Strategy is problem-solving. Why is bad strategy in gambling a social contagion?
There can hardly be a better example of wrong reasoning that led to wrong strategy than this old French anecdote.
... A vagabond, that has been allowed to spend a night in taverne, ate a big sausage ring that was hung up to dry. In the morning the landlord asks the vagabond: "Where is the 5-kilogram sausage that I left upstairs?". "A cat ate it", answered the vagabond. The landlord takes the cat, puts it on the scale and finds that he weighs 5 kilograms. "All right, sausage found, he says. "Where is the cat now?"
Every strategic situation requires that one makes a sequence of 'quit and grit' decisions on a way to one's ambition. Apparently, strategy deals with uncertainty - it is almost always about making choices ahead of time - and with one's ability to focus his/her strength against [the other party's] weakness. In business, it’s a focus of strength against opportunities or problems. A strategy that basically answers the question of "how to do things to achieve an ambition" can be bad too. Most commonly, it is the result of focusing resources on a weak point (even if it is a great opportunity) or trying to do many things at once. So far as online gambling is concerned, the question stays strong: why has 'bad strategy' become a social contagion?
The pinnacle of a strategic situation in the anecdote is information asymmetry on the part of the landlord who knows all about his belongings. The fact that has been overlooked by a vagabond and has been trying to solve another problem: finding a one to shift the blame. Strategy - as a problem solving - requires a realisator retain a strategic control over his/her strength or the other's weakness. A lack of strategic controls leads to failure just the same as other factors to a 'bad strategy':
- a lacks an initiative or vision,
- inability to attack the 'crux' of a problem,
- being inspired by a 'fake' vision,
- focusing on a weak point (opportunity instead of a problem) or
- simply being a 'success theatre'.
What shall be a pinnacle of strategy in online gambling?
Strategies in online gambling ALWAYS deal with two types of ambitions: 1) Market share (Turnover) or 2) EBITDA. Most of the time, Turnover ambition translates in a [action] plan to strengthen Acquisition, while the EBITDA goal - Retention. Some of the popular action plans ('what to dos') in online gambling has to do with the following.
Acquisition-based plans drill down to:
- Owning a Shelf
- Owning a Channel
- Owning a Technology
- Owning a Market
EBITDA or Retention based plans are concerned with:
- Owning Agenda
- Owning a Disruption (Disruptive Technology)
- Owning a Client
Yet, it is the gap between ambition and action plan where most bad strategies come from. Let's discuss Acquisition or Turnover-based strategies first.
Turnover-driven online gambling strategies
Where online casinos are concerned with owning a shelf (exposure), her strategic control lies in an ability to occupy the shelf before others. Look at PG strategies in the developing markets: they would occupy the shelf at any cost breeding products in the categories even though knowing they will never be profitable with the simple goal: to deter competition and secure a market share. Online casinos networks like N1 Partners or Buffalo Partners do the same with affiliate publications, slots providers do the same with content aggregators. The weak point of this approach is that it apparently requires the 'something more' except for the shelf itself for the whole portfolio to be profitable. What is the crux of a problem that an action plan wants to solve? It's the customer acquisition costs (CAC) they want to lower. Is there a way that Owning a Shelf can help get over this crux? No, at best it 'protects' the current level of costs, so it's a clear miss. Besides, earning a control over a shelf comes at a cost: slots providers lose the control of the brand identity (with so many slots lowering the bar of their quality).
What's also bad about it? In the essence, this very ambition is protective, not proactive. Let's face it: who would create numerous reskins of the same games if there were only a couple of dozens of solid slots providers (like in the video games market)? Desire to own a shelf is a reaction to 1) smaller brands' attempts to flood the market with simpler games (or smaller casinos) and to 2) the content aggregators trying to squeeze a greater margin from all. Yet, it is the very realisation of this ambition that further lowers their overall portfolio's margin and puts their brand equity at risk.
Next, a shelf control ambition, when escalated, gives birth to ambition to control the whole channel (or the supermarket). With a simple plan that's not hard to copy, this approach can leave you uncovered unless you make a real early move and support it with M&As, like LeoVegas getting hold of streamers with acquisition of CasinoGrounds. Other examples of realisation of ambition to control a channel leave us with the same conclusion: it's a game against time that you cannot win. To at least stay afloat this one requires a rare amalgamation of external control points that's are simultaneously available to you and not available to your competitors: ability to draw on capital for M&A, small competition with absence of big ones as well as security that contractors will not become your direct competitors. That's probably one reason why too many slots providers on the whole are still reluctant to try to control a channel of streamers. It's a great opportunity but a weak point, so focusing on it means not acting strategically.
