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This was originally posted on Betable's Game Monetization blog.
Google YouTube PM Hunter Walk asked on Twitter Monday:
There are some serious competitive advantages that Zynga would bring to the table if they decided to pursue this idea and provide legal online poker to its Zynga Poker players. For one, Zynga’s poker game currently holds over 28 million active players, which makes it the world’s largest poker site of any kind.
Clearly, Zynga has the potential to be a real-money poker powerhouse
But what would that mean for them? Hunter Walk, in a conversation with Keith Rabois, COO of Square, asked:
The comparison below reveals a massive gap between virtual goods revenue and real-money revenue:
Just to put some context behind those numbers, real-money online poker earns 213 times more per player per month than virtual currency poker.
The BusinessInsider article published today puts this opportunity at over $1 billion in annual revenue, based on the statistics of other online poker companies. But why stop at poker apps?
The same competitive advantages that would support Zynga’s move into the real-money poker space apply to social games and social game companies. Social game companies have a deep understanding of development and marketing on new platforms (such as Facebook, iPhone and Android), detailed data on their massive user bases containing hundreds of millions of people, and their user demographics are largely similar to those of gambling players.
Social games even employ the same game mechanics and psychological tricks as a modern slot machine. Considering they already produce gambling-inspired games with massive audiences, social game companies could tap into real-money play in a similar way.
When you compare casual social games against real-money casino games, the revenue gap is even more dramatic:
Given these numbers, real-money casino games earn 1,612X more per player per month than virtual currency casual social games. Even when you use a fraction of typical 2% virtual currency free-to-paid conversion rate to estimate the amount of players that would convert to real-money currency, the resulting revenue would still be several multiples higher. Which begs the question...
Given the tremendous revenue opportunity, why haven’t social game companies already offered real-money play?
No, not because Facebook doesn’t allow gambling
While this was true in the past, Facebook may soon allow real-money gambling on it’s platform. Even so, social games are on countless other platforms where gambling is already permitted in legal jurisdictions, including Android, iOS, and Google+. These companies didn’t pursue real-money social games for any of these platforms.
No, not because gambling is illegal in the US
While the Department of Justice opened the door for states to regulate online gambling within their jurisdictions, the fact that the US market was closed before wouldn’t have stopped major social game companies in foreign markets. The addressable ex-US worldwide gambling market contains millions of players that would give real-money social games the audience they needs to succeed.
The reason game companies haven’t implemented real-money play is because gambling licenses are tremendously expensive and time consuming to acquire.
While theoretically possible, the process is so painful that the vast majority of game companies don’t even consider it. The time (≥18 months) and money (≥$1M including all associated costs) are an enourmous barrier to entry for most game studios. Even if a studio could afford those costs, steps must be undertaken sequentially and spending more money doesn’t shorten the period of time it takes to get a license. There is also the added layer of complication arises from the necessary corporate structuring and off-shoring that must take place to comply with gambling regulations.
These time & money costs are simply too great for the vast majority of small-to-medium sized game studios, and the compliance issues become increasingly prohibitive as you look at large game companies. These huge pains have prevented Zynga and other game companies from offering real-money play to non-US players in spite of the massive potential revenue opportunity. Game companies have been better off investing their limited resources into virtual currency revenue streams because they will monetize immediately, although relatively poorly.
Which is where we come in
This is why we founded Betable: we went through the massive pain of acquiring gambling licenses and wanted to help game companies avoid the same fate. Our platform lets game developers legally integrate real-money play into their games, unlocking the massive revenue potential offered by real-money gaming. To find out more, go to http://developers.betable.com.
Sources:
Casual Online Poker User Base:
- http://www.appdata.com/apps/facebook/2389801228-texas-holdem-poker
- http://www.appdata.com/apps/facebook/158243717529
- http://www.appdata.com/apps/facebook/106932686001126-mynet-anak-okey
- http://www.appdata.com/apps/facebook/119468838217-doubledown-casino-free-slots-blackjack-poker
Real-Money Online Poker User Base:
- http://pokerplayersresearch.com/Documents/ToplineTrendsPoker2010.pptx
Casual Online Poker ARPU and CLV:
- Nick Talarico, Former Rev Ops Manager at Sibblingz and Publisher Dev Lead at Offerpal.
Real-Money Online Poker ARPU and CLV:
- http://www.bwinparty.com/~/media/Files/CorpWeb/Investors/Financial%20Reports/bwinparty%20-%20Our%20Future.ashx
- http://www.bwinparty.com/~/media/Files/CorpWeb/Investors/Shareholder%20Documentation/Historical%20pro%20forma%20KPI%20data%20Q108%20-%20Q111.ashx
- http://corporate.betfair.com/investor-relations/kpis.aspx
Casual Social Games User Base:
- http://www.appdata.com//leaderboard/developers
Real-Money Online Casino Games User Base:
- Estimated using most recent public data from http://www.casinospage.com/faqs.htm#2
Casual Social Games ARPU and CLV:
- http://www.gamasutra.com/view/news/28456/GDC_Canada_Super_Rewards_Bailey_Quit_Your_Job_And_Make_Facebook_Games.php
Real-Money Online Casino Games ARPU and CLV:
- http://www.bwinparty.com/~/media/Files/CorpWeb/Investors/Financial%20Reports/bwinparty%20-%20Our%20Future.ashx
- http://www.bwinparty.com/~/media/Files/CorpWeb/Investors/Shareholder%20Documentation/Historical%20pro%20forma%20KPI%20data%20Q108%20-%20Q111.ashx
- http://corporate.betfair.com/investor-relations/kpis.aspx
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