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Interview: Rocket Games, Penn National Gaming

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Rocket Games was acquired by Penn National in August 2016 for US$170m and was the leading social publisher by end of 2016. iGaming Business spoke to Rocket's Bill Gelpi and Penn's Chris Sheffield to find out more.  
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Rocket Games, founded by three senior ex-Zynga staff in 2013, became the fastest-growing property in the social casino space at the back end of last year after capitalising on the largely underserved three-reel mechanical slot niche. Enter US gaming and racing operator Penn National Gaming, which in August agreed to pay up to US$170m for the San Francisco-based developer. iGaming Business speaks with Rocket Games chief executive Bill Gelpi to find out how it engineered its dramatic rise and discuss how the acquisition fits into Penn’s social and igaming strategy with interactive managing director Chris Sheffield.

iGaming Business: How did the acquisition by Penn National come about? Were you actively seeking a capital injection?
Bill Gelpi: We had the good fortune of being profitable from our very first year of operation, and that gave us a great deal of stability. We were not seeking capital injection, but our philosophy was always to keep our options open and be willing to move swiftly when the right opportunity presents itself. 2015 was a real break-out year for us with our game Viva Slots Vegas. We were recognized as the fastest growing social casino company by Eilers Research in 2015. We were highly profitable, and were in the top 15 worldwide on revenue run rate. But that type of growth generated a lot of inbound interest, and we recognised the value of forming a strategic partnership to help take our business to the next level and to help solidify our leadership position in the category we were in. And with that inbound interest, we decided to partner with Oroco Capital to help us manage the process. They were the ones that introduced us to, fortunately, Penn National, and we just really hit it off. We saw a lot of strategic value in joining forces, and we’re excited about the road ahead.

iGB: You’ve been bought by a US land-based operator which runs a social business leveraged off this. What change of strategy and approach will this necessitate?
BG: Being part of Penn obviously opens up a lot of possibilities that we can explore together, but in principle, how we run the business has not changed. Our product roadmap is born out of our understanding of our customers, the market, our strengths and weaknesses, what our risk appetite is and our expected return on our investments. We’revery data informed, we have great analytics and we’re constantly looking for opportunities to grow the business. So really we’re just looking now to leverage as much as we can our relationship with Penn and our shared assets together, and that obviously opens up some new possibilities and we’re definitely exploring them.

iGB: You are one of the few more recent entrants to carve a niche in a social casino space dominated by a few big, well-funded players, the majority owned by US land-based casino manufacturers. Was there a “click” or tipping point for Rocket?
BG:As an outsider it might look like there was a click or a tipping point, but we were delivering meaningful revenue in our first year of business, and we’re really proud to be one of the few self-funded software companies to come out of Silicon Valley in recent years. Our approach has always been firstly to prioritise customer retention and engagement, secondly, to figure out user acquisition, and thirdly, monetisation. We have always adopted a philosophy of shipping our product fast, testing our core assumptions, hypotheses, various technicalities. We were lucky with our first product that came out, as we had phenomenal retention. After that we spent really the next 18 months growing our network of players. Once we had the network, we started focusing on monetisation and testing hypotheses to improve our monetisation. When we started focusing on that, we had some great success. That led to Viva Slots Vegas, where we more than tripled our paired conversion rate, and at that point we had several hundred thousand daily active players, so had the network of players and technology platform to really capitalise on that opportunity when it did hit. You can say that’s a tipping point, but from our perspective, it was a process of developing the technology, the network of players and the customer insights over the past few years that really led to that breakthrough.

iGB:The space has obviously got more competitive since 2013 when you entered, and CPIS are spiralling, so what advice would you give to startups trying to follow your lead today? Is it now possible to enter and scale without a huge pot of cash? 
You’re right, things have changed quite a bit, and I ask myself the same thing. First you really have to know yourself what your motivations are, before you enter the space. Obviously, your approach is gonna be dependent on your goals, and you really need to be fully committed to those before you start, but you also have to be flexible in how you’re going to approach achieving your goals. If you’re just in it for the money, you’ve got to recognise the gold rush is over, as it’s a lot harder to grow these days than it was when we started in 2013. Unless you have some real strategic advantage in entering igaming or you truly love the industry, I think you may want to look at an alternative area where growth might be faster or easier, where there’s a lot of emerging technologies that are growing quite rapidly, albeit from a smaller base.

