Gambling: Bet on Mobile Products and Services by Thomas Husson for Consumer Product Strategy Professionals

September 21, 2011 Gambling: Bet On Mobile Products And Services by Thomas Husson for Consumer Product Strategy Professionals

Making Leaders Successful Every Day For Consumer Product Strategy Professionals

September 21, 2011 Gambling: Bet On Mobile Products And Services by Thomas Husson with J.P. Gownder, Seth Fowler, and Andia Vokshi

Executive Summary After so many years of unmet expectations, gambling is finally going mobile. Although it’s not yet the promised El Dorado, and despite the fact that competition is likely to be fiercer in a complex legal environment, several companies currently expect tens of millions of euros in revenues for 2011 via the mobile platform. Mobile is adding convenience and the ability to provide more immediate and contextual services. Product strategists at gaming, gambling, or lottery companies; at casinos; and at mobile operators should make a safe bet by developing new mobile products and services to differentiate the gambling experiences in a multiplatform environment. Moving forward, the opportunity will not be restricted to smartphones but will evolve to increasingly more social and connected devices, such as tablets and connected TVs.

table of Contents NOTES & RESOURCES 2 Mobile Gambling Is Poised For Growth To understand consumers’ mobile usage, Gambling Aficionados Are More Likely To Use we analyzed data from Forrester’s range of Mobile Services Technographics® surveys conducted in 2010 and 2011 in North America and Europe. Conditions Are Ripe For Mobile Gambling To Take Off Related Research Documents 6 The $1 Billion Question: Is Mobile Gambling “Western European Mobile Games Forecast, 2010 The New El Dorado? To 2015” recommendations August 27, 2010 8 Bet On Mobile Services To Differentiate The “Uptake Of Online Gambling And Gaming In Gambling Experience Europe” September 4, 2007

© 2011 Forrester Research, Inc. All rights reserved. Forrester, Forrester Wave, RoleView, Technographics, TechRankings, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective owners. Reproduction or sharing of this content in any form without prior written permission is strictly prohibited. To purchase reprints of this document, please email clientsupport@ forrester.com. For additional reproduction and usage information, see Forrester’s Citation Policy located at www.forrester.com. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. 2 Gambling: Bet On Mobile Products And Services For Consumer Product Strategy Professionals

Mobile GAMBLING Is POISED FOR GROWTH “For at least five years the gambling industry has touted mobile gambling as the next big thing. It somehow never really took off. […] betting on mobiles has made only a tiny impact on the worldwide gambling industry.”1 This summary of the mobile gambling space was written . . . back in 2008. Three years later, have things evolved significantly? Well, mobile gambling has not yet met its high expectations — but now is the time for product strategists to place their bets on mobile gambling.

Gambling Aficionados Are More Likely To Use Mobile Services To better assess the opportunity to engage via mobile devices with consumers who like to gamble, we have used our Forrester Technographics® data to analyze their current mobile behaviors in Europe and in the US. Here’s what we found:

· European gamblers are more frequent users of mobile services. Among the 4% of European consumers ages 18 and older who enjoy gambling/betting in their spare time, 24% play games (e.g., Angry Birds and other traditional mobile games) at least weekly, versus only 14% for the average mobile user (see Figure 1).2 While traditional mobile games have inherently different dynamics than gambling games (e.g., poker or blackjack), it is clear that European gambling aficionados are more likely to use most mobile services more frequently than average European consumers with mobile phones.

· In the US, only online gamblers show higher usage of mobile services. Probably because they skew more heavily toward older generations (37% are Older Boomers or Seniors, versus 32% for the average US population), US consumers who report betting or gambling in their spare time conform to average mobile usage patterns.3 However, among US consumers who place a bet or play poker online, the likelihood that they will use mobile services frequently is much higher. Among online poker players, 59% access the mobile Internet and 52% play games at least monthly, versus 36% and 27% of average US mobile consumers, respectively. This group makes a good target for mobile gambling.

