Why are online gambling's one-stop shop specialists ditching B2C?

The industry dividing lines always seemed crystal clear: you either worked for an operator or a supplier. B2C brands would take care of areas like marketing, compliance and the core product, to the extent it made commercial sense to do so, and standalone B2B providers would plug any remaining service gaps that needed filling. And, with a few exceptions, that’s the model the industry broadly maintained for many years.

Those lines eventually began to blur, however, as more companies cropped up with the intention of developing products and offering services for the entire egaming value chain. Gaming Innovation Group (GiG) was arguably the leader of this progression, combining managed services and B2C under a single organisation, but many other businesses followed in its footsteps, becoming one-stop shops for online gaming. Yet this trend appears to have shifted once more, based on the announcements of various online gaming companies in recent weeks to move away from this model and become fully fledged B2B providers. And this likely speaks to wider industry trends too.

Take Gaming Realms (GR) as an example. The London-listed company, launched in 2013 by the founders of Foxy Bingo, morphed over the years from a purely consumer-focused business to a B2C/B2B hybrid, launching new gaming brands while expanding into the provision of content, platform and licensing services. And last summer, GR went one step further by completing a 180-degree business turnaround by selling off its B2C business, including the Grizzly technology platform, to River iGaming for over £30m.

This meant Gaming Realms had completely ditched its consumer-facing brands to focus solely on B2B, and investing in its game-development and content-licensing divisions instead. Even more intriguing is that River iGaming has subsequently made its own B2B pivot in recent months, announcing double-digit operational redundancies in Malta after its B2C division had “performed significantly below” expectations. With many other companies seemingly making similar moves away from B2C and into B2B, it suggests the one-stop-shop gaming model could well be coming to an end.

End of an era

In early December, GiG’s share price soared nearly 25% amid speculation it could be selling off its B2C division. Given revenue from the company’s B2C brands, such as Rizk and Guts, was down 17% to €20.2m in Q3 2019, and that GiG had plummeted 13 places in this year’s EGR Power 50, rumours of a sell-off were hardly surprising. “It probably could make sense to divest the B2C, although I guess the problem is to get a decent price,” Hjlamar Ahlberg, an analyst at Kepler Chevereax, said at the time.

At the company’s Q3 results, Oslo-listed GiG appointed strategic advisors to conduct a review of the company to “identify value-creating opportunities, reduce complexity and improve efficiency within the business”. GiG also recently parted ways with long-term CEO Robin Reed in a bid to turn around its fortunes.

Another company in a similar position is Nektan. The online casino firm’s CEO Lucy Buckley was an additional C-level casualty in this sphere recently, resigning from the business after only nine months in charge and citing the company’s dwindling B2C business as a key reason for her departure. Nektan has also reiterated its future lies solely on the B2B side of the sector, and its former head of marketing, Ali Syme, says he expects more companies to follow suit in the future given attempts to do both have a mixed track record.

“Businesses that invested in technology and platform went on to build their own networks and brands, meaning they began as more B2B then saw the opportunities in B2C,” Syme, who is currently a consultant at Hob Digital, tells EGR Intel. “Some instances have been pure coincidence, like GTECH buying B2C/B2B businesses then selling or closing the consumer side to focus on technology, IP and expertise, but there’s certainly a trend now towards a focus on technology that can’t be coincidental.

“If a business made its mark with a platform and knows how to invest in developers more than brand, acquisition, marketing and customer care, then it makes sense to see how volatile that direct-to-market side is getting,” he adds. “It may not be as difficult a business decision as we think to close a B2C arm – it’s increasingly looking like good money after bad and having either a small, focused tech business or having nothing at all.”

For many online gaming companies, it seems the cost of doing both B2C and B2B means this is no longer a feasible long-term model based on recent trends. However, the reasons for opting to focus on only one part of the egaming value chain do appear to differ from one company to another.

Cost of doing business

It’s no secret that CPAs have increased exponentially in recent years, and for some businesses with little scale or brand credibility, these have risen to such an extent to make acquiring new customers economically unviable. In the UK, for example, the advertising space became increasingly saturated as more companies entered the market, opting to pile into digital marketing as TV advertising became more expensive, and arguably lost its significance in a world of Netflix and Amazon Prime.

And increasing regulatory and compliance costs, particularly in markets such as the UK and Sweden, have only made this situation more difficult. “The cost of acquiring players has gone up so much recently, and we’ve spent the last two years just doing regulatory compliance features and not actually building anything new,” one exec, whose company has made a similar B2B switch, tells EGR Intel on the condition of anonymity. “The costs have gone up while the value per player has come down, too, because companies are going through more stringent regulatory processes in terms of source of funds and KYC checks.”

For Syme, however, he believes other more important factors are at play here. “There’s definitely a mix of influences, but I wouldn’t put compliance at the top of the list. For a very long time, operational costs have been increasing as the margins have been decreasing, and while changes in tax and regulation haven’t helped, there was always going to be less revenue to go around. The usual way to address a payment, risk or compliance change has been to fill more desks; but with everything becoming more complex, it’s just not as simple as that anymore, and there’s no added value to the customer if the investment is meant to derisk in a certain territory.”

Risky business

There is, arguably, an inherent conflict between B2C and B2B in general. Operators are constantly vying for a USP and offering that proposition as a B2B partner may devalue any point of difference, with players bouncing around from one site to another and leading to less value per player in many cases. So, while it’s not necessarily a doomed model, when things are becoming ultra-competitive and margins are getting tighter, the most successful businesses will almost certainly be a master of their specialism.

The B2B platform route – which the likes of River iGaming and Nektan seem to be going down – is still not without its own risks given platforms don’t go for a premium when companies can now license one for relatively little money. However, B2B has ultimately been seen as a critical way to derisk a business, particularly as regulators increasingly wield their power by handing out multi-million-pound fines.

Given the current operating outlook across regulated European markets, it certainly seems that being a jack of all trades is a journey only a few will be willing to make for the foreseeable future.