Product the key for Paddys' online growth, CPO says

Revenue growth from online sportsbook of just 7% during a World Cup year when active customers rose 21% might suggest Paddy Power missed a trick in 2014.

In contrast to its booming Australian business, Paddy Power’s European sportsbook, albeit in part down to adverse sporting results (€14m) and new UK taxation (€3m), only posted a 7% jump in revenues and a 3% operating profit growth.

As well as the big rise in customer numbers, sportsbook stakes grew by 20% over the course of the year reflecting Paddy Power’s strong underlying business and marketing prowess.

But it is this disparity between underlying growth and financial performance which will drive part of Paddy Power’s online strategy in 2015. Punters continue to respond well to the brand – for Paddy Power the challenge is to turn that flood of acquisitions into profits.

By comparison William Hill announced 19% revenue growth in the vertical last week and a 20% rise in operating profits from its online division.

Getting serious about product

The firm has always had a stronger focus on sportsbook than some of its rivals, making it more vulnerable to a bad run of results, and the vertical represented 58% of Paddy Power’s online gross win in 2014.

Half of its sportsbook revenue is from horseracing and 35% of which is football, whereas it’s well documented that several of Paddys’ key rivals derive 50% or more from football.

The Irish firm wants to close that gap and a greater focus on product innovation, it claims, will be vital to increase its share of customer wallet.

Newly-instated chief product officer Peter O’Donovan told eGaming Review that more marketing funds would also be spent highlighting product, a move which arguably resembles Betfair and William Hill’s recent approach.

“A clear emphasis in our brand strategy is going to be to ‘hero’ our product advantages, so you’ll see a greater element of product advertising in our overall mix,” O’Donovan said.

Partial cash out, which Paddy Power calls an ‘industry first’ is one example it was prepared to share, however O’Donovan claims much more is to come.

“We will be introducing new, innovative betting products which will allow us to become distinct from the competition,” he said.

The move hints at a strategy to attract more high value customers to the site, reducing the level of results-linked variance associated with more casual accumulator punters.

“Cash out really hits the bull’s-eye for in-running customers and in particular football in-running customers and higher value customers, who have more cash out bets than the average,” O’Donovan said.

“It’s not to say we’re not going for [the casual football accumulator customer] as well. We’ve seen strong football turnover growth this year and that includes strong growth in multiples – partial cash out is an additional product but it’s not at the expense of multiples.”

Development focus

Paddy Power also highlighted the growth opportunity that gaming represents. While revenues from this vertical and ‘other revenues’ rose 17%, egaming revenue per active customer remains relatively low compared to its rivals.

O’Donovan highlighted a “fairly decisive shift” in the company’s approach to product development, explaining that more proprietary gaming content and the subsequently higher margins is a key focus moving forward.

Three quarters of its product development spend will be in-house this year – up from 67% in 2013.

Its efforts in this space have seen both successes and failures in recent times, with its native Roller casino app being pulled after two years to focus on the PP Vegas brand. “We don’t necessarily see the value in additional brands,” O’Donovan explained.

A revised corporate structure, including teams consolidating in Dublin and greater investment in its 110-strong Bulgarian team, should see Paddy Power’s gaming product make strides in 2015.

Forty percent of revenues derived from its Casino tab on PaddyPower.com are now from proprietary games, which in turn generate a 60% higher return than slot games from third parties.

But the need to step-up its efforts here, including investment in egaming platform and marketing capabilities, is not lost on O’Donovan. Development teams are working on new initiatives such as proprietary jackpots and marketing tools like free spins to use in its in-house content.

“In the ecommerce space customer moves from a brand-led experience to a product led experience, the requirements and demands of the customer have increased,” O’Donovan said.

“The primary purpose behind [the structural changes] is to drive product innovation and also drive the speed of execution and delivery of getting those ideas to market,” he added.

In contrast hardly anything was made of Paddy Power’s headline-grabbing PR exploits which punctuated 2014.

New CEO Andy McCue might have made a point of stressing that it would “not be moving away from its edgy persona”, but its emphasis on product and customer experience suggest this operator is getting serious about taking on the competition.