Adapt or die

Back Home

“it won’t be long before European operators look to the US for best practice regarding acquisition and retention of customers”

Source: H2 Capital Gaming 2018, sports betting by channel

The evolving sports betting landscape has left many operators pondering whether to merge or outsource to stay competitive, says Kambi Chief Commercial Officer Max Meltzer

The sports betting industry today is vastly different to what it was a decade ago. Back in 2008, we saw an arms race as operators looked to build out the number of markets they provided, while offering differentiation almost purely through higher odds. The era was also largely pre-mobile and pre-widespread regulation, with improvements to the in-play product, the emerging battleground at the time, top of most sportsbooks’ agenda.

I’d argue a sportsbook was a more straightforward business to run in 2008 than it is now. Today there are far more barriers to entry; an increasingly complex web of compliance and regulation, intense product development pressure to keep pace with market-leaders, shrinking margins due to increased taxes and levies, a battle against operators with deeper marketing pockets, not to mention the demands and expectations of today’s sophisticated players.

This is partly why we formed Kambi in 2010. We could see the complexity of developing and maintaining a high-quality sportsbook was increasing with each passing year, with each newly regulated market and with each new product release. We were also of the view customers would become more focused on the UX, rather than whether an operator had five more pre-match markets, or offered 1.85 on an outcome when it was available at 1.83 elsewhere

Kambi Network

That’s not to say the odds offered today don’t matter, they do – it’s why we provide our customers the freedom to alter the margin with our price differentiation tool. But the ROI through odds differentiation today isn’t the same as it was back in 2008. In 2018, differentiation is increasingly about the customer experience – the UI and how the whole sports betting product is packaged and presented to the player.

This trend, coupled with regulation, has placed product organisations under pressure. Delivering a locally relevant and high-quality sportsbook across a wide range of jurisdictions, each with differing regulatory requirements and technical specifications, requires significant resource. So too does continuing to improve and evolve risk management processes in order to keep ahead of the wise punters, thus maximising turnover and revenues. Balancing these complex yet core elements of the sportsbook with a need to release product improvements just to keep pace, as well as having the freedom to innovate at the same time, is an almost impossible task.

It’s a combination of these factors which led to the M&A wave in Europe and further afield in recent years. This is despite the fact there haven’t been many successful combinations to date, or at least the resultant enlarged businesses have barely had time to breathe before another bolt-on has been applied.

An alternative option for these under pressure businesses is to outsource the core sportsbook function. However, for those that run their own trading and risk operations this is a more difficult decision, despite the obvious advantages. Why? One of the reasons is the operators that went online in the 2000s were founded on their own proprietary product and were, for a time, successful because of it. It’s part of their heritage.

Convincing these organisations to outsource is therefore more complicated, when they can merge and maintain much of their product organisation themselves. However, the frustration for these operators will lie in always playing catch up, unless they are bet365, arguably the one successful outlier for operating the entire function in-house.

At Kambi, we believe it’s more important than ever to ensure the technology and expertise we offer gives our operators ultimate freedom.  The flexibility to make the visionary decisions that ensure long term sustainable growth.  An open platform and the most sophisticated set of APIs on the market that free operators to focus on the areas of differentiation that deliver the greatest value to their business.

Our experience shows that, to be successful, operators don’t need to own their technology, they just need the freedom to control it. It’s then a question of listening to what they want or need to control in order to increase their chances of success.  It could be they feel the need to innovate around pricing and risk. If so, perhaps M&A, rather than Kambi, is the answer for them. But what does innovation in pricing mean for these companies? Are they able to compete against the sophisticated and evolving trading capability Kambi operators have in their markets? Is the dream of control better than the reality of significant costs and accrual of more technical debt?

“to be successful, operators don’t need to own their technology, they just need the freedom to control it”

I’d argue that time and resource is best spent innovating around the delivery, the frontend and the packaging. For instance, do operators want to be the leading mobile gambling operator? Do they want to create the number one in-play product? If so, Kambi provides the tools they need, a market-leading sportsbook product and the freedom to explore how best to realise their own ambitions with a trusted partner by their side.

Interestingly, as the US market develops and we see operators without legacy technology looking for sports betting suppliers, Kambi has become the go-to provider. Our ability to provide the blank canvas operators require to differentiate, innovate, leverage our APIs, and take advantage of our core product, is highlighting what’s possible in Europe.

So whilst some European-based CEOs may grapple with retaining every in-house function for political and historical reasons, American gaming CEOs see the freedom provided by outsourcing as they invest in and innovate the UX instead. It won’t be long before European operators look to the US for best practice regarding acquisition and retention of customers through the outsourced experience.  All the options to evolve are available here already. The global industry has changed, and so too must business models if operators are to reach their full potential.

Max Meltzer CCO