Brands vs Networks

Did bwin poker really do better than PartyPoker in Q3? The answer is almost certainly no!  And it’s a brand versus network thing. The addition of Betfair alone boosted bwin's year-on-year figures by approximately 20% and then they got an additional once-off increase from the acquisition of Gioco Digitale which gave them a kick start in Italy.

Over a sample seven day period the average number of players on the seven bwin network Italian sites was 3,200 compared to 2,550 on its 28 other sites. A great acquisition! Notice, however, bwin soon lost its lead position in Italy to PokerStars.

The key difference between Party and bwin is the business model. Party's business is based primarily on its branded sites, while bwin has some of its own sites and nearly 30 licensees plus five in Italy. What does this mean in terms of financial performance?

Basically, Party has to pay to attract and retain its players whilst bwin takes a revenue share from its licensees thereby excluding the impact of increasing player recruitment costs. Party has been suffering from the trend of decreasing returns per player which only affects bwin on its few proprietary sites. Hence the slight of hand that bwin appears to have outperformed Party.

It is interesting to note that the word licensee is hardly mentioned in bwin's financial reports and one gets the impression that all the players are theirs (and not their licensees). As the industry matures player ownership becomes the key to sustainable profitability.

In any event since the end of Q3 Party’s performance seems to have picked up. What is interesting is that Party has changed strategy and is seeking to create a network by letting other brands use their platform. It may give liquidity but also dilutes the uniqueness the product may have had.

Additionally, anyone with a strong brand should have a preference to have their own proprietary platform implying perhaps that Party will only retain the weaker brands in the long term. Any white-label operator which makes a success of it will be motivated to develop their own unique product.

Ladbrokes recently commented on problems of 'product sterility', 'lack of IP' and 'sub-optimal supply terms'. Networks operators beware: the future lies in branding and branding means control and the ability to differentiate.