David Gutierrez was a speaker at Kontagent Konnect 2013 in San Francisco on May 20-21, 2013.
There’s no doubt that there will be a lot of profit to be made in online real-money casino gambling. It’s a $30 billion industry set to grow to $40 billion by 2015. While this is definitely nothing to sneeze at, the problem for most online casinos is that the cost of acquiring new players is very high, at about $200 per customer.
On the other hand, social and mobile freemium casino players are much less expensive to acquire, taking only about $1 or $2 to hook new players. Of course, the caveat is that since real money isn’t wagered in freemium casino games, these players also generate less revenue for the industry ($1.6 billion in 2012). In general, their lifetime value ranges from $10 to $78 per customer compared to about $1,600 for the average online casino gambler.
From a business perspective, the obvious solution then would be to try and convert freemium players into real-money gamblers. This would allow online casinos to reduce acquisition expenses, while boosting revenue. And that’s exactly what some pioneers have been trying to do.
The problem is that it hasn’t been working very well, and it probably won’t—with good reason.
Freemium casino players aren’t the same as online gamblers
Webinar: A Look at Building Irresistible Social Casino Games
Trying to turn freemium casino consumers into online gamblers may not be the best business strategy. The reason is that these two player groups have vastly different characteristics and motivations for playing. The entertainment value freemium players seek varies drastically compared to real-money gamblers. And it’s these factors that make each incompatible as customers for anything but their preferred gaming domain.
Freemium casino customers are, in essence, social gamers. For example, most players of freemium slots games are females 40 and up, and don’t necessarily fit the profile for online gambling sites. The demographics of poker games, on the other hand, more closely match that of typical online gamblers, including the reasons why they play, their geographic location and local legal regulations.
The most prevalent social gamers are female.
Demographics aside, what’s more important is the experience players go through in each of these environments. Freemium casino gamers don’t enjoy the high-stress, sporadic payout style of play typical in online casino gambling. If you take a look at the top social and mobile casino games on the market today (like Slotomania, Bingo Bash and Slot City), it is clear that they are looking for something different—most likely an inexpensive (both in terms of time and economics) way to be entertained.
The majority of these apps are slot machine games. And like real-world slot machine players, the reason why freemium casino customers choose these games over online gambling mainstays, is because they offer a low-stress, frequent payout gaming experience—which is the exact opposite of online casino gambling. In other words, the typical freemium player wouldn’t get the same experiences or needs satisfied by gambling with real money.
A better approach to the freemium casino business
What many operators are starting to realize after acquiring or partnering with major freemium casino operators is that social and mobile freemium games are viable operations in their own right.
While it’s true that freemium casino games generate less revenue than their real-money counterparts, the industry itself has nonetheless maintained steady growth despite the lack of focus. By 2015, it’s expected that revenue will grow to $2.6 billion. Per customer spending also continues to increase, too, and, in fact, is currently higher than the average spending of non-gambling social gamers at $78 to $43.
Now, a key point is that even if online casino companies don’t think investing in freemium games as a separate business is worth the trouble, it’s still a very good idea to maintain a freemium presence.
Freemium casinos games can be leveraged to drive revenue, brand recognition and customer retention.
This is especially important for online gambling businesses and land-based casinos. The goal for freemium gaming in this case isn’t really about earning revenue as much as it’s about brand recognition and retention strategies. If a VIP player at a land casino or a customer of an online gambling site is looking for a freemium game to play in their free time, it would be of greater value and familiarity for this person to find their usual casino available to play. Ideally, casinos should be providing a portfolio of entertainment options to its customers: land real-money, online real-money, and social and mobile freemium options to keep customers engaged with their brand.
So the lesson here is don’t underestimate the value of social and mobile gambling as a brand awareness and retention tool, as well as an independent revenue source. More importantly, don’t expect to be able to successfully convert most of these players into real-money casino gamblers.
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About the author: David Gutierrez, Ph.D., is a data scientist and customer success manager at Kontagent. David’s passion lies in understanding the interplay between data, customer behavior and online casino gambling in order to create actionable business strategies for his clients. Contact him firstname.lastname@example.org or follow him at @degm00.