Every year, worldwide online gambling revenues increase and new online gaming platforms open, hoping to cash in on a surging market. However, not every online casino that launches is able to survive.
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What are some of the reasons for their failure? Why can’t casino owners deal with some of the risks of the market? What do online casinos need to do in order to stay in the game? Find out more about how and why some online casinos go bankrupt in the article below, as well as how to avoid some common pitfalls, brought to you by the experts at Slotegrator.
Characteristics of the Online Gambling Market
We’ll start by looking at some of the important aspects of the online gambling sector, in order to understand what people need to know when entering the market.
1994 saw the first-ever online casino. In the same year, Antigua and Barbuda passed the Free Trade and Processing Act, becoming the first nation to license online casinos. Soon the Kahnawake Gaming Commission of the Mohawk Territory of Kahnawake followed, as well as several other jurisdictions that realized the potential of online gambling.
The online casino market’s rapid growth was spurred on by developments in technology and the ability to access to international markets. There was substantial incentive to enter the market; in 2009, estimations put the value of the industry at $24.73 billion dollars. This increased to $37.47 billion by 2014, and $50.65 billion in 2017. The industry’s history is marked by expansion and growth, and any slowdowns in established markets would likely be compensated by the emerging strength of markets in Africa, Asia, and Latin America.
This is not the kind of industry that experiences a single burst of growth and then subsides. Gambling’s enduring popularity, combined with the constant innovations that make mobile gaming so accessible, ensure strong and steady growth. Any analysis of worldwide online gambling revenue will yield the same conclusion: this is a sector with large amounts of available revenue that increase every year.
The explosion in the number of online casinos and the massive revenues they were able to generate prompted some governments to attempt to pass legislation regulating the market. Some succeeded, some did not, and some created legal gray areas where online gambling is neither allowed nor banned. In a few countries, there are laws that prohibit sites registered in the country from taking bets from that country’s citizens, but allow them to face foreign markets.
While it can be complicated to navigate the legislative landscape, one simple solution is to license the platform in one of several casino-friendly jurisdictions, like the aforementioned Antigua and Barbuda and the Kahnawake Gaming Commission, as well as the Philippine Amusement and Gaming Corporation. Platforms registered in these jurisdictions and others like them have free rein to face almost any market they wish.
So the defining characteristics of the industry are high profits, high demand, promising new markets, and few barriers to entry. Establishing and running an online casino might seem like a foolproof plan, but still, casino bankruptcies are entirely possible. Why?
Healthy revenue streams and low barriers to entry make the online casino market a tempting prospect - which creates one of the industry’s major stumbling blocks: competition. Not only are there established industry giants to contend with, but the market is constantly flooded with new, up-and-coming platforms looking for their piece of the pie.
Amid such robust competition, it’s no wonder that online gambling platforms can fail. An online casino that doesn’t avoid the common traps listed below could wind as one of the unfortunate casinos that went bankrupt.
Causes of Bankruptcy And How to Prevent Them
Not even a great idea can survive poor management. Whether it’s a lack of vision, poor financial planning, or weak interpersonal skills, bad leadership can sink an online casino before it even starts to swim.
Especially common among first-time managers is a lack of awareness of their own weaknesses. CEOs might have good credentials but poor personal management skills and find it difficult to develop good relationships among the team.
Finding and hiring talented people is hard enough, but keeping them is no small task either, especially if they possess an in-demand skill. Some CEOs forget to focus on building the interpersonal relationships that are crucial to running a business, and fail to hold on to crucial staff.
Some CEOs of failed businesses also report misunderstanding cash flow - i.e., having a poor grasp of the financial aspects of the business. At first, this seems blindingly obvious - you need to make more money than you spend, no mystery there - but the myriad of expenses involved in the iGaming business, from licensing to intricate marketing schemes, can quickly and sneakily add up, sometimes blindsiding unwitting managers with more costs than they can account for.
Another fatal flaw is failing to make a defined plan for the future, instead getting mired in day-to-day operations that would be better delegated to other team members. As countless self-righteous high school teachers have said, failing to plan means planning to fail.
Solution: Real Leadership
Smart managers will surround themselves with a team of experienced specialists. They’ll recognize their weaknesses and hire people who have the specializations that make up for them. The advantages of stacking your corporate roster with seasoned veterans extend far beyond day-to-day operations.
Consider the aspect of funding. The online gambling world sometimes suffers from a lack of venture capital investment. Angel investors are wary of markets they’re not familiar with, and doubly so for a sector as potentially risky as online gambling. Management figures without a proven track record of success would have a hard time swaying them.
This is just one problem that can be solved by the presence of expert management; investors who are otherwise overly cautious of unfamiliar sectors might find themselves more likely to reach for their checkbook if the management team is stacked with seasoned IT, marketing, and management experts, led by a very experienced CEO.
Just like companies in any other sector, online gambling platforms require strong leadership with a defined vision. In addition to knowing the ins and outs of the company’s day-to-day operations, top-level management needs to focus on 3-year and 5-year plans.
Will the platform seek to dominate a single market, or spread to several? What forms of gaming will be offered now, and in the future? How will the platform react to dramatic changes in the market or the economy at large? Talented and experienced leaders should focus on these and other big questions.
Problem: Poor Promotion
Poor marketing is fatal for online casinos. Online casinos need a constant influx of new players making deposits in order to survive, and if their marketing and advertising campaigns do nothing to distinguish the platform from its crowded field of competitors, there will be no reason for new players to sign up.
