Blockchain Gambling Remains A Massively Underserved Market.
For two years, I promoted the idea that the marriage between blockchain and gambling was one of the most misunderstood business concepts in the world.
I have a unique perspective.
I spent nearly four years as a gambling regulator at the Alderney Gambling Comtrol Commission where I was Deputy Director of Licensing. As a former Investment Banker, this role provided me with a detailed and unobstructed view of 100s of public, private and venture/PE funded gambling companies covering the majority of gambling niches. But my skill set is broader, I also spend two additional years developing and working in the blockchain community to build a real solution that was intended to service the needs of all stakeholders in online gambling. Ultimately we failed to deliver, but that failure only served to prove everything we believed. Because during development we learned a lot about crypto players behaviours, information that I could combine with my experience as a gambling regulator.
The biggest question is then why haven’t crypto companies entered gambling or gambling companies entered crypto? This requires some context.
In 1960, Theodore Levitt published his seminal work, Marketing Myopia. In this work, Levitt asked corporate executives to take a broader view of their businesses. There has probably never been a paper that had so much impact.
“It exhorted CEOs to re-examine their corporate vision and redefine their markets in terms of wider perspectives. It was successful in its impact because it was, as with all of Levitt’s work, essentially practical and pragmatic. Organizations found that they had been missing opportunities which were plain to see once they adopted the wider view. The paper was influential. The oil companies (which represented one of his main examples in the paper) redefined their business as energy rather than just petroleum.”
And new ideas continue to spring forth:
“The “new marketing myopia” occurs when marketers fail to see the broader societal context of business decision making, sometimes with disastrous results for their organization and society. It stems from three related phenomena: (1) a single-minded focus on the customer to the exclusion of other stakeholders, (2) an overly narrow definition of the customer and his or her needs, and (3) a failure to recognize the changed societal context of business that necessitates addressing multiple stakeholders. Customers in the “new marketing myopia” remain a central consideration, as in the traditional “marketing myopia”. However, academics that develop the “new marketing myopia” phenomenon state that it is essential to recognize that other stakeholders also require marketing attention. For business-to-consumer companies, these other stakeholders (e.g., employees) are sometimes customers too, but they need not be (e.g., nontarget market members of the firm’s local community).”
Times have changed again and the pendulum has swung back to laser focusing. But I still believe Levitt’s work remains valid, especially when growth slows; and this is the state of affairs in both cyrpto and gambling today.
And ironically, nearly 60 years later, the two industries, crypto and online gambling, are now missing the points that Levitt espoused.
Let’s start with why the crypto industry is being too myopic. I can only surmise that the crypto exchanges believe that they are in the cryptocurrency exchange business. But what is that? Who are the customers, what do they desire, why do they use exchanges? How are they segmented?
Are crypto users really the same users of equity market exchanges? Or might we better assume that crypto users motivations/behaviours are similar to those customers found on FX exchanges? I don’t have the data, but I do have the experience in both industries to make an educated guess. Crypto users are spectators, there is certainly a huge overlap between FX exchange users and crypto users. Now in 90% of the world, FX trading or contract for differences (CFDs are a method to make a futures contract into a perpetual trading contract with high leverage) is considered a gambling product and are regulated not by financial regulators, but by gambling regulators. Even when the product is regulated by financial regulators, such as in the United States, protections for retail investors are provided. The fact is that just like Poker, Fantasy Sports, and other similar gambling products, 95% or more of users lose money. This is gambling at its core. But let’s look beyond crypto exchanges, the entire cyrpto industry is a huge casino at the moment. I am not making a judgement here, I am stating an obvious fact. The vast majority of crypto users are gamblers and/or have gambling behaviours — many of these users can and will be crossed over to traditional online gambling if properly targeted. As crypto usages increase this phenomenon will subside, but it’s safe to assume that a large amount of crypto usage will always involve some form of gambling. Let’s look at the activity we know about:
- ICO’s are a form of gambling
- Crypto Kitties, a form of gambling
- More then 10% of all Bitcoin traded happens on Bitmix and other CFD exchanges — it’s all gambling
- One can argue, the just investing in cryptocurrencies represents a form of gambling since there is a lot of debate about the intrinsic value of many if not all cryptocurrencies
From my perspective, I understand that cyrpto has a lot of uses, but the fact is this:
Blockchain gambling is a massively underserved gambling market, it’s just hiding in plain sight in the cyrpto world due to a lack of understanding of what gambling is; but, as a former gambling regulator, it’s obvious. Billions are being wagered in one form or another on the blockchain daily. It’s not a question of substance, it’s a question of form!