Figure 1 Gambling And Betting Aficionados Are Engaged Mobile Users

“On average, how frequently do you do the following activities on your mobile phone?” (”At least weekly” responses shown)

26% Consumers who enjoy Listen to music 19% gambling/betting in their spare time Average mobile user 26% Mobile Internet 17%

24% Play mobile games 14%

Access social networking 20% sites 11%

14% Watch video/TV 6%

Base: 773 European consumers (18+) who enjoy gambling and betting in their spare time; 17,808 European consumers (18+) with mobile phones Source: European Technographics® Benchmark Survey, Q2 2011 58973 Source: Forrester Research, Inc.

Conditions Are Ripe For Mobile Gambling To Take Off Mobile gambling usage will grow in the next two years — not only because it is starting from a low base today but also, primarily, because organic drivers for consumer usage uptake are in place:

· Growing adoption of smartphones and tablets. Already, 10% of European consumers ages 18 and older who report betting or gambling in their spare time own an iPhone.4 The percentage is just 7% among US adults who enjoy betting or gambling in their free time — but no doubt the growing penetration of smartphones will help create much more convenient user experiences for consumers willing to gamble anywhere, anytime.5 Moving forward, tablets will play a key role — particularly for consumers willing to play on a more personal and ergonomic device at home, in either the living room or the bedroom.6

· Improved user experiences. Technological advances mean that latency is being reduced via 3.5G and 4G networks, allowing for the creation of mobile gambling experiences closer in performance to their online gambling equivalents. New user interfaces and application designs, when accessed on the latest smartphones, allow product strategists to offer great gambling

experiences. To facilitate sign-in while making sure the user is authorized to bet, some players, such as Sky Bet, have tried to streamline the process to a minimum number of steps by allowing users to manage mobile setup on their PCs (see Figure 2).

· Market education efforts. Promotions and tutorials are key to educating consumers on the availability of these mobile offerings and teaching them how to access them. The PMU — the French horse-betting monopoly that is now expanding into sports betting, due to deregulation — is significantly marketing its numerous mobile initiatives (see Figure 3). For harder-to-learn games, product strategists are designing demonstrations to engage consumers. For example, Ladbrokes includes an effective free demo play on its Blackjack iPhone app (see Figure 4).

Figure 2 Sky Bet Allows Mobile Setup On Its Website

Source: Sky Bet website 58973 Source: Forrester Research, Inc.

Figure 3 The PMU Is Heavily Promoting Multiple Mobile Initiatives

Site mobile XHTML Site mobile web kitApps mobiles iPhone, Bada, Android

Site tablets Source: The PMU website 58973 Source: Forrester Research, Inc.

Figure 4 Ladbrokes’ Blackjack iPhone App Offers Free Demo Play

Source: Ladbrokes’ Blackjack iPhone app 58973 Source: Forrester Research, Inc.

The $1 billion question: Is mobile gambling the new el dorado? Some industry analysts and people in the gaming industry answered this question positively several years ago, claiming that the mobile gambling market would be worth $23 billion this year.7 However, we believe the answer is no. The market is only taking off — attracting lots of new entrants. But the reality is that regulation issues are causing uncertainty, and, so far, the market is only generating millions of euros in gross win for the most advanced players. Product strategists working for mobile operators, lotteries, gaming operations, and gambling companies all have an opportunity to develop products here. But they should know that:

· Launches of new products and services are highly dependent on regulation. The introduction of legislation permitting remote gambling in selected markets has been gradual. Little progress had been made in the potentially lucrative US market, where remote gambling services are still prohibited. The legislation implies that operators should block access to offshore gambling or foreign betting sites. Bypassing these restrictions is theoretically still possible if you access a site with a SIM card from a country where mobile gambling is authorized. In addition, although

Apple has begun to permit gambling iPhone apps in the iTunes App Store, the majority of service providers have opted so far for a browser-based approach.

