INFORMATiON, INSiGHT AND ANALYSiS FOR THE BUSiNESS OF iNTERACTiVE GAMiNG

iGAMINg BUSINESS
iSSUE 75 JULY/AUGUST 2012

SOCIAL GAMING

THE NEW FRONTIER FOR THE iGAMinG inDUStrY

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SOCIAL GAMES
The world of social gaming and gambling has become the new frontier for iGaming companies with many operators already making headway via strategic acquisitions. But do we really understand the social gaming opportunity? Aideen Shortt, author of the iGaming Social Marketing and Strategy report for iGaming Business, gets under the skin of the industrys new opportunity.
Mark Zuckerberg is on record as describing social gaming as the next big thing for 2012. Its hardly surprising since, presently, over half of Facebooks global user base use their accounts for social gaming of one form or another. Social games benet from free play, enabling the majority of users to play without barriers to entry, while providing an effective monetisation path for the minority. Monetisation of social games comes in three key formats: 1. Virtual currency 2. In game advertisement 3. In game branding The primary form of monetisation is through the sale of virtual goods. Virtual goods are in-game items that users purchase for a variety of reasons and represent over 90 percent of revenues earned by leading social game developers today. Functional virtual goods are items, power ups, boosters, or other in-game goods that provide a player with some functional benet within the game. Decorative virtual goods are items that allow a user to customise his or her online experience to make it more personal. Consumables are goods that do not confer a lasting, ongoing advantage to a player. For example, a health or energy pack in a game. have a different lifecycle as monetisation can happen quickly in order for the player to catch up with others who have been playing for longer or are more successful. However, revenues can trail off as players learn to generate virtual currency without paying for it. or not a company can acquire enough people at the outset, serve them sufciently well from their technological platform with a compelling game, and yet pay less for this entire endeavour than the small group of monetised customers who are willing to pay to play. The costs of social gaming are heavily front-loaded a robust technology base (xed costs that scale in proportion to player growth) and a compelling, viral game (involving signicant R&D costs) and the point that is often misunderstood is that if you are not protable from the day of launch (which is by far the cheapest acquisition time as it has the benet of the hype, media buzz, and viral nature of social media), a developer will only be serving free players at a cost which is not offset by paying players and, more importantly, if its bad in the beginning it will only get worse because costs scale in direct proportion to user growth. This is why so many social gaming companies appear for a short-while and then disappear just as quickly into the ether. Despite the casual and uffy appearance of social gaming at the front end, the costs and effort behind the scenes are not for the faint-hearted.

Social gaming success

The standard measurement is US$/KDAU (thousand Daily Active Users), and the best practice is that for an application to become protable it must be above $25/KDAU. The difcult part to appreciate is that the ratio between daily actives and paying players is so immensely skewed. For example, Zynga, the company who more than any other has this principle under control, was reported by Bloomberg Business Week as having less than ten percent of its player base actually spending money and less than one percent that are responsible for between a quarter and a half of the company revenues. This initial prot model may not stack up in the short-term for new entrants as critical mass and volume are hugely important key performance indicators. Experts believe that despite the thinking of many small sites, who hope to creep their numbers up, unless a company is protable on day one it is going to struggle to create sufcient ROI. Due to the player volume necessary to make any sort of a positive return, it is imperative for companies to understand that they will be serving an extremely large number of people, with the hopes of monetising just a limited few in order to make prot on a game or games. Theres no use in thinking its not big enough yet, because you cant spend your way to protability in this sector. The question around social gaming is whether

Platforms: Facebook, Proprietary and Google+

Facebook is the natural home to social gaming and has dominated the marketplace to date. While Facebook gets revenue from a variety of sources, games from Zynga have generated the majority of its payments and other revenue to date. Facebook has said in the past that if the use of Zynga games on its platform declines, if Zynga launches games on other platforms or if Facebook fails to maintain good relations with Zynga, then Facebooks revenues may suffer as a result. This happened last year when, as part of the new direct-to-consumer strategy, Zynga launched Project Z on Zynga.com, allowing players to start and nish games under their existing game names on either Facebook

Typical lifecycle of social games

Most social games that are not currencybased take a couple of weeks to get user engagement before hitting a pay wall where peak monetisation occurs, after which monetisation slowly tails off over time. 80 percent of the revenues happen in the rst four to six weeks after a player joins the game. Currency-based games, such as poker,
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or Zynga.com. This move took place after Facebook began demanding Zynga to pay the 30 percent transaction fee for Facebook Credits. Zyngas prots were negatively impacted and so it started diversifying beyond Facebook. In August 2011, Zynga Poker was launched on Google+ and the company has also developed games for iOS, Android and HTML5 platforms. Google+ is showing signs of eating into Facebooks market by actively offering more favourable terms to Zynga and other developers (ve percent to Facebooks 30 percent), and recently attracted Aces Hangout a social poker game with the nancial backing of bwin.party. In addition to undercutting Facebook on revenues, Google+ has a dedicated games channel which is an appealing feature to developers as although the trafc will be lower, it will be more targeted and likely to have increased conversion rates.

