Opinion: egaming's AOL moment closer than you think

Many have called it the game-changing moment of the first dot.com wave: the moment in 2000 that AOL, then the new digital kid on the block, managed to acquire ‘old media’ giant Time Warner.

While in the end the merger didn’t work out for either company, the main reason this deal was so important was because it changed the minds of many people, especially those from the ‘old, non-digital world’. They could not envisage a world where ‘new media’ would be bigger than proven, profitable media, and where the internet would challenge print, radio and even television as the main channel for media consumption. They thought of themselves as the big boys, the potential acquirers of new, fast-growing web start-ups. But all of a sudden they realised they were no longer the hunters but the prey.

The same might happen sooner than you think in egaming. Today the majority of operators look at the explosion of social and free-to-play games in the same way the old media world looked at new internet ventures a decade ago. Some feel that it makes sense to acquire a social games studio, or experiment with free-to-play games. Others believe it makes more sense from a marketing perspective (build brand and audience in the US) or even as an incremental revenue stream. They still believe social start-ups are the prey and that large traditional operators are the hunters, while online gambling is the norm and new free-to-play games are just part of the funnel. How wrong they might prove to be.

Today Zynga is a $10bn, Nasdaq-listed business with more than $1bn in annual revenues and almost 3,000 employees. Its market cap is bigger than those of Betfair, bwin.party, Ladbrokes, William Hill, 888, Sportingbet, Unibet, PaddyPower and Playtech combined.

According to analysts Zynga Poker generates between $200m and $300m a year in revenues. That’s more than the real-money poker revenues from the majority of large European sportbooks combined. If Zynga Poker was a separate entity it would have an estimated market cap of $3bn, still more than twice the value of the nearest listed online gambling operator.

New entrants in the social casino category such as DoubleDown, Playtika (Slotomania) and Buffalo Studios (Bingo Blitz) are known to be generating millions of real dollars per month in revenues, with estimated margins of more than 50%. All of these companies were founded in the last three years.

And despite these staggering numbers many executives in the online gambling world still look at this with the same bemusement the old media execs looked at the first internet wave a decade ago. The majority of industry experts still look confused when challenged about ‘alternative business models’. “Surely the only way to make money from poker is via a rake-based system? How else can you one monetise poker?” they say. Zynga found a different way, and a highly lucrative one at that.

This isn’t just happening in poker. Most gaming executives struggle to understand social and free-to-play. They apparently don’t see that online gambling is no longer the cool kid in class, and that the egaming industry is now perceived by a host of entrepreneurs, investors and analysts as mature, slow, slightly behind the curve and very much ripe for disruption.

I strongly believe there will be a game-changing moment in the near future. Zynga is on the lookout for a way to get into the real-money gambling leveraging it’s huge player database and deep understanding of metrics-driven design. And with almost $2bn in cash it could well decide that it’s easier to buy a world-class operator with a good product, deep understanding of the market(s) and a strong team to execute on its vision.

I wouldn’t be surprised at if Zynga pulls off an acquisition in order to get in the industry in a big way. It could easily swallow a giant the size of bwin.party if it wanted and by doing so, create a shocking ‘AOL moment’ within gaming ““ the day when management teams suddenly realise the world has changed and they weren’t paying attention.