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NEWS 1 August 2019

Digital Element exec: Swedish market will settle down as time goes on

By Tim Poole

With Sweden’s re-regulated gaming market getting off to a bumpy start, Gambling Insider caught up with Kate Owen, Digital Element’s VP of Northern Europe, to discuss how it can move forward.

What was the aim of the Swedish Gambling Act?

I think it was probably high time [to regulate gaming in Sweden]. The legal side of Swedish gambling was state-run, by the lottery, but it didn’t mean people weren’t gambling. I read recently that, back in the 11th century, there was a land dispute settled by Sweden and Norway by a roll of dice! So people are going to be doing it anyway and, if it’s illegal, it just means it’s going to be unregulated.

Everyone’s been quite interested in whether the regulation will show any teeth, as you do have regulation in other countries which isn’t particularly tough. There have been some recent fines issued to companies for marketing or taking bets off people who are too young. It didn’t go down very well but it does show Spelinspektionen are taking things seriously.

How have companies reacted to the market opening?

Well, obviously, the gambling companies who have been fined haven’t been too thrilled. We are a vendor that can help with compliance and, in my conversations with customers, it seems there’s been a bit of a scramble and no one’s really that clear. There’s a bit of waiting to see how it will settle down and pan out, before how to comply becomes mainstream.

The Swedish regulator has received praise for coming down on operators with harsh penalties. Is it better to be firmer earlier on to set a precedent, in your opinion?

Completely. I think you set a tone and an atmosphere for how it’s going to be and you can refine the detail later. The fines and consequent appeals will set a precedent and there will be a clearer idea of what people need to do going forward. It’s similar with GDPR. There are certain technical aspects that are grey areas; as times goes on, it becomes clearer.

Is that also the case with Swedish advertising?

Yes, especially with gambling advertising, as who you are advertising to is critical. You have to understand who you’re advertising to, without violating that end user’s privacy.

There’s a lot of money in this industry. It’s like stopping a dam; everyone will find a way to make as much money as they can – and that’s okay; that’s what we’re all in business for. But the regulations are there to make sure this is all done in the right way, whether it’s advertising, the odds themselves or the technical systems.

How does Digital Element come into all this?

Anyone who has consumers coming onto a digital product has the technical ability through data to understand where a user is connected to the internet from. Are they trying to hide where they are using a VPN? They can then market or not market to that person based on this information. Our data is based on the IP address, which is a piece of publicly available information. It shows nothing about the user or device but it helps limit to in Sweden or out of Sweden, for example. In Germany, it can help determine things at a regional level.

Where people enjoy gambling, you’re going to have consumers using a VPN to try and get around restrictions. Because there’s a technical capability of seeing that, in order to comply with these restrictions, you need to monitor VPN usage and either block customers outside the remit or not show them the same marketing or messaging.

We have raw data; we don’t sell systems or software. We can be in systems that companies build to help aid with compliance, or we can license our data directly to larger companies with their own tech.

Do you sense a genuine willingness from operators to be compliant and not just view it as an inconvenience?

Without wanting to point fingers, if you can get away with non-compliance, you’re probably going to make more money. So it really depends on how competent and how strict regulation turns out to be, which is why there’s a whole flurry of activity testing on all fronts in Sweden.

But I do think, if we want the gambling industry to flourish long term, operators shouldn’t be thinking short term. They’re going to continue making wonderful profits long term if they respect the users. Regulations aren’t there to be a kill joy. To remain successful, you need to demonstrate you are one of the good guys.

In a perfect world, how does the Swedish market move forward from here?

I think everything will settle down as time goes on. Everyone who ever gets a fine is going to complain loudly about it and see if they can reverse that decision. The regulators will try and act in the consumer’s best interests, as they should have done decades ago. It’s like the beginning of an earthquake where there is a lot of activity then it flattens out over time.

What does Digital Element aim to achieve in the coming months?

The hard part is making the data as good as it can be but the easy part is implementing it into a system and in the right way. Our aim in the Swedish market is to be there for everyone who is interested in complying. We’re not looking at age restrictions, affordability or frequency of gambling. We’re the ones to go to if you need to monitor geolocation or use of VPNs to circumnavigate detection.

Then there’s compliance service providers we can plug in to. Ideally, we would love to work closer with regulators, too, although I’ve already been to a few events with the Swedish regulator. We also work with companies for marketing, not only geolocation. We can help determine which users operators actually can market to, not just customers they can’t work with.

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IN-DEPTH 16 August 2019
Roundtable: David vs Goliath – Can startups really disrupt the industry?

(AL) Alexander Levchenko – CEO, Evoplay Entertainment

Alexander Levchenko is CEO of innovative game development studio Evoplay Entertainment. He has overseen the rapid expansion of the company since it was founded in early 2017 with the vision of revolutionising the player experience.

(RL) Ruben Loeches – CMO, R Franco

Rubén Loeches is CMO at R. Franco Group, Spain’s most established multinational gaming supplier and solutions provider. With over 10 years working in the gambling, betting and online gaming industries, he is skilled in operations management and marketing strategy.

(JB) Julian Buhagiar – Co-Founder, RB Capital:

Julian Buhagiar is an investor, CEO & board director to multiple ventures in gaming, fintech & media markets. He has lead investments, M & As and exits to date in excess of $370m.

