands and their marketing budgets to the Internet gambling marketplace. Operating from credible jurisdictions they will enter into a strategy of regaining the market from the myriad of small sites that operate in the Wild West. This they will do by cherry picking those Wild-West sites that have already managed to gain a decent sized customer base and reputation and by using their experience of off-line marketing, lure away the customers from the other sites. Customers will always go to those sites that they feel safest with and the existing operators provide this. They have a physical casino where people can turn up to demand their money if they want to. At the moment the customer is only playing with the sites based in the Caribbean because he has to, there is little alternative. So when a big corporate name, licensed in a recognized jurisdiction (i.e. anywhere you would bank with!) starts marketing itself to him, the customer will wave goodbye to the Wild West sites and gamble with a name he knows in a license he feels comforatable with.
In Britain they have already reached a form of the corporate phase, as all of their main bookmakers are on the Web. This is due to the lega; situation over there that allows for this. What they have seen in the short history of this, is that although the big operators were mostly quite slow to market, they have rapidly taken over the majority of the market share. This they have done through brand leverage and marketing expertise. Only a couple of the market's first-movers are still jostling for position with them.
http://www.sportingbet.com/ and http://www.bluesq.com/ continue to grow their brands and customer base due to their innovation in product range and their strategies of expansion into new markets. Part of that strategy holds the catalyst for the move to the next phase, technological advancement.
Technological advancement will cause the third phase of the revolution in the shape of interactive television and mobile phones. Both of these will put the Internet into the hands of the masses, those who would never usually have a PC or rarely have had Internet access. These masses are our gamblers, our mass market, because so far we have only been servicing a subset of our exiting customer group and growing new customers who are the early adopters of the Web. The ability to gamble over the Internet on interacative TV or a WAP or GPRS phone brings Internet gambling into the hands of Joe Public whereas so far it been only Bill Nethead.
In this new phase our customer base is different from before and so is our industry profile. Unlike the Internet, which was designed to be owned and controlled by no-one, both mobile phones and interactive television operate over networks that have a mini-monopoly like ownership - there is no license required to operate an ISP, there is to be a mobile phone operator or an operator of an interactive television channel. So the power base shifts away from the gambling operators to these media operators and I predict that it won't take them long to realize that gambling is basically a generic product that can easily replicated. Rather than doing the deals with the gambling operators to provide gambling service, I believe the media operators will start to think about operating the gambling themselves. Creating a gambling operator from scratch is easily done, I know, I've done it.
The spur for the media operators will be content. Content is stuff that makes your Internet sites interesting. It is the differnece between a site that just shows the card you've been dealt when you are playing Blackjack, and a site which allows you to see live video stream of the dealer and allows you to chat with her. For a bookmaking site, it's the difference of just showing the prices and runners and riders of the race at Belmont Park and actually showing the race. Content is the thing that differentiates your site and keeps your customers interested and coming back for more. Las Vegas has been doing this for years in a three-dimensional manner. The roulette tables are basically the same at the Belaggio and New York New York casinos. However it is the billions of dollars spent on the stylized decor and theming which makes up their content. The same thing applies on the Web and when you move the platform to interactive television it becomes infinitely more important.
For the media operators there is an additional motivator, the cost of this content. The media operator knows he needs quality content to differentiate his product and quality content costs a lot of money (consider the costs of rights to the SuperBowl!) so he needs to find as many revenue streams as possible as he's got ownership of the full value chain. So I believe the big new media gambling operators of the next decade could be the FOX and Time Warners of this world rather than the Mirages and Park Places.
I don't know where the next phase comes from or where it goes, but that's probably enough futurology for now. In summary, I believe that we are still at the beginning of the revolution and that things are going to change dramatically over the next few years. The people who will be running the industry in 2010 will probably not have even thought of gambling as a business opportunity by now. Hold on to your hats because it is going to be bumpy ride.
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