Friday, June 22, 2012

Online Gambling Industry

I've worked for a very large online gambling company for a couple of years, and I wrote this during my last week employed by one.  This was in response to someone commenting about the fact that they have an IT job at a land based casino in Vegas and really shouldn't be in that job because they don't know what they are doing, but get paid fairly well anyway.

I think this kind of thing is normal in the industry. First you have an industry where many land based casinos have little competition because of license restrictions making it hard for new entrants, and many online casinos had little competition because they were brave enough to operate in a legal gray area that any well run business wouldn't dare enter. That's apart from the fact that it's a type of business that takes money quickly off the majority of people who mistakenly think they're luckier than probability theory determines.

The industry is slowly maturing and the margins are getting lower. For land based casinos it's purely because of the credit crunch. For online casinos it's both the economy and because of increased legislation and the enforcement of it.

What you end up having are two things: One is that many of these companies were founded by people who would likely fail in other businesses but somehow ended up in this one that made lots of money easily. For online gambling this includes a lot of young entrepreneurs who did well but actually have no experience in how to keep a business running when margins are considerably tighter. The second thing is that just like the actual product, people in this business have a bit of a gambling mentality themselves. They took a risk and it paid off.

What is happening now is that as the profit margins are coming down dramatically, you have budget constraints so a lot of cuts are being made. Then you have people with no experience in making things more efficient when margins are lower, so the cuts are generally in the wrong place. It's all due to a lack of experience or even the ability to manage budgets and risk properly which is incompatible with a high risk gambling mentality.

The result is that you have lots of people with no experience and no contribution getting high paying jobs not doing much, and this lasts for a while before the company is really able to weed these people out. People with real skills and experience are surrounded and outnumbered by these types. It's hard to fix. It actually requires a dramatic culture change which is a very hard thing to pull off in companies that have been enjoying very big revenues and have people involved who developed egos over this and can't let go.

One good thing comes from this. It means there's a lot of gaps in the market for companies that can offer a better product with lower overhead. We'll see both this happening, and the big players merge and consolidate to get some efficiency gains.

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