· Deregulation is attracting new competitors. New entrants attracted by the potential of the market are entering the game in markets where it’s legal. Buongiorno, the mobile entertainment pioneer, recently launched Winga, a new skill game brand, in Italy, then in France, and will soon launch the brand in Spain. The company aims at becoming a European leader in the skill gaming space. Leveraging its mobile expertise and its ability to manage audience and traffic, Buongiorno is aiming at a multiplatform play — recently launching Winga TV as a dedicated Italian digital TV gaming channel (see Figure 5).8 Other players from adjacent markets, such as media or social gaming companies, have also entered the space.

· Revenues are growing but remain limited. Forrester believes that some gambling companies are among the players generating the most revenues out of mobile. The PMU generated €6.5 million via mobile as early as 2009, officially announced a 250% increase in mobile revenue for 2010, and now expects more than €30 million in mobile revenue for 2011.9 While mobile is the fastest-growing platform, it represents only a small percentage of total online gambling revenues and an even smaller percentage of overall revenues for most gambling companies.

· Few players will survive. Consolidation took place in the gambling sector over the past few years and, more recently, with the bwin International/PartyGaming merger. Many acquisitions will follow. Why? Establishing a brand across multiple countries requires lots of advertising investment and, as with the 118 business-directory deregulation, only a few players survived. Beyond investments and expertise in audience and acquisitions management, it is also critical to invest in multiplatform security and real-time information. Product strategists willing to show the return on investment (ROI) of their mobile developments should work closely with interactive marketers to use the most efficient mobile marketing tactics to transform target audiences into mobile gamblers.

Figure 5 New Startup Players Are Entering The Market

Source: Buongiorno’s industry-analyst brie ng materials, June 2011 58973 Source: Forrester Research, Inc.

Recommendations

BET on Mobile services to differentiate the gambling experience Product strategists at gaming, gambling, or lottery companies; at casinos; and at mobile operators should define a mobile product and service road map to differentiate the betting and gambling experiences in a multiplatform environment: · Focus on smartphones to offer more immediate and contextual services. While some players, such as bwin, are still inexplicably promoting a Wireless Application Protocol (WAP) experience on their websites, the same players have also launched Android and iPhone applications or optimized mobile websites. To make the most of smartphone growth, product strategists must deliver services that make the most of the unique attributes of

mobile devices and, in particular, the ability to offer immediacy and context. Offering timely live betting solutions, alerts, and push notifications for sporting events and lottery games is critical to success. For example, the Lottomatica Group iPhone app includes real-time results and detailed statistics on football matches. Whenever allowed by regulators, smartphones will be the key enablers of merged online/offline experiences, driving foot traffic to players having a strong physical presence (national lotteries, casinos, or the likes of Ladbrokes and William Hill). · Develop tablet and connected home strategies. For consumers owning both a smartphone and a tablet, we expect tablet usage to cannibalize mobile phone usage at home. Obviously, tablet adoption is still limited, despite the success of the iPad. However, moving forward, product strategists should develop a more tightly integrated experience across multiple connected devices within the home. The collision between connected TVs, game consoles, and tablets will offer the opportunity to develop more interactive services. The growing importance of live content for sports betting or the launch of dedicated gambling/betting TV channels is a key opportunity to leverage a multiplatform approach. · Build social features into your products. Social gaming and mobile are converging. Zynga acquired the team from MarketZero, which is behind the largest online portal tracking career statistics of online poker players.10 Buongiorno recently launched Swaggar, a Facebook gaming community for people who have more fun betting when they can do it with friends. Poker and many other skill games are clearly social experiences. Rather than focusing on the development of complex multiplayer mobile gambling apps that will require high network latency, concentrate on giving mobile users the ability to interact with their social graphs and to multitask while playing “snacking” applications. · Offer multiple payment options in the context of regulations’ limitations. Because of legislation issues and to avoid addiction, debit cards are a more suitable option than credit cards. However, new payment methods could emerge. Indeed, in-app purchase and mobile operating direct billing for small amounts could prove to be efficient — regulation permitting. In this area, product strategists should closely benchmark innovative trends and business models shaping the more traditional mobile and social gaming markets (e.g., Rovio’s Angry Birds, virtual currencies, and the likes of Facebook Credits). · Promote responsible gaming and introduce parental control features. Responsible gaming is not just a compulsory mandate from legislators; it could be a way to differentiate for incumbent national lotteries and former monopolies that are now allowed to launch new products. Most countries restrict access to gambling for consumers under 18 years of age. Adding parental control features in the product is a minimum requirement. Mobile operators and players willing to benefit from these new types of services without damaging their brands should restrict advertising links to casino-type services to specific times of the day and block access to offshore and illegal mobile destinations.

