Gambling operators face a crucial decision when evaluating whether to build or buy their own casino platform, and this choice can evolve throughout the life of the business.
Start-ups often rely on third-party vendors to get established, but as operators grow, those with financial resources may consider developing their own technology. This process isn't straightforward; changes in business needs and staffing can complicate matters.
Steven Valentine, chief commercial officer at Comtrade Gaming, explains that the decision-making cycle is repetitive.
"Operators will frequently use a third-party vendor, but over time, they may feel that provider limits their potential or doesn't meet their expectations. They might think, 'maybe we should do this in-house.'
"Eventually, as expertise exits the business and technologies age, there might be a return to the market for solutions. This is a long-term cycle, typically spanning from eight to 15 years, but it's a pattern that often recurs."
Valentine recounts Comtrade's experience, which has been providing IT solutions since 2001, and notes that an operator's scale plays a significant role in this decision. He asserts that any operator generating under £250 million in Gross Gaming Revenue (GGR) annually is unlikely to consider building their own platform. However, surpassing that threshold opens up the potential for in-house development.
"Once you reach that scale, it can make sense to own your technology, provided there's a long-term commitment to it," he advises.
He emphasizes the importance of evaluating whether existing technology hinders business strategies. Operators need to ask themselves if a custom platform could allow them to act faster or if the issue lies in selecting the wrong third-party vendor initially.
However, developing an in-house platform requires a significant financial investment, and many operators misjudge the costs involved. Valentine points out that the challenges extend beyond launch, as ongoing expenses such as 24/7 technical support must also be factored in.
"The projected budgets and timelines are often overly optimistic," he cautions. "Building an iGaming platform is much more complex than creating a simple software application. The investment needs for maintenance and further development remain consistent year after year, as the team required for both launching and maintaining the platform remains the same.
"Are you prepared to essentially become a tech company? Shifting your mindset is difficult. Large operators typically concentrate on immediate business needs without planning for future technology requirements. A long-term strategy is crucial, as you can't just react to changes."
Despite the challenges, few companies successfully make the shift to in-house development. Valentine notes that many larger operators continue to adopt a hybrid model.
"They might have their own platform but often resort to third-party solutions when breaking into new markets because their internal processes aren’t agile enough."
This hybrid strategy enables established operators to capitalize on the advantages of third-party vendors, such as rapid market entry and management of compliance regulations that benefit from local expertise.
Choosing the right vendor is essential, and thorough due diligence is crucial. Valentine underscores the importance of vetting potential providers. He notes, "The information is readily available; you just need to ask the right questions and consult existing clients to gauge the company’s reliability.
"If any red flags arise in client feedback, it’s wise to reconsider. It's surprising how many platform deals happen without thorough reference checks—this should not be the case."
While pricing is a crucial consideration in vendor selection, Valentine warns that the cost of the wrong choice can far exceed upfront expenses.
Vendors typically cover substantial parts of initial migration and setup costs, making the initial financial outlay for operators deceptively low.
Valentine mentions that migrating with Comtrade usually involves 30 to 40 personnel over five to eight months. Under revenue-share agreements, platform fees increase with the operator’s earnings.
Conversely, building and maintaining an internal platform can be exorbitantly costly—one notable operator spends around £60 million annually over multiple years.
"They might pay a vendor significantly less than 20% of that in revenue share," Valentine adds. "Building can be at least five times the cost or more than vendor agreements."
Despite the challenges, proprietary technology does present certain competitive advantages. Valentine highlights bet365 as an exemplary case. "They built their own tech from the ground up, allowing them control of their strategic direction. Developed ideas often lead to market advantages, although competitors may quickly catch up.
"Having your technology ensures you're in control, unlike relying on vendors who may not always align with your strategies."
For vendors like Comtrade, economies of scale help manage operating expenses, but Valentine observes that many firms lose substantial money providing iGaming platforms. In contrast, Comtrade has maintained a focus on profitability since inception, being selective about its client base.
"We only onboard existing operators migrating to us, ensuring we know from the start what they bring to the table. Our focus is on enhancing their business while growing together. The industry's mentality has shifted; previously, companies aimed for a quick exit, but now, chasing revenue growth at any cost is not viable."
This reality forces operators to strike a careful balance between the advantages of building and the potential pitfalls of underestimating the costs involved in developing and maintaining a casino platform.
