Originally, many people saw only a simplistic value proposition between the gambling and social gaming industries, with gambling companies extending beyond their historical customer base to reach a broader, younger community, and social gaming companies accessing deeper pocketbooks. While there is some truth to that paradigm, it is a relatively unsophisticated perspective.
As the social gaming industry continues to evolve and face increasing scrutiny, the brand management, regulatory and political lobbying expertise, social protection strategies, and cross-marketing knowledge of gambling companies can prove highly beneficial to help shape a more successful result. Similarly, gambling companies, facing expanding markets online and learning to appreciate the need to develop a new kind of customer relationship, will realize enormous value from the socialization constructs, creativity in game design, customization of experience, cross-platform technology capability, and other attributes that are norms in social gaming.
LD: The social games industry and gambling industry are clearly different industries with their own areas of expertise. The gambling industry has a tried and tested business model with a long history. The social games industry is just a few years old, incredibly fast moving, and innovative.
Some social games companies and some gambling companies feel it is of interest to divest into the other markets, taking their knowledge and modifying it for the relevant audience. It is important to note that although there may be some overlap between people who play social games and people who gamble, they are distinct sectors with separate audiences.
KH: The motivation is three-fold. The first is the separation of expertise, as gambling companies have spent years and millions of dollars in research and development into what makes gambling games fun and engaging. The math models is not something that social game companies can just pick up readily.
On the flip side, because of the F2P (free-to-play) business model, there needs to be a motivating force that drives engagement based on progression. This is where traditional video game makers thrive; the meta-game needs to be rock solid.
The third reason is product content. There are very high quality gambling gaming content from the gambling companies that have already been made or can be efficiently developed. And as we know in the social gaming world, content is key.
DZ: One only has to look at the success that Facebook and Zynga have had with social games like Candy Crush Saga and Texas Holdem Poker to understand why there has been a rise in partnerships between gambling companies and social games makers. The fact is Facebook is the number one portal for social game players and those in the industry want to capitalize on the rising trend of social gaming. According to SuperData Research, "there are over 35-million monthly social casino players in the United States and an estimated 170- million players worldwide”. These numbers are sure to increase and the casino industry wants to capitalize. This rapid growth has led to new partnerships and a number of social game makers being acquired. For example, Caesars Entertainment bought Playtika, a leader in the social gaming space, in 2011 to enhance its digital portfolio. It also partnered with Microsoft to showcase brands like the World Series of Poker on the Xbox gaming platform. Moving forward, new relationships between gambling companies and social game makers will help fuel collaboration and innovation making the industry stronger as a whole.
What role does social gaming play in the gambling industry?
AB: It plays a very important role. As with bingo, sports betting, land based, online, etc., social gaming is becoming just another line of business for a fully diversified gambling company.
This space cannot be ignored—especially for the large multi-nationals that offer gaming across many or all lines of business. Social gaming is a new way to engage with a new demographic and generation of players who, honestly, are just not interested in bingo or slots no matter how glitzy companies try and make them. The Facebook generation expects and demands the ability to game in a way that suits them and their social circle. A slot machine (virtual or physical) can never give them that and not everyone has the time or inclination to go to a casino on a regular basis.
Social gaming also goes hand in hand with the expansion of mobile devices, as it leverages the simplicity of single unified identities and e-wallets that Facebook or Google already offer, making the “gaming experience” both seamless, and fun. As well, it offers the promise of getting back to what gaming is all about at its heart—something that is simple and offers fun with friends for a reasonable cost that can be accessed whenever and wherever a player wants.
PC: The role most people originally focus on is the social game as a “gateway” experience to traditional gambling. This is an understandable initial focus given the similarities of key elements of the gaming and gambling experience and their use of the same basic game format archetypes of poker, slots, blackjack, bingo, craps, etc. For some, this role presents a lucrative goal, while for others it presents a feared calamity. That role is still heavily debated today.
However, I think that more recent and objective analysis has indicated that the “gateway” role, to the discontent or elation (depending on the hopes or fears one originally had) of many industry participants, is not as clear-cut as was originally assumed. The differences between the activity paradigms have proven to create barriers to what originally was thought to be a smooth path in the “conversion” of social gaming customers into gambling customers. Some gambling businesses have found that a linkage between the two experiences does, in some instances, create customer flow in the reverse direction.