Given the state of ux that the US market is in regarding gambling legislation, now is the time for gambling operators to start building brand awareness and customer bases in advance of the market opening.
Moving to local currencies allows games developers more exibility in price-setting on a granular basis, and two key games developers, Zynga and KIXEYE, are already embracing this development. To date, social gaming companies business models were predicated on (multiple) one-time purchases, not monthly subscription payments where revenues can be projected out for the future, and this provides a massive opportunity for fast and innovative thinking companies in the gaming space. products (social marketing) Bring new customers to the brand Address social gaming as another product/revenue stream Build brand awareness and a database of users in the US market According to market research rm eMarketer, the US social gaming market is expected to be worth $2.18 billion in 2012, doubling by 2014. Given the state of ux that the US market is in regarding gambling legislation, now is the time for gambling operators to start building brand awareness and customer bases in advance of the market opening, something which the large American and European corporates are already doing IGTs purchase of Double Down, Caesars investment in Playtika and partnership with 888 (which owns Mytopia) and, of course, bwin.partys recent declaration of a projected $50 million investment in the social space. There have been several operators, most notably Jackpot Joy, that have adapted very well to the social medium, and treat social gaming products as a standalone revenue stream while using the real estate to advertise the real-money play. A good social product can become as much of a brand as a traditional online casino and we are only at the cusp of seeing the impact and the potential of social gaming as it lters into the more traditional online gambling world.

Opportunities for gambling companies Facebook Credits

On June 19, 2012, Facebook ended its three year experiment with Facebook Credits via an announcement on its ofcial developers blog that the company was phasing out its virtual currency, as there was no longer a need for a platform-wide ecosystem, and allowing app and games developers to price and charge in local currencies. The scheme commences rollout in July and will be complete by the end of the year. While not essentially a massive departure for Facebook, given that all revenues will still be subject to the networks same 30 percent fee, this is an interesting development for social games developers. There has long been a train of thought that virtual currencies have an interesting psychology behind them because of the players tendency to not view them as real cash (in a similar manner to chips at a land-based casino) and, therefore, the tendency to spend them without concern in-game is increased. With this in mind, its possible that individual player value will decrease (in the short-term) as they become more aware of their spend, however, this should be offset by the increase in potential audience and prospective players that were not engaged with the Facebook Credit system. There is no doubting the target market on Facebook for interactive gambling companies. Social games have proven to be powerful marketing tools as social interactions within social games have the power to build brands, acquire new players and increase player retention. In addition, the success of companies such as Zynga, Bingo Blitz and DoubleDown have shown that: 1. Poker, bingo and casino games can be successfully monetised in ways other than rake or margin. 2. While real money games generate real money prizes by their very nature, people can be motivated to play without the existence of real money prizes. 3. Many game design concepts from video games (e.g. badges, stars, etc) blend well with poker. 4. Play-for-fun gambling games have incredible reach. Most gambling brands see a social media initiative as simply putting up a Facebook fan page and no more. However, operators could adapt to the social gaming sector but to do so, they need to have a clear idea of what they want to get out of a campaign: Using social games to market existing

Aideen Shortt is a freelance researcher and consultant in the gambling industry and has recently authored the iGaming Social Marketing and Strategy report for the iGaming Business Group. For more information email aideen.shortt@gmail.com

