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The Online Gambling Industry[Part 2]

December 17th, 2007

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Driving, parking, waiting in line, and breathing second-hand smoke among all the other costs of visiting a B&M casino vanish. Getting into a game is nearly as fast as leaving a game; with two clicks players can quit for the day or just for a restroom break. Also, for communal games like poker, all sites have a chat feