Achieving critical mass: How 888 is pivoting towards a truly mass-market proposition

The ‘Silicon Valley klaxon’ has become a running joke in the EGR office. It is activated whenever an egaming operator – usually a start-up – compares itself to a tech giant. We’ve had stories on EGR about the WhatsApp for betting, the Tinder for betting, the eToro for betting, and so on. You get the picture. Uber and Spotify are also frequently invoked as models to be copied, but no company is referenced more than Netflix. In the last year, Netflix has been mentioned in no less than 12 stories on the EGR website, which seems like quite a lot for a company which is only tangentially related to the industry.

Last month the ‘Silicon Valley klaxon’ was invoked once again during 888’s FY 2018 results call, but for once the comparison seemed perfectly justified. Specifically, 888 CEO Itai Pazner was talking up Orbit, the company’s new front-end casino platform which appears to be a genuine piece of innovation that delivers the type of personalisation the industry has promised for years. In short, the platform has a game-recommendation engine, driven by AI, that “knows what the consumer wants before they even think about it,” according to Pazner.

Taking the Netflix comparisons further, the platform has a slick front-end, while 888 has its own in-house content alongside third-party games which it can push to players as it sees fit. “We believe we have competitive advantages around casino thanks to Orbit,” Pazner says. The numbers so far seem to bear that out. Following its launch in the UK, first time deposit amounts increased 42%. Following the launch in Denmark, FTD amounts climbed 89%, while it was a whopping 98% in Italy. “The impact from Orbit was quite phenomenal,” Pazner tells EGR. “That was something we just got right and it isn’t always that way.”

Poker face

The company will be hoping for a similar trick from its forthcoming Poker 8 platform, which is just starting to be rolled out across 888’s various markets. Poker was a clear problem for the firm in 2018, with revenues falling 37% to $49m, with a 48% year-on-year decline in H2, suggesting the problem is getting worse rather than better. 888 attributed the drop to a variety of factors including withdrawals from Poland and Australia, a “challenging” overall market, payment and ISP blocking in unregulated markets, and its absence from the European shared liquidity compact.

Analysts also point to a major increase in marketing spend from rivals, specifically partypoker, which has been reporting almost the inverse results of 888 with NGR up 40% in 2018.

Itai Pazner became CEO of 888 earlier this year

“I don’t really see what [888] offers that partypoker doesn’t do better,” says Nick Jones, a poker analyst at Poker Industry Pro. “There’s been no investment in product, promotions or tournaments. It seems like a ship without a rudder over the last year.”

Jones also points out the firm is increasingly pushing its casino content on poker players and seems to be trying to move players as quickly as possible through poker and into casino, while it is also relatively lacking when it comes to liquidity and rewards.

“There’s nothing inherently wrong with each of these things individually, but it’s hard to stay relevant with party-poker in the mix,” Jones says. “PokerStars will always have its liquidity, and if you don’t like Stars then party caters to you. I’m just not sure what 888 does.”

So, is 888 still committed to the vertical? Pazner promises the firm is “still a believer in the poker market”, although that belief may be more about poker as an acquisition channel rather than as a big money-spinner in itself. Pazner says the decline in poker revenues is much less serious than the figures would suggest, with those poker players moved into other verticals within the business.

A further stabilisation and turnaround will come from the Poker 8 client, which promises enhanced graphics, a cleaner design and improved functionality, while the firm will also boost liquidity with a new French/Portuguese pool once it gets the poker client up and running in the Iberian country. There is also consideration being given to launching in France to boost that pool further. “888 still has a great poker brand,” adds Jones. “And the software is fine so it’s not dead just yet. But it needs to correct its course ASAP.”

Eyes down and looking

It’s arguably a similar story over in bingo, where revenues fell 17% for the year down to $32.4m, with a 25% decline in H2. Pazner is quick to point out that the worst of the bingo pressures are already behind the firm, however. “Now we’ve seen the vast majority of regulatory headwinds, we think bingo can get back to growth mode,” he says. Indeed, you’d be hard pressed to find a bingo business growing in the UK over the past year, and Pazner says the new environment can be positive for 888 as the competition reduces its marketing spend and some smaller businesses leave the market altogether.