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SOCIAL GAMING COMPLIANCE

Adam Vaziri-Zanjani, Account Manager at Total Compliance, and Arthur Baker Operations Director at Entraction, provide an insight into the areas of data, privacy and conversions on Facebook.
Although much of the direct revenue from social games may derive from virtual goods and currency, such games can also provide indirect benets to developers. Facebook, with over 550,000 applications on its website, presents an ideal platform for developers to learn more about their users, through the data that the users provide. The type of information collected from social gaming applications via Facebook allows companies to obtain more data about their customers than would otherwise be available if the application was separately downloadable or accessible via the developers website. Facebook can tell a developer more about its users general preferences, their likes and dislikes, activities and interests and even who its users friends are. developers from transferring data they receive from Facebook to any advertising toolset. As all user data is processed by Facebook in the United States, Facebook is therefore not required to notify Data Protection Regulators in the European Union, such as the Information Commissioners Ofce (ICO). It is, however, the responsibility of developers when processing data from Facebook to consider their compliance with local data protection laws where they are based. A developer based in the United Kingdom would need to comply with the Data Protection Act 1998 (DPA) and consider, for example, whether it needs to notify the ICO and be added to the register of data controllers. Also, under the DPA, when transferring data outside of the European Economic Area developers must ensure that there is an adequate level of protection in the recipient territory. If, for example, that territory happens to be the United States, then the European Commission considers that the Safe Harbour scheme offers adequate protection. use that content for a variety of purposes. This licence is not just limited to IP content but also includes material, data and information that users upload or transmit through a Zynga game.

Conversion
One of the driving forces for iGaming businesses entering the social gaming sphere is to ensure the conversion of social gamers to hard gaming platforms. This has traditionally been carried out via banner ads within the social game which links to the destination website of the iGaming offering or by leveraging a brand presence on Facebook, such as through the use of a fan page, to achieve soft crossovers. That said, due to the quality of the data provided by Facebook, a new opportunity for conversion is being explored, where the data collected on users game play activities and preferences allows iGaming businesses to provide, for example, geographical or temporal localised conversion offerings. To illustrate this further, if you know from Facebook data that a user supports Manchester United and you know that this team has an upcoming game, then, based on this information, you can offer a personal sign-up incentive for that particular user. However, when considering using any of these conversion approaches, iGaming businesses should be fully aware of Facebooks Platform Policy constraints and advertising best practice. In addition, they should ensure that their use of data is covered in their Privacy Policy and conforms with local data protection laws. As the Internet moves towards further personalisation of content, companies are having to get to know their users better in order to remain competitive. With that in mind, the value of collecting data from users continues to increase. This, of course, should be done within a platforms guidelines, in compliance with local laws, including data protection laws, and with terms clarifying the ownership of its users content.

User consent
This information, however, is accessible to developers subject to Facebooks strict guidelines (the Facebook Platform Policies) that clarify how its users data can be used by developers. In this respect, Facebook requires a developer to supply all users with a privacy policy and to obtain express consent from them before collecting or using their data for any specic purpose. This express consent is obtained by way of permissions whereby users tick a box consenting for their information to be used before they are able to use an application. (The requirement of a developer obtaining consent from users before using their data is not an uncommon requirement for application market places Apple places a similar requirement on its developers.) Regardless of the privacy policy agreed between a developer and a user, Facebook still places overriding restrictions on how data can be used by developers. So, for example, Facebook restricts developers from selling-on any data they collect. Also, Facebook restricts
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Social gaming
In respect of the ownership of data, clause 2 of the Facebook Statement of Rights and Responsibilities states that the users own all of the content and information posted on Facebook. With regards to Intellectual Property (IP) content, such as photos, Facebook has a non-exclusive, transferable, sub-licensable, royalty-free, worldwide license to use such content. But what about the data provided by users within a social gaming application, such as communications or images? It seems that developers have tried to address this point in their terms of use. For example, Zynga states that users own any content they provide to Zynga, but that Zynga is granted a worldwide licence to

Opinion

THE CHALLENGES OF BUILDING SOCIAL GAMBLING APPLICATIONS ON FACEBOOK

Rob Wheeler, Commercial Director at Cozy Games Management Limited, assesses the specic demands of creating gaming applications for the Facebook platform.
The social gaming market started in 2006 and was born out of the video gaming industry; an industry worth circa $55 billion. As we speak, the social gaming industry is now approaching the $5 billion mark. The exponential increase in social gaming players is down to a number of contributing factors: the growth of social networks (Facebook is now reporting over 900 million monthly active users), the massive increase in the number of good quality Smartphone and tablet devices which provide such an enhanced gaming experience to the user and most importantly keep communities of players connected. Add the specialist game mechanic that the online real money gambling industry can bring and you have what one industry commentator called, The Perfect Storm. However, as with the real money gambling industry, there is no rite of passage to make a success of a social gaming site. Facebook charges 30 percent on your net revenue and, in addition, you have to buy banners and market your site within the Facebook ecosystem which can cost substantial marketing investment. The cost of installation is high, running at anywhere between $0.50 and $3 per installation. Social gambling
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games tend to be around the $1 mark due to the familiarity of the gaming mechanism involved. However, once you have crunched the real statistics, there is a substantial business opportunity. Both Ceasars Entertainment and International Game Technology have spent hundreds of millions of dollars on social gaming for one reason: because there is a solid business case behind it.

