Facebook’s Foray Into Real Money Gambling: What Does it Mean?

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In five years or so, gambling analysts may well look back at August 7th, 2012 as a watershed moment for the industry.  That is, of course, the date that the  first real money gambling  app for Facebook – Bingo & Slots Friendzy by Gamesys – began trialing for users in the UK.

Some will argue, of course, that real money gambling has existed on the massive social platform for quite some time thanks to grey markets for things like Zynga Poker chips that are technically meant to be valueless.  Regardless, the launch of an app where gambling for real money is explicitly permitted and encouraged is a horse of a very different color.

What does it all mean?  I surveyed the substantial amount of digital ink spilled on the topic in the week since B&SF became a hot topic and culled the basic conclusions drawn by others into one meta-post that seeks to provide a bit of context for Facebook’s first foray into online gambling.

Is Gambling the Answer to Facebook’s IPO Blues?

The general consensus seems to be … maybe.

Dave Thier over at Forbes teases the question with his article “Real-Money Gambling — Could Facebook Build The Internet’s Biggest Casino?” but ultimately concludes that too much remains unknown for him to conclude that gambling can reverse the company’s stock slide:

The big question will be whether or not Facebook could become a dominant platform in online gambling. As Gamesys points out, online gambling in the UK is a mature space with extant communities and established sites. Facebook got to where it is by leading the way in a new era of social media – when it comes to gambling, it has to play without that significant lead on the competition. A blue ocean this is not. Facebook users don’t all trust the mercurial social giant, and that is always going to limit the number of paying users it’s going to be able to find.

Meanwhile, an interesting post over at game development blog Gamasutra argues that Facebook won’t ever realize significant profits from gambling until they unveil  an open platform for developers (as opposed to hand-picking partners like Gamesys):

Simply opening the platform to all gambling companies exposes Facebook to significant compliance and legal challenges. From the looks of it, Facebook is practically partnering with the company to ensure that the game is compliant and gated only to 18+ players in the UK. Due to the legal ramifications, this course of action makes sense for the first game or even the first few games. But in the future, the opportunity cost of maintaining this closed platform strategy far outweighs the potential benefits.

Furthermore, by closing the platform and only allowing a small trickle of companies to release real-money games on Facebook, the platform is picking winners and limiting competition. This strategy completely contradicts what Facebook did to foster social gaming, which was one of the fastest growing entertainment categories of all time and contributed significantly to Facebook’s growth, engagement and revenue. To capture the full market potential of real-money social games, Facebook needs to let competition and creativity pick the winners on its platform.

In addition to the revenue gambling could generate, at least one pundit thinks that – if handled correctly – gambling could reverse the engagement dip eating at Facebook’s bottom line.  Of course, not everyone agrees, as the following quote from a Washington Times article illustrates:

But Facebook risks “polarizing” its users and investors if it moves into online gambling, said Jeff Kagan, a technology analyst based in Atlanta. He predicts a move such as this will cost the company many users, which would devalue it.

“Gambling crosses the line for many,” he said.

How many?  Patricio Robles over at Econsultancy.com worries that the number could ultimately be much higher than Facebook thinks:

For brands using Facebook as a marketing tool, the growth of gambling apps could have a long-term impact on Facebook’s popularity. If they become too prominent, it could drive some users away. After all, there’s a risk that in trying to turn a favorite digital hangout into a virtual casino, Facebook will become a less appealing destination.

For retailers and those trying to transact business, the long-term implications of Facebook’s gambling venture are even more concerning. While online gambling is highly-regulated and Facebook has every reason to take the security and integrity of gambling apps it launches or approves seriously, it’s not clear that gambling apps will help the company solve its trust problem.

Either Way, Gambling on Facebook is Going to be Controversial

Even in the UK, a country where bingo (and gambling) enjoys widespread cultural acceptance and online gambling is regulated and pervasive, news of a Facebook app that would allow users to wager real money generated some backlash.  A piece by Christopher Williams in the Telegraph summed up the concerns:

The app is marketed with cartoon graphics featuring characters that have been compared to those on Moshi Monsters, the popular children’s social network. It has prompted anger from Christian groups, who called on the Advertising Standards Authority to act.

A related article from Parmy Olson at Forbes – “Facebook Gambling App With Fluffy Creatures Definitely Not Aimed At Kids” – argues that Facebook and its partners can overcome such controversy with the right mix of technology and attention to detail:

But criticism like this will probably be a bump in the road for Facebook’s online gambling ambitions. Facebook and Gamesys have both stressed that there would be a strict policy for accepting players who could verify that they were over 18. Gamesys has said it will also prevent the app from being displayed to people under 18 by using Facebook’s “age-gating and geo-location technology.”

As for the age verification procedures in place, they’ll feel pretty familiar to  anyone  who has cashed out from an online poker site – read more in this breakdown from Techeye.net.

Facebook Does Not Want to Become a Gambling Company, Just a Platform

Being a gambling company is hard.  Being a software company that sells access to a platform to gambling companies, that’s a little easier.  From Slate:

Facebook representatives—who would not say what kind of cut the social media company would get from revenue—stressed that the game had been developed by a separate company, Gamesy, and was not a partnership.

From InvestorPlace.com:

[…] a key to rolling out these apps will be the support of traditional casinos. They already have the necessary licenses (which are extremely tough to acquire and hold on to). Thus, it probably makes sense for Zynga to partner with a company like Caesars Entertainment (NASDAQ:CZR) or Wynn Resorts (NASDAQ:WYNN).

But for Facebook, it does not matter whose gambling app prevails. By being the core platform, Zuck & Co. will be a winner either way.

Facebook Will Take Baby Steps With Gambling

It wasn’t random choice that led Facebook to the decision to debut real-money gambling in the UK market via a bingo app.  The move was widely considered a smart first step toward larger, global gambling ambitions, designed to generate maximum return with minimal risk.  As Reuters reported:

“Real money gaming is a popular and well-regulated activity in the UK and we are allowing a partner to offer their games to adult users on the Facebook platform in a safe and controlled manner,” Facebook said in a statement.

Facebook spokeswoman Linda Griffin said there are no current plans to offer gambling in any other countries or with any other partners besides Gamesys.

Essentially, the UK is the perfect lab for Facebook to test real-money gambling apps (and to develop a track record, systems and processes that will make moving into other markets infinitely easier).  Blowback should be minimal, interest should be high and if the company can’t make real-money gambling work in the UK market, it probably shouldn’t really bother in other major markets.

… But This is Still the First Drop of a Tidal Wave

While Facebook may be committed to taking it slow with real-money gambling, you can be sure that last week’s news shook up plans at more than a few companies in the same sphere as the social giant.

As if to drive that point home, within days of the announcement game developer Big Fish revealed plans to offer real-money gambling via the Apple App Store and reports that Zynga is aggressively lobbying for online gambling regulation circulated widely.

Neither was likely tied directly to the launch of Bingo Friendzy, but it’s difficult to believe that any business looking to make their money from online gambling wasn’t rethinking their plans and pacing after Facebook’s decision became public.

BingoFriendzy In Action

Video via Mashable.

- Chris is the publisher of OnlinePokerReport.com. Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.
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