Friday, January 4, 2013

IGT & Facebook Inadvertently Cure Compulsive Gambling With A Bad Business Model!

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The Basics: By licensing to various Facebook online casino platforms, IGT and its licensees are following a business strategy that is ultimately self-defeating to both.

Since leaving my technology blogging job, it takes quite a bit to get me to write about technology issues now. Fortunately, my wife has presented me with something worth writing about that, over the course of the past several months, I have had the opportunity to observe and participate in. My wife, love her to death, is something of a compulsive gambler. While we lived near multiple casinos (check out reviews of them in my Travel Reviews!) and distance was not an issue to making an event out of those evenings, she illustrated a complete inability or unwillingness to quit while she was ahead. No matter what our personal financial situation at the time, or how much we loathed the cigarette and cigar smoke we were exposed to, she was almost pathologically unable to leave the casino before losing the money she brought or working back down to breaking even from a winning position.

I was impressed, however, when she found a solution to her potentially expensive hobby on her own. While I had picked her up several of the IGT computer games of several of her favorite video slot machines, she went online and discovered that several companies on Facebook were licensing some of her favorite games. Most of the games from IGT, the standard in video slot machines at all of the casinos we frequent, are licensed to Facebook apps like High 5 Casino, Jackpot Joy, DoubleDown Casino, and Caesars. It seemed like this would be an ideal solution for my wife; she would play online and not cost us money by going to the real casinos.

It did not take long for me to realize the folly of this approach, but it was not much longer before I realized that IGT and the Facebook licensees had created something that was ultimately self-defeating for both. For those unfamiliar with them, the Facebook platforms that license the IGT games do not pay out real money, though they accept real money to buy additional “coins” for play. Each platform utilizes a different series of reinforcement for players whereby they grant players a certain amount of coins at a regulated interval to encourage players to return and continue playing. So, for example, DoubleDown gives players a daily spin that allots them enough coins to play anywhere from a single spin to a hefty tournament. As well, Facebook friends, may send coins or spins to players once a day. On High 5 Casino and many of the other Facebook casino platforms, players are allotted coins based on their level of play at four hour intervals. Players may pay for additional coins and coins go on sale periodically.

Over the past year since my wife discovered the platforms with the video slot machines she likes, I’ve had ample opportunity to observe her, as well as playing some on my own. The platforms that my wife has given up on share many common traits: they have video slot machines that she is unfamiliar with (non-IGT games), game mechanics that are virtually identical across the different games on the platform, low reinforcement incentives, and a low rate of wins. Even a few of the IGT-licensed games that she played at casinos that are on platforms with low return incentives and low winning rates have caused her to stop playing on those platforms.

So, from ten or more platforms she was once subscribed to on Facebook, my wife now only plays on four. Three of them are IGT-licensees and the other one, she remains subscribed to by rote; she has achieved such a high level based on prior play that her four-hour and daily bonuses encourage her to return, even though she derives no real enjoyment from playing. On the other three, I have watched her devote a great deal of time – and on two of the platforms, what I would call a “significant” amount of money – to playing and “leveling up” on games she genuinely enjoys. However, over the past year, I have noted a steady progression that suggests that the business model that the Facebook licensees utilize is not sustainable and the business model IGT is pursuing is self-defeating. The intersection between psychology and economics in online video slot machine may well effectively treat minor compulsives of their obsessive gaming/gambling tendencies.

Tendencies surrounding gambling or gaming that could be considered compulsive are: 1. Participating in the activity without any demonstrative evidence of enjoyment, 2. Sacrificing all other activities for days at a time to participate in the gaming (for example, having to be told at the last possible moment to leave for work, lest one neglect going), 3. Classic behaviors associated with the activity having a disproportionate level of importance (i.e. “bargaining” by chanting for a “bonus game, please!” or expressing extreme anger over an unsatisfying bonus game/spin), and 4. Devoting time and financial resources to the activity regardless of the overall practicality of the activity toward meeting the goals the individual has set.

My wife used to love going out to casinos. More than the travel, it was excitement to get out of the house and gamble for fun and (potentially, though seldom in reality) profit on video slot machines. When she discovered some of her favorite games on Facebook, I was initially thrilled. Gone were the potentially expensive trips to the casinos. However, when one of the platforms suddenly released a wide array of her favorite games at once, she decided to spend some money to gain access to those games. The mechanics of the platform upon which the games were hosted differ, but by buying coins and by leveling up, she suddenly had a huge number of her favorite games to play (some games only become available on some of the platforms to people who have played a certain number of spins/a certain value of coins/a set amount of time). After the first time she bought coins, it seemed like there would be no going back. She expressed a preference for the Facebook video slot machines over IGT’s computer games because on the computer games (that one may buy at the store), there was no reinforcement from leveling up and no consequence (if you run out of coins, you simply add a balance from which to play). She became quickly bored with the IGT computer games I purchased for her. However, once she started buying coins for her Facebook platform games, she rapidly got to the point where I was able to credibly note that it might be more cost effective to go out to a real casino and risk losing that money on the hopes that she might win real money as well (which is not possible on the Facebook gaming platforms).

But now, her spending on the Facebook platforms has fallen off dramatically, even though her play has not and in observing her behaviors – and those of her Facebook friends who also game – it becomes apparent that IGT, the Facebook licensees, and the individual gamers, all underestimated the long-term viability of the concept of Facebook gaming.

