Arthur D Little: Online gambling – perspectives on the European games of a chance market

<p>Huge growth potential for established telcos&nbsp;</p>

An increasing number of European countries are putting aside their past reticence and preparing for a controlled opening of their markets to online gambling. The ever increasing number of surfers in countries where there is no online gambling are taking advantage of the offers of foreign websites. This is causing some countries to lose millions in taxes, whilst at the same time undermining the state's gambling monopoly. According to specialists at management consultancy Arthur D. Little, the market will increase over the next three years from the current €5 to a total of 8 billion. “Recently established telecom providers with their fixed client base are opening up interesting perspectives - not only for the generation of new turnover and income in a largely saturated market, but also to position themselves amongst the competition,” says Klaus von den Hoff, Director of Arthur D. Little's Telecoms, Information, Media and Entertainment (TIME) Practice. In co-operation with leading European companies in the telecommunications sector, the consulting teams at Arthur D. Little have worked out the essential factors for a successful market entrance. They have identified three crucial parameters for success: range of game offering, positioning in the value-added chain and overcoming some key challenges. 

Growth in the three segments since 2002 is apparent; with an increased market volume from around 1 billion euro to over 5 billion euro in 2008. A glance at the individual market segments displays small differences in the annual growth rates. The sports betting segment is set to expand with an annual growth rate of 8 percent to approximately 2.3 billion euro by 2012. Online poker games, whose European overall turnover in 2008 was 1.1 billion euro, will enjoy the same growth rate, swelling to 1.5 billion euro by 2012. Furthermore, online casinos are enjoying an annual growth rate of 11 percent and by 2012 will have snowballed from 1 billion to 1.5 billion euro. 
Balanced online offers in demand
Established providers looking for an entrance into this market usually have the choice between three basic offerings: sports betting, online poker and online casinos. “The success or failure of a market entrance depends on choosing the correct entrance offer,” says Mr. von den Hoff. “And each variant has inherent opportunities and risks, which need to be weighed up carefully.” The largely unexplored mobile TV sector still offers enormous growth potential. Providers can take particular advantage of this if they already offer multi-play packages from cellular phone networks, fixed networks, the internet and television and integrate these gambling platforms into their existing offer at comparatively low cost . “The result is not only an increase in turnover, but also a sharper profile in relation to the competition,” explains Mr. von den Hoff. 
Chances vs. risks: the right position along the value-added chain
The implementation of gambling concepts poses major challenges for telecom firms. Essentially, consultants see three possibilities to position new offers along the value-added chain: affiliates, retailers or operators. 
Affiliates lead existing customers directly to the online offers of their partners, who then assume full responsibility for the business. The minor risk involved does, however, have its price; affiliates must deal with lower income and have only limited sway options. The position of online retailers represents an alternative, whereby partner offers are marketed on retailers’ own internet platforms, and the distributor does not have to hold a gambling license. Here, opportunities to generate profits ultimately depend on the tariffs negotiated with the relevant partner – the more closely the outsider’s offer is integrated into their own brand, the higher the returns. By comparison, operators and/or licensees operate independently and, at the same time, assume all financial and legal risks. Admittedly, returns do not have to be shared with a partner; this approach does, however, entail a multitude of risks. A false start would not only incur economic losses, but could also damage a company’s long-term image. “No general recommendation for the right choice can be made; decisions must be taken on a case-by-case basis,” says Mr. von den Hoff. 
Dealing with the gambling laws 
In addition to the harsh realities that have to be overcome, the online gambling market features other peculiarities that must be taken into account. For instance, the gambling sector is still struggling with its somewhat dubious reputation. “With regard to this aspect in particular,” continues Mr. von den Hoff, “established telecom providers can benefit from their positive image, which would not be jeopardized by offering serious gambling. Above all, selecting reliable partners holds the key to success.” New market entrants, on the other hand, must bear in mind that the demands of online users have risen in the interim. Pop-ups, superfluous contents and poorly laid-out interfaces are, quite literally, spoilsports which quickly drive customers into the hands of competitors. To ensure long-term success, established operators should focus on four key points: security, entertainment, user-friendliness and simplicity of applications. 
“Established providers should act now. And here, once again, details hold the key to success; painstaking preparation for this new and promising, but difficult market is required,” sums up Mr. von den Hoff. 
“Online Gambling: All in?” is available for download at
www.adl.com/onlinegambling

