Gambling For A Profit

Anyone who has ever been to a land based casino anywhere in the world will agree that casinos compete tooth and nail for your attention and your money.  The billions of dollars invested to create the gambling wonderlands such as the Bellagio and the Venetian were not spent without knowing exactly what they were doing. Everything inside and out of a casino is designed to encourage you to gamble your hard earned dollars away in the fantastic dream of getting rich.  It seems casinos will stop at nothing to get you in the door and into your pocket, and online casinos are learning to follow suit.

Online casinos are paying a higher cost per visitor than any other industry on the web, even adult.  But is the higher price per visitor justified, or are online casinos themselves gambling for a profit? Let's compare the basic offline experiences of adult and casino for insight as to why the online reality is what it is.

Double Down

Pretend half your brain walks into a casino while the other half enters a strip club.  The basic cost of operation comes to mind first.  It is without a doubt more expensive to build a gaming establishment, and the same is true online. Gaming software, licensing, processing systems, sports lines, operators, accounting systems, and more, all need to be subscribed to, maintained and paid for.  Building a strip club is a moderate investment as is an adult site, but typically nowhere near the $100,000-$500,000 going rate to get an online casino up and running.  Not to mention the legal, financial, and technological risks.

The desired customer for the two is pretty much the same; Over 18 or 21 (depending on state laws), male or female, and cash in hand. The same is true in our cyber comparison, so why do online gambling sites spend over 25 times more to get visitors ‘in the door’ than do adult sites? 

Enticing E-ntertainment

The online gaming world is not as cut and dry and does not have amenities like buffets, free drinks and hotel comps to entice visitors.  In fact, there is only so much you can do with web graphics, gaming software (although levels of interactivity are beginning to push the bar), "Double Your Deposit" type promotions, and free play offers.  Theme is probably the biggest exterior draw for surf-in gamblers.  Theme can only go so far and as celebrities like Dennis Rodman and Jenna Jameson, both familiar to the adult Internet industry, take the stage by opening online casinos, there still is one reason behind all the glitter that is a converting factor.  Reputation has become a complex key factor in attracting high rollers.  Not only the reputation of the web site itself, more importantly is the software provider, licensing, and accounting details.

Who would choose to gamble thousands at a black jack table of a casino that has a broken air conditioner, second rate liquor, or dirty cards?  If it’s the only casino around then maybe, and this was the case in the early days when online gambling was first launched.  Why shouldn’t online casinos exude the same classy and glamorous "you’re-rich-already" tactics used by land based casinos?  In a market that started out with around 20 online gambling sites in 1996, most of them very crude and graphically shoddy, the novelty value in the online gambling concept was enough to skyrocket the budding industry into over 2,000 sites now in 2002, at an estimated value of $4 billion dollars (many analysts like Jupiter Research include online gaming profits with online adult entertainment, and estimate revenue at 6 billion a year)¹.

But the novelty has worn off and as online gamblers wise up, they are demanding more.  With the increasing number of online casino’s going live every day, the cost per visitor continues to rise.  Just like the "shake down" that has resounded throughout the dot com world has weeded out those companies with weak business plans and get-rich-quick concepts, the online gaming world has seen its fair share of "busts" as well.  In an effort to generate maximum profits in a new medium, the competition for new gamblers on the web has become intense.

A Lesser Evil

Online gambling sites have limited venues in which to advertise to potential gambling surfers.  Although more accepted than adult, advertising online casinos is no risk-free walk in the park. Although online gambling is said to be illegal in the US, roughly 50% of all deposits come from the United States.  More astonishingly is that 50% are women, and about 30% of all online gamblers are over 55.  These basic demographics are important for online casinos to target their advertising efforts.  Targeting is essential to keeping costs per visitor as low as possible.

Online gaming sites have 5 basic forms of advertising available to them.  Banner advertising, affiliate marketing, search engine placement, pay per click engines/directories, and offline venues. The first is paid banner advertising and availability is dependant on the policies of the publisher.  Yahoo! will allow casino banners in their rotation based on keywords, and most places will.  In fact when comparing the evils of porn to gambling, many companies agree online gaming to be the lesser of the two evils. "It is easier to deal with gambling than porn materials.  It’s kind of like the argument between marijuana and alcohol. One is illegal.  The other is not.  One is more socially acceptable. The other is not" said Richard Ekstrand of Rural Cellular¹.

Risk Vs Revenue

Money can be saved on banner advertising campaigns by instituting an affiliate program and advertising to webmasters to gain resellers. Oddly enough, many online casinos do not want adult traffic and will not accept adult webmaster affiliates. Although the target demographic is the same (over 18 with a credit card), gaming sites seem to find that the traffic is not qualified enough to pay for (per click), too high risk (fraud), or simply want to save face (reputation).  What would seem like a match made in heaven often is not.  The cost of fraud and charge backs, which often lead to law suits, for online casino’s is higher because the charges can amount to the entire available balance rather than one micro transaction at time.  Gambling sites must be weary on what types of traffic they purchase or allow to avoid these types of problems.

When it comes to search engine placement, many online casino’s find it difficult to find and hire or keep search engine specialists on staff to maintain high keyword rankings in the search engines.  Most online casinos have larger advertising budgets than do adult sites and exercise that muscle in a pay per click bidding war in top CPC engines like Goto.com/Overture.com where it is over 26 times more expensive to purchase gaming traffic over adult.  On 12/19/01 the bidding rate for keywords "sex" and "porn" average .22c per click, the going rate for "casino" and "sportsbook" averages $10.44 PER CLICK.  An average of ten top adult keywords compared to ten top gaming keywords brings the ratio comparison down to about 26 times more expensive for gaming keyword advertising.

Aside from print and media advertising, new offline marketing avenues are beginning to surface for the Internet gaming industry.  Wireless gambling from cell phones is already an actuality in several countries.  EuroBet, one of the world’s largest betting companies, has tutorials on how to bet from your cell phone at their web site. Games for WAP enabled phones are out there, and although the guy loosing $1,000 in blackjack while in line at the grocery store is a little pathetic, the sports betting potential is enormous, especially for the Latin America market.  I can see the headlines now: "World Cup Betting Shuts Down 5 Major Cellular Networks".  The integration of advertising on Cell phone screens is quickly becoming a reality and I’ll bet 10 to 1 that online casino ads will be among the first.

Do or Die

Are online casino’s presently making enough money to justify such a high cost per visitor?  Revenue reports often show what online gambling sites are making, not what they are investing or spending. If reputation is a big factor in attracting high rollers, than when the Las Vegas brand name casinos like the Mirage and Harrah’s go online not only will the justice system have to catch up, so will online based casinos.  In Nevada, real time gaming software company Virtgame.com is attempting to sway Las Vegas Mayor Oscar Goodman with a deal to use the Las Vegas name and official city seal for an Internet gambling venture called vegasone.com, aimed to be profitable for both the city of Las Vegas and Virtgame.com as well as pave the way for the legalization and operation of other online casino’s in Nevada².  Once this happens a new wave of "shakedowns" will occur in the online gaming industry and then the gamble will be to get the players back.  So, maybe the high cost per visitor is worth it today, because one way or another, tomorrow the stakes will be higher and the house will be full.

¹  Source: "Gambling Fever Spreads to CellPhones" by Ben Charny; http://www.zdnet.com/filters/printerfriendly/0,6061,5079980-2,00.html

²    Source: "Online gambling deal tempts city" By Jan Moller;  http://www.lvrj.com/lvrj_home/2001/Dec-12-Wed-2001/news/17648609.html

Originally Published in YNot News

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