Looking beyond the “gateway” concept, and given the convergence opportunities noted earlier, social gaming—or more specifically, elements of the social gaming experience—have the potential of creating long-term change in the gambling industry, notwithstanding that such change may take some time and may be less overt in nature than the casual observer would appreciate.
LD: Social games do not have a specific role in the gambling industry. They are a fundamentally different game type. However, as the center of games innovation they may well act as spur to gambling companies to try and experiment with new and more innovative games, and move away from what some consider to be a largely uniform market at present.
KH: There are two schools of thought. One is upstream conversion, meaning converting social casino players into gambling players; however there are a very limited number of successes so far. The other is downstream conversion, converting gambling players into social players to extend the life time value of the player, which is another way to increase revenue. At the moment however, most of it is a brand proliferation exercise and just another separate revenue stream from social.
DZ: Casinos are looking for new audiences, brand extension, growth opportunities, and additional revenue streams. Social games and the "free play" aspect they offer become an important tool to identify new audiences and increase the player base, a key objective in the industry. Social games play an important role as they can be utilized by the industry as a player acquisition tool, allowing casinos to present offers and promotions through this channel. Social games also provide a great opportunity for casinos to introduce their content to new audiences in an engaging manner which increases brand awareness. Social gaming companies bring a new level of innovation to the table which the gambling industry can leverage in many different ways.
What are the misconceptions surrounding social gaming?
AB: The first major misconception is that all social gaming is gambling, it’s not. Social gaming is about playing something just for the fun of it with no expectation or the ability to win real world goods or money. Think playing Monopoly with your family or friends, but online on Facebook for example.
Secondly, social gaming is sometimes painted as this covert channel that gambling companies invented to hook kids in to becoming proper gamblers, while abusing their parents’ credit cards. Social gaming arose as an almost natural evolution out of social media and as with all social media channels is now trying to become a viable, profitable, and long-term business.
PC: There are many misconceptions, particularly with the public at large. To start, there is an assumption that all significant social gaming enterprises were originally developed by--and are currently operated by—gambling companies. This is incorrect; social gaming gambling businesses that have evolved independently from businesses are numerous.
There is also a belief that social gaming enterprises are essentially unprofitable businesses run purely to fulfill the “gateway” role for gambling companies referred to earlier. This is also incorrect; social gaming businesses, notwithstanding that they operate under a relatively young and still evolving business model, can be very profitable. Such misconceptions, while surprising to anyone with any measure of experience in or observation of the social gaming industry, still have a remarkable staying power in the minds of the general public.
LD: There is a misconception that social games and gambling games are essentially the same. It is important to set out the fundamental differences. Gambling typically requires consideration, chance, and prize. Even though some social games do have the ability to allow players to pay for elements in a game, they do not have the chance to win a prize or cash out any winnings. There are no stakes and no loss of money as there are no winnings.
Moreover, social casino style games are a subset of social games that allow people to play games that resemble the type of game you would typically find in a casino. However, these games simply borrow from the mechanics of well-known casino games and deliver them to users in the innovative and social way that is typical of social games. You cannot win money or chase losses.
A further myth, alluded to earlier, is that of crossover. Out of those that do play casino-style social games, there is no evidence that they are more likely to engage with real money gambling. At a recent conference, Big Fish, one of our members, when accounting for its commercial decision not to engage in real money games, outlined its experience that the audiences for two types of game are different.
For example, gamblers do not want to show off their wins, whereas social casino players want to share their success with their friends. Sharing financial gains in a social environment is likely to be awkward. In essence, reasons people play social games include having fun, gaining a sense of achievement, socializing, and just having something to do. They lack a core ingredient of why people gamble—to win money.
KH: The biggest misconception from an investor or someone looking into the social casino industry is the real money cash out perspective. The F2P social gaming business model is not the same as online gaming model.
Another misconception from the gambling companies that are new to the social casino space is the consideration of the low average revenue per user (ARPU). If we are to compare apples to apples, then we should really be considering the average revenue per paying user (ARPPU) of a social game vs. the ARPU of a gambling game, which are comparable.
DZ: I think the challenge now comes in determining what qualifies as entertainment and what qualifies as gambling. Social gaming, in its truest form, is about being social and has an entertainment value attached to it. You play with and compete against others. You are aware of activities happening around you and the overall environment is very different from traditional on-property casino gambling.
