Analysis: IGT acquisition of Double Down
With the US regulatory system currently a closed shop until further notice a leap into the social space to reach not only a North American, but also a global gambling audience, could well pay off for one of the world's largest gaming suppliers.
While walking the corridors of US gaming conferences and seminars Patti Hart one day saw her vision of the future; one where “gamblers” will be able to choose what game they play, how and on what they play it and in whatever paid or free-play format they choose.
Not long afterwards she somehow convinced the IGT board to part with US$500 (£326m) of shareholders money for a barely two year-old social gaming start-up that only launched its Double Down Casino app on Facebook in April 2010.
Double Down Interactive’s growth, however has been nothing short of spectacular. As eGaming Review highlighted in the current issue of the magazine it has gone from diminutive base of early adopters to being one of Facebook’s top five most played apps in just 18 months with 4.7m monthly users, generating more than US$140,000 in daily revenue and an estimated $10m a year in operating profit. And all this with a close-knit workforce of just 80 staff, many of whom were immediately transformed overnight into millionaires.
IGT has taken a risk and it knows it. As Matt Moyer, IGT’s head of investor relations warned listeners on a hurriedly arranged 5am conference call on Friday 13 January, the morning after the deal was announced, the information presented “could contain risks and uncertainties”.
Despite stating that the valuation was comparable to other companies in this space and worked out roughly the same as building its own start-up from scratch, even Hart admitted on the call that the social gaming industry was still “defining itself” and, despite being confident of her vision for the global gaming industry, that she was still unclear just how it would all pan out.
“They [virtual cash and real-money] are two different experiences. There are similarities but different demographics in this user base. There will be some overlap. Who knows maybe virtual currency may cannibalise real money gaming that exists today?” she said candidly going onto suggest more assertively that both models would “peacefully co-exist”.
“They will be different experiences played by different people and in fact, in many cases, by the same player. The ability to come into your online gaming world and play with virtual currency, or real money or play within a subscription model will likely be the model that is successful going forward,” Hart explained.
The short term plan, however, is to aggressively add as many users, or liquidity as she described it, to Double Down’s rapidly expanding player base. “The first mover advantage in this marketplace really matters because liquidity equals more members in this environment,” said Hart, “so the more liquidity you have the more interesting your product is, so the land grab for liquidity will impact product performance over time.”
Its benchmark, of course is newly floated Zynga Poker that is in the process of expanding into casino and bingo and that generates almost ten times as much liquidity as Double Down. IGT may have acquired the leading social gaming casino business there is, but it also knows it is not alone in this space with “new entrants entering the race almost everyday”, according to Hart.
What is does have, however, is content and a vast catalogue of land-based and online games, both proprietary and branded, that it can easily translate and transfer to Double Down’s virtual casino allowing high volumes of existing IGT game players and a “new younger demographic” to buy Facebook virtual credits in order to play on the social network. Longer term this may prove a lucrative move with Hart suggesting that Double Down’s monetisation rate is higher than that of Zynga due to the way “the product plays and the volatility of casino style gaming”.
“They [players] exhaust Facebook credits at a faster rate on Double Down than they do in traditional gaming,” Hart added.
Overall, however Hart believes the acquisition, over valued or not, will add to the “great gaming experience” IGT already offers in casinos, online and now via its recent acquisition of poker network Entraction.
“It is about great gaming experience. It’s no different to how we put machines on the floor of casinos around the globe, which is why we think our core competency at the core of IGT is so valuable as we put these two companies together,” she said.
As Hart hinted last week, with the US regulatory system currently a closed shop until, as is looking likely, with a handful of large states beginning to make moves to regulate gaming within their own borders, a leap into the social space to reach not only a North American, but also a global gambling audience, could well pay off.
“It allows us to reach deeper into the social fabric for our core products and to add a social layer to the core gaming experience in a land-based environment. It’s a real move forward in convergence and the creation of a true global gaming eco-system that allows you to play on any device with any sort currency around the globe.”