But assuming you’re a new entrant committed to the igaming business, I would say that too many resources can actually be a distraction. It leads you to believe you can compete on the same dimensions as the incumbent leaders, and that’s a relatively harder and riskier way to grow. My advice to a new entrant would be to be contrarian. Look at the areas where there’s been less innovation recently. Bingo and poker come to mind as areas that, in my view, have been relatively stagnant in mobile recently. Try to build something that’s really differentiated from the competition. Try to provide value on a new dimension to customers. An example is some of the work that Murka and Huuuge Casino are doing on bringing in innovative mechanics and elements from other games, RPG elements targeting new customer demographics that are underserved. They’ve done a great job of delivering value in a new dimension. I think our success as well, with Viva Slots Vegas, was born out of finding an underserved market in building games and entertainment that was very different than what was already out there.

And then, beyond that, from an execution standpoint, focus on testing one big hypothesis at a time, and be willing to get to market fast and bail early and learn from your mistakes. Realise, though, that most of the winners in the space are not overnight successes. So, learn from your failures and never stop experimenting.

iGB: Many elements come together to make a successful social casino product – from content, to analytics, to live ops, to acquisition strategies. What were the most valuable lessons you learned during your climb to success?
BG: It’s an incredibly competitive space. Every month, dozens of new products are coming into the market and we’re always very humbled to see some very good products that don’t always make it. To build and operate a business here requires not just designing great content or having great content, but understanding how you’re going to distribute that to customers in a profitable way. Also, how you’re going to manage your live ops weekly to drive long-term retention and engage the players. The reality is that most of the distribution in the space happens through paid user acquisition and many of the players in the space are buying on 12, 24, 36 month time horizons. So you have to have a product that you’re committed to building and growing and operating for the long term in order to compete in that space.

iGB: The transition from Facebook/canvas to mobile has impacted the fortunes of publishers to varying degrees. What challenges has this posed to Rocket Games? Were you less affected due to entering later, when this transition was already well underway?
BG: I think we were less affected by entering later. When we started in 2013, the offering of third-party services and products that support game development had really developed over the previous five years. And we were able to reap the benefits of building from the ground up a mobile text app using those third-party tools and services, without the distraction of having to support a legacy desktop business. Technology is cyclical. Early adopters on the platforms do get to reap a lot of the benefits of being first to market, but they don’t have the tools and infrastructure that are in place for later adopters such as ourselves. On the whole, I would still prefer to be an earlier adopter than a later adopter, but for us as a bootstrap company, we really benefited from entering the market later at a very favorable time as a self-funded developer.

iGB: There’s a lot of talk about mobile opening up new constituencies such as Millennials. Is this transition helping shift the demographic make up of the social casino audience away from the traditional core constituency for social casino?
BG: Because we’re developing slot experiences that are very evocative of what’s on the casino floor, I think we have the same audience as the early entrants that developed on desktop. It is still the core 45-55 year old Americans, slightly skewed female. The way we see it is that players want to play, whether on desktop, mobile or, in the future, on smart TV, in a format that’s convenient to them and that suits their preferences, and I think it’s still the same audience, really. With regard to helping shift the demographics, any technology that lowers the barrier to entry for consumers is going to increase adoption. There are a lot of people playing social casinos these days that don’t identify themselves as gamblers, but enjoy the entertainment and the thrill of playing slots at home. It’s driving an increased acceptance of slots as a form of entertainment. There’s a lot of people that are playing without having to spend money, and it’s a great way to grow the audience of slot players.

As for bringing in new consumers, social casino has an opportunity to play a really big role, mainly because our development, deployment and testing cycles are so much faster than in land-based, and that allows for an incredible amount of innovation. The barriers to entry for developers are very low. You can build a game and put it on the App Store or Google Play in a matter of weeks, if you know how to build games. So it’s enabling a lot of innovation, and I think that innovation will reach back into the casinos in the future. As mentioned earlier, there’s already slot games on mobile that are starting to incorporate RPG elements and combat systems and we’re seeing a host of emerging slot games and other game types.