For starters, most participants never spend any money. Players are being rewarded with additional time or free currency to play more. If they are spending money it is generally to buy more time to play the game again. Gambling, by def inition, involves a buy-in and the opportunity to win a prize. Stakes can rise quickly and the entertainment value can decrease depending on the environment. I think as the two become more entwined it will be harder to separate one form from the other.
What lessons ca n the social gaming community take from the gambling industry?
AB: There are many lessons that can be shared, from how not to do things to leading practices. I would say that the lessons go both ways though, given that many social gaming companies have fantastic e-commerce experiences that traditional gambling companies looking to go online could benefit from.
One of the key areas is regulatory compliance. Although social gaming is not currently regulated, I have a feeling we will quickly get to a point where it is. Taking the lessons from how traditional gaming companies manage compliance and engage with regulators proactively could really save time and effort.
The second lesson is premium branding. Traditional gaming companies tend to have access to sought after brands like Star Trek and Plants Vs. Zombies. These are also brands which could be of benefit to social gaming companies.
Then there are the player rewards. Bonusing and player incentives is a key part of what traditional gaming companies do. Social gaming companies could definitely learn from this as they move to real money play.
Lastly, there's the back office. Although not sexy, the reality of inter-jurisdictional tax compliance, running a multinational company, distributed workforce, shared service centers, etc., is something traditional gaming companies are very good at. As social gaming companies grow, they are going to have to get good at it too, quickly.
PC: The social gaming community is seeing growing calls for standardization, customer education and protection, and regulation. This will require a response, whether internally or externally generated. As a relatively mature industry with significant overlapping elements and a long history of experience in all of these areas, the gambling industry can offer significant guidance.
Gambling businesses operate successfully in a heavily regulated and scrutinized environment, perhaps more so than any other industry. Consequently, they have developed hiring, security, financial transactions, operations and information management, and other practices that are highly evolved and standardized, and which operate within minimal tolerances. Such internal practices, although not all fully applicable or adaptable to the social gaming industry, can still serve as valuable developmental guides. Just as important are the lessons that gambling companies can provide in external areas such as customer experience design, customer support, marketing, operational transparency, social protection, and adherence to relevant regulatory structures.
Social gaming may be very different from gambling, but it can significantly benefit from the experience of the gambling industry.
LD: As mentioned, social games and gambling pose different levels of risks and therefore should be subject to different regulatory and practice frameworks. The concerns that gambling regulation tries to prevent or solve, such as gambling addiction, are not relevant to social games. However, in so far as the gambling industry upholds socially responsible values, the ISGA believes our industry must do the same and in a way which is appropriate for social games.
Earlier this month, we released a set of best practice principles as a first benchmark to help ensure the industry acts responsibly and consistently with standards designed for appropriate consumer protection. The principles cover five areas intended to ensure that games and their providers adhere to necessary laws and regulations, are transparent in their functionality, treat purchases and payments responsibly, manage player privacy appropriately and use appropriate advertising models.
At the same time, we have launched research into social games. The research will comprehensively analyze social games from both business and consumer perspectives. We hope it will offer new perspectives on social games, and help policy makers and the public differentiate between real and perceived risks. Importantly, it will help refine and inform our best practice principles.
KH: Security and privacy are always concerns, even if we consider that they don't need to be as stringent. There are certain best practices that the gambling community does well related to design that I think should be picked up by the social gaming community. Designs that are related to chance based on the fairness of the math model. We still hear certain social games that “rig” certain play sessions to leverage retention. Ultimately, such “rigged” practices will be counter-productive and players will eventually play enough to recognize the real math models.
DZ: Social gaming can look at the casino industry for best practices on how to capture new audiences. The social gaming market is becoming increasingly saturated. As social gaming and casinos become more entwined there will be a need for social gaming companies to differentiate and stand out from their competition. Influencing player behaviour is one way to do that, and casinos can offer valuable insight in this area. For example, venue design can influence player behaviour, and casinos have been testing new design concepts for years to ensure players are happy in the environment they play in. I think when you combine the data available from social gaming analytics with tactics used to capture new audiences by casinos you have a very powerful combination.
Outside of gambling, what are the major concerns surrounding social gaming?
AB: There are many nuances and perspectives on the concerns, and many of the concerns I hear are very similar or the same for online gaming, e-commerce, and social gaming. One is the question, “Is it gambling or not?” This seems to remain as one of the main concerns or questions that those in and around the industry want answered.