But the picture changes as the fire spreads in the woods. An ambition to control a channel that disguises herself as a 'strategy' is a typical 'success theatre': it looks good on paper and feels like a good one for business managers to [only] talk to investors about their successes and opportunities. That's exactly why this 'bad strategy' is contagious too: it already imprisoned PragmaticPlay, Relax Gaming and Booming Games not to mention LeoVegas and other brands working through their agencies. It is easy to find that an ambition to control a channel partly has an external locus of control too: it's partly inspired by streamers and new-gen publishers themselves looking to capitalise their new media. Also, it springs from a 'lack of place of the shelves' provoked by shortage of good publishers as well as an upsurge of new 'budget' casino brands.
In a way, it's a self-fulfilling prophecy: slots providers were so eager to maintain their margin of sales (once up 22% from casinos' NGR), such they blocked every effort to renegotiate, except in case of large casino operators, etc. This created a strategic 'survival dilemma' for small new brands, bringing to life a new business model of aggregators. Whereas the market belongs to newcomers, the bargain power of aggregators and platform rises. This is how a partly self-provoked problem of slots providers (and casinos alike) has risen interest with new-gen media that are ready to mount new shelves for them now.
Another ambition - to own a technology or a set of technologies - rests in a desire for greater resilience, scalability and lower overheads. Likewise, white-label casino platforms, turnkey solutions as well as even slots content aggregators themselves is a shortcut to outsmart competition. Yet, the crux of the actual problem is scalability at a faster pace and a lower cost than competitors. In a way, it's simply a 'time to market' problem. So, the action plan based on owning a technology or a set of technologies does not solve this problem, unless you have a safety to use it on your own, which is not the case in the market. So, the whole bunch of casino operators use just the same set of technos, and cannot actually win an advantage over each other. In fact, it aggravates a problem of a shrinking margin too, because "out of the box" platform solutions use a SaaS model with a NGR % as a subscription fee. In the world of slots providers this kind of ambition is rather rare, except for probably licensing of MegaWays mechanics by Big Time Gaming. But they'd use it to try to take hold of another business, not as a measure to speed-to 'time to market' in the first place.
Finally, ambition to own a market - the deepermost desire of every business - is based on the aspiration that by means of licensing, patents or other like measures a casino operators or slots providers may profit from the whole market in a state of limited competition, like for example in case with Ontario licence, Netherlands licence, New Jersey licence, etc. Apparently, under these conditions the locus of strategic control is shifted to the regulator(s), whereas participants pay for their entrance tickets. This desire is so strong that it has actually created a whole fake agenda of management: "I only have to buy a ticket to the ship and the crew will take care of the rest". In reality, that’s not a strategy — that’s a set of ambitions projected over the opportunity that's meant to be a shortcut to these ambitions. But an action plan to own a market provides a great tribuna for another deep desire of management: to talk opportunities, not problems. This is when the CEO may lawfully announce her performance goals:
“We want to grow this fast [on the basis of the market data], and we want to have this rate of profitability.” Maybe she will throw out some things about player safety, and that’s her strategy. But again that’s not a strategy — that’s a set of ambitions.
Trying to own a new geo market may actually work for a while but - like a Lernaean Hydra - breeds additional problems: potential compliance costs (that can be overwhelming and lead to withdrawal from a market) and other potential costs of markets' oligopolization. Let's meditate on it a bit more.
A compliance problem (and costs it entails) is a matter of time only. Implications of giving away a market in the hands of a few - oligomerization - have been witnessed too many times before: it's 'retaliation' from the government in the form of taxes, restrictions, which means lower turnover and higher overheads. But, there's also another kind of retaliation that has been silenced all along: in potentially lucrative markets with a limited number of operators, they will tend to [collectively] push the margin of operations of slots provider down -or- impose another business model, for example, lease of online slot machines for a fee, not a share of NGR. This is a major peril of the industry, which can be heavily detrimental to the margin of sales of larger slots providers. And this 'game-changer' shall be a pinnacle of their strategy too.
Let's look at the EBITDA or Retention based plans now.
