The house doesn’t always win. Evaluating the $1.6b social casino games market.

With an estimated $660MM in 2012 revenues, the North American social casino market is the largest in the world, larger even than Europe ($446MM) and Asia ($311MM).  Consequently, much has already been written about social casino games. Zynga is allegedly hoping it will help rebuild its revenue streams, especially now that its stock price is having a rough time. Meanwhile, legislators in New Jersey, California and Nevada are drafting proposals that would legalize intrastate casino and lottery. But even if that were to get a green light, the legislation will likely be heavily skewed to the disadvantage of casino operators. Combine that with a growing number of companies looking to claim their stake, and you’ve got yourself the makings of a high stakes gamble.

Social casino games are, still, a growing segment. Despite its stock price (ZNGA) cratering from a high of $14.69 in March to $2.82 today, Zynga’s Texas HoldEm Poker continues to do well. Over the same period, its total number of monthly active users has grown from 33.5MM to 36.5MM, or roughly 9%. In fact, over the whole of the social games market, the total number of people playing casino style games has doubled since 2010.

social casino games

A game of chance or skill

With the initial explosive growth of social network-based games behind us, a slew of developers are looking for revenue-generating games.  So it’s no surprise that there’s a lot of attention for casino-style games, which offer above-average spending. The graph below shows the average revenue paying user for both social casino games and the entire social game genre.

Taken over a period of almost twelve months, the ARPPU for social casino gamer was on average 1.8x higher than regular social game spending. Of course, higher spending also attracts more competition. Competing effectively in a market that knows both heavy-hitting incumbents with deep pockets and an entire generation of eager developers with something to prove, will separate the winners from the losers in the coming months.

social casino games

Unrealistic expectations

One recurrent complaint heard from traditional casino operators is that social gamblers have unrealistic expectations of payouts. In a world of play-money, where one can buy chips but can’t take money out, players are rewarded better and more often. Although this familiarizes an average social gamer with, for instance, slot machines, critics say it cultivates unrealistic payout expectations. Once players switch to online gambling, they’ll find that slot machines are not quite as generous, and that rival poker players are far more competitive. When playing for actual marbles, the game inevitably changes.

Publishers, too, may find themselves up against fiercer competition and a much less friendly environment. The gambling industry, for one, has a long history of dealing with regulation, an often negative public image, and a cut-throat legal environment in which they compete over talent, patents, and licenses. To enter into this industry is not for the faint of heart. More practically, there’s more to designing a slot machine than meets the eye. Traditional casino operators are known to hire small armies of PhD-level mathematicians to develop their own unique algorithms for slot machines, for examples. Replicating this is no easy, or cheap, task.

Getting into social casino games

But what’s been missing so far is an objective assessment of the overall space. How well do different social casino games perform, for instance? What’s the average spending for a poker player? How has that changed since last month? While it’s easy to get excited about the promise of revenue, there already exists a strong group of competitors vying for this lucrative market.

One way to avoid the crowds and carve out a niche is to look at other markets. At $181MM in annual revenue, the Latin American social casino market is much smaller than its North American counter-part. But it also offers a much more accessible environment with less strict legislation. Another strategy is to tread carefully in this volatile market. To this end, SuperData now offers a monthly overview of key performance indicators that help identify critical inflection points, growth opportunities, competitive revenue estimates, and more. Having a solid understanding of how this market operates will prove essential to the success of any company active in the space.

Finally, even in the most conservative scenario, the market for social casino games is expected to reach $2.4 billion in the next three years. But many will leave the table empty-handed.  The opportunity is real. Just make sure that your odds are.

Want to know more? Check out our research on social casino games, which analyses ARPPU and conversion rates across key markets for poker, slots and table games. SuperData’s CEO, Joost van Dreunen, will also be presenting important industry data at the Social Gaming Summit in London on November 15, 2012. Have a question? Contact us!

Learn more about our social casino analyses.