The business of online casinos: Understanding the revenue model and key drivers

  (photo credit: INGIMAGE)
(photo credit: INGIMAGE)

Since the worldwide explosion of the online casino industry in the early ‘00s, online casino operators have largely gone on to overtake their land based competitors which probably went faster then most online operators would have expected. Yet, the global success of online casinos lies in a solid business model that is very simple to understand, and highly effective.

Like every commercial business model out there, the business model used by online casinos is meant to generate revenue and continues to prove sustainable. As online gambling has become one of the top-performing industries in the world, more and more start-ups are entering this space. In this online casino business model guide, we will take a closer look at the basics that make the iGaming industry such a thriving business prospect.

It’s All About House Edge

Every casino game ever to be invented is meant to be profitable for the house, and the ones found in online casinos are no different. Every casino game available gives the house a statistical edge on players, guaranteeing their profitability in the long term. Although short term differences can occur, an online casino’s net win is guaranteed to be positive in the long run, clearly only if the fundamentals of the casino are healthy and solvent. Although some people might not realise it, casinos for real money are a billion dollar industry today.  

The house edge is nothing else than the advantage of the house over that of the player. If the house edge is 2,5%, the long term wins of the player is set at 97,5% which refers to the difference between 100% and 2,5%. While the house edge takes a look at the chances of winning from the casino’s perspective, the player’s revenue is referred to as the Return to Player (RTP). In online settings the RTP is configured and cannot be influenced by the player or casinos. Individual spins, bets, or other actions cannot be controlled either. 

For online games, the Random Number Generator (RNG) is used to generate the outcome of a spin or bet in a fully random way. This RNG is used for any online casino game, such as online slots, video poker games, and online table games, that doesn’t work with live human dealers which exclude casino games found in the live casino lobby. External auditing organisations will make sure the RNG is functional at all times and is not influenced by third parties. The Random Number Generator is typically used as an indication of a player’s chances of winning, and is based on thousands of sessions. RNG’s are fundamental for a casino’s randomness and are considered a science made up of numbers, maths, and other formulas meant to guarantee random outcomes. 

As the casino will always turn out to be on the winning side in the long term the main objective is to get the player on board and keep them there. This is why every online casino business model should be about two aspects: 

  1. Player Acquisition.
  2. Player Retention. 

Player Acquisition

Player acquisition is of course a crucial step in an online casino’s success: without any paying customers, no revenues are generated at all. There are different ways to acquire players, with affiliate marketing being one the most sought-after options by most casino operators. Affiliates are paid according to the revenue derived from players they brought into the online casino. While a flat per-player fee will probably prove cheaper in the long run, working with a revenue share affiliate model gives operators a way to generate growth without needing to incur in costs upfront. Any operator applying affiliate marketing should be aware of the fact that there is no direct control over the brand image. This is why it is essential to learn how to wisely choose and manage affiliate casino partners.

Brand Awareness

Most affiliate programmes are meant to bring in new customers and create more brand awareness amongst gambling enthusiasts. Successful online marketing efforts to create brand awareness are key to a casino’s market position, especially in the early stages as there are so many brands available. Thanks to the power of the internet, online casino websites have been able to reach out to people, often on a global level. Online casino brands apply different marketing tactics to get their name out there and attract players to join their websites. 

Most online casinos will also try to take advantage of a wealth of other online marketing opportunities to promote their brand. This will include a proper Search Engine Optimisation (SEO) approach and a traffic boosting strategy. SEO is part of overall Social Media marketing campaigns, which means that the casino website will need to be findable and rather perform well within the Search Engine Result Page, if a prospect looks for a casino website online. Other than working with affiliate marketers, SEO can be done either in-house or outsourced to a professional agency with preferably casino knowledge. 

Casino Bonuses

Another very effective and much applied online acquisition technique is that of working with bonuses. This typically begins with a welcome bonus that for instance doubles a deposit amount and triggers for players to start depositing on their website instead of another site that offers no promos or bonuses that are less appealing. Welcome bonuses come in different forms, but usually consist of a deposit bonus, which is often referred to as a match bonus, while free spins may also be part of a welcome package. Casino operators that are very generous offer a no-deposit bonus that gives the player a bonus deal without requiring them to make a deposit. Often, sign-up bonuses are meant to serve as a hook, and are the most interesting bonuses available online. 

Player Retention

Land based casinos have mastered the art of session prolongation or player retention for a very long time now. If this makes you wonder, then let’s just say that this is the exact reason why there are usually no clocks or windows in sight to remove any visual distractions, while the continuous flow of free drinks and snacks will enhance most visitors’ overall impression in most offline casino venues and make them stick around. Now, think about: when was the last time you went to a casino and had a clear outside view? Online casinos have a largely different toolset at their disposal to serve to keep players engaged. Here’s what’s needed for player retention for casinos that operate online.

Complete Casino Offer

A lot of players sign up to an online casino because they were attracted by a welcome bonus, but chances are that they haven’t thoroughly analysed the website. Most players tend to look into the rest of the casino offer once the welcome bonus has been claimed which is why there should be more than just a convincing welcome package. There should be more than a solid portfolio as well as this is probably the first thing a new player will look into. The game library should not only feature many games, it should also have a varied offer, divided into different categories such as slot machines, live dealer games, progressive jackpots, bingo, scratch cards, RNG table games, and others. Other than many games and game categories it should also tick the boxes with regard to the overall web design, banking page, mobile compatibility, customer service, and fair bonus terms. 

Customer Rewards

Online gambling enthusiasts will have plenty of online casino websites to choose from and if you don’t manage to keep satisfying their needs, they won’t hesitate to look elsewhere. For a customer to stick around they will need to feel appreciated which means they need to be rewarded. Every player knows that he or she is bringing their business to the casino so if they don’t get anything in return they will end up feeling frustrated. This does not mean that a player will need to win real money as this should depend on randomness or skills when it comes to skills based games like poker or baccarat. Instead, the customer wants to receive rewards that are either part of regular casino bonuses or a loyalty programme. Only then, in combination with a complete casino offer that is, will someone feel the need to come back and play. With the house edge always on the casino’s side. 

Repeat and Reapply

One of the biggest advantages of online casinos is their scalability. Once a casino is successful, an online casinos operator can reapply the same business model to other websites. This can be done in the same market or potentially even a different market, although this will require the readaption of the website to that new market potentially including new licences, languages, and payment solutions. More and more operators have increased their global availability by copy-pasting the same business model to a new site. With a different house style, most customers familiar with multiple casino brands of the same operating company, won’t even realise this is virtually the exact same product. 

This article was written in cooperation with NC Square