Darin Oliver
The real problem is that the cyrpto industry is very new, and there is a lack of eternal industry professionalism within the crypto community. Sooner or later the cyrpto industry leaders will figure it out. They may worry about cannibalising their cyrpto businesses (especially if they offer CFDs), but it’s a false fear. What you will discover is the adding of more products will only add more users to both the cyrpto and the gambling business. A merger between a major gambling destination site and cyrpto exchange will create a gambling powerhouse. Because the user behaviours match and the players will crossover as the choices for entertainment or digital exchange options increase (more offerings doesn't cannibalise it expands choices and expands revenues/per user). Does this mean that the cyrpto business will be seen as a gambling company — not at all! Gambling becomes a service under a bigger umbrella. So what business might Levitt argue the crypto exchanges are in? I propose two choices, online entertainment or digital exchange. Online entertainment might not fit a crypto exchange (but there is crossover). So for now, I will argue that the crypto exchanges are in the business of digital exchange. This means payments (probably vis stable coins), wallets, online gambling (since the payment medium itself promotes trust), gaming (MMO with in-game purchasing), crypto trading, FX trading, cyrpto investing, messaging (it is likely exchanges will face future competition for messaging apps that offer payments, such as WhatsApp/Libra and Telegram). How you define it matters, but what is sure to me is that they are not in just in the cyrpto business. If these companies don’t expand their myopic positions they risk losing out on opportunities sitting right in front of them just like the Oil companies discovered in the 1960s, after Levitt shamed them.
And why haven’t traditional Gambling companies jumped onto the crypto bandwagon?
This is easier to explain.
First of all, they have jumped on the bandwagon. Almost all of them accept crypto for wagers, but most return winnings in fiat (which doesn't appeal to the community). And there are a plethora of crypto to crypto betting websites (who don't offer destination website services), but mainstream cyrpto adoption in online gambling hasn’t happened:
The problem here is that unlike cyrpto exchanges, there is a lack of understanding of crypto customers community needs and fears about future regulation. Regulatory fears, largely unfounded, in my opinion, prevent the largest gambling sites from advertising and promoting mainstream cyrpto gambling. The opening of the US markets hasn’t helped matters, nor has morphing of the industry into mega gambling companies due to years of consolidation, many of which have UK exposure to recent changes in UK law affecting betting shop revenue. They are too focused on either selling themselves into the US markets (to US casino interests) or worried about how unregulated crypto will impact US gambling licenses. Furthermore, they also suffer from marketing myopia being too focused as being solely in the online gambling business when they are probably in the online entertainment business (ironically many of these mega-companies have investments in social games and some MMO products from legacy acquisitions, but intentionally choose to ignore these businesses). By the way, we noted above that depending on your focus, cyrpto exchanges could view themselves in ether digital payments or online entertainment, I would argue there is Venn crossover between the two strategic focus’ and gambling conglomerates crossover nicely to both segments as a subset of the bigger digital exchange industry. The gambling industry, unlike the crypto industry also lacks an understanding of the crypto community needs, which also prevents gambling companies from properly entering the market and from designing and offering products the crypto users will appreciate and utilize. The result is that it’s more likely that a crypto company will merge with a gambling business (who are far too myopic as an industry) before the real innovations in gambling are implemented and appreciated. The real irony is that the mega gambling sites are trying to sell themselves to US casino interests, which are squarely in the resort and resort entertainment business — which is why those mergers are not happening yet (not until online gambling really threatens resort gambling revenues). To me, the better fit are mergers with public gaming (non-gambling) companies, but the stigma of gambling in the US prevents these mergers — ultimately, crypto would be a better acquisition for the mega gambling companies for expansion, if they were not overloaded with debt from their previous expansions and overly concerned about regulation.
Finally, there are more critical points that I haven’t mentioned, that both parties miss — how to attract cyrpto users to traditional online gambling and the innovations that blockchain will bring to gambling. Lot’s of ICOs were promoted offering to use the blockchain to bring player protections to online gambling, but to date, it never happened. The truth is the cryptocurrencies offer a level of transparency that cannot exist in traditional fiat. This goes beyond the subject of this article but goes to the point as to why adoption hasn’t happened yet. Crypto users want to gamble in cyrpto, and they focus on an element of Trust. There is no transparency in the online gambling world — regulation is supposed to solve that issue — but it fails.
Adopting maintain stream gambling to a crypto payments solution promises to revolutionize online gambling in many ways and will energize the crypto community once the right crypto company mobilises them. This is another reason why it will be a merger between a cyrpto exchange and a major gambling destination before the crossover potential is fully realised. Such a merger will begin the process to create massive entertainment and/or digital exchange conglomerate to reality (because online gambling is just one place for expansion by crypto exchanges). The crossover from the current users to the two industries will be massive and a new kind of destination site will be created, it will also provide a natural pathway to bring traditional online gamblers to crypto!