iGB: Rocket Games centres around a data-led, analytic approach to slot development. Which elements are most critical and revealing when you drill down into why a particular slot machine works or doesn’t work?
BG: Slot machine design is extremely complex. Not only is it an infinite problem space of how you can design the game, but what’s also unique is the random nature of the game. Every individual’s experience is going to be different. Additionally, players come to the game with prior experiences and preferences that form expectations as to how they perceive the game. When it comes to new slot machine development, qualitative feedback is still what we find the most revealing. Ultimately the games are designed to create an emotional response in players, and it’s difficult to capture that understanding in aggregate player data. Big data is great to identify machines that are over-performers or under-performers, but you really need to couple the qualitative data with good design experience to understand why those machines are over- or under-performing.

iGB: So how do you collect and incorporate player response and feedback into development?
BG: There’s a lot of different tools and techniques, because we’re a mobile experience and our highest engagement point is on people’s phones and tablets when they play our games. So, building in in-game surveying systems to collect feedback from consumers as they’re playing the game, after they’ve played the game, reaching out to players in our fan pages and through customer service channels. Any channel in which you can communicate with the players is an opportunity to collect their opinion. But internally we’ve developed tools to easily test our new games within the team and with a small beta group of consumers so that we can get early feedback in our development process before those games are released.

iGB: Facebook/iOS/Android are obviously the dominant platforms, but where do you see the most potential in terms of nascent and emerging distribution channels (i.e. Windows 10) and why?
BG: As a developer, you have to keep your options open and be ready to deploy on any emerging platform that gets significant traction. It’s pretty hard to say right now where the platform growth is going to come. iOS and Android and Facebook are just so big and so dominant. That said, thanks to newer cross-platform technologies like Unity game engine, developing in one place and deploying everywhere is becoming a lot easier. So it comes down to watching where the players are gaming and being willing to experiment quickly with emerging platforms. One area that I’m excited about is smart TVs. I think adoption cycles are a bit slower, because people don’t buy TVs that frequently, but it’s a great format, and I think we will see people gaming more on their TVs in the future.

iGB: How do you see the application of VR to social casino? Is this an area you are developing for, or are you adopting a wait-and-see position?
BG: We’re all excited as game developers about the possibilities and immersive experiences that you can create in VR, but I think it’s a little too early for us. We’re going to wait and see how the platform develops, what technologies develop around it, and how consumers adopt it before we move in.

iGB: So how long have you been looking to acquire in the social space for, and did you kick the tyres on a lot of publishers before moving for Rocket?
Chris Sheffield: 
Penn as a business is always looking to grow, either through acquisition or organically. If you look at our land-based business, last year we opened a casino in Massachusetts, Plainridge Park, which we built and operate ourselves, but we also acquired Tropicana in Las Vegas, which we manage. We take exactly the same approach with the igaming business, where we are building our own assets, but where it makes sense and we can see a really good fit, we look at acquiring businesses as well. So we’re constantly looking at new opportunities, not just in the social space but also in real-money and other sectors where we’re already involved, such as e-wagering.

Clearly, Rocket has a lot of synergy with our business. The content is very closely aligned to what we have on our casino floor, and it is one of the best social casino operators out there. We’re really impressed with the team, their energy and the speed to market. The way these guys operate is unbelievable, I’ve never seen anything like it. The majority of your fellow land-based operators in the US have opted to partner with third-party providers to deliver branded social platforms for their audiences.

iGB: Why did you decided to acquire a social business instead?
CS: We’ve actually taken a portfolio approach with social. It’s very similar to the Playtika strategy, or even if you look at Scientific Games now, in most places, they will have three or four different platforms. The content on our casino floors appeals to different types of customer, and in our view, there’s probably three genres of social casino content. There’s the casino-branded games produced by the manufacturers, such as Scientific Games, IGT and Aristocrat. We have a platform supporting that content, HollywoodCasino.com, that launched at the beginning of the year. The second category is where Rocket really excels, the classic slots, an area they’ve really taken hold of over the last two years. The third area is the more social games, such as Scatter Slots and also those developed by Huuuge. We’re trying to build a portfolio of content that appeals to all of our customers. So the idea of having a blended mix and operating it as a portfolio has been part of our strategy.

iGB: The Big 3 slot machine manufacturers don’t yet license a lot of social titles that would be most familiar to your land-based casino patrons. Is this all going to be made available to land-based casinos such as Penn looking to leverage social businesses off their land-base?
CS: The platform for Hollywoodcasino.com is provided by Scientific Games, and there’s actually some of their classic slots content on there, such as Aftershock and Dragon Wheel, both titles from their land-based business. I think in future, the DoubleDown guys, IGT and Sci Games are going to start providing more of that content, and we’re going to see a lot of the land-based operators that are running on, for example, the Scientfic Games or GAN platform, starting to integrate more of the slot manufacturers’ content, be it from Konami or Aristocrat or the other manufacturers as well.