The minor compulsive gambler is quick to discover that the gaming experience is not as satisfying as they once experienced. First, there is only so much money a person may throw at an event that once made them money but no longer does before it becomes untenable and obviously irrational. Like a video game player who stops wasting money at the arcade and buys a gaming console, the Facebook players who actually enjoy the games are much more likely to go back to the IGT video games as they continue to release their video slot machines on disc or online. The reason for this is simple: they can win on that platform. The video games IGT releases allow one to play at “casino odds” or “ideal odds.” “Ideal odds” allow them to play, see the bonus games and make a massive pot. While they might burn through the IGT video slot game library fairly quickly, they are equally likely to stop playing the Facebook platform games and return to other, non-video slot pursuits. When one spends $50, $100, or $200 on Facebook video slot machines and is only able to play for fifteen minutes to an hour before losing their ability to play – usually without seeing a coveted bonus game – they become rationally disenchanted and emotionally jaded. Without the reinforcement of winning, video slot machines (especially the ones that do not pay real money) lose their appeal very quickly.

Unfortunately for the licensees, none of the major platforms on Facebook seem to have realized that gamers have much more fun when they are winning. Obsessed with making money, the licensees show no correlation between the odds when one spends money vs. when they use free spins/coins from the platform. In other words, when you spend real money to play the video slot machines on any of the Facebook platforms, it does not (for example) switch the odds on the machines from “casino odds” to “ideal odds.” In fact, higher level players are likely to become exceedingly frustrated with a platform when they pay money to buy large amounts of coins, which because they are at a higher level they may bet at higher rates to achieve bigger wins to level up (which is much harder at higher levels) faster, and lose it even quicker than they did when they were at lower levels. When the players stop spending money, the Facebook platforms will atrophy. Unfortunately for them, what keeps players coming back is game diversity and players who achieve higher levels (usually through obsessive game play) play at a rate that those platforms cannot possibly hope to keep pace. Unfortunately, the companies that host the IGT video slots are motivated, universally, by a very obvious sense of greed. In order to afford to license new games, the platforms must cause players to lose their coins in order to buy more. None of the platforms have hit on the concept that keeping players happy and playing is far more sustainable. Pretending for a moment that all of the platforms had the same quality of games, the platform that would survive would be the one where players were able to play and enjoyed spending their time and money there. What none of those platforms has yet realized is that it is in their best interest to create a situation where a comparatively moderate buy-in allows players to play indefinitely. So, for example, if one platform offered a sale on their coins where $200 (real dollars) bought players $10,000,000 (in virtual coins) and then the odds on the games went to ideal odds and those players suddenly found themselves with $1,000,000,000 (in virtual coins), they would have a platform that would be more likely to endure. Why? With such an obscene balance, players would keep coming back to unlock every possible new game and they would play for the reason they are online (as opposed to a real casino playing) in the first place: they enjoy the games. That platform not only get all of the players money, but they continue to get all of their time and attention. That is winning for a casino. But, of course, the Facebook platforms that license the real games are not actually about having fun; they are about making money. Their shortsighted view is that they would rather make $20 - $250 off a player over three months and that player drop the casino than “only” $200. It is a shortsighted approach and one that will be the demise of the Facebook casinos. Players will only play when they can win and they do stop when it is no longer fun for them!

Unfortunately for IGT, the model the Facebook platforms are utilizing is much more likely to take them down with them, as opposed to benefiting the gaming giant. The initial appeal to IGT for the Facebook gaming is obvious. Facebook is enormously popular. Therefore, IGT licenses its games to the virtual casinos on Facebook for the obvious advertising benefit. Facebook players who discover the IGT games on Facebook are likely to search for their favorites when they go to physical casinos. The opposite should be true, but even if it’s not, IGT has no reason to care; they made their money off licensing the games to the Facebook platforms. But the buck might well stop there in the long run. While the short term benefits are obvious, the long-term implications are much more potentially dire for IGT (and other licensers) if the Facebook platforms to whom they license their games continue to pursue greed over good gaming. The advantage the Facebook platforms have over the physical casinos is that players who play on Facebook have a disconnect between the money they spend and the games. After all, it is easy for players not to consider X credits that they paid for as “real money” anymore when the platform gives them Y credits every day, four hours, etc. However, once the transition is made to spending real money on the games, players want to see some results. Because they will not see real money, the result that they want to see is playtime and the maintenance of the bank (coins) they spend real money to buy. When they lose their bank fast, they not only become disenchanted with the games, they do not experience as many. While IGT essentially has players paying for their advertisement of their casino games, the advertisement in its current execution is a self-defeating one. Because players ultimately lose on the Facebook platforms, instead of developing a mindset of “let’s go play this in real life and make real money off it!” they instead evolve to the much more sour position of “If I can’t win on Facebook where it is free to play/inexpensive/not for real money/just for fun, why would I play it for real money in a casino?!” Like an advertising campaign of “Try our product, it’s gross!” or a campaign that jokingly insults its customer base, the advertising benefits for IGT are not sustainable or likely to bring real growth after the novelty wears off.

Instead, because of the greed of the Facebook platforms, IGT is slowly transforming an impulse-oriented customer base that could be very lucrative to its online, in-casino, and home gaming enterprises into disheartened ex-players who will see the IGT logo and opt for card games or unrelated activities, like photography, instead.

[Note: This article was developed using research and ideas from my incredible wife. Without her input, thoughts, and philosophies, this article would not have been possible. While the words are mine, many of the concepts were developed by her and she deserves the credit for that. Anyone who wishes to send her Facebook gift cards in payment, please message me!]

For other financial or technology articles, please check out:
How Yellow Journalism Is Benefiting Pinterest
Checking Your Credit Score
Why You Shouldn’t Fear Bankruptcy

For other reviews, please check out my Index Page!

© 2013 W.L. Swarts. May not be reprinted without permission.
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