Affiliates in a Converged Industry


With the merger of PartyGaming and bwln well into its planning stages, Richard Clayton assesses the outlook for affiliates in the industry's new dawn.


BACK IN 2006, when the US closed its doors to the online gaming market, many predicted that affiliates would abandon ship and head for brighter, less competitive shores than those of Europe. They predicted that affiliates would branch out to other verticals and give those already in these areas a run for their money by using their knowledge and experience in SEO to beat them at their own game and dominate the retail rankings for 'elegant men's shirts' and 'breakaway holiday destinations'.

However, affiliates are a resilient bunch and this did not happen. One main reason is due to other verticals only being able to offer month-end payments in the hundreds of dollars rather than the thousands. Another is that affiliates enjoy a challenge and those who were good enough were able to do well in the fiercely competitive European market.

However, the online gaming landscape is about to change once again. The merger of PartyGaming and bwin, two industry giants, due to be completed by the end of March, will create a monster of company with huge buying clout and economy of scale. As PartyGaming has proved in the past, it is capable of using its large cash reserves to great effect, as seen by its highly successful acquisition of the UK's largest bingo network, Cashcade, last year. As the merger will create a company three times bigger than its nearest competitor, the only way other operators will be able to compete and survive will be to join forces. Therefore, we can certainly expect to see many more mergers and acquisitions taking place in 2011.

In addition, as a recent report by KPMG highlights, the world recession has lead to world governments reassessing their perspectives on online gaming to allow for badly needed extra income by regulating this lucrative market. Within Europe, we have already seen evidence of this shift with the new French legislation that kicked in last year with Canada, Ireland and Denmark shortly to follow. There are also movements of various degrees taking place elsewhere including the US, India, China, Japan, Mexico, Argentina and Australia. As a result, Manchester-based gaming consultancy, H2 Gambling Capital predicts the global market to explode and grow by 42 percent from its 2008 levels, within the next two years.

So where does all this leave the affiliate? Let us first look at what a year of M&A activity in the industry could represent and then turn to the impact that regulation will have on affiliates.

M&A

To begin with, companies who merge will be in position to capitalise on the wealth of opportunities that will flow from the continued evolution and expansion of the global online gaming industry, including regulation. These companies will have a formula to exploit the expanding global online gaming market, supported by a strong balance sheet and significant cash flow generation. Affiliates will be wise to join forces with these companies as they will be leading the way into new territories and products with the marketing bucks to make it happen. The merged companies will be those who are able to afford to enter these new markets and, thus, build their brand to have recognition both online and offline - becoming the brands affiliates will want to promote and be able to see higher conversions on.

Regulation

As for regulation, there are some who believe affiliates will be squeezed out as large operators will need to pay hefty government taxes to be part of the regulated country. As profit margins narrow, no longer will affiliate programs be able to pay the generous rev share and CPA rates they currently offer to attract and maintain players. Instead, marketing budgets, the largest expense for any operator, will be focused towards acquiring players directly rather than through affiliates. Operators may do this through direct SEO of their sites as well as more online and offline media spend. This, however, will not be done as a standalone approach for although operators will be looking to make a splash into new markets with massive spend on traditional advertising, it is far from certain that they will be able to ignore the existing presence and knowledge held by local affiliates. Affiliates, then, will continue to be a much needed channel through which to market the various brands that enter the market.

With a new era on the horizon, it's a sure bet that there will be many opportunities for affiliates to get involved with too, a crucial one being the growth of mobile gaming. According to Gartner, by the end of 2010,1.2 billion people will carry Smartphones and by 2014 there will be 90 percent worldwide penetration. As governments become more and more aware of this potential and open up their markets to the biggest players in the industry, affiliates should be tying themselves closer with those who will have the biggest clout and position themselves to make the most of these new markets.

RICHARD CLAYTON is Team Manager at PartyGaming's AffClub affiliate program.
 
printer friendly LAN_NEWS_24email to someone
  Login to rate

You must be logged in to make comments on this site - please log in, or if you are not registered click here to signup