Will lottery give away their biggest opportunity in the last 20 years? The lottery industry lost out on online gambling 1.0 by failing to find a way to get in the game during the rise of the iPoker era. As a result, the lion’s share of the market went to operators such as Bwin.party, 888, PKR and other sites. That wave has come and gone, and the next wave –social gambling– is now here.
Research suggests social gaming & social gambling could provide a replacement audience while also addressing the product relevance issues facing the maligned lottery industry. The question yet to be determined is if lotteries will participate in this fast-growing market, or if they’ll sit on the sidelines while social gaming companies and land-based casinos take control of the opportunity.
The social gambling explosion
The convergence of social gaming and online gambling has been one of the most explosive topics over the past year. Out of an estimated 800 million social gamers playing monthly, an estimated 173 million play gambling-themed social games (that’s 2.6% of the total population). In fact, popularity for light gambling experiences in social games has grown 96% in the past 12 months according to dystillr.com data. The social gambling population is already three times the size of the traditional online gambling industry after a few short years – and building.
The size of the market and growth rates have drawn the attention of social gaming companies, land-based casinos, and online gambling operators who are all clamoring for position as the market takes off. Yet lotteries, who might be better suited than any other segment to leverage the conversion of gaming and gambling, have yet to take a seat at the table.
The lottery industry today is facing its biggest threat in years. While past generations saw lottery as an exciting and affordable form of entertainment, it’s lost relevance and, as an industry, has not kept pace with the changes in consumer entertainment preferences, delivery, or technology.
While the world has moved online, consumers are still expected to get in their cars and drive down to the local convenience store to get their lotto tickets. In fact, less than 1% of global lottery sales happen online, a scary statistic when considering lottery is mass consumer-facing product. The problem is not limited to the delivery mechanism, as lotteries also face an impending audience crunch. The average player in most jurisdictions is over 55 years of age (literally dying off) and the current products are not appealing to younger generations, meaning there’s a limited replacement audience in sight. The failure of traditional suppliers to keep up with consumer and technology trends has held the lottery industry behind the curve, while also blocking the flow of new innovations to the industry.
A few years ago, when online gaming options were more limited, the industry could get away with the traditional supplier model. That time has since passed. Now we have 173 million social gamers playing gambling games on Facebook and mobile devices. The Apple App Store now contains real-money gambling games including poker, slots, and other casino games. Consumers can access
these anywhere, anytime. Facebook is experimenting with real-money games in the UK. Zynga has formed a real-money partnership with Bwin.party, forging a partnership between the world’s largest social gaming and online gambling companies. Zynga has also recently filed preliminary paperwork for a gaming license in Nevada and has announced plans to offer real-money play on Facebook.
Land-based casinos such as Caesars are acquiring social game companies and competing on Facebook. Caesars has openly stated their aspiration to become the #1 social gambling company in the world. Options to play games for real-money are becoming increasingly widespread while at the same time light gambling as a form of entertainment is increasingly becoming socially accepted. Yet lottery, the most trusted brand in light gambling, is nowhere near this opportunity.
Social gaming, and more specifically social gambling, presents what may be lottery’s biggest opportunity in the past 20 years. My research suggests that not only could social gaming product innovation revitalize the lottery product offering, but also lotteries themselves are well positioned to become leaders in this emerging space.
Social gaming and lottery have similar DNA
A key to success for both lottery and social gaming is they appeal to the mainstream rather than the hardcore in their respective niches. Both products are easy to learn and aren’t intimidating for new players to try. Both products also are considered to be on the very light side of their respective product classes. Social games have broken down the barriers to get mainstream audiences who never before considered themselves “gamers” playing games on computer, mobile, and tablet devices (ask an X-box gamer if they consider FarmVille to be a game and they will say no). A similar parallel can be drawn to lottery, where the average consumer would not consider playing the lottery to be a real form of “gambling”.
Creating a viable replacement audience for lottery
Just as it would not attract hardcore video gamers, combining social games with gambling does not attract the stereotypical online gambler. Yet its proven to attract mass casual players, an audience that might be intimidated or not interested in current online game offerings. This target market is ideally suited for the lottery if brought in through the right products.
The similarities between social gaming and lottery provide an opportunity for lottery to take a leadership position in social gambling product innovation. For example, the core audience of traditional online gambling sites such as Pokerstars – younger, aggressive males – shares few similarities with social gamers or the typical lottery player. With 68% of social gamers under 49 years of age and 52% under the age of 39, social gaming could deliver a new segment of players to replace lottery’s aging base. And with 800 million playing monthly, this represents a massive potential addressable audience.
Social games do not suffer from the same negative public perception as traditional online gambling
Harder forms of online gambling such as poker and casino carry a negative stigma with regulators and the public, as well as conjuring negative images of problem gaming. These optics around traditional online gambling mean the lottery industry faces significant challenges when considering the expansion of products online. In contrast, social games are seen as a softer form of entertainment. This provides an opportunity for lotteries to adopt social gaming innovations as a first step in going online. This could provide a path of least resistance without the regulatory headwinds to move online and start building their player databases.
Globally, lotteries account for 28% of all gambling revenues. Lottery’s share of interactive-only gambling declines to only 10%. Its share of social gambling revenues is non-existent. Lottery, the most trusted brand in gambling around the world, is not participating in the social gambling phenomenon that has a player base three times the size of the traditional online gambling market and projected to grow to $100 billion by 2017. This is a huge miss for the industry. The similarities between social gamers and lottery players, the younger skewed audience, softer public perception, and a proven ability to attract mass audience makes social gambling ideally suited for the lottery industry. Even if conservative lotteries do not believe social gambling to be the future, participating in the growth still makes sense strategically. If social gambling continues to grow, lotteries can become a meaningful player and benefit from the opportunity. If it proves only a trend, they have taken out a protective put on social gambling as insurance to future proof their position as leaders. The cost to get in the game is nothing compared to the potential upside or the risk of becoming the next Kodak and fading into obscurity.
To take a seat at the table, lotteries must look beyond their traditional suppliers for new product innovation and must have an appetite for experimentation. After all, the traditional suppliers do not have expertise in this new breed of gaming. The good news is lotteries have an amazing opportunity to participate in one of the most exciting trends in gaming history, but it will require innovation and experimentation. It’s time for lottery to get in the game.