Ahead of ICE London 2020, Gambling Insider caught up with Yggdrasil CEO Fredrik Elmqvist and Head of Publishing Björn Krantz in central London.
On the agenda was the supplier’s new Publishing business, which the two executives think can become the gaming sector’s next major disruptor.
How did plans for the new Publishing business come about?
FE: We used to be part of a public-listed company called Cherry AB. They were taken out of the stock market. When (private equity partner) Bridgepoint came in to take over Cherry AB in May last year, we started to talk about the wider vision and strategy for Yggdrasil. I discussed with the board and presented my ideas and we have developed a fully scalable, global plan we are now putting into action. There are three divisions, Publishing, Distribution and Affiliation. The Distribution division is what we’ve done historically and that’s business as usual. But Publishing, to enable scalable, global B2B growth, is new and requires some explanation.
I talked to Bjorn, who had been with NetEnt for many years, as MD and acting CEO and who knows the US market as well. For me, it was a dream come true to say let’s get you in here. That was fantastic and now I know we have a chance to execute on this. Why are we doing this? We have potential Yggdrasil Publishing and Distribution partners all over the world. In fact, we are already enabling companies and partners to build and use what we have built. We have Publishing partners in Europe, South America and Asia. They are very mature; these are our partners and they have done this for over a year based on our technology.
Now we’re talking to new partners to build this decentralised aggregation network. This is the vision: to enable globalisation and standardisation. We want studios and partners to utilise our tools for their game development, aggregation and marketing. That is what we want to do. If you are an investor or sitting on the board of a company, you want as little investment as possible, because that drains your cash. You want investment that gets you ROI. You don’t want to build stuff everyone else has; you want to invest in differentiation. We are taking away that layer and saying don’t invest in stuff you don’t have to; we have the technology already. We are a facilitator and enabler; we are giving away the keys to our kingdom for people to build their own kingdoms.
Can you explain the concept in detail for our readership?
BK: The Publishing side of things is really a disruptor in itself. It allows us and others to scale in a more accelerated way. How do we do this? We said let’s find a way to license our IP in different types of ways. Publishing is mainly licensing of IP and you can package that licensing in many different ways. We have three value propositions: one is the franchising side, which as Fred said, you are more or less licensing out the keys to your kingdom – the platform, the tools, the content, the ability to build your own B2B operation in a very efficient and cost-effective way. If some partners are land-based and want to do more but don’t want to take the cost to develop something from scratch, they need a partner with the capabilities to give them a headstart, or rocket leap, to capitalise and drive new business ventures.
Then, we have something called game IP. We are capitalising again on the IP to get that wider distribution and geographical reach. Then you have the Yggdrasil Masters programme. One thing you will hear a lot more of is the word GATI (Game Adaptation Tools and Interface). It’s the central point that sits in publishing, enabling the vision, scale and helping others to scale.
FE: We are talking about a decentralised aggregation point. Often, you hear about a centralised aggregation point. Being decentralised avoids being a bottleneck. Using GATI is how we enable this. If you are waiting for an average aggregator, the aggregator needs to make sure they support your game logic, functionality and maths. So centralised aggregation points are a single point of failure. That’s why you see operators being pretty annoyed – they want the content coming through the aggregators but it takes them two to three years to get through the door. We are language agnostic and can also adapt interfaces for different regulated markets. They will reach our own network and any franchisee partner – in Taiwan or Latin America – and the games will be used for those regulatory markets if they have used GATI.
We’re not talking about the future, we are talking about something we already have now. If you look at how many have tried to tap into the online game development that come from a land-based studio and maybe not that successfully, there’s a lot of risk in the boardroom for someone to take an online project. Every senior director knows that they don’t know – they know it’s risky. Let’s make these board members the superheroes. We’re talking about collaborating with some of the biggest players in the industry, helping them grow their online game development and online game marketing.
BK: The important thing is to facilitate a great balance sheet, and P & L, because we cannot hide away from the fact if you can’t scale your business today, you will have tremendous difficulties in reinvesting in your own core, because there is no money to reinvest. What we are doing here is the next-generation revenue engine for local and global partners.
This is a very different model to other suppliers in the space – how do you see the industry receiving it? Can you foresee some resistance from companies using a more traditional model?
FE: On the bigger level, we’re going to tell people on a global scale we are facilitating globalisation. Here, that means different studios and partners using similar tools, focusing on what’s important in their market. We’re taking away the cumbersome burden of compliance and regulation. This is what we believe will be a driver – and we think people will endorse this.
BK: I would say for the conservative businesses who offer some resistance – this is exactly what the industry needs and has wanted for quite some time. Why? Because when all the regulation is happening and when it becomes more problematic for anyone to drive scale in their own business operations, they need to do more, not less, in a very scalable way. So the whole Publishing concept helps scale businesses. That helps others drive more incremental revenue, which can be reinvested into the balance sheet. We see it as a win-win situation.
Of the three core value propositions for the Publishing arm, is the YG Franchise aimed more towards market entrants – and how will you cost these franchises?
BK: The business model can vary, depending on who is the customer, where this customer sits and what type of market is their focus – mature or immature. The business model is flexible; it can be rev share, fixed pricing or subscriptions. But what’s important is we will never allow a business model approach that is hindering us from helping others to scale and us to scale. It needs to be win/win within a flexible business model set-up.
As for the entry point, yes franchising can work for incumbent operators and for immature markets. Maybe we have incumbent operators who feel they can take the next step from land-based offerings to online, providing a full online gaming solution with their own brand. So you can be very innovative in finding prospects for franchising value propositions.
Have you assessed any potential drawbacks to the model?
BK: Because the model is very flexible, it’s up to the discussion on how we would like the set-up to look like. We will limit the risk for us not being able to do business by understanding the business strategy from the partner perspective. So the only restriction I can really see is people want more from us faster, so everything comes down to how quickly we can deliver roadmaps, features, functions and stuff like that. That comes down to priority and what brings most value to us and our partners – but that is a nice-to-have problem. Trust and confidence is everything here.
What is the five-year plan for Yggdrasil’s Publishing business?
FE: For us to be on the stock market, with a €2bn ($2.2bn) valuation, maybe more. Every billion counts. It is not a forecast but a vision I believe could be doable if everything goes as well as it can do with Publishing; with 50 Franchise partners around the world delivering 100 games a month.