Failure to do proper market research can lead a marketing campaign to be poorly matched to its target market, spreading advertisements that potential players find dull and repulsive instead of fun and enticing. An online casino that fails to study and properly understand its market will be unable to draw new players or retain the players it has.
Even if an online gaming platform offers the best possible gaming experience, failing to convey why it’s unique will make it indistinguishable from the crowd of other platforms on the internet. No idea, no matter how good, can survive poor communication.
Solution: Marketing Magic
It’s not unheard of for an online casino to spend half their budget on marketing. Plenty of online casino platforms have found success by using affiliate marketing programs, usually opting for the Cost Per Acquisition or Revenue Share payment models.
The two models offer differing incentives for affiliates, so it’s important to work with experienced affiliates who understand the traffic on their websites. The Revenue Share model will encourage affiliates to drive long-term players to your site, while the Cost Per Acquisition model will encourage affiliates to concentrate on driving high numbers of new visitors to your platform.
But putting an affiliate marketing program in place, by itself, is not enough. You need to make sure your platform makes it easy to convert the users your affiliates send your way.
Problem: Bad (or No) Business Model
Some casinos assume they can just cash in on a thriving market by imitating what all the other casinos are doing, copying everything from designs to player incentives, all while targeting the same market as their competitors - or even targeting no market in particular. The assumption is that going through the same motions will result in the same result.
This might work in the short run by peeling off players who are tired of their usual casino, but in the long run, it won’t generate the regular deposits online casinos need.
As soon as players realize there’s nothing to distinguish the platform from the rest, they will get bored and move on.
Solution: Be Distinct
Not all casinos are created equal. For a new casino to survive, there needs to be a reason it’s different from all the others - better bonuses, more chances to win, better games, an innovative design, etc; a successful online casino breaks new ground.
For example, take casinos that focus on incorporating cryptocurrencies as a payment method. These have a specific appeal to specific audiences; they target the overlap between online casino players and those who like the anonymity offered by cryptocurrency payment methods. These casinos have a unique edge that differentiates them from others.
Another trending example is online casinos that integrate gamification into their online gaming experience. Adding a video-game style layer of gamified experience (leaderboards, map completion, leader-up progress bars) combines online casinos with an experience that players are likely to already be familiar with.
It’s also possible, as in any other business, to identify an underserved market to target. Markets in Africa, Latin America, and India all have more potential players than casinos to serve them.
Online gambling startups that succeed are often the ones that have found a way to acquire and retain players more cheaply than their competitors. While that aspect of a business is entwined with its marketing strategy, it’s critical to remember that the players brought to a platform will not stay if there is no real value.
Problem: Hacking and Fraud
The online gambling sector has always been driven by dynamic new technologies. However, like many other parts of life, cutting-edge technology is a double-edged sword. The breakneck pace of technological advancement has led to an arms race between casinos and the hackers seeking to defraud them. Skilled hackers can present a serious risk to the financial stability of a casino.
One common form of player fraud is the creation of multiple accounts, which confident sports bettors use to multiply their winnings and casino players use to cheat at table games. Hackers also use multiple accounts to abuse sign-up bonuses for new players and stolen credit cards to score real wins with other people’s money.
Another serious concern is the fact that online casinos are essentially a depository of personal details and credit card numbers, making them ideal targets for hackers looking for personal data to steal.
Breaches in security can not only affect the financial stability of your online gambling platform, but also its reputation. If players believe a platform is unable to protect their private information, they will simply look for a platform that can.
Solution: Invest in Security
There are many companies that focus on providing online casino platforms with integrated cybersecurity solutions.
As maintaining proper security requires processing an immense amount of data, artificial intelligence is becoming increasingly important in the iGaming sector. AI-enabled security systems are better-equipped to identify possible fraudulent users than humans could ever be.
When choosing a cyber security solution, do thorough and methodical research on the layers of security that will be used. Proper security measures include, but are not limited to:
- Stringent age and ID verification;
- Email analysis;
- IP analysis;
- Secure cookies;
- Email authentication protocols;
- Domain name security extensions.
When considering casino platform providers, it is essential to make sure they have integrated security solutions that will enable the safe operation of an online casino.
Even if an iGaming platform finds a way to cut player acquisition costs in half and offers unique products or experiences, it could still find itself facing insolvency. Two ways to avoid going totally bankrupt are:
- Mergers and Acquisitions - with a good enough client base and a high enough level of client trust, a failing casino might be bought by a larger and more stable one. This could potentially even keep the brand alive, as well as saving the jobs of those working on the platform. This is a common solution for casinos and bookmakers who have run into trouble, as their client lists hold their own value.
- Rebranding - this requires an overhaul of a site’s name, design, and range of products, but could allow a business to keep the client base and existing company structure. While this is potentially very expensive, it still costs less than starting over again from scratch.
The gambling business hinges on luck, which is a fickle thing. The iGaming business has plenty of success stories, but it could take only one of the above problems - or one not mentioned here - to cause a casino to fail and go bankrupt.
In a nutshell, for a platform to succeed, it must spend less money on player acquisition than players spend on the platform. Successful platforms find ways to reduce acquisition costs, whether by affiliate marketing or another method, and increase player spending, often with bonuses, free spins, VIP programs, and other incentives. Successful casinos need distinct business models, excellent marketing strategies, and great leadership.