EBITDA or Margin-driven online gambling strategies
An ambition to own Players' Agenda may take the form of action plans to devise best-of-the-class loyalty programs or prize pools, etc. It is driven by an actual problem of a low engagement, a low playtime per player, which may show that players are [no longer] loyal to slots providers, etc. It's actually a big problem, because poorly engaged or lost players add up to the cost of acquisition of new ones, since potential players are not available at stock.
A desire to own a disruption comes from a possibility to own a whole [new] market if disruption is a success. One good example of a strategy thereto is a social casino lead by Playtika. It addresses the deep rooted problem of online gambling of the cost of acquisition of [new players]. So, this one allowed Playtika, Playtech and Caesars casino slots to channel hundreds of thousands players from social casino to real money casino at a 'disruptively' low cost as compared to affiliate marketing or ads. Sadly, on the whole, both providers and casino operators are really bad at it: most of the time they do not even try to pursue the road of owning a disruption. Apparently, they prefer other paths to cut acquisition costs by: 1) trying to own a shelf with aggregators or affiliates and 2) trying to own a new geo market.
Finally, an ambition to own a client is probably the most realistic one, at least on paper. It deals with segmentation of client's base by a criterion of affinity, age, interests, etc and catering a specific proposition towards a segment of players that has a special value for them, making the cost of switching to another offer disproportionally high. For example, it's a crypto-only casino that caters to people who own cryptocurrency. Or adding a casino to a sports betting site, which can potentially further capitalise existing customer base (if they are happy, they would not want to switch to another for a casino experience). In the world of online slots, providers try to own clients that already have an affinity with a studio by releasing sequels of once popular games.
Let's sum-up. Bad strategies in online gambling become a social contagion because they are not strategies at all in the strict meaning. At most, they are a 'public face of strategy', finessing the fact that we don’t want to make a choice. Yet, they get so popular and contagious because they exploit rooted 'motives' of the management: to show off to investors and public, to get security from external domain (instead of keeping strategic control to themselves) as well as management's reluctance to make decisions disguised as trying to do many things at once. These motives are further reinforced as the management is being disconnected from what is happening in their business and don’t understand the nature of the problem partly because of the success theater, where business managers only talk about their successes and opportunities.
So, what is the number one problem of online slots providers? It is an erosion of their margin of sales. It comes from the 'substitute' slots and is preconditioned by slots providers' inability to protect key points of their production and distribution chain. The crux of this problem is a business model of content aggregators (casino platforms)that profit from the over proposition of slots in order to negotiate better margins for them. They also profit from their power as a super hub of content, support as well as payment solutions in order to get a higher margin from sales to new and small casinos.Apparently, this EBITDA-related problem cannot be solved by means of increasing turnover. It's nonsense. It has to do with a strategy encompassing a different model of distribution of games and, subsequently, increasing costs of switching to another provider (group of providers).
Once this one is sorted out, the next problem to tackle is the cost of acquisition of new players. Like a Two-faced Janus, it has two faces: Acquisition and Retention. The crux of this problem is games features are easily copied, which fuels competition and creates 'sameness', which, in turn, requires additional money to 'persuade' a player to try a game by a particular provider. A pinnacle of successful strategy that attacks this problem is to make games hard-to-copy and, once done, to create a special referral program, for them to grow their customers' base organically. Luckily, this road has already been lighted up by social slots phenomenon and the direction now is clear.
Slots providers shall also watch for "Game changers" that can significantly impair their strategies. Likewise, it is worth watching over 1) casinos that are becoming game publishers and 2) casinos or their alliances pushing towards a different business model (leasing online slots machines for a flat fee).
Coming down to online casino operators, by far the number one problem for them is a cost of acquisition (CAC). Strategies aimed to solve this problem have to deal with creating a next level model of partnership with affiliates that will encompass maintaining deeper integration of casinos and affiliates within the process of client onboarding, including early onboarding right on the website of the affiliate, etc.
Second problem of online casinos is players' retention. The crux of this problem is discontinuity of players experience with a casino: "you get in touch with me only when you need my money". So the successful strategies in this field have to deal with a problem of content too and may require operators to go beyond the boundaries of 'casino' business into entertainment / broadcasting, like starting a radio or a publication for its players, etc. It also has to deal with the 'online only' nature of relations between a casino and a player: it is a part of a problem of discontinuity of experience too.
Now, the gamechanger to watch for are publications creating and promoting their own casinos (like AskGamblers and Bitstars did it before) and casinos already trying to cross the boundaries into broadcasting or entertainment, like Stake casino and their venture to start a Kick platform.