“If we didn’t believe in the bingo market, we wouldn’t have bought the Mandalay bingo business,” Pazner points out. Back in February, the operator acquired around 34 brands from JPJ Group, which had previously operated as B2B brands on the Group’s Dragonfish platform. By bringing the brands in-house for £18m, 888 thinks it can boost revenues by leveraging its product development and marketing prowess – what some might call the 888 model. It makes sense in principle, although not everyone is buying it. “For Mandalay to be a ‘turnaround’, the issue leading to such poor performance would need to be marketing, since 888 pretty much controlled everything else,” said analyst firm Regulus Partners after the deal.

“We struggle to see that JPJ was a weak marketing operator of Mandalay given its success in other areas. Conversely, if an operator other than 888 bought Mandalay, then there would be a high risk of B2B revenue and liquidity loss to 888.”

The move could therefore be seen as “principally defensive,” Regulus noted. Indeed, the poker and bingo issues, while the worst may indeed have passed, could be emblematic of a greater issue at 888. Is the model of great CRM and digital marketing, designed to wring high ARPU from players, still fit for the modern industry with its regulatory constraints and responsible priorities?

Breaking the mould

888 will tell you it has had to change from its historical model to a more mass-market proposition, which has caused much of the pain during the last year. But there are also clear signs it is having success in doing so, with average daily revenue up more than 10% in Q1 compared to Q4 2018, and up around 5% compared to Q1 last year.

Part of the transition away from the 888 of old has seen sports become the second largest vertical in the company, with betting revenues up 6% to $80m in 2018. First time depositors increased by 21% and deposits increased by 10%, “reflecting the effectiveness of the group’s marketing and CRM,” according to the firm.

Pazner describes betting as a “strategic growth engine,” saying the group aims to make sports a much more significant vertical within the business. “With the hundred-plus team we are acquiring in Dublin, we have a professional sportsbook team with a lot of experience,” Pazner says. “Will sports become bigger than casino? That’s a bit ambitious but we have a lot of growth potential.”

888 recently bought BetBright’s sports betting platform as part of a £15m deal

The BetBright deal indeed appears to be a massive positive for 888, giving the firm its long-coveted proprietary sportsbook technology at a bargain price – perhaps helped by the dire financial straits the Irish bookmaker was in. The technology will be integrated into the 888 platform some time in 2020 and will save around $8m a year that was being paid to Kambi. The platform will also offer new opportunities, with 888 pledging to customise it for launch in various European markets.

“Deals that have financial synergies are important but this is two businesses that complement each other perfectly,” says Pazner. “We are international, we have over 10 licences, a strong international foothold and they bring the sportsbook knowledge. They have a platform that is flexible and modern that we can adapt to other markets. Our experience in Sweden, Italy, Spain and Portugal shows we can do that. That’s the beauty behind this deal.”

Land of opportunity

The longer-term prize is the US, where a flexible sports platform will be vital as states impose a patchwork of different regulations on operators. Pazner says the BetBright deal has put the operator in a strong position to succeed in the US, explaining: “We have access, we have experience, we have relationships and we have the gaming products that will complement sports,” the CEO says. “The vast majority of the market won’t be sports only, so the combination of our gaming expertise and the advances we’ve made in sports put us in a good position.”

The operator has thus far kept a lid on its marketing spend in the US but has certainly not blown the doors off with its success in New Jersey. 888 ranked 12th out of 20 in the recent EGR US Power Rankings, with the report noting: “The European giant isn’t yet posting standout numbers in New Jersey, but it has been quietly building the infrastructure required to take market share. In the last couple of months, 888 bought out its private equity partner in the All American Poker Network, giving it control over that venture and became the first online casino firm to partner with an NFL team in the form of the New York Jets.”

