Will the US drive a betting product revolution?

One of the more reliable trends in the online gambling sector over the past two decades has been betting against the current received wisdom. Whether that was the unassailability of US-facing business, the rise of poker or the death of grey markets, this industry has a habit of zigging where it was expected to be zagging thanks to wider consumer, technology and regulatory shifts. So just what are the current truths around egaming and how well do they stand up to scrutiny?

One of the most common themes through results season was the overriding importance of scale. Scale we were told, over and over again by firms quite coincidentally, that had expensively acquired it, was everything. It provided the ability to invest in tech, in new markets and to absorb the rising costs of regulation. It’s a compelling argument, but is it really true?

Ostensibly yes. We’ve seen the likes of PokerStars and bet365 use the hammer of a big marketing budget to smash their way into dominant positions around the world and there is no doubt the barriers to entry are rising with every passing day. To try and compete with the likes of the GVC, TSG and PPB is going to be challenging for mid-tier firms who lack the tech-stack advantages or financial firepower. There are, however, other operator groups to contend with.

Some of the major groups talked of the importance of localisation when addressing international expansion and it’s clear that organic expansion has proved very difficult for them so far. In every new or existing market there are smaller, more focused firms providing tough competition for the giants trying to grab share. Operators with a strong local presence in an emerging market can have an advantage that can compete meaningfully with scale, especially if that comes with an element of land-based.

Most expansion has been acquisition based and there is no guarantee that throwing money at a new market will end well. There is also the possibility of smaller more agile groups quickly taking advantage of wider UX trends or technology shifts, with Kindred being left a little flat-footed by no-registration casinos in the Nordics a recent lesson here. These large egaming ships are going to be increasingly slow to turn around and in a market that seems primed for change this could be a challenge.

There is also the question of just how much market share one single entity can obtain in the gambling sector. Sports betting appears to offer more opportunities for large market shares but casino has proved resilient to market dominance so far.

Walking around ICE in February it was fairly astonishing just how much this “casino” exhibition had been subject to a quiet coup from the sports betting world. Massive stands from an ever widening range of sportsbook suppliers filled half the hall and most of the talk was of expansion into sports and the new markets and opportunities it represented. And it’s not just conference chatter either with even the most dyed-in-the-wool gaming operators throwing themselves headlong into the world of sports betting in 2019.

The concept of lower-cost, lower-churn customers is an easy case to make when faced with rising regulatory and tax costs and an increasingly hostile media and legislative landscape to online casino. But the focus on sports is going to create gaps and opportunities for firms who aren’t yet ready to make the big leap into the unknown. And while the entry barrier has been largely lifted by the rise of managed services solutions this is creating an ever more commoditised sector where stand-out value is hard to find for new entrants.

In some ways the sports betting sector resembles the online poker world of the late 2000s with a large number of firms hoping to be lifted by the rising tide by entering with a good-enough product. That’s not to say there is no hope for firms coming into the market and we’ve seen a number of interesting looking UX innovations from some of the gaming operators, but it is a long hard road ahead to gain share in the core European markets. And while this effort is being expended in sports it’s possible it leaves the door open elsewhere.

Grey is the new black

Perhaps the most surprising features of the last two years has been the warm embrace of unregulated markets by almost everyone in the sector, from CEOs to the City. Few operators are fearful of launching in grey markets in 2019 and if anything there is a rush to make hay while the sun shines. But the risks haven’t altered, even if the rewards have become more attractive when faced with trying to profit from a market taxed at 25% of GGR and 50 other licensees.

Change can be quick in unregulated markets and there is a sense we’re probably one big shock away from another shift in perspective. Germany is a fascinating market that could lurch in either direction, with the loss of online casino a real risk. A sudden change there could leave a lot of firms flat footed. And beyond that we have the endlessly complex Asian market and others such as Canada, Russia, Norway and Finland that provide as many questions as answers.

What is the long-term plan for operators in these markets? Hang on and hope for regulation is one of the more likely options, but it’s an admission of the inherently instability and that has interesting implications. The conceit, of course, is it’s facilitating investment into regulated markets but these too contain their own basket of concerns. Tax is rising, regulation is rising and marketing opportunities are falling. This does not appear like the promised land for the egaming sector.

The need for scale is driving firms into markets they previously didn’t want or need to be in. Is it driving bad long-term decisions in pursuit of short-term growth? Perhaps.

It could be that grey markets can mask deeper issues. The company of tomorrow arguably needs to build a strong product offering for a mass market audience with an engaging brand that appeals beyond the current core audience in a more sustainable way. It’s questionable if operators and suppliers can adjust to that on the fly while constantly expanding into new markets with wildly different regulatory profiles. Which sort of gives lie to the final truism.

The market is mature

Online gambling has been through several rapid stages of development and we’re currently firmly in the consolidation stage with a handful of firms dominating the picture in a handful of regulated markets. What we’re also seeing is a slowing growth rates in the likes of the UK and the Nordics and an innovation moving from the revolutionary to the incremental. It’s a market where the launch of cash-out now looks like the last of the great leaps forward and people are holding out for the next sub-scale European market to regulate.

But are we really at the latter stages of the industry or merely at the end of the beginning? The product and user experience has come a long way since the start of the century, but there is a sense it can go an awful lot further and crucially there has been little innovation from outside the sector. An industry constantly reinventing itself from within is one thing, but one being reconsidered from without is quite another.

To-date the attempts by “outsiders” to break into the egaming world hasn’t gone particularly well. Yahoo’s rapidly aborted entry into egaming was probably too little too soon, and the overall market is still probably too small for most of the tech and media giants to consider worthy of the reputational risk. The US, however, could change this and not just through a few media partnerships but if any of the true technology giants turn their attention to the sector.

Will they? Probably not. But perhaps a Silicon Valley start-up might. And perhaps we could see a rebuild of sports betting in a way nobody can quite imagine right now. The industry feels more static than it has done for a while and it’s arguable it is ripe for disruption. There is no doubt this business is harder than it looks and both gambling and gamblers have proved highly resistant to change in the past, but hotels, taxis and the movie industry may have said the same.