Is the i-Gaming sector really recession proof? Media Man Australia

Is the i-Gaming sector really recession proof?

To date, the i-Gaming sector seems to be relatively unaffected by the credit crunch that is decimating other businesses. There is a feeling around that because the gaming sector is growing and, as of to date, appears to be relatively unaffected by the credit crunch that is decimating other businesses, all you need to have is a good idea in terms of new software, new platforms or new applications to do with e-gaming and then it’s just a question of sitting back and waiting for the money to roll in.

That is not only untrue for now, where the constraints that the banks are currently operating under, in terms of investment and loans, is absolutely mirrored by the Venture Capital companies; it has always been untrue.

As Thomas Edison once said,“Genius is one percent inspiration and 99 percent perspiration”. The easy bit, curiously, is having the idea in the first place. However, as someone once said, there are very few good ideas that don’t, sooner or later, degenerate into hard work.

As Malcolm Gladwell’s new book, ‘Outliers’, illustrates, every success story, given the odd lucky break and the aptitude and talent of the founders, depends on hard work and practice. Ideas are nothing without execution.

So, if one is thinking of starting a new gaming company, what are the issues that one needs to focus on most closely to give oneself an appropriate chance of success? Virgin Games was itself a start-up just over four years ago; and, as such, while we are very sympathetic to the ambition, we are also sanguine and realistic about the pain being a start-up involves. To us, there are four key things that are necessary – primarily, because they’ve always been necessary – but which have become even more critical than ever as the economy has battened down the funding hatches.

Firstly, it is absolutely imperative to make sure you understand exactly what it is that your customer wants. This may seem like a statement from the ,industry of the bleeding obvious, but it is amazing how many start-ups – or, at least, potential start-ups – don’t. Too many ideas are based on doing something “because we can” rather than because it’s what the customer wants. All the talk and hype about web 2.0 and social networking often seems to blind people to its relevance or sustainability as a commercial business.

Every new start-up, in my opinion, should be based on a fundamental insight. That insight can come from data, research, a dialogue with customers or from testing alterations to your offering in terms of technology, service and product to see if it offers customers a better deal or a better option for them to spend their money on. Let’s remember, after all, that in the current market place, gaming companies are fighting for market share or share of wallet.

At essence, this principle has always been at the heart of Virgin’s approach and a key component of Virgin’s success. The new start-up must know exactly who they will appeal to in terms of target audience and exactly what their proposition to that audience will be. It must also fully comprehend the customer journey and understand how to remove any barriers that exist at any of the various customer touch points. Launching a start-up is no longer about having a product and selling it to the customer. It is mostly about helping the customer to buy in a manner that is better than its’ competitors.

Secondly, the start-ups must know their place in the value chain. The businesses that succeeds will be real businesses, not merely businesses that are targeting the B2C market because they’ve heard that’s where the buzz is. Building a B2C brand is incredibly expensive and, invariably, costs significantly more than people anticipate – often by a significant multiple. Awareness needs to be built and then trial has to be encouraged before customers start to roll in.

Of course, that requires deep pockets, particularly where the investment community is strapped for cash and may only have a relatively low threshold of pain that they are prepared to endure before pulling the rug on their investment. B2B, on the other hand, is a simpler and less risky model. For these businesses, it is not merely the end customer who plays your game that you are focused on, but, more importantly, the customers to whom you will be selling as well. It’s all about open API’s, quick integration, and customer support. However, in the final analysis, this must still add up to a product that’s both different and, in some way, better. If it’s not - then stop now.

Thirdly - and this is more true in today’s economic climate that it has ever been - you need to build a business that can make money now, and not at some point in the distant future. Too many businesses set out to achieve growth and critical mass before generating cash on the principle that it is easier to monetise a business which already has a large reach. In other words, if Pareto’s Law says 20% of your customers will provide 80% of your profits, it’s better to have 20% of a million customers rather than ten thousand. This is what we see as the driving force, for example, behind Facebook, Twitter and other recent “reach mass, monetise later” models.

However, this model takes time and is fraught with risk and, as such, is much less attractive to investors. Ideally, you need to build a business that makes money from day one and which breaks even in a year and a half or so; not least because your cash burn will be significantly slower if, from the start, you have money coming in. Equally, it is not enough to assume that you can monetise your traffic through advertising. Currently, outside our sector, there are predictions of a 40% drop in online ad sales. With 80% of currently ad sales going to the top ten properties, that makes it an ambitious way to try and fund your business.

Fourthly, you need more than a wing and prayer not just to raise cash but, just as important, to raise enough cash to launch your business in the appropriate way. What you need is both a viable working demo of your product, commercial contracts in place, and a proper business plan. However, be aware that a business plan is not just a sales document to help you raise cash. It’s a detailed roadmap and a clear statement of where your business will go and how it will get there. Bland assumptions, such as “one million users by year one”, may make the business look theoretically like a goldmine, but, in practical terms, such claims are not even worth the paper they’re printed on. At all stages, you must stress test your business plan and constantly reappraise your assumptions and insights because if you can’t do that, you probably haven’t got a business worth starting up in the first place.

