Build vs. buy: should operators develop their own casino platform?
Gambling operators always have plenty to consider when deciding whether to build or buy their own casino platform – and their perspectives are rarely set in stone over the lifespan of the business.
While start-ups will often use third-party vendors to gain a foothold, established operators with sufficiently deep pockets may be tempted to pursue the development of their own platform. However, that is not always the end of the matter – especially as business needs and personnel change over time.
“It is a cyclical process at an operator level,” Steven Valentine, chief commercial officer at Comtrade Gaming, says.
“Operators will often use a third-party vendor, but after a while, they may feel the provider is potentially holding them back or not delivering what they want. So they decide, ‘maybe we should do this in-house’.
“Over time, through expertise leaving the business, that platform or technology may become old and start falling down, and they might decide to go to market. That is quite a long cycle – typically anything from eight to 15 years – but that story does seem to repeat itself many times.”
Scale as a starting point
Comtrade, which provides IT solutions across multiple sectors, launched its first gaming software project in 2001. In 2010, Valentine joined Comtrade Gaming, which is headquartered in Ljubljana, Slovenia.
With over two decades of experience in the sector, Valentine is well aware of the key factors operators will consider when deciding whether to build or buy – and the scale of the operation is the starting point.
According to Valentine, an operator that generates less than £250m in GGR per year is unlikely to consider building. However, once they surpass that threshold, the opportunity to build becomes a distinct possibility.
“Once you get to that size and scale, it can make sense to sit on your own technology, because you have the resources, but that has to be backed by a long-term commitment to it,” he says.
“It is always about what they feel is the best way to execute their business strategy. Is the technology they have holding them back? If they did it themselves, would that allow them to move faster and do what they want to do, or did they just not pick the right vendor in the first place?”
Unrealistic expectations
Building, however, is a significant financial commitment – and many are unrealistic about the overall price tag.
Valentine explains that operators often underestimate the time and resources required to make an in-house casino platform work beyond the launch. For instance, overheads such as 24/7 technical support have to be factored into the equation.
“The anticipated budgets and timescales are often extremely optimistic,” he says. “Building an iGaming platform is not like building a small piece of software; this is a huge enterprise-level piece of software.
“Typically, the investment in the launch is the same year after year after year. There is no huge ramp-up and then huge ramp-down. The size of team it takes to build an iGaming platform for an individual operator is the same size of team it takes to maintain it and continue to build it.
Are you prepared to effectively become a tech company? It is very difficult from a mindset perspective.
“Over time, the cost of ownership probably increases, because the complexities of what you build become bigger and bigger. There is also always a cost of transferring knowledge internally as people leave and new people join.”
Ongoing costs are not the only complications. Operators are also often unprepared for the cultural change that comes with a greater focus on technology development.
Valentine sums it up with the simple question: “Are you prepared to effectively become a tech company?
“It is very difficult from a mindset perspective. As a large operator, you are normally focused on the needs of the business today and tomorrow. You are not really thinking about the needs of the business in two years’ time.
“But you have to think about tech over a much longer period of time. You have to plan a lot further ahead. You cannot just be reactive.”
According to Valentine, there are few businesses that manage the transition successfully. Even larger operators still adopt a multiplatform approach.
“They have their own platform, but when they want to go into new markets, they quite often use third-party platforms because they cannot react quickly enough,” he explains.
A hybrid approach
This hybrid approach – whereby larger operators build in some areas and buy in others, for example, to launch in a new market – can therefore be an effective strategy for more established gaming businesses operating in different jurisdictions.
While speed to market is often a clear benefit of utilising a third-party vendor, Valentine also highlights how such an approach can help operators manage compliance requirements.
“It can allow operators to de-risk their entrance into new markets,” he says, pointing out that the vendors themselves have local expertise and know-how.
However, placing this level of trust in a provider underlines the importance of selecting the right one in the first place. Proper due diligence is required – and speaking to a vendor’s existing clients is a useful starting point.
“This industry amazes me sometimes, because pretty much all the information is freely available,” Valentine says. “You only need to ask a few questions, do a bit of digging and speak to vendors’ clients, and you soon get a good indication of what type of company it is.
“If there are horror stories out there, why do you expect your story to be any different with that company? When you hire people, you typically ask for references. But people go into platform deals without asking for any client references, and I find that very strange.”
While price is always an important factor in selecting a vendor, opting for the wrong provider can be far more costly, Valentine warns.
“There is a real cost of not being able to execute your strategy because you are being held back by a software vendor,” he explains.
Upfront costs
According to Valentine, vendors typically subsidise the bulk of the initial migration and set-up cost.
For operators, the upfront cost is “normally extremely cheap and bears no resemblance to what it is really costing that vendor to onboard you, especially if they are doing it properly”, Valentine says.
The cost of building could be at least five times, or perhaps much more than, what you would be paying a software vendor
A typical migration for Comtrade involves 30 to 40 people working on a project for five to eight months. Under revenue-share agreements, platform fees rise as the operator’s revenue grows.
Conversely, building a platform – and maintaining it – can be eye-wateringly expensive. Valentine cites one well-known operator for whom the cost of a platform investment has averaged approximately £60m per year over multiple years.
“Realistically, they would be paying a software vendor probably less than 20% of that in revenue share,” he adds. “Potentially, the cost of building could be at least five times, or perhaps much more than, what you would be paying a software vendor.”
That said, proprietary technology can offer clear competitive advantages in the right circumstances.
“You look at bet365 as the perfect example. They started from the ground up, built their own tech and were totally in control of their own destiny,” Valentine says.
“Developing new concepts and ideas can give you a competitive advantage because you are first to market. Nowadays, somebody else usually copies it and brings it to market six or 12 months later, but you have that initial advantage.
“You are in control of your own destiny. If you work with a vendor that is not necessarily aligned with your strategic goals, or the vendor changes over time and can no longer support you, or gets sold to somebody else, then you are not in complete control.”
A focus on profit
From a vendor’s perspective, casino platform running costs can be mitigated with economies of scale – but even then, he cites other providers in the same space as Comtrade that, he says, are “losing millions every quarter providing iGaming platforms”.
By contrast, Valentine attributes Comtrade’s position to being “very choosy about our clients”.
He adds: “We only take on existing operators who migrate to our platform, and we have good visibility from day one of what that client is going to bring to our business. We are very focused on what we can add to their business, and we grow together. We have been sensible in that we always wanted to be a profitable company, pretty much from day one.
“We went through a period in the last 10 or 15 years when many gaming companies were set up with one thing in mind: an exit. That dynamic has changed now and growth of revenue at all costs is no longer cutting through.”
For operators considering whether to build or buy a casino platform, a similar balance must be struck. Building a casino platform may bring control in-house, but if projections are unrealistic, such responsibility can come at an unsustainable cost.