By Michael Frankling
For what is in essence a fast-moving consumer goods industry that leverages tech to deliver its service, the gambling sector may appear sluggish compared to the trailblazing spaces of e-commerce, travel, fintech and social media where companies such as AirBnB, Snapchat and Uber have re-written the rules in recent years.
In-play, cash-out and e-sports may have appeared in the last few years, but a truly revolutionary game-changer has not emerged. Why hasn’t the gaming industry mirrored others and seen breakthrough innovations with market leaders emerging who didn’t even exist a decade ago? Is the next big thing just around the corner, or do underlying reasons mean disruption is harder to come by?
In a recent LinkedIn post, Graham Carrick analysed his rolodex of gambling startups, and looked at their current situations. Of the more than 150 companies noted, 56% are closed and 8% have not yet launched. After four years, only 36% of companies are live. This number also only represents the companies that were in the network - disregarding those who closed down before they were well known, or never made it to market in the first place.
The main reasons for this lack of longevity focused on two key areas. Funding was the primary concern; government grants, crowdfunding and pitch-competitions are rarely an option for gambling companies, while willing VCs are few and far between. The marketplace was also a hindrance: an oligopolistic structure, major operators being risk adverse, stringent regulatory requirements raising costs and complexity for multi-market implementation, marketing costs driving up CPAs and reducing margins. Many felt that these limitations result in B-C startups being unviable, so pushing most towards B-B, where terms are heavily weighted towards the incumbent operators.
However, I would argue the analysis is limited to a narrow definition of gambling startups and that we need to broaden perspectives to truly appreciate the vibrancy of companies that could disrupt the industry in years to come.
These can be split into two camps. The first are the flashy new technologies that fill the stands at CES and columns of tech magazines; Virtual Reality, Augmented Reality, Artificial Intelligence, chatbots and others. Yes, they could be overhyped, but both B-B and B-C startups utilising these technologies may completely alter a betting experience – catapulting punters from their couch to the Bellagio roulette tables, or asking Alexa to place an accumulator based on their picks last weekend.
The second group could be more thought of as ‘tools’; nothing that will necessarily draw in new customers, but it will enhance experiences. It may be: a safer environment to play in, faster payment and verification process, improved responsible gaming tools, or many others. These technologies may not make the front pages or create the impression of an innovative sector, but their involvement is intrinsically linked to the continual advancement of gambling.
It’s widely recognised that, regardless of industry, 90% of startups fail (and breaking this down, Statistic Brain say 71% fold within 10 years, 50% within 4 and 25% within 12 months of launch). The worst performing industry tracked – information technology – saw only 37% of companies still operating after 4 years, a number that closely mirrors the figure above for the gambling sector.
However, a broader viewpoint and creative thinking about how technologies can be transferred across industries, may lead to greater success for startups and a more innovative marketplace. Yes the gambling sector may have regulations far beyond what other startups have to deal with, and investment may be hard to come by, but innovation can still occur. Many successful companies pivot from their MVP as they realise parallel fields can be better exploited. Kindred Futures was developed to help facilitate this.
Kindred Futures is an open innovation vehicle that seeks to partner with startups to collaborate and co-create. It is much more than just working with startups as suppliers, it is about creating longer-term mutually beneficial partnerships, to jointly explore and experiment in areas we find strategically interesting. It is not seeking to invest or gain ownership of companies, but instead can offer a broad church of expertise to help startups grow and create cutting-edge products and in doing so, provide value for all involved. It’s about taking risks. Looking beyond the obvious, and focusing on the people as much as the current state of the product. Partnerships never ask for free work or insist on exclusivity, but instead enable Kindred to benefit from the energy, creativity and ingenuity the startup world has.
This is not to say that Kindred Futures is the only method for innovating in the gambling sector. William Hill started an in-house accelerator programme, Ladbrokes undertook crowdsourcing to garner ideas from employees, while other operators rely upon strong technology and innovation departments. Startups may provide breakthrough ideas and look to disrupt the industry, but as with other industries, established players can leverage their resources and experience to innovate.
The above paragraphs have argued it’s not all doom and gloom in the gambling industry. Innovations are out there, and by thinking creatively, groundbreaking products can materialise. A recent KPMG report found that more startups than ever are entering the space and funding is mirroring this activity. Coinciding with operators becoming more receptive to this startup ecosystem, the next big breakthrough could be just around the corner.
What are your thoughts on innovation within the gaming industry? Is Kindred Futures overly optimistic, and in fact the structural realities of the gambling industry will always limit growth possibilities?
If you’re part of the start-up community and are interested in exploring how Kindred can work with you, please don’t hesitate to get in touch: hello@kindredfutures.com