Mobile Gambling Report 2005

by Gareth Wong

Article can be found here

(This is the chapter I wrote for the Internet Gambling Report, 2005. The 2006 edition now includes my insight in the interactive TV [iTV] market, you can Order the 2006 new edition of the Internet Gambling Report here.) Or you can purchase and download the 2006 version of mobile gambling report here, for the price of £299.00, it also includes 1.5 hours consultation with Gareth Wong in a pre-arranged time to underestand your business challenge and find out how you can capitalise on the mobile gambling opportunity.

To help our sector, I have made the 2005 version below Free of charge for everyone.

The year 2005 seems to be a turning point for mobile gambling from the e-gaming industry's point of view. Many market research firms are publishing optimistic forecasts about the projected market size of mobile gambling since 2004. Different reports have been issued about gaming companies' point of view but also from mobile telecom operators' perspective. For example, Juniper Research predicts that by 2008, the mobile gambling market will be worth in excess of $16 billion (USD) worldwide (for most of the common categories of gaming and gambling services).
It is also important to note that due to the nascent nature of mobile gambling, and the typical lack of transparency of the remote gaming market, there is not enough transparency to accurately gauge the present size of the mobile gaming market. Toward the end of the chapter, I aim to suggest some best practices for the market to go forward.

CHALLENGES FOR MOBILE GAMBLING

To understand the mobile gambling market worldwide, its challenges and opportunities, it is paramount to consider a short history and highlight key reasons for the worldwide success of mobile/cellular operators (MNOs) within the telecommunication industry.
This chapter explores, on a high level, the parallels of mobile and remote gaming markets, MNOs' business drivers, and the likely key success factors of mobile gambling.

Parallels between Two Markets

Many parallels can be drawn between the mobile telecommunication markets and the gaming gambling markets. Let's consider the industry lifecycle. The remote gambling market at present is like the mobile market back in the '90s. At that time, mobile penetration rates were in the high single digits. With advancing technology and increased market acceptance (despite the initial inertia of the mass market), most of the developed world has rates of over 90 percent. In some Scandinavian countries, there have been more mobile telephone subscriptions in the past few years than fixed-line subscriptions. The proliferation of mobile communications as a content delivery channel for entertainment services has been very impressive (e.g. SMS competitions, ringtones, jokes, news, pictures and other adult pay-for services). Can mobile gambling achieve similar success?
For the purpose of this chapter, mobile access technologies are not differentiated. However, if it is a "mass market" that the industry wants to target, then the wireless standard of GSM (or PCS, or DCS in certain countries), which accounts for 75 percent of the world's digital mobile market (with over 1.5 billion users worldwide ) could be a good platform for mobile gambling products.

Reasons for Mobile Success

Since the 1990s most MNOs have been signing up new customers exponentially on a month-by-month basis. This impressive growth is mainly due to

1. the coordination of international "open standard(s)";
2. regulations (inter- and intra-government); and
3. cultural and technological acceptance by the mass market.

Like all important public resources/services, telecommunication services are typically regulated stringently by national governments. To ensure inter-operability International Telecom Union [ITU] coordinates among countries' regulators. Telecommunication infrastructure providers then provide standard-based equipment (some with value-added variations) to maximize the economy of scale for production purposes.

Without getting involved in the argument of which standard is better, it should be noted that the success of the likes of GSM is due to an open standard developed jointly by all stakeholders (e.g., MNOs, equipment and infrastructure manufacturers, etc.). Timing was also essential to the success, as communicating on the move was a new concept in the '80s, but mass market acceptance worldwide was accelerated by the injection of cash during the dot-com boom. It is important to note that when there are too many competing standards, or perceived standards, it may confuse consumers and become counterproductive. For example, since the mismanagement of market expectation of wireless access protocol (WAP ) (as wirelessly accessing the original internet, which it failed to deliver against), consumers worldwide are now wary of new standards. Even with the mighty "3G," the real "killer application" is still plain old voice service. The cultural aspect is also important. Mobile penetration in France, for example, was typically below EU average, but it is finally catching up (as of 2005). This is mainly due to the change of local culture, in which mobile is now a more accepted mode of communication.