Arthur D Little: Online gambling – perspectives on the European games of a chance market

<p>Huge growth potential for established telcos&nbsp;</p>

An increasing number of European countries are putting aside their past reticence and preparing for a controlled opening of their markets to online gambling. The ever increasing number of surfers in countries where there is no online gambling are taking advantage of the offers of foreign websites. This is causing some countries to lose millions in taxes, whilst at the same time undermining the state's gambling monopoly. According to specialists at management consultancy Arthur D. Little, the market will increase over the next three years from the current €5 to a total of 8 billion. “Recently established telecom providers with their fixed client base are opening up interesting perspectives - not only for the generation of new turnover and income in a largely saturated market, but also to position themselves amongst the competition,” says Klaus von den Hoff, Director of Arthur D. Little's Telecoms, Information, Media and Entertainment (TIME) Practice. In co-operation with leading European companies in the telecommunications sector, the consulting teams at Arthur D. Little have worked out the essential factors for a successful market entrance. They have identified three crucial parameters for success: range of game offering, positioning in the value-added chain and overcoming some key challenges. 

Growth in the three segments since 2002 is apparent; with an increased market volume from around 1 billion euro to over 5 billion euro in 2008. A glance at the individual market segments displays small differences in the annual growth rates. The sports betting segment is set to expand with an annual growth rate of 8 percent to approximately 2.3 billion euro by 2012. Online poker games, whose European overall turnover in 2008 was 1.1 billion euro, will enjoy the same growth rate, swelling to 1.5 billion euro by 2012. Furthermore, online casinos are enjoying an annual growth rate of 11 percent and by 2012 will have snowballed from 1 billion to 1.5 billion euro. 
Balanced online offers in demand
Established providers looking for an entrance into this market usually have the choice between three basic offerings: sports betting, online poker and online casinos. “The success or failure of a market entrance depends on choosing the correct entrance offer,” says Mr. von den Hoff. “And each variant has inherent opportunities and risks, which need to be weighed up carefully.” The largely unexplored mobile TV sector still offers enormous growth potential. Providers can take particular advantage of this if they already offer multi-play packages from cellular phone networks, fixed networks, the internet and television and integrate these gambling platforms into their existing offer at comparatively low cost . “The result is not only an increase in turnover, but also a sharper profile in relation to the competition,” explains Mr. von den Hoff. 
Chances vs. risks: the right position along the value-added chain
The implementation of gambling concepts poses major challenges for telecom firms. Essentially, consultants see three possibilities to position new offers along the value-added chain: affiliates, retailers or operators. 
Affiliates lead existing customers directly to the online offers of their partners, who then assume full responsibility for the business. The minor risk involved does, however, have its price; affiliates must deal with lower income and have only limited sway options. The position of online retailers represents an alternative, whereby partner offers are marketed on retailers’ own internet platforms, and the distributor does not have to hold a gambling license. Here, opportunities to generate profits ultimately depend on the tariffs negotiated with the relevant partner – the more closely the outsider’s offer is integrated into their own brand, the higher the returns. By comparison, operators and/or licensees operate independently and, at the same time, assume all financial and legal risks. Admittedly, returns do not have to be shared with a partner; this approach does, however, entail a multitude of risks. A false start would not only incur economic losses, but could also damage a company’s long-term image. “No general recommendation for the right choice can be made; decisions must be taken on a case-by-case basis,” says Mr. von den Hoff. 
Dealing with the gambling laws 
In addition to the harsh realities that have to be overcome, the online gambling market features other peculiarities that must be taken into account. For instance, the gambling sector is still struggling with its somewhat dubious reputation. “With regard to this aspect in particular,” continues Mr. von den Hoff, “established telecom providers can benefit from their positive image, which would not be jeopardized by offering serious gambling. Above all, selecting reliable partners holds the key to success.” New market entrants, on the other hand, must bear in mind that the demands of online users have risen in the interim. Pop-ups, superfluous contents and poorly laid-out interfaces are, quite literally, spoilsports which quickly drive customers into the hands of competitors. To ensure long-term success, established operators should focus on four key points: security, entertainment, user-friendliness and simplicity of applications. 
“Established providers should act now. And here, once again, details hold the key to success; painstaking preparation for this new and promising, but difficult market is required,” sums up Mr. von den Hoff. 
“Online Gambling: All in?” is available for download at
www.adl.com/onlinegambling

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