Make no mistake; I-Gaming in the UK is a very hard market. It is more expensive to acquire customers than most other sectors; the margins are smaller; there’s a huge amount of competition; less differentiation; no benefit from location; a tight legal and regulatory environment; and, above all, a small universe of players. The Gambling Commission’s survey on remote gambling participation in September 2008 showed only 5.4% of the adult population gambling online for cash in games other than the National Lottery in the last month. This figure has remained fairly static – the comparison with 2006 saw the total at 5.1%. Last month, only 6.00% of the population gambled for cash on-line (excluding the National Lottery), a figure that has barely changed over the last 2 years.

So, with all those factors at play, unless your idea is good, genuinely original and relevant to its target audience, my advice to would-be start-ups is stop. Don’t start, particularly at the moment. If, on the other hand, your idea fulfils all the above criteria, then go for it. You are probably on to a winner – regardless of the economic conditions.

by Greg Tingle

An excellent article. My 7 plus years in and around gaming, igaming, news media and internet has demonstrated to me clearly that i-gaming is recession resistant, but not recession proof.

I'm pleased to report that our involvement i.e promotion of Virgin Games was our first real solid success in the igaming industry.

Our Mediaman group has very strong traffic results (Hitwise Australia awards), however we were not making the best use of the traffic for many years, but there was strong potential to "monetize" more of that traffic, eyeballs and the like into a recurring income stream. We're were still trying to figure our what the magic formula and "the secret" was. We were already doing some b2b with other Virgin brands, in addition to covering Virgin in a news media capacity, so we enjoyed a bit of a kick start, as some of the right, receptive audience was already there, and most Richard Branson business ventures are successful, and have the strength to ride out a storm or two.

Much like Virgin Enterprises Limited, the Mediaman group has spread its risk in a number of industry verticals, so we are not totally reliant on what's happening in the igaming sector, and the world's financial fun and games. We're in in news media, technology, entertainment, travel and tourism social and community and gaming industry (but not aviation thank God... lucky us). Many of these business arms are lifestyle related, as customers and potential customers all make lifestyle choices.

The global strategy has also served us well in the gaming sector, as the nature of gaming means various cities and countries have differing laws governing the sector. As we are largely an internet portal development company these days (and not an actual casino for example), we have little trouble in keeping up to what potential customers and existing customers want in many of the world's regions, and more often than not, when one door closes, another opens, when you have such a strong brand in a number of happening business verticals. I-gaming is part of the entertainment and technology sector, albeit it in a sub group known as gambling. Needless to say, being in business is a gamble, but you get the idea. I-gaming like many other web based businesses is in a battle for both the entertainment dollar and eyeballs (yes, your eyes), as billions of other websites exist "out there" for the eyeball to google. The option to "play for free" or "play for money" has certainly proved to be a winner, and this somewhat follows the Microsoft and Google model, in that you give away something for free, but if you want the best, you pay (I bet News Corp's Rupert Murdoch and his people will get to this article eventually).

Our successes with Virgin Games, and the parent company, Virgin, helped give us the confidence to further ramp of our igaming and gaming involvement and we subsequently launched both Casino News Media and Global Gaming Directory. I'm proud to say that the Virgin brand and numerous games are showcased significantly in our network, and that Virgin Games has been fantastic for us. Virgin Games dominate much of our classic slots and classic casino games coverage, as they do our UK and European sections of our network website, not to mention the multi currency casino options. Virgin Games also pay for a job well done, and you know they have the money in the kitty, and will be around tomorrow, and likely, forever in some shape or form. Some of the revenue we derive from Virgin Games, and our Casino News Media and Global Gaming Directory arms of Media Man, we put back into society, and some of this via Virgin's philanthropic and community arm, Virgin Unite.

I've noticed that a number of traditional media companies are now starting to take the lead of Virgin by opening igaming arms, however there's only one Virgin and Richard Branson, just as there's only one original Mediaman. You can also trust RB to keep turning up in the news for something, thus keeping the Virgin name in the world's most recognized and trusted list, which works for everyone (unless your a competitor).

Some quotes that make strike a chord with Virgin and its audience...

Big will not beat small anymore. It will be the fast beating the slow - Rupert Murdoch

Never doubt that a small group of thoughtful, committed, citizens can change the world. Indeed, it is the only thing that ever has - Margaret Mead

First they ignore you, then they ridicule you, then they fight you, then you win - Ghandi

Internet is like electricity - James Packer

In the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed - Charles Darwin

and last, but not least... In the '80's my gut feeling was that airlines were crap. I hated spending time on planes. I thought we could create the kind of airline I'd like. So we got a secondhand 747 and gave it a go - Richard Branson

Thank you Virgin Enterprises Limited for being part of our ongoing journey, and the journey of so many others who had a go. You have to be in it to win it, and Virgin Enterprises, Virgin Games, and so many of their friends and associates know a thing or two about this. Happy flying and work hard, play and party harder.

Greg Tingle
Founder and Director
Mediaman
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