What social games can learn from real money gaming

Last week’s Global iGaming Summit and Expo in San Francisco raised a lot of questions about the future convergence between social games and real money gaming. Though many agree — and are banking on the fact — that there will be convergence, it’s not clear if we’re going to see that in 2012 or at a much later date.

There are three points where we see friction between social games and real money gaming. The first is simple: players that play games on social networks are fundamentally different from those that play for real money. A social games player wants to feel a sense of progress (e.g. levels, high scores, etc.) and perhaps community whereas a real money player wants to win money and possibly renown, as gambling culture in the West glamorizes high stakes players. Each audience has different needs and meeting those of one could alienate the other. For example, a social game might adjust its difficulty level to keep a game engaging to a less skilled player — like an arcade game where the puzzle changes if a user fails a level a certain number of times. A real-money casino game would never adjust the odds of a game no matter how bad a player’s losing (or winning) streak is, not only because it would unbalance the game but because it would illegal in regulated markets.

That’s a second friction point in convergence — regulation. Social game developers are not used to the extremely regulated real-money gambling market and would need to hire additional personnel just to ensure compliance in various global markets where real money gambling is legal. They also have to pay licensing fees to operate in most regions, which can prove prohibitively expensive for smaller developers. These realities could delay or prevent Facebook from introducing real-money gambling to its games platform — because it, too, would need to ensure compliance. Even if the U.S. made real-money gambling legal across all states (instead of only recently allowing each state to make its own law on the matter), it could take another two years before Facebook would be ready to allow it.

The third point is pure cost-benefit analysis. Nobody seems to know exactly what a social game is worth to an online gambling or land-based casino company. Caesars Entertainment spent $90 million on Slotomania developer Playtika while IGT spent $500 million on DoubleDown Interactive — and Slotomania was the larger game. Sure, casino games on Facebook see higher engagement and average revenue per user than farm or simulation games. And yes, online gambling sites see higher levels of conversion (70 to 80 percent conversion compared to social and mobile games’ 2 to 3 percent) and revenues even than social games. However, slapping a poker game onto Facebook with a virtual goods model in place of a real money one won’t necessarily generate revenues worth an online gambling game developer’s time — and it’d be less than a drop in a bucket for land-based casinos. Similarly, cribbing social game mechanics from Zynga poker for an online poker site won’t bring in a significant number of new users to those games because people mainly go to online gambling games to gamble, not to buy virtual goods.

The only real point of convergence social and gambling games can hope for in 2012 is reducing cost per acquisition. Online gambling sites pay as much as $215 compared to a social game developer’s $1 to $5 on Facebook and their funnels span TV and radio ads in addition to paying for search engine optimized terms on Google and other display ads. Again, part of that is in regulation — there are laws and company policies about where ads can be placed for online gambling sites. But a larger part is in trying to attract the type of player that wants to play for real money — as opposed to on Facebook, where most games are designed with the broadest possible audience in mind.

We spoke with two CEOs of online gambling sites — Malcolm Graham of poker site PKR and Simon Burridge of Virgin Games — that both named viral mechanics and “the psychology” of social games as key places where real-money games could reduce CPA. Most online gambling sites don’t have well-developed sharing or invite mechanics for players to interact with one another beyond individual games. Online bingo may have chat functionality, but that’s only a small fraction of what a social game can do to keep its players engaged with one another, and therefore more engaged with the game. Beyond even that, social games have ways of making players want to spend on an emotional level; they’ll pay for virtual goods not just because the items are pretty or because they need more chips, but because they have formed an emotional connection between paying real money and increased enjoyment.

On the flip side of that, there are things online gambling and land-based casino companies can teach social game developers. Graham and Burridge both spoke to the strength of data analysis within their companies, all of which is done in-house rather than outsourced to a metrics platform provider. By interpreting player data effectively — down to the individual level — PKR and Virgin Games can identify and focus positive attention on those players most likely to convert instead of just sitting back and waiting for a whale player to show up. Developers can also use that data to craft loyalty programs around player behavior patterns, making players feel like they should stay with one site to keep building a reputation and earning loyalty points versus going to some other site where they’d have to start all over.