have decided on your strategy that your site is differentiated from the rest. It could be the new killer app or maybe you will have secured a fantastic brand to leverage the familiarity and popularity of your offering. You may decide to push a more generic offer and then, once you have pinged the social player, build something bespoke based on the players actual needs playing into the right emotive triggers: achievement, recognition, reward and social standing within that specic gaming community. You will also need to make sure your site is accessible on mobile devices. One of every two minutes of mobile Internet in

Both Caesars Entertainment and International Game Technology have spent hundreds of millions of dollars on social gaming for one reason: because there is a solid business case behind it.
You have to decide on your strategy and build the site with that specic audience in mind: perhaps you want to reach unregulated gaming markets, maybe you want to push out your brand in soon-tobe-regulated markets, or perhaps you want to try out new and innovative gaming formats? Whatever your strategy, speed to market is vital. There are rumours that fty new casinos will launch on Facebook in the next six months, so you need to be sure once you the UK is spent on Facebook. Cloud-based server technology will be a prerequisite, you wont need concurrent user scalability in the tens of thousands, you will need it in the hundreds of thousands. It is an accepted statistic that the online real money gambling industry has reached its current level of circa 55 million active users in just over sixteen years. The top ve social casinos in Facebook have reached that number in just six years; food for thought.

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THE FOURtH WAVE Of LEGAl GAMBlING

Everyone recognises that legal gambling is rapidly spreading across the world. But few understand that gaming is changing in other ways that are unprecedented in human history. Its not just the Internet. Technology is changing society, and us.
Attention spans have changed. Its not only the young who cant stand the long waits between horseraces. As poker pro Mike Caro put it, Its like playing a hand of poker and watching the dealer shufe for 20 minutes. Poker, a game invented during the Civil War, may not appeal to people who play four or eight tables at a time on their screens at home. Poker players wear headphones and tweet and text between and even during hands. If they could, they would be playing Internet poker at the same time theyre holding paper cards. The game itself is changing. Tournaments are streamed with only a few minutes delay. that players are getting bored by winning too easily. Sometimes, the game is made easier, when it appears a player is stuck at one level. In the past, gambling has swept across the world, and then been swept away, through long cycles of permissiveness and prohibition. In the US, we are in what I call the Third Wave of legal gambling. The prior waves can help us make predictions about the coming replacement of cards and dice with electronic images. People will bet on anything. But technology determines whether a form will spread throughout a society, whether the gambling will reach the stage where it is seen as a social harm, and how the law will react.

Will reexive play be allowed for true gambling games?

For years, casinos have been shufing up when they suspected card-counting, making the game more difcult for players who are winning. But Ive always felt it was cheating for a casino to count cards itself and shufe up when the remaining cards favoured the players. It is against the law for an operator to change the games basic odds of winning and losing.

The First Wave

The First Wave started with lotteries funding the original colonies. There was not much scal infrastructure, so, without banks, houses were sold through rafes and roads were built through lotteries. The technology of the time meant that paper tickets were used. But, because communication was slow and difcult, lotteries were considered only of local concern. The same is even more true of casino games. The industrial revolution led to reliable roulette wheels and square dice. But the law saw gaming as a local issue, not something of concern to the federal government. The First Wave crashed with lottery scandals in the 1830s and 40s and the religious revival known as the Second Great Awakening. Almost complete prohibition reigned until the Southern states turned to legal gambling as a voluntary tax, to rebuild after the Civil War, and Western states allowed casinos as an accepted part of frontier society.

