Opinion: IGT-Double Down - Pay me to take 95% of your customers

It’s been a long time since I last blogged. Between the sale of my business (to Bally Tech), travelling to and from the US, and my acquisition of Global Poker Index (GPI) from Pinnacle Entertainment I’ve been manically busy.

I’ve just spent a week in Vegas for G2E, but while I was doing the rounds I was shocked with what I learned.

In January this year, IGT acquired two year-old Double Down Interactive for an initial fee of US$250m, rising up to $500m if certain performance criteria are met. The company is a social gaming success story and is, as far as I understand, highly profitable through its existing B2C model on Facebook. I have nothing against that model, only that I feel stupid to have never predicted this would materialise after working in the gaming industry for the last eight years.

The industry, however has never really fully understood the acquisition. Double Down is a brand and a B2C social gaming operator and has millions of users with a small percentage (3% to 5%) monetising by buying virtual chips.

It’s a B2C asset acquired by a B2B giant. If IGT wants to go down this route it’s up to them. I am still puzzled, however, as to why they did it. Between you and I, I have never believed in B2B social gaming. The success of social is the uniqueness of the game and its marketing. It’s not a product that you can create, duplicate and distribute on many ‘Facebook’ pages or websites. The companies that are successful in this landscape are the big brands such as Zynga, Playtika and DoubleDown.

At G2E I learned that IGT has agreed to license its new ‘social gaming product’, i.e. Double Down, to more than 15 US land-based casinos. Now I’m confused. So IGT, which has very strong and trusting relationships with hundreds of US casinos, is pushing its social gaming offering on a B2B basis?

As a good entrepreneur does I spent a few minutes checking out the offering. I logged onto the websites of Casino Del Sol, Golden Acorn and Bonanza that have each taken on Double Down, and I was surprised with what I found. All these sites are actively promoting the Double Down brand on their homepages. Technically all their players are registering on Double Down’s Facebook application meaning that when you register on any of these casino’s websites you automatically become a Double Down ‘client’, but not a client of the casinos in question.

I’m going to say something very important at this point; IGT and its management are definitely smarter than anybody else on the market. Because the US land-based industry is not yet fully up to speed on online or social gaming IGT is convincing licensed land-based casinos, that have, in some cases, already spent tens of millions to build their own brands and their customers’ databases/loyalty, to pay to promote the DoubleDown brand and product.

But shouldn’t it work the other way round, and is this not advertising? Shouldn’t Double Down pay to be on the casinos’ websites? But this is not the most important element of the model. We all know that the conversion rate of social gaming to generate revenue is between 3 to 5% of active players, so when 100 players register and play for free, up to 5% will generate revenue.

Double Down/IGT is giving a revenue share to each casino. So, if a player registers on Double Down’s casino through the land-based casino’s site, it gets a few cents, but what about the remaining 95%? I believe that casinos are paying DoubleDown to offer 95% of their customer database as well as give free exposure of the DoubleDown brand.

I recently read in the Las Vegas Review Journal that “in the quarter that ended June 30, IGT said Double Down’s users declined 7%” and that CEO Patti Hart said IGT is aiming to “increase users on Double Down”. It’s obvious; IGT is taking legitimate revenues from casino operators to support the cost and the growth of its acquisition. And this is why the deal and the B2B part of the plan is so great.