Business Drivers of MNOs

Let's look at what really counts for the MNOs. For the past 10 years, mobile operators' business drivers have traditionally focused initially on increasing their customer bases (using the measure of mobile penetration). For financial reporting purposes, the accepted yardstick in the mobile industry for measuring an MNO's financial performance (in addition to the typical accounting standards) is average revenue per users (ARPU). Due to the typical size of the investments for each mobile operator (multi-billion investments on personnel, infrastructure, and marketing), ARPU has been the key measurement for the industry world over.
Another reason for the adoption of this measurement is that mobile operators used third parties, like service providers (SPs), to grow their businesses, and in certain circumstances, they did not know their customer base well enough.
Therefore, in the old days, ARPU was a proxy for the success of the MNOs. The SPs owned and maintained the customer data, meaning the MNOs could not easily collate the mobile numbers and usage of to up-to-date demographic and user details. This is quite different from the remote gambling industry, whereby the Internet enabled its existence and provides support of the "affiliate" model, in which user control still rests with gaming operators.
As time went by, especially after 2000, the mobile industry went through major consolidations. MNOs not only bought up those previously independent SPs, but companies like Vodafone kept on buying different MNOs in different countries to consolidate the worldwide market.
Consequently, most MNOs now have comparatively better access to better quality customer data. Because of its historical nature, ARPU is still the overriding yardstick to measure the performance of MNOs worldwide.
It is, therefore, paramount to understand that top management of MNOs mainly focus on implementing strategies that can help them achieve a high-level top line growth. The agreement of content partnerships is historically mostly delegated down to the content or Web site partnership directors. It was, therefore, possible for big multinational firms to be involved with many new mobile product fields and categories by signing content partners. When the decisions had been filtered down to middle and lower management, however, they had little ability or budget to target, educate, promote, grow, and maintain new markets/or niches.
Changes are afoot, however, especially for the gambling community. In open minded markets like the United Kingdom, for example, gaming/gambling is now an accepted business category; gambling-friendly operators like O2 and 3 are already carrying and promoting mobile gambling content.

Given that understanding, what are the best ways of influencing MNOs? Most MNOs worldwide are public companies; they are very much driven by finding the best solutions for

· leveraging their infrastructure investments (maximizing on monetizing the usage of present products/features);
· maintaining their brand equity by communicating with the mass market and growing "niche" revenue (without takings any risk in damaging their brands);
· consolidating and streamlining their businesses (locally and internationally);
· acquiring and working with new channels and establishing services for mobile virtual network operators (e.g., Virgin or Tesco mobile in the UK) to help grow the mobile penetration first and then ARPU;
· moving away from providing only a "pipe" (e.g., some MNOs are providing mobile payments, premium rate SMS, mobile marketing, and billings, and are aggregators to deliver mobile contents, etc. It is expected that they will squeeze out the present "aggregators.")

Looking from a mobile gambling point of view, the point of "reputation risk" management is paramount.
Given this background of the mobile telecommunication market, we now need to consider the key aspects of mobile gambling, from the need for mobile gambling to the likely key success factors.

MOBILE GAMBLING EXPERIENCE LEARNED

I launched a mobile gaming/gambling operation (for fun, skill, and gambling games via WAP, SMS and J2ME) in 2003 in the United Kingdom. When I put together the strategy and implemented the operation with technology provider partners, my general experience when I approached vendors/suppliers was that most of them claimed that they had a technical solution but could not show me the working solution.
The biggest challenge in 2003 was that the mobile gambling market did not exist. It meant that at launch, every step of the way was a big uphill struggle, especially with limited budget; it was nearly impossible to reach the offline market. Difficulties arose from advertising in newspapers (editors were not familiar with the format, and some of them delayed or even refused to publish the advert) to placing promotions on beer mats to football match programs, etc.

