Too big to succeed
Operators hate big suppliers while investors love them and that is never a good combination
The bad news this week is I’m writing about B2B suppliers. The good news: it’s short. It’s more a question than anything, and a very simple question at that. Are the big suppliers now a danger to themselves?
This is something I’ve been thinking about for a while, but was brought into focus by the allegations Evolution is facing of operating in countries it should not be present in. I am not daft enough to comment on this directly, but one thing that interested me was gauging operator reaction. It’s fair to say there was no shortage of schadenfreude.
One senior voice noted they hoped Evolution “got a kicking” and used a word that perhaps doesn’t translate that well on a transatlantic basis. This is not to say everyone hates Evo now, but it reflects the tension that exists once a supplier reaches a certain scale within online gambling.
The balance of power shifts, operators feel uncomfortable, prices rise as new products and services get added into the mix and all of a sudden it feels like golden handcuffs and operators are looking to break free. This can be looking to build out capability in-house, or diversifying supplier mix or both. But one thing is certain, there starts to be an itch that needs to be scratched.
Hard to replace, hard to love
There is a concept I like to call “too big to succeed” in online gambling. Unlike some other sectors where the dependency of either the consumers or the underlying businesses can be so high firms become too big to fail, in online gambling nearly everything is a commodity and suppliers can quickly find themselves the wrong side of this.
If you don’t like your PAM supplier, you can find another. If your games provider is charging too much you can switch them out for a rival. Don’t like your trading partner? Get another. There is very little of the stack that isn’t replaceable either in-house or via a third-party. It might not be as good, but it will likely be good enough to stop the whole thing grinding to a halt.
So it’s unsurprising that the suppliers who fit the most snugly into the “hard to replicate” bracket are those that operators dislike the most. Right now this is data and live casino, with a small element of sportsbook platform thrown in for good measure. All force operators to bow the knee a little and this creates some understandable ill feeling.
Tale as old as time…
It’s always been this way. From the early days when Microgaming and CryptoLogic dominated and operators were saved by the white knight of Playtech. They in turn ended up the pantomime villain until everyone learned how to build a bonus engine and a leprechaun game of their own. And now, it’s looking like it could be Evolution’s turn in the spotlight.
They might take comfort in not being alone, with the data wars building a fair amount of ill will towards the likes of Sportradar and Genius Sports as both start to crank the handle on their exclusive US sports data deals. Shifting from fixed fee models to revenue shares and bumping up prices is once again disturbing that careful balance of power creates that all too familiar uneasy tension.
How does it get resolved? We could see a happy settled state where everyone is making more money (much like the earlier days of live casino or in-play), we could see operators trying to boost competitors, building more in-house capabilities that reduce reliance on bigger suppliers or we could see none of this and just ratcheting up the ill feeling.
All of those have happened before in response to similar situations. None of this is new and even in the US we’re still mostly seeing the same old paradigms with some small amendments. But this time it feels the moats have been dug deeper and the resulting battle might be more complicated and uglier as a result. The question is this time have the supplier made themselves indispensable or indefensible?
I really don’t think it’s clear at all. And that’s, maybe, a problem.