With time and perspective on our hands during yet another lockdown, why not re-address the big questions of how you define your business. What value are you creating and how? Where is the value in the chain from content production through to end-user consumption, and are you sitting in the sweet spot?
A simple value chain but many blurred lines
In the online gaming sector, there are around 1,000 suppliers selling to around 3,000 operators. If asked to describe the structure of the industry to an outsider, you might draw a simple picture showing how game studios and sports data owners supply their content via platform providers to gaming operators, who, in turn, service the end-users. Simples! Or not…?
The chart above summarizes our industry by a very basic typology – do they a) make content, b) make platforms, aggregating & reselling content, c) a mix of the two, or d) something entirely different. When you define businesses in more detail, there are at least 50 different ‘types’ out there, with hybrids such as: operator/game studio, virtuals/aggregator, live dealer/games studio/operator and so forth. In fact, there are so many variations that they almost make the basic structure redundant.
From content creation through to gaming operators, let’s take a look at the quirky, blurred lines that characterise our industry.
At the content end, some studios such as Wozo Gaming or AlpsGames make and sell their own games but also act as outsourcers, supplying artwork or complete games to other studios and aggregators. These games are then marketed under the brand which commissioned the work.
Many erstwhile game creators such as Realistic or 1×2 Network have morphed over the years into the role of studio/distributors, selling their own games but also aggregating content from other studios. 1×2, for example, source content from around 16 studios (including a couple of inhouse brands) and sell their own content to around 40 aggregators or platform providers.
Taking a smaller clip on a larger portfolio can pay off. Companies might choose this strategy to exploit their customer reach, their compliance infrastructure or their game-neutral functionality, such as networked bonuses, leader boards and jackpots.
Sports content owners have diversified from data and pictures into the provision of odds, managed trading services and customer proposition widgets. Sportradar went that step further via the Optima acquisition to become a platform supplier.
Many platform providers meanwhile, such as SoftSwiss, Betsolutions or Microgame, have diversified in the opposite direction, setting up or acquiring their own game studios. A handful of aggregators, such as Comtrade and Relax or studio/aggregators such as Yggdrasil and Blueprint pitch a publisher service to smaller game labs who develop and launch games on the publisher’s game development kit (GDK). For small creative outfits, this makes sense as they do not have to deal with compliance issues nor sit in the long queues of operator integrations. They can focus on content whilst these publishers or ‘academies’ do the rest. The latter get to offer more content, again taking a smaller share, but of a larger pie.
Many casino platform suppliers have branched into sports betting and vice versa, some via partnerships, others through in-house development. Providers of the ‘newer’ verticals, such as bingo, virtual games or live casino, have since bolted on or acquired sports and casino engines too. Inspired, which set out as a virtuals supplier, now straddles most verticals while Evolution’s recent acquisition of NetEnt is an example of a new vertical provider that has diversified through acquisition into core platforms and casino content.
Meanwhile, offline casino operators such as Portomaso or Genting are muscling in on the live dealer act, setting up or acquiring live casino software and establishing ‘mini platforms’ of their own.
As a result, the ‘core’ PAM (player account management) component or main customer wallet on an operator’s site is hotly contested.
Expanding forwards, the likes of FSB offer complete trading services and turnkey white-labels. BetConstruct have diversified both backwards into sports and gaming content but also forward into operations. The likes of IGT and SoftSwiss have most parts of the value chain covered, albeit via acquisition.
At the other end of the chain, you have a number of traditional operators such as Bet365 and Flutter who set up or acquired their own studios (Core Gaming, Cayetano, Betfair Games and Bet365 Games) whilst others such as Betvictor or Alea, having built their own casino/sportsbook platforms, then decided to set up B2B divisions, selling their platforms to other operators. They can claim intimate knowledge of their customers’ customers’ needs, which may appeal to new operators.
So, plenty of complexity but it begs the question as to what level of diversification is appropriate. Here are a couple of tips on how to (re)define your business and make those choices to expand or refocus.
Redefining your gaming business – where do you play?
As with any two-dimensional matrix, it’s easy to oversimplify things but this isn’t a bad place to start. How do you define your current business and what is your direction of travel? Grab a pen maybe and sketch out your business here by adding a tick mark, a traffic light or a turnover figure in the relevant boxes. You might want to split it down further by subproduct (slots vs table games, or sports vs esports etc.) or you might want to add other verticals such as FX, skill and social gaming too. Need to add other dimensions such as time (now vs future), geographic ambitions or offline vs online options? No problem. The important thing is to revisit those key questions from the top.