By the end of 2003, I came to the conclusion that the key to success of any mobile gambling operation lies with the gaming/gambling operators having enough financial resources to create this "new mobile gambling category" by leveraging their brands (with the most likely key being above-the-line marketing initiatives, such as billboards, TV, etc.).
A couple of years back, growth of the remote gambling market was mainly focused on Internet channels, with the rise of soft gaming and skill games as acquisition tools, betting exchanges taking the center stage, and poker on the rise. There were also some major developments happening on the interactive TV front (mostly with Sky and Avago), and it was understandable that the market considered mobile too small to deserve any focus.
Consequently, and until the end of 2004, most of the high street sports betting brands, despite offering WAP access to fixed-odds sports betting products, adopted a wait-and-see approach and were not putting much marketing muscle behind mobile gambling promotion.
I recall a director of a major UK high street bookmaker (whom I approached in 2000 with a wireless enabling solution) telling me that WAP was there as a hedge more than a legitimate business delivery channel.
It is a recognized fact that mobile is the most powerful weapon most high street bookmakers (and self respecting brands) as well as online casino operators could leverage to reach the ultimate prize within any gambling services, namely the mass market. Mobile gaming/gambling would be mostly applicable at present within major markets with decent mobile penetrations and as a channel to reach presently non-gaming users (particularly women and people without Internet access).
What would bring the success of mobile gambling? The three main requisites are market readiness (mobile operators, regulatory, technology, and cultural mindset); trusted brand with deep resources (personnel and marketing pocket); and appropriate games (new formats and applicability for those on the move, not only product extensions).

Market Readiness

Mobile Operators

Because of the intrinsic nature of gaming/gambling via mobile devices, mobile operators must form part of the value chain, either

a. as close partners (e.g., partnerships in the UK, such as 3 with Ladbrokes and O2 with Bet2Go, or the launch of specific mobile games likes those from Svenska Spel in Sweden);
b. by adopting an "open garden" approach (e.g., like in Japan, where NTT DoCoMo's innovative I-mode business takes 9 percent revenue and has official and unofficial content, despite gambling not being sanctioned or legal; there are unofficial gambling services that users could access); or
c. as a payment and service delivery partner without close working relationships (a mobile operator involved either directly, or via aggregators, in providing the payment and delivery structure typically via premium SMS or premium telephone numbers). Although this is not cost effective (as mobile operators typically keep up to 50 percent of the revenue), for well developed mobile markets, for high power media owners, this may be negotiated, but the final percentages are still quite substantially in favor of the mobile operators.

Understanding the country-specific mobile value chain structure, what makes most sense, and the cheapest route to provide mobile gambling services are essential.
Another key success factor for any mobile gambling operation is having a reliable, ubiquitous mobile payment system that does not exist at present (e.g., maybe with the rare success of the likes of "Mobile Cash" in Norway with Nordea bank), where the likes of Simpay may prove to be too costly (like the M-pay before) for merchants and users to embrace. Neteller, we are all waiting to see what you have up your sleeves.

Regulatory Issues

Mobile gambling may be against the law in certain countries and, under some circumstances, remains in a grey area in which some gaming operators have chosen to launch interim solutions-like soft gaming (based on fixed odds using a bookmaker's permit) or skill-based games-to make sure they fall in the "competition" or "skill" categories.

A key challenge the world over is access to mobile gambling games and how to obtain reliable and non-refutable age verification tools. Some mobile operators do not presently have reliable user information on their entire user bases.
Countries like the United Kingdom have devised and adopted self-regulatory guidelines on the promotion and charging of adult-oriented content. By working with the likes of GamCare (a UK based problem gambling charity), the soon-to-be-formed UK Gambling Commission will also issue guidelines on how best to promote mobile gambling services.