A Fourth Wave of legal gambling, based on new technology is rapidly spreading... State lotteries will be the rst to adapt social games to play for money.
So, pros have followers who tweet them what their opponents hole cards were. New Internet and mobile phone games measure their success not in years, but in days, or even hours. An important measure of a games success is one-day retention: how many players still want to play the game the next day. But seven-day retention is critical, because long-term is dened as one week. And a week is a long time. Operators change online games many times during a day. Social games are often reexive; they change in response to the actions of the players. Sometimes, this is done to make the game more difcult, if the operator thinks
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But the games themselves can at least be made more interesting. I asked a 22-year-old what she would use for money if she went to a casino, since she, like everyone she knew, never carried cash. She replied, Why would I go to a casino? Slot machines are stupid. And they are stupid, to a woman carrying far more sophisticated games in her pocket. Casinos would not have to worry, if it were only the e-generation. But, apparently, the typical social game player is a 44-yearold woman, a prime slot machine market. And the fastest growing demographic for Internet and mobile games is men over 55. (Of course, that may be because everyone else is already playing online.)

The Second Wave

This time, the lotteries did sell their tickets everywhere. This was especially true for

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the biggest, the Louisiana Lottery, also known as The Serpent. States without lotteries, like New York, found they were powerless, because tickets could be shipped everywhere, quickly, by train. So, these states passed laws, which are still on the books, expressly making it a crime to sell lottery tickets even if the lottery is legal where the drawings take place. And they asked Congress for help. The federal anti-lottery statutes of the 1890s were aimed at the technological aids of the era. Express prohibitions were placed on sending paper tickets or advertisements across state lines or through the US Mail. But because no one thought about running lotteries using telegraphs or telephones, those means of communication were not included. When rst, radio, and then, television, was invented, the anti-lottery laws were amended to include those media, with some strange results: the California State Lottery cannot advertise over TV in Nevada, which does not have a state lottery, because we do not want the good people of Las Vegas hearing about the evils of Californias legal gambling.

Technology determines whether a form will spread throughout a society, whether the gambling will reach the stage where it is seen as a social harm, and how the law will react.
successfully, with games that could be uploaded from CDs more than 12 years ago. Treasure Tower was technically a scratcher, a paper card revealed the code numbers to be imputed for the game played on the patrons own home computer. Players had to solve puzzles in various rooms they were sent to in a pyramid. If the patron got stuck, he could click on a little man to give him clues; there was no skill involved. Today, almost all of the provincial lotteries of Canada are operating games like Internet poker, or are about to. Before pulling back for political reasons, the DC Lottery was going to offer online games like blackjack, poker and Battleship. The Nevada Gaming Control Board has recommended that the rst licenses for Internet gaming suppliers be issued to International Game Technology and Bally Technologies. They have now been approved by the State Gaming Commission, allowing the companies to manufacture and provide interactive gambling systems. The expectation is that Nevada operators will start operating real-money Internet poker, intra-state, before the end of the year. It is impossible to know exactly what the casino, lottery and other traditional gaming industries will look like, or whether they will even continue to exist. The success of baccarat, the simplest of card games, in Macau, shows there is still a market for non-electronic gaming. Of course, it also helps to have a monopoly in the worlds most populous nation. But China is not the world, at least, not yet. The card table equivalent of ipping a coin cannot compete in the developed world with video poker. As education spreads in China, baccarat will inevitably be replaced by games with at least the illusion of control, and lots of digital bells and whistles.

The Third Wave

The Third Wave started with the Depression; in 1931 Nevada re-legalised casinos. This time, technology led to not only widespread lotteries but other forms of betting which depended upon reliable machinery and electronics: off-track betting, electro-mechanical slot machines, and keno. Even bingo, poker and craps required apparatus that could be trusted by both players and operators.

The Fourth Wave

But now a Fourth Wave of legal gambling, based on new technology is rapidly spreading. It is hard to envision the e-generation sitting in front of metal boxes with simulated spinning reels in casinos as large as warehouses. State lotteries will be the rst to adapt social games to play for money. Six states are already selling lottery tickets online. But Internet customers do not want to wait days to nd out if they have won. Lotteries in Qubec and Iowa experimented,

Prof. Rose is recognised as one of the worlds leading experts on gambling law, and is a consultant and expert witness for governments and industry. His latest books, INTERNET GAMING LAW (1st and 2nd editions), BLACKJACK AND THE LAW and GAMING LAW: CASES AND MATERIALS, are available through his website, www. GAMBLINGANDTHELAW.com. Copyright 2012, I. Nelson Rose, Encino, California. All rights reserved worldwide. Gambling and the Law is a registered trademark of Professor I. Nelson Rose, www.GAMBLINGANDTHELAW.com.