iGB: So you see the slot manufacturers moving to a more open platform model in social, as happened with the likes of Playtech and Microgaming in the real-money space?
Yes. We want to try and exactly emulate the casino floor experience in social, so there’s the exact same range of content available to the customer. That’s always been difficult because slot manufacturers have not necessarily wanted to work with each other, but that’s beginning to open up. You can now see a model that’s looking very similar to the real-money model found in Europe and now New Jersey, where you have Scientific Games and Aristocrat content all side by side.

Speaking to other guys in my position at other land-based operators, we’re all pushing very hard for that, because we want to be able to offer the content we have on the casino floor. But we also want to offer new content from platforms like Rocket, which I think is appealing to the customer base, and hopefully, also appealing to new customers and the younger demographic, helping them engage with our business as well.

iGB: So when do you think those games will become available on that basis?
CS: I think in the next 12 months it will happen.

iGB: Rocket arguably made real headway when it realised the appetite among US casino patrons for three-reel mechanical slots was underserved on mobile. Was this alignment with the land-base a driving motivation behind doing the deal?
CS: We did really like the content and knew it would resonate very well with our business. Rocket does have a lot of three-reel mechanical slots, but also provides video slots and has a team that can create and develop new content really quickly. So, in the future we’ll be looking at developing other types of genre as well.

iGB: It’s been reported by US casinos that many of their patrons are already playing social casinos, as I’m sure is also the case for Penn. How will you persuade these players to be loyal to you, as opposed to spreading their activity around a number of other social casino brands?
CS: We actually surveyed our customers about 18 months ago, and found that nearly 50% were already playing social casino. At that time, their favorite game was DoubleDown, and their second favorite was Jackpot Party. They were clearly choosing and playing content they knew from the casino floor, which prompted us to jump into this at the time we did do.

In terms of how do you get and retain them, it’s about treating them as real customers. Our social games now are integrated into loyalty programs, so you can earn points when you play Rocket Games or a Sci Games product. Great product is of course important, and again, Rocket ticked a box there, but then it’s all about how you look after the customers, the CRM. Land-based casino businesses understand that very well, and are excellent at managing their VIPs.

Customers have a choice in the land-based world as well. If you go from one Las Vegas casino to another, those guys are using exactly the same tools we have, so persuading social casino players to do so with us comes down to getting all those factors right.

iGB: You acquired in the social space as Caesars exited with the sale of Playtika. Did this speak to the potential and growth of the space going forward, or merely Caesars’ individual circumstance?
The timing was pretty perfect, and Playtika is a fantastic business that I admire a lot. They got just about everything right and pretty much single handedly grew this sector.  The timing was spot-on in terms of capitalising on interest in this area and, given where Caesars is as a business, it had to look seriously at that kind of offer.

But moving forward, I think there’s more growth in this market and a big opportunity for land-based operators. They’ve been really slow to get into this. The same thing happened in real-money in Europe; it wasn’t the land-based operators that really got into it first. Eventually they did realize what the opportunity was, and the social casino market is probably getting to a point now in North America where it’s maturing. But there’s opportunities for the land-based operators in particular to get more market share by offering things a pure online social operator just can’t offer, the whole customer management, the ‘real’ casino experience, all of that.

iGB: What key initiatives can we expect to see from the combined business come to fruition over the next 12-18 months?
CS: Developing more great content and in different channels to our customers. The team at Rocket Games is creating games very quickly, and what’s really interesting me is the virtual-type game, the third genre I mentioned earlier. We’d like to explore this area over the next 18 months or so, to build more social features into the games  – I really like the Murka and Huuuge are doing – and make them more engaging with more depth.

The other area that is a bit unique to Penn is the online wagering business, Hollywoodraces.com. As you know, it’s legal in a lot of US states for people to bet with real-money on horse racing, and over the next 18 months you’re going to see some interesting developments there, as we’re looking at taking a new approach to how that product is offered to customers in North America. And hopefully we’ll also be running a real money igaming site within the next 18 months or so!

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