It’s dangerous to assume that 888 can simply take market share when it decides to turn on the marketing money-hose however. The recent DOJ reinterpretation of the Wire Act will likely kill the liquidity sharing compact between New Jersey, Delaware and Nevada, which is the very thing that helped propel the AAPN to the top of the (small) US poker market.

The market will also likely be sports-led and with heavy retail elements – again hardly areas of expertise for 888. Chris Grove, an analyst for Eilers & Krejcik Gaming, is bearish on the firm’s US prospect both for B2B and B2C.

“I think the US market is going to be a bloodbath for suppliers,” he says. “I don’t see anything about 888 in particular that might allow them to exercise a unique advantage over the market at large. And I’m not sure the brand has any resonance with American consumers. If sports opens more doors for online casino, then their picture improves to a degree.”

That online gaming legislation will ride the coattails of sports betting is far from certain, although there have been promising developments in states like Michigan and West Virginia. Should more states start embracing the New Jersey model, 888 could be well suited with its proprietary technology in all four verticals and ability to act as a B2C or B2B provider.

Winds of change

The US is such an important market for 888 because there are genuine headwinds in other key markets around the world – although these headwinds are by no means limited to 888. In Germany, a new Interstate Treaty on Gambling is expected to be adopted at the time of writing, which could feasibly ban online casino in all states except Schleswig Holstein.

“Enforcing betting product restrictions and banning gaming will cut the visible German online gambling market by around 70% in revenue terms and swing it into a net loss-making position versus a cash cow,” noted Regulus Partners. Italy, meanwhile, is expected to swing towards the retail giants as the looming ad ban comes into force, while operators are flooding into Spain, one of 888’s current growth engines.

“We do expect more competition in Spain but we’re far from giving up our market share,” says Pazner. “We launched Orbit there only recently, which will be important for the market. And shared liquidity with Portugal on poker will help. I think it still has growth potential for us, although maybe not high double-digits.”

Taken altogether though, there seems to be more headwinds than opportunities. So how does 888 set itself apart from other firms feeling the same heat? One of the key answers is innovation. 888 has branded itself a technology business long before it was trendy to do so in the gaming industry. And in the same way Orbit has injected life into the casino category, the firm has high hopes of similar ignitions in other areas of the business.

Firestarter

The firm recently carried out a so-called Firestarter Innovation Contest across all global sites, with employees challenged to come up with ideas that could improve business operations, their working lives or the customer experience.

In total, 130 initiatives were submitted, with ideas ranging from open meetings – getting the brightest minds in the company into meetings they wouldn’t otherwise have been in by adding a single button to their Outlook – to gamification and recommendation engines.

The winning team created a ‘favourite widget’ to enable sports bettors to quickly and simply follow their favourite games, players and teams in one-click and receive real-time updates. Other
runner-up ideas included personal bots, in-game customisation and smart search systems using voice recognition.

“It was like The X Factor meets The Apprentice,” Pazner says. “We are already in the advanced stages of implementation of some of the finalists, and others will be implemented later.”

The fact the winning idea was in sports shows where the company is focused going forward, with the BetBright platform giving 888 the flexibility to bring some Orbit-style innovation to betting. Whether the firm will ever become a true betting giant remains to be seen, with one marketing exec suggesting the brand is “inextricably linked with gaming in many punters minds”. That’s in the UK, however, and as already noted, the US is the bigger priority.

Ultimately, 888 has been forced to undergo a transformation over the last year to fit a changing model of how a gambling company should operate. That transformation has stripped the firm of some of its edges over the competition, notably that CRM expertise that generated such excellent player values. However, as the industry shifts towards the mass-market model and presenting itself as another form of digital entertainment, 888 also seems to be at the forefront. Many operators talk about competing with the likes of Netflix for share of leisure time, but 888 seems to be one of the first to actually be implementing some of those concepts successfully with Orbit. If it can replicate that success in sports, poker and bingo, it looks sure to be a market leader for years to come.