Technology

Technologically, I believe the 3G/2G/2.5G argument is a non-issue, and a good example is that if the market appreciates, the benefits of the new mobile service (services that previously on their own were not considered useful or as having a future) could potentially capture the imagination of mobile users (no matter what the demographics are and no matter what the perceived values are). For example, despite the cost (premium SMS betting tips, astrological predictions, premium mobile ringtones, etc.) and the non-user-friendliness of SMS (160 ASCII characters!), many services took off, and sometimes they form most of the mobile operators revenue. (e.g., over 50 percent of Philippines mobile operator revenues is from SMS charges.) On the corporate level, RIM's Blackberries were initially a "pager" in Canada. So-called "Crackberries" have now evolved into ubiquitous business tools of investment bankers worldwide!
Gaming/gambling mobile applications are the same, and those who ignore and dismiss this channel do so at their own peril. Those who are involved now as "me too" should be wary of any vocal newcomers who are doing something rather different.

Cultural Mindset

Gaming/gambling services have an uphill struggle as they have generally been put into the same camp as adult services, but with publicly listed market leaders and major operators moving to well regulated jurisdictions, the industry is growing up quite dramatically. For example, in the United Kingdom in 2004, 02 differentiated gaming/gambling from adult categories, and Virgin launched Virgin Games toward the end of the year. These well recognized brands transform gaming/gambling into a legitimate and potentially lucrative category, and the shift will ultimately change the cultural mindset within the target audience. The same would be true for many mobile markets worldwide.
In some regions, political and/or religious pressure can dramatically-affect the chance of success in the mobile space. This was the case in the Philippines when the government-owned monopoly, Philippine Amusement and Gaming Corp (Pagcor), applied with the National Telecommunication Commission (the regulator) for a four-digit access code for "text gaming" and was rejected despite stating that its plans were to license text gaming services and not to launch its own text gaming services.

A Trusted Brand with Deep Resources

Key to success is the reliance on major international brands like Virgin, Easy Group, Tesco, or Sky/DirectTV bringing mobile gambling to the masses. The aim has to be doing something mobile-specific.
Key personnel resources need to be dedicated to understanding the potential target market, what they might be looking for, and what their expectations are. It is also essential to know things like when the games would be played, the average duration of game play, etc.
Substantial incremental marketing resources must be deployed to help target--and in some circumstances, create--the mobile gambling market by educating the masses; the world will be the oyster for whoever dares to lead.
A good lesson learned from the gaming/gambling industry is how Betfair became the de-facto betting exchange. Their persistence and dogged focus of dedicating resources to educate, listen, and help prospective clients propelled them to the top. They consequently created a new category of betting exchange customers, and we can all learn from that.

Appropriate Games

Many software providers now exist as "mobile enablers," and even the substantial investments of suppliers and operators are mostly "product extensions." What the market really needs is the arrival of leaders who understand market readiness, utilize the resources necessary to understand the industry, and launch new innovative games that excite and engage the target mass market.

JOIN FORCES TO ENABLE MOBILE GAMBLING

The industry should look to the following step-by-step approach in making mobile gambling a reality:

Work together within the industry.

I propose forming a mobile gambling association. As outlined in this chapter, the success of mobile technology is not a fluke; it was hard work, time consuming and based on a lot of collaborations and communication. The only way forward is to adopt the best practice of the telecommunication industry (i.e., to communicate in a coordinated manner via a focused industry association that will form the voice for the industry in this matter).

Take stock of your market environment.

Are the MNOs in your market open to new propositions? Is mobile gambling legal in your country? Are there any restrictions in terms of product set-up and/or promotions? What are the likely target demographics? Can you do some market research (focus groups) with your present customers? Do the target users already transact business via mobile devices? What might they be looking for in terms of mobile gaming/gambling?

Consider your company's present status.

What resources do you have available (personnel, technology, strategy, etc.)? Would you like to work with affiliates and/or software providers to increase time to market (but risk losing critical usage or market experience that could enhance your competition's chances)? Should you adopt a "do nothing" strategic position to wait until the market takes off? How will you know when that happens? How important is mobile gambling within your company's future plans?