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THE SOCIAL BEHEMOtH

Zynga has been described in the iGaming industry as the PokerStars of the social poker market, boasting over 30 million players a month and without a serious contender to challenge its leading position. Earlier this year, the company branched out into social bingo and has just launched a new slots game under its casino franchise. To complete this issues focus on social gaming, iGaming Business spoke to Nicole Opas, Executive Producer of the sectors most inuential and innovative developer, Zynga.
In this age of social media, networking and gaming, was bingo a natural extension to Zyngas portfolio given the games inherently social nature?
Absolutely. Games such as bingo have been around for years in one form or another and represent some of the most cherished forms of entertainment. Weve learnt from our players feedback and that they want to play their favourite games with their friends, so Zynga Bingo was denitely a natural t for us. with our Zynga employees. Not only did Zynga Austin work on the game, but we also worked closely with Zynga New York and multiple teams in San Francisco. For example, we have just launched a series of bingo tournaments with new, special rewards and a new tournament room to play in.

What has been your assessment of the launch so far what sort of data/ feedback have you been able to glean from your beta test?
The feedback has been that our players love Zynga Bingo. Since its launch, we have added new features and well continue to do so. One thing in particular that weve seen players enjoying are the Achievements, which reward players for playing in different ways.

Was this process the same for your poker offering?

Weve learnt a great deal from Zynga Poker over the past ve years. We know what people like to play, how they like to play with their friends, and have applied the information weve accumulated in building

What are your plans for the bingo site in the future and what sort of development can we expect?
We are always looking at new social

What are the specic challenges in creating content for the Facebook platform in terms of technology, design and playability?
I think we always ask ourselves how we can use Facebooks social graph to its greatest potential to make games that people love to play with their friends. We want to create an experience that ts into what they are looking for on Facebook. Its also an evolving platform, so it always keeps us thinking about our design and how to make our games as compelling as possible.

We want to make Zynga Bingo a beloved, long-lasting social game. Weve achieved that with Zynga Poker, and we think weve done a great job with Zynga Bingo so far.
Zynga Bingo. Zynga Poker was our rst social game and we have built up a great relationship with our players by improving the game with the features that theyve asked for over those ve years. features and are constantly listening to our players. We also play a lot ourselves, so that also helps us brainstorm. So, in terms of what is next, Id say to watch this space.

In terms of template, I know your studio team in Austin created the bingo platform, but was this purely in-house design and build or was there a period of research to see how the best current bingo software works online?
We designed and built the entire game
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What is Zynga Bingos USP?

The difference with Zynga Bingo is social. As one of the largest bingo games on Facebook, there is always a room to play in and a lot of new people to play with. We also offer several different room styles and evolving games with new features.

What are your expectations for Zynga Bingo? Do you think it will have the same sort of appeal as your successful poker brand?
We want to make Zynga Bingo a beloved, long-lasting social game. Weve achieved that with Zynga Poker, and we think weve done a great job with Zynga Bingo so far.

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Social gaming is a hot topic in the real money gaming industry at present. How do you see the social gaming environment developing into the future?
I think we are just at the beginning. Zyngas vision is to bring play to the world and get a billion people to play together. We want to make play a daily habit for everyone, everywhere on any device, on any platform.

Why do you think the social demographic is keen to embrace casual applications like bingo and casino? Or rather, why do you think Zyngas gaming products have been so successful?
In the case of our casino franchise, weve taken games that people know and love. For generations, people have been playing these

Finally, what can we expect from Zynga Casino in the future are there any developments to follow on from the bingo launch?
We recently announced the next game in our Casino franchise, Zynga Elite Slots, which is a story-based slots adventure. Players will journey through the

Rather than brands like Zynga moving into real money gambling, do you foresee traditional gaming brands adopting non-gambling strategies for the social space and its demographic?
I think gamication is a huge strategy for all types of brands, regardless of industry. An example is how Nike+ inspires people to interact with its brand and its friends by challenging and rewarding runners after they accomplish milestones.

