I could have written about a lot of things this week. But I probably chose the most boring one.
Kindred results were interesting (lovely third quarter, let’s not talk about the fourth), Pontus Lindwall’s rubber band boardroom snapback at Betsson was amusingly odd, and DraftKings called off its pursuit of Entain in such a sudden and prosaic manner I was left wondering if the whole mad idea was just a fever dream after all.
But one thing more than any other kept rattling around my brain. It was probably led by coverage in the US of Fanatics trying to push into sports betting and the talk, as always, of how it gets its own betting platform.
There is nothing this industry loves more than a group think. Being out of line with consensus is rarely a favoured approach. And the biggest group think of all right now is in-house technology.
In an industry where everyone is seduced by tech firm valuations it seems like there isn’t a single operator talking up their in-house platform and differentiated tech capabilities. No we are not a gambling firm in the traditional sense, we are a technology firm. Look we even have a pool table….in the office! Can you imagine?!
And there is a lot of truth to this of course. Online sports betting firms are technology firms to a large extent, but they are also marketing firms, customer service firms and, least we forget, trading firms too. So why does the current obsession revolve so much around the technology? Partly because it’s easy for investors to understand.
But does everyone really understand what’s going on?
Why do I need to own my own tech?
OK this one is easy. It’s four things mostly isn’t it?
Value - I am not paying some third-party supplier some outlandish revenue share. I keep much more of my own lovely shiny revenues. Yay.
Differentiation - I can build whatever I want whenever I want and I can stand out from the pack. I am different.
Flexibility - I can move quickly, break things, fix things and experiment in a world where innovation is key. What a bloody superstar.
Independence - Look, nobody is EVER going to tell me what to do. I create my own destiny.
But let’s look at those again…
Value - I am no longer paying a supplier I am now paying hundreds of developers in various countries amid a global demand for their services. Hmm.
Differentiation - I can build whatever I want, but I also have to build whatever everyone else is building too.
Flexibility - Wow. That thing I broke has really f***** things up huh?
Independence - Look once I’ve done what the regulator tells me to do, copied the major market trends and complied with my partner requests I can do WHATEVER I want - legacy tech stack issues depending.
That’s not to say in-house is bad. Clearly it isn’t. The largest businesses in the world are all built on in-house platforms. But, and forgive me for saying so, most of this industry ain’t google. And perhaps some deeper questions need to be asked.
Is my tech any good?
This is a question I’m not sure anyone really asks of themselves, or at least if they do they never really answer it honestly. Nobody thinks their own baby is ugly, but there are a lot of ugly babies in the world.
Is it able to operate at scale? Does it have all the features customers want? Can I build them? Can it give me all the data I need to make good decisions? Can I innovate on this platform easily? Do I even know what I want to innovate around?
There is a big difference between a go-to-market platform and a beat-the-market platform and we see a lot more of the former than the latter.
Is the third-party tech any good?
This is the bigger question facing most markets, not least the US. Are the solutions available the best they can be or just the best you can find? It’s not easy to create a stable, easily managed sportsbook at scale as I suspect some go-it-alone brands are going to find out in the coming years.
That doesn’t mean the third-party options are light years ahead. In fact some of the third-party solutions are not that great either. But equally assuming all third-party tech is sub-standard and is never going to be as good or, god forbid, better than you can create with half as many engineers and limited sports betting experience is probably not the most wise approach.
Also it’s worth pointing out that both DraftKings and FanDuel built their US sports betting businesses on third-party tech and neither are truly in-house just yet.
Why do I need it to be in-house?
Are you truly building something differentiated? Or is it just a me-too sportsbook with a few additional bells and whistles? Both have their place, and both can provide value, but equally both have very different needs.
Perhaps you need or want full control over your player data, either for personalisation or marketing requirements. That’s good. Can you do that with a hybrid third-party approach or does that have to be done in-house?
Perhaps you want to be able to continuously launch new content without having to wait on your suppliers? Great. Is the content any good and do the players actually want it?
You can go a long way with third-party solutions, just ask some of the biggest businesses in the space. And with the modern modular platforms there is no reason for you to end up tied to any of them in the long-term.
Also, what actually is the product? What is being sold? Is it a product or an experience? An app or a moment in time? By focusing too much on one are you missing the opportunity elsewhere?
We hear a lot in this industry about Uber and Netflix and AirBNB but their technology is a wrapper, not the product itself. Uber doesn’t build all their own cars, Netflix doesn’t, yet, make all their own shows and AirBNB certainly doesn’t own all their own buildings.
Am I even in-house anyway?
The thing is, in-house has a very flexible meaning. Even end-to-end in-house can often contain some significant third-party dependencies. To quote an unnamed industry voice on this…
Everyone has some tech outsourced. No-one writes their own database software or chat or email. So it’s about what bits are important to own. In particular (in growth phase) what bits do you need to own to make the customer experience better?
So the question then becomes what parts of the business am I taking in-house and what really matters? That sounds simple, but it’s not really.
In terms of the choice you make, its also about whether there are third parties that you can have a trusted partnership with. Are you strategically aligned and can get on over a long period?
What can go wrong with in-house?
The biggest question is the opportunity cost. How much market share and how much revenue are you missing out on in pursuit of the holy grail of in-house platform capabilities? And how much of that mid-term opportunity will still be there even without the in-house stack?
I could list a number of other global brands that have built out their businesses, or indeed are still on, third-party tech but it’s probably easier just to list the exceptions. The most obvious is bet365, which does nearly everything in-house and took just six years to launch a single wallet.
That’s not to call out bet365, which is a shining examples of when in-house can pay off, but just to point out it’s not all plain sailing. You are the victims or your own hubris now and it can take a lot of time to reverse out of a space you’ve ended up parked in.
I will leave the final words to an industry veteran, who wisely chooses to remain anonymous.
The problem with in house is that when your business goes through fast growth you don’t always make decisions that are right for the long term.
And next thing you know 10 years have passed and a decision made for the right reasons 10 years ago has literally ***** you in the *** a decade later
Quality that Alun, cheers.
Excellent piece Alun, the boy knows his onions.