(DM) Dominic Mansour – CEO, Bragg Gaming Group:

Dominic Mansour has an extensive background of nearly 20 years in the gaming and lottery industry. He has a deep understanding of the lottery secto,r having been CEO at the UK-based Health Lottery, as well as building bingos.com from scratch, which he sold to NetPlay TV plc.

What does it take for a startup to make waves in gaming?

DM: On the one hand, it’s a bit like brand marketing; you build an identity, a reputation and a strategy. When you know what you stand for, you then do your best to get heard. That doesn’t necessarily require a TV commercial but ensuring whatever you do stands out from the crowd. Then you have to get out there and talk to people about it. 

AL: Being better than the competition is no longer enough; if you’re small, new and want to make a difference – you have to turn the industry on its head. Those looking to make waves need to come up with a new concept or a ground-breaking solution. Take Elon Musk, he didn’t found Tesla to improve the existing electric cars on the market, he founded it to create the industry’s first mass-market electric sports car. It’s the same for online gaming; if you want to make waves as a startup, you have to bring something revolutionary to the table.

JB: Unique IP is key, particularly in emerging (non-EU) markets. As does the ability to release products on time, with minimal downtime and/or turnaround time when issues inevitably occur. A good salesforce capable of rapidly striking partnerships with the right players is vital, as is not getting bogged down too early on in legal, operational and admin red tape.

How easy it for startups to bring their ideas to life? How do they attract capital?

AL: It depends on the people and ideas behind the startup. Of course – the wave of ‘unicorns’ is not what it used to be. Some time ago the hype was a lot greater in terms of investing in startups, but that’s changed now. Investors now want more detail – and even more importantly, to evaluate whether the startup has the capacity (as well as the vision) to solve the problem it set out to address. That’s not to say investors are no longer interested in startups – they certainly are – but now more than ever, it’s important for startups to understand their audience as well as dreaming big.

JB: To get to market quickly, you need a great but small, team. If slots or sportsbook, the mathematical engine and UX/UI are crucial. Having a lean, agile dev team that can rapidly turn wire framing and mathematical logic into product is essential. Paying more for the right team is sometimes necessary, especially when good resources are scarce (here’s looking at you, Malta and Gibraltar).

Building capital is a different beast altogether. You won’t be able to secure any funding until you have a working proof of concept and, even then, capital is likely to be drip fed. Be prepared to get a family and friends round early on to deliver a ‘kick-ass’ demo, then start looking at early-stage VCs that specialise in growth-stage assets.

How do you react when you see startups coming in with their plan for disruption?

RL: We welcome the innovation and fresh thinking startups bring. This is particularly the case in Latin America, with a market still in its infancy. One area we’d especially like to see startups making waves is in the slot development sector. Latin America is a young market that needs local innovation suited to its unique conditions – especially in regard to mobile gaming.

Operators eyeing the market have Europe‐focused core products, which creates a struggle to work to the requirements of players and regulators. To succeed there, it has become more important than ever to work with those with a knowhow of the local area to adapt products and games to besuitable from the off; we welcome the chance for local talent to develop and grow.

Do you think it’s easier for established companies to innovate and establish new ideas? 

AL: From a financial perspective, yes. It is without a doubt easier for incumbent companies to establish a pipeline of innovation via their R & D departments, as well as having the tools to hand for data gathering and analysis.

But it stops there. Startups hold court in every other way. Not only are they flexible, they can easily switch from one idea to another, change strategy instantly as the market demands and easily move team members around. Established companies know this – and this is why we’re seeing an emerging trend for established companies to acquire small, innovative online gaming start-ups. They have the right resources and unique ideas, as well as the ability to bring a fresh approach to businesses’ thinking.

RL: For me, it’s always going to be established companies. Only with the resources, industry experience and know‐how can a company apply technology and services that truly make a difference. Of course there are exceptions. But when it comes to providing a platform that can be approved by regulators across multiple markets – as well as suiting an operators’ multiple jurisdictions – it is simply impossible for a couple of young bright minds with a few million behind them to get this done.

DM: I actually think it’s harder for established companies. It’s key to differentiate between having a good idea and executing one. That’s where the big corporates struggle most. They’re full of amazing people with all sorts of great ideas but getting them through systems and processes is nearly impossible.

Is it essential to patent-protect innovative products?

AL: It’s a very interesting subject. If we take IT for example – patents can actually become a block to the evolutionary process within the industry. Of course, getting a patent future proofs yourself from the competition copying your concept but, having said that, if you’re looking to protect yourself from someone more creative, smarter and agile, you’ve probably lost the battle already!

In our industry everything is moving faster and research takes less time than the development itself. No matter how good you are at copy pasting, you can’t copy Google or Netflix. The most important thing is not the tech itself but rather its ‘use-case’ – or in other words, does it solve what it’s meant to solve? Competition is healthy and the key to innovation. If you spend your whole time looking behind you, you’ll never be able move forwards.

JB: Tricky question, and one that depends on what and where you launch this IP. It can be difficult to patent mathematical engines and logic, mostly because they’re re-treading prior art. Branding, artwork and UX is more important and can easily be copied, but the territories you launch will determine how protectable your IP will be once patented. US/EU/Japan is easy but expensive to protect in. But China/South East Asia is a nightmare to cover adequately. Specialised patent lawyers with experience in software, and ideally gaming, can help you better.