· Anticipate disruption from emerging technologies. The PMU launched a near field communication (NFC) loyalty card back in July 2010 that offers horse bettors the ability to refill their accounts via secure confidential codes, to receive receipts of transactions, to receive credits immediately, to check account balances, and to review historical transactions. While this is a way to develop more targeted customer relationship management (CRM) programs and understand consumers’ behaviors, the challenge is to generate incremental revenue. Indeed, players likely to adopt the card are certainly already among the most active players. However, contactless technologies will offer more opportunities to develop many services at the point of sale. That’s the reason that the PMU has already rolled out NFC technology in 80% of the 10,000-plus physical outlets where it has a presence. The company is now ready and waiting for the critical mass of NFC devices in consumers’ hands.

Endnotes 1 Source: Joe Saumarez-Smith, “Mobile Gambling May Be Poised to Take Off,” Bloomberg, November 28, 2008 (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apTg.2GLFbxI).

2 Source: European Technographics Benchmark Survey, Q2 2011.

3 Source: North American Technographics Benchmark Survey, Q2 2011 (US, Canada).

4 Source: European Technographics Benchmark Survey, Q2 2011.

5 Source: North American Technographics Benchmark Survey, Q2 2011 (US, Canada).

6 Product strategists regard tablets with an anxious eye, pondering the extent to which tablets will cannibalize products like newspapers, magazines, laptops, netbooks, and TVs. Forrester’s data reveals that cannibalization will unfold in different phases. The first generation of tablet owners is making tradeoffs with their time but not necessarily with their money. The next generation of tablet owners is enthusiastic about all kinds of gadgets, but their reality is constrained by lower incomes and stricter budgets. But there’s a silver lining for product strategists, too: Tablet buyers show increased demand for home networking and cloud services, e-printing, and DLNA-supported devices that enable content sharing within the home. See the June 16, 2011, “The Products That Lose When Tablets Win” report.

7 Source: John Sun, “Juniper Research: Global Mobile Gambling Market to Rise from Under $2bn from Bets Placed in 2006 to over $23bn by 2011,” Mobile Analyst Watch, June 1, 2006 (http://mobileanalystwatch. blogspot.com/2006/06/juniper-research-global-mobile.html).

8 Source: “Winga cambia la TV. Sintonizzati sul 63 del digitale terrestre,” Buongiorno press release, July 14, 2011 (http://www.buongiorno.com/imgproc/Wi/ng/a-/ca/mb/ia/-l/a-/TV/extra01/Winga-cambia-la-TV. pdf).

9 Source: Interview with Guillaume Dolbeau, head of digital at the PMU, on July 22, 2011. For more information about PMU, visit its website (http://www.pmu.fr/en/).

10 Source: Leena Rao, “Zynga Acquires Team Behind Online Poker Statistics Site PokerTableRatings,” TechCrunch, April 5, 2011(http://techcrunch.com/2011/04/05/zynga-acquires-team-behind-online-poker- statistics-site-pokertableratings/).

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