Social Gaming + Gambling: A Massive Opportunity

Social gaming is often cited as the largest market opportunity in gaming of the last decade. The industry exploded onto the scene, piggybacking on the meteoric rise of Facebook to encompass hundreds of millions of users and billions of dollars in less than five years. However, when you compare social gaming to the growth of the online gambling industry, you’ll see that online gambling has almost doubled in the same time period, adding 282% more value than social gaming. Social and mobile real-money gambling is the biggest opportunity for game developers since the Facebook platform.

Social gaming struggles to monetize millions of users
Social games became a phenomenon because of their incredibly low barriers to entry compared to traditional video games. They are browser-based (often within your favorite social networking site), focused on easy-to-learn, bite sized gameplay with robust tutorials, and are completely free to play. Within minutes, anyone can load, learn and begin playing a new social game without touching their wallet or even entering a username. Coupled with aggressive use of viral distribution, the fastest moving game companies became multi-million user powerhouses overnight.

However, this strategy has a serious weakness: it leaves the user with very little incentive to ever pay, and even today, on average only 2.5% of users pay in a casual social game. This is a big part of why social game companies suffer from poor monetization that hamstrings their development and user acquisition budgets. Moving to mobile hasn’t helped developers’ fortunes. Less than 30% of mobile users ever pay for an in-app purchase. This has contributed to a staggering 60% of developers that never break even on the iOS app store. As a result, game developers have been in an arms race of acquisition and monetization methods, polluting their game experience with intrusive advertisements and aggressive monetization barriers.

Online gambling monetizes incredibly well, and with a far smaller user base
Although the underlying game mechanics are often the same as social gaming, in many ways online gambling is its opposite. It has a high barrier to entry: not only do players have to go through a full signup process including billing address for compliance purposes, they also have to deposit funds into their account. However, once the user is acquired, the rewards are very high: the customer lifetime value of a gambling player is over £1,150 (that’s over $1800 US, or 900X higher than social gaming). Yet even though they get so much value out of their players, the gambling industry is also notorious for its lack of innovation. High regulatory barriers to entry have insulated the gambling industry from competition, and thus they’ve largely relied on the same core game mechanics for centuries. This represents a big opportunity for creative social game developers that can get access to real-money play.

Social casino games are already taking off
The above chart shows the Month-over-Month growth of social games by game type, with green representing farming-style games, and red representing casino-style games. To paraphrase Dean Takahashi, casino games have surpassed farm games as the darlings of social networks, and with good reason. Based on estimates taken from DoubleDown Casino at the time of IGT’s $500m acquisition, social casino games earn significantly more per player than farming-style social games. But these virtual currency casino games are just the beginning.

Betable enables an entirely new market: real-money social games
By giving any game developer with an existing or new social casino game the ability to enable real-money play within their game, Betable is creating an entirely new market: real-money social games. Real-money social games are games that resemble existing social farming or social casino games, but use Betable to integrate real-money play into the game. Real-money play is more rewarding and engaging for players, which is what drives gambling games’ impressive engagement and monetization (with an ARPU of up to $300/month, gambling earns up to 300X more than social gaming!).

Betable supports virtual currency as well, so these games can forgo the traditional pay-to-play model of online gambling for a modern free to play model, where the game upsells real-money play instead of in-app purchases. This significantly lowers the barrier to entry for new players versus traditional online gambling games. Furthermore, you could do both, with real-money rewards giving players reason to purchase better items in your game. By combining real-money monetization with the virality and low barrier to entry of social gaming, the real-money social game industry has the potential to grow even faster than the social game industry did in its first five years, and monetize far more effectively.

You're reading Social Gaming + Gambling: A Massive Opportunity Posted on July 10, 2012 Posted by Tyler