Why/how does diversification happen?
There are many possible reasons why companies straddle different verticals and different parts of the value chain. These can be the result of conscious decisions or, as is often the case, a gradual or accidental migration into new product lines.
Conscious diversification may arise for these reasons:
- You are sweating existing assets, such as a broad customer base or in-house technology
- It is a simple ‘math’ equation of [one-off acquisition/set up investment] / [n years x n revenue share costs per year]
- Your own content output is too slow and so reselling that of third parties generates faster growth
- You need to secure supply or avoid the ‘squeeze’ by competitors, suppliers or customers, who are muscling in on your patch
- You choose to copy what seem to be successful practices of your competitors
- You might have chosen to hedge your bets, covering all bases, in case one part of the value chain becomes more profitable or dominant over time
Unconscious diversification is also quite common:
- You end up with non-core assets up or down the value chain that came with an acquisition.
- It may be the result of a gradual migration based on customer needs. Clients ask for more product or features over time and existing suppliers are the first port of call. Extra bits of functionality soon mushroom into new product lines. It’s not that big a leap from CRM tools, bonusing engines or sports widgets to providing the complete PAM system, for example. Once you’re servicing core functionality, the client will then ask you to integrate third parties.
- Or, once upon a time, you decided to ‘just’ develop a couple of in-house table games because the numbers stacked up. The effort of building this content resulted in a flourishing studio.
Focus, diversify or refocus?
How you got here is useful context to the next step in the decision process: should you a) continue to diversify or b) refocus on what is core? There are quite a few examples of companies bucking the diversification trend. You might find, for example, that by offering ‘all things to all people’ – you do none of them well, or profitably.
GIG offloaded its unprofitable Spearhead Studios and River iGaming pulled out of operations to focus on B2B. Given the difficulties of ensuring compliance through partners, both FSB and Everymatrix have rowed back on their white-label operations. Kindred spun out its Kambi platform whilst Danske Spil sold Cego, the studio they had acquired, back to the original owners.
The market can change too, which may make that hybrid role less appealing. Simon Hammon, chief product officer at Relax Gaming: “A few years ago, a lot of content suppliers were very dependent on a middle layer platform, then there was a shift where having your own RGS [Remote Gaming System] brought a perception of larger independence [but] having your own platform and RGS these days can actually be a hindrance because there’s far more regulated market pressure and compliance maintenance”.
You can justify either expanding or contracting, depending on your outlook: are you a “jack of all trades” or “a master of none”, at risk of“putting all your eggs in one basket?” It’s a bit like the contradiction between “too many cooks spoil the broth”, and “many hands make light work.”
To resolve this debate, you might ponder a couple more questions:
- Are your product lines (or vertical x value chain combinations above) all profitable? Have you tried allocating revenues and overheads to each, in order to answer this?
- Could these product lines survive (or even thrive?) as independent entities?
- Do all the product lines you offer play to your strengths? Any more than the others?
- Sometimes, we end up running new business divisions by chance, by accident or by acquisition but, given the choice again, would you do it consciously?
- Where is the most value in your value chain? You’d expect the lion’s share of GGR to remain with the operator. But when you deduct content revenue shares, platform license fees, affiliate commissions and tax, not to mention payment processing and brand licensing, there isn’t that much left!
Defining your business now and for the future is not something you do every day but, given the gifts of time and perspective that lockdown has presented, there’s probably no better occasion. Around half the companies in our sector can be defined as either pure studios or platform suppliers, with limited creep up or down the chain. The likes of Iforium or MrSlotty, for example, have a very clear idea of their role. The other half have consciously or unconsciously expanded up-, across or downstream.
With a bit of navel gazing, the conclusion might be to expand your offer further, taking advantage of the benefits of scale. Alternatively, you may arrive at the conclusion that you have over extended and need to refocus on the core. The result may be to close down, offload or spin out peripheral parts of the business. Know the contours of that belly button and you should hit the sweet spot.
Kevin Dale is the co-founder of eGaming Monitor. He was previously CEO of Gameaccount (now GAN plc) and CMO at Eurobet, Sportingbet and Betfair. Egamingmonitor.com is an advisory firm to the gambling industry, with proprietary data covering 30,000 games from 1,000 suppliers across 1,000 operator sites.
Image by Free-Photos from Pixabay