Lotteries must Adapt or get Disrupted
Based on my lecture at SpelAkademin, Visby in August 2012 where I talked about new gambling options with digital gaming platform.
In 1995, at the dawn of the consumer Internet, I was asked to give a presentation about a new solution we had been developing for the Icelandic Soccer Pools. I did the demo and was convinced that people would be excited by this great new opportunity to offer sports betting. To my surprise that was not the reaction I got. It took some time for the idea to sink in, but when it did they realized that the world of the lottery as they knew it was over. The lottery disruption was starting.
Instead of being the cool hero with the great new technology solutions, I became the evil enemy. The international InterTOTO association threatened to kick out Icelandic Soccer Pools from the group. I have to admit that I was completely surprised. Today, I would not be surprised, as I have learned that this is normal reaction when your business model is about to become worthless.
The Internet is the biggest disrupting force of our times. It has 2.5 billion people and it is disrupting any kind of businesses. But there is another force working also. The first decade of the 21st century was called the “digital decade”. The late Steve Jobs and Bill Gates both talked about this. During the time from around 2000 to 2010 anything that could be made digital was made digital. This includes music, music videos, TV shows, films and now even books.
Putting this in graphic terms, the Economist had a chart that shows messages heard or read in the United States since 1900. First half of the 20th century it was personal communication and newspapers. Early on the radio took off and after the middle of the century TV became the most powerful medium of messages. Then in 2000 something seems to happen. The rate of massages penetrating people took jump. This is when the digital decade begins. Then in 2005, another jump. This is when Facebook and social media takes off.
But it is not only the Internet that is responsible for this. The cost of production and consumption has dramatically dropped. Consider the iMac in 2000. It is 500 MHz, 786 pixel screen and 30GB storage. Ten years later, the iPhone is 1GHz, 614 pixel screen and 32GB storage. The screen resolution is almost the same. What once sat on your desk is know in your pocket.
There is a fundamental cultural shift taking place.
Let’s check the facts. Every minute, 48 hours of content is uploaded to YouTube. If Skype were a telecommunications carrier, it would be the largest carrier in the world, with 663 million registered users. Globally, we spend 9.3 billion hours on Facebook in a month. That’s 1,065,449 years. To put this into perspective, the evolution of man was about 6 million years. We get the same every six months. Roughly 250 million Tweets are sent each day. When the Farmville craze hit Facebook, Zynga had to add 1,000 new servers a week for FarmVille and other games. And 200 million mobile clips are streamed on YouTube every day.
People’s behaviour is changing.
The on-line world is part of growing up. The net generation wants entertainment and social interaction. These people are not kids anymore. They are the 20 something and the 30 something that grew up with online digital technologies. And it’s not only the young. The older generations are also coming online. In 2010, users age 55+ on Facebook grew 922%. And now people have these devices in the hand all the time. One study showed that mobile users pick up their phone 18 times a day to consume content via apps/browser. They even have name for a syndrome that has surfaced – the Checking Habit, the urge to constantly check if something happened. To see if someone sent you email since 2 minutes ago when you last checked or if someone updated his or her Facebook status.
It is not only smartphones, think also about the tablet. This market is worth $35 billion and it did not exist 2 years ago. And people use these devices. In fact, one study showed that 86% of TV viewers are online while watching TV.
We are adopting a digital lifestyle where all the content is digital and delivered to use using a new disruption mechanism called the Internet. We are part of an online digital world. Our presence and our being is in this online digital world. And the gambling business is part of this online world.
This online world is accessible using multiple of devices or form-factor. The Internet and the mobile web are not different things – its only Internet with many types of devices to access your online world. And these devices are different and should have different applications to access content. Although it is difficult to generalize, the PC/laptop is a working device and providing information. Users are focused and ready to work. The mobile is a convenience tool, perfect for checking information and giving fast information when needed. Mobile applications need to be focused and precise with the relevant options rather than all possible options. Remember 86% of TV viewers are online while watching. The tablet is the perfect browsing device. It does not feel like working like using a computer. Finally the TV – the next frontier is perfect for viewing content.
So, what’s next?
It may be difficult to see what is next and it is. We base our thinking on the past since this is the only thing we know. Which is unfortunate in a world of disruptive technologies. The future may be unknown but that’s where the opportunities are. It may be difficult to see how people’s behavior changes but some things are easily predictable. Let’s take few examples.
There are 2 billions connections to the Internet. In the next few years this will grow to 50 billion. This is because all sorts of devices from home appliances a to cars, as well as all sorts of sensors will joint. The law of network effect, Metcalfe’s Law, states that the value of the network is the square of the number of connections. Thus everything will connect. The growth is exponential.
Global Internet device sales (PC, tablets, mobiles) are in their early stages predicted to reach almost 3 billion by 2016. The mobile device counts 5,6 billion devices yet only a fraction is smartphone. In the next years, as cost of smartphones continues to drop, this will polarize. The mobile, which I predicted in 2009 to become the “next big thing” in the lottery world, is already making huge impact. Some gaming operators have seen mobile revenues increase by more than 300% during 2010.
The tablet still is tabula rasa but for some lottery products it’s likely that the next killer app will be tablet app. Consider for example live betting. If 86% of viewers of TV in general are online while watching TV, live betting players sure are online. A good app with all the relevant content and your friends who are also watching is going to be a must have for the football fan.
Then there is the TV. This is the next major consumer item to become software platform. Your next TV will be Android TV or iOS TV or whatever ecosystem. When devices like the smartphone and tablets can communicate with the TV new opportunities emerge, for example two-screen or shared screen solutions.
To be able to follow these fundamental changes, lotteries must adapt or die watching the players move elsewhere. Traditional lottery software platform is a terminal system. When the Internet became popular, an Internet solution was added as a terminal system add-on.
It is time to demote the terminal.
The retailer terminal is no longer the only device in town. It should be consider just a form factor like all the other devices. The digital gaming platform, which accepts bets from any device in any game, is the future for lotteries.
We must keep in mind that the web is just about 20 years old. When Ford released the first Model T in 1908 the car was then more that 20 years old. If that is an indication, we are still in the early stages of online digital innovation.