How technology can disrupt the lottery industry

James Oakes, director at Zeal Investments

Technology is enabling disruption in industries left, right and centre. When was the last time you dropped into your local video store to pick up a movie? How about booking a holiday – popped into a travel agency recently?

Rapid change is all around us and yet the lottery industry is still resolutely stuck in the 20th century. What other industry, otherwise ideally suited to ecommerce, only makes 5% of its sales online in 2016?!

In established industries, the most powerful motivator for change is revenue, or lack thereof. The old lottery businesses are largely insulated from competitive pressures as they hide behind antiquated and protective licensing regimes. For lottery start-ups, navigating this intense administrative and legal red-tape can often prove too much for their fledgling businesses. The result, entrepreneurship is stifled and many exciting opportunities to push the industry forward are lost. Who are the ultimate losers in all of this – the lottery playing public of course!

But as we have seen in other industries, similarly characterised by the existence of cosy protected cartels (think banking or taxis), the game-changers and market-challengers are on the rise. Ambitious digital start-ups are emerging, ready to leverage technology and disrupt the lottery industry.

If you snooze, you lose

Think about how companies such as Uber, Transferwise, Netflix and Airbnb have changed the consumer landscape. Technology has enabled start-ups to challenge the fundamental assumptions of how an industry works – world’s largest taxi company without any taxis or drivers anyone? Closer to home, can you think of a more fundamental assumption than slot machines need to pay out money? Of course Doubledown, Playtika and Whow have shown that through leveraging technology even that most central pillar of gambling can be torn down, to dramatic and lucrative effect.

Hindsight may be 20/20 but there is an opportunity here for the lottery industry to learn from these examples. Uber has shown that a well-crafted algorithm and some original thinking has the power to disrupt and transform the consumer landscape overnight. Rather than sitting back comfortably, lottery companies should start disrupting from within. If they don’t they will simply fall victim to external disruptors and lose their coveted market share.

Technology in play

The breakthrough for the lottery industry could be powered by any number of technical advances – and there have been the odd one or two since the industry’s 1980s tech heyday. Ad-tech is evolutionising old business models and turning the consumer into the product. Crowd-sourcing and crowd-funding is giving people the power to mobilise and have their voices heard in a way that previous generations never imagined possible. Virtual and augmented reality have fundamental implications for how we engage with the world.

It’s not such a long-shot to imagine these advances being applied to the lottery. Free-to-play ad-funded lottery anyone? Imagine a lottery where the “good cause” component is voted on in real-time by the players to help respond to the latest disaster. And Pokémon Go, but for real-money, is surely going to be hitting the instant win market soon.

Technology is only advancing faster. It doesn’t wait for consumers to tell it what they need, it’s busy reprogramming the market on a daily basis. If the existing lottery industry wants to stay relevant and profitable, it needs to accept the inevitable and change or be changed.