Further concerns revolve around IT security and data management when it comes to player data; the targeting of underage vulnerable players; and whether or not social gaming is addictive considering you have to pay real money as part of play or at least to get started, and whether that has a social aspect. Furthermore, there are concerns about whether or not social gaming should be rated much like console games or films; issues as to where the games are located and who is operating them; and general concerns around corporate transparency and governance; that is, giving both investors and players the comfort that social gaming companies are well run responsible corporate citizens that can be held accountable for their actions.
PC: Social gaming is a business that involves customers participating in an online game experience. Regardless of what the actual “game” is, it will therefore always be susceptible to the concerns that are associated with any online activity. Such concerns include ensuring that the activity is not taking advantage of the customer unfairly by allowing an inappropriate customer to participate (either because they are too young, vulnerable, or are not permitted to participate because of applicable local law); appropriately protecting and managing the collection, use, retention, and destruction of customers’ personal and financial information; providing a clear understanding to the customer of the terms and conditions of participation, making clear what are the for-pay elements of participation and ensuring that the agreed expectations in relation to such payment are consistently met. Further concerns regard managing the proper usage of the interactive and other elements of participation that allow for creative (but potentially inappropriate) expression by the customer, and maintaining regulatory compliance in a business that is cross-jurisdictional and multi- platform based.
LD: Commercial practices aimed at children are a concern for certain regulators. On September 26, the UK’s Office of Fair Trading (OFT) published its report on Children and Online Games. The report is the result of an investigation into the ways in which online and app-based games encourage children to make purchases. The report sets out eight draft principles, which show the OFT’s view of how social games companies can ensure legal compliance. The OFT’s principles may set a precedent for regulatory bodies in other countries to follow.
The principles cover the application of consumer regulations to the social games industry in general. However, the central issues which they aim to address are exploitative commercial practices in games for children and children overspending on their parents’ accounts. In-game commercial practices in online games have also been the subject of a ruling in Germany where the law does not allow for direct exhortations to children to purchase.
The ISGA believes that games aimed at children should be regulated accordingly and looks forward to working with regulators to make sure that this is the case. However, it is important to note that social games are far from an activity just for children. Statistics regularly identify the average player as being female and over 30. It is also worth noting that the problem of children overspending on their parents’ accounts is not particular to the social games industry.
We hope that regulation of in-app purchases does not undermine the free-to-play model which has been so successful both in making creative content commercially viable and bringing value to the consumer in terms of lower cost, choice, and flexibility.
KH: Any social games that replicate casino genres should have an age limit, even if it's just through the Facebook/Apple/Google permissions. Although not social casino specific, we hear stories in the media about kids running up thousands of dollars buying virtual goods on their parents’ credit card in certain games. Every time there’s a story like that, it hurts the whole gaming industry. Even if there’s no cash out, I believe there should a way to protect the upper limits of the whale spending.
The other big concern is the time spent in the games themselves. This is more of a general concern regarding games in general. For example, we’ve heard of World of Warcraft stories. I believe there can be some best practices at the root of design to break the flow when the player’s time reaches dangerous levels (i.e. control time using ticketing system or daily virtual consumptions).
Finally, there are concerns regarding the specific social casino genre. The argument is that it’s a gateway and can lead to gambling. I’m of the opinion that the innovation in social gaming will create certain hybrids that will make it very hard to label a game a specific genre. Thus, I would say certain best practices need to go back to the root of design. For example, are we leveraging the skinner box principle a little too much?
Ultimately, both the players and the game makers have to share responsibility for these concerns. Some form of best practices from the design would be a good step. We can also take some lessons from the traditional video gaming industry where they use a rating system for age appropriateness regarding issues such as sex, violence, etc.
DZ: I think online safety is a major concern surrounding social gaming. A large amount of time is being spent online by social gamers which creates risks for those playing. Technical risks can occur from viruses, spyware, and malicious software. There are online predators roaming the internet who start social interactions with individuals in order to gain personal or financial information.
There are also social risks that can be exposed through social gaming. Once upon time, playing a game on the computer was an individual activity, but with multiplayer games and online communities growing in popularity, instant chat capability and messaging occurring during play, there are new opportunities for illegal activity like identity theft and child solicitation. It is important to educate the social gaming community on the associated risks and how best to prevent them.