I think we are just at the beginning (with social gaming). Zyngas vision is to bring play to the world and get a billion people to play together.
games with family and friends, and weve been able to make them super-accessible and social in a new way. We then offer lots of surprises and heightened game experiences for our players that they learn to expect. As a company, we are always looking to innovate and invent new social game play. enchanted forest, ght the evil witch, discover lost treasure in the Atlantis, build a CityVille skyscraper or test their mettle in a showdown in the Wild West. The game will offer new stories and game features on a regular basis after the initial launch, so stay tuned.
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Management & Marketing

SOCIAL AND REAL MONEY GAMBLING

A match made in heaven or hell?
The talk in the gambling industry these days is increasingly focused on social gaming, where it is going and how, if possible, could it converge with traditional online gambling and, if so, what would be the effect on overall revenues. And the stakes are high. Annual revenues for social gaming are, according to the market research rm, Parks and Associates, forecast to be $5 billion by 2015 and traditional gaming revenues are at 32.4 billion according to H2 Gambling Capital. Increasingly, operators are looking for the Holy Grail, where the ability of social gaming sites to create more entertaining mass market experiences, combined with the proven expertise of traditional online gaming to maximise their return on investment, could lead to a signicant rise in revenues. it could generate are simply too high and, in the current economic uncertainty, too important to be ignored. But, as of today, no one, as the recent GIGSE conference in San Francisco demonstrated, knows how or when. What everybody does know is that, when regulation does nally happen, it will be an expensive game to play. There will be licenses to purchase (a price of $30 million has been touted for California alone), marketing budgets for each jurisdiction (which are not insignicant), compliance with the varying regulations, stafng up, increased infrastructure costs and so on. The days when, as Sir Mark Weinberg once remarked, it was the pioneers that got scalped are over. First mover advantage is going to be absolutely key. Recently, bwin.party announced that it was setting up a social gaming division, to be called Win Interactive, in which it was proposing to invest up to 40 million over the next two years. Part of that investment has been the acquisition of Orneon Ltd, a Ukrainian development studio who were reputed to be involved in the development of Mytopias Bingo Island and some mobile games for Slotomania, which would be consistent with bwin.partys conrmation that Win will develop products not only for desktop but also importantly for mobile social networks. The plan is for Win, like the majority of other social gaming companies, to operate on a freemium model with revenues derived from the sale of virtual currency and virtual gifts in addition to income from banner ads, paid search and special offers. to do so. In May this year, however, it was announced that Facebook had no plans to offer gambling or even cash-based social gaming, according to David Altaner of Gambling Compliance. Julian Cordorniou, Facebooks head of European Partnerships said that he thought it unlikely as theres too much money in free-to-play games. Meanwhile, Zynga, operator of Zynga Poker as well as the cow and crop-raising favourite, Farmville, has apparently said it is in talks with partners to explore real-money gambling, leading many to speculate that it would begin with social games where you can win cash as well as spend it buying virtual chips. In other words, no one yet knows how or when convergence will come or even what it will look like when it does. In the meantime, everyone is exploring the area and considering their options.

Convergence
Over the last 18 months, there has been a discernible increase in interest in and preparation for convergence, although, in absolute terms, the chasm that divides the two (social and gambling) remains as wide as it has ever been. In May, 2011, Caesars purchased 51 percent of Playtika, the Israeli social gaming company, at a $90 million valuation, purchasing the remainder in December, 2011. In January, 2012, IGT, which makes real world casino games and gambling systems, agreed to pay circa $500 million for Seattle-based Double Down Interactive, a developer of casino-style Facebook games that at least, technically dont involve any actual gambling. Interestingly, both these acquisitions point to a growing belief that the land-based industry in the US is viewing social gaming as a routeto-market in a pre-regulated environment. Regulation to allow online gambling in the US is undoubtedly coming. The tax revenues
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Three steps
It seems to me that there are essentially three scenarios as to how this could pan out. The rst is that social casino games reach a wider, more mass market than real money gambling, and this generates a large user base which could act as a feeder and push players through to real money games. This is essentially what Gioco Digitale did in Italy pre-regulation with its free poker offer. Once regulation happened, a lot of free players switched, allowing it to be sold to bwin ve months later for a considerable premium. In effect, it acts as a pre-regulation land grab and that is why, with America inching towards regulation, there is so much activity and interest being shown by putative US operators. The second scenario accepts that social and real appeal to different audiences for different reasons. They both have viable business models and will, therefore, continue to operate within their own separate verticals.

Facebook
All the while, Facebook is conducting a will they/wont they debate on whether it will open its platform to real-money online gambling in the UK. In November last year, it was rumoured to be in exploratory talks

Management & Marketing

The third is that social will meet real somewhere in the middle to create an as-yetunidentied hybrid. This could be social; not just offering chips for no return, or real; not just offering real cash play. More likely still is the possibility that it is not just a hybrid variant of an existing real money game but is, in fact, something entirely new. Incidentally, all three scenarios are capable of being both independent and interdependent. If that all sounds complicated, however, the waters are about to be muddied still further by the announcement that the UK Gambling Commission is to investigate the rise of social gaming in a move that could affect the strategies for online operators looking to increase their presence in the sector. Companies that make games for social media sites such as Facebook are under scrutiny as fear grows over the increased blurring between social gaming and gambling for money. The key question is, is it gambling or not? asked John Travers, the Commissions corporate affairs manager. However, as it stands, the key question should be what constitutes gambling? Currently, it is possible to play on social gaming sites absolutely free, providing youre not adverse to watching a few advertisements, and, if you are willing to hand over some cash to buy chips, you are not allowed, in the event that you win, to ever cash any of them in. None of this sounds like gambling. If it did, it would be akin to having a betting strategy that only allowed you to bet on ante-post non-runners. More importantly, it is conceptually much closer to subscription based Massively Multiplayer Online Role Playing Games (MMORPG) like World of WarCraft, where you pay to be involved and to keep on playing and, if you want to improve your performance or extend your time, then its possible to spend thousands of dollars on a suit of virtual armour. The Gambling Commission cites a social gamer that spent $13,000 in just three months on free-to play games as an example of its gambling nature. Surely, however, whether its more chips or more weaponry, the motive is exactly the same. Yes, there is an issue of how old players can be. Its 18 for cash games and only 13 to be on Facebook; and yes, there is a danger of normalising gambling games through social

Cash gambling, it seems, is bad, not only when it lets you lose too much money, but also when it doesnt allow you to lose any. Perhaps we should distinguish between the two types as social and anti-social gaming.
gaming but that is no different from many cash gambling sites that offer players the opportunity to play for free. And the average age of the new social gamer is 50 according to a survey carried out by Information Solutions Group for PopCap Games. Cash gambling, it seems, is bad, not only when it lets you lose too much money, but also when it doesnt allow you to lose any. Perhaps we should distinguish between the two types as social and anti-social gaming. Joost Van Dreunen, managing director of New York City-based Games Analytics and a Professor at New York University (of video gaming no less) does not believe Facebook will ever accept cash gaming. Its like saying, lets advertise Tobacco and make lots of money, he says (although Im not sure it is at all). Indeed, he goes on: theres never going to be a casino section a red light district on Facebook. Its just not in the nature of the company. They have to be wholesome. Whether or not hes right, he is right to acknowledge that en route to convergence, any hybrid of social and cash gaming is likely to be viewed through subjective and puritan perspectives, particularly in the US. It is in this light that any fusion should be considered. What will drive revenues, margins and the success of any hybrid games will not be regulators or operators (directly). For convergence to be a success, it must tap-in to future consumer behaviour. David Abbott, the advertising guru, once likened launching a product to shooting a bird, in that you had to aim in front of it if you wished to hit it. Give consumers something they enjoy playing and enjoy spending money and time on and forgive the expression you are off to the races. More practically, whatever game it is that achieves that must also be able to work across the multitude of different screens and the multitude of different behavioural patterns that appertain to each type of screen. Research has shown that the same people look for different things at different times of the day on different screens: mobile on the move, mobile at home, tablets, laptops, PCs at work and at home, Connected TVs, and so on. Moreover, when you consider that in the US more time is spent consuming mobile media than in reading newspapers and magazines combined, it is an important consideration. The barriers this time are not technological. They are human.
Simon Burridge is CEO of Virgin Games. Having completed his degree in History at Queens College, Oxford, Simon spent 18 months traveling around Africa and France, where he taught English extremely badly to a series of increasingly bewildered Parisian secretaries, waitresses and unemployed, before nally succumbing to the lure of a career in advertising in 1979. In 1999, he was asked by Sir Richard Branson to set up the Peoples Lottery in order to contest the second License, formally becoming Chief Executive of The Peoples Lottery in September, 2000. In 2003, Simon rejoined Richard Branson, working on a number of projects, one of which has led to him starting Virgin Games, of which he is now the CEO.

Margin
However, there are practical issues to be considered too, of which the elephant in the room seems to be one of margin. The margin in online gambling is low at about ve percent, while for virtual chips its 100 percent or 70 percent, once youve given Facebook its mandatory 30 percent. This, to me, is the dilemma. Both industries (social and cash) are looking at it from operatordriven perspectives and are being informed by the current situation on what, lets face it, has already been a roller coaster ride. As Einstein once remarked very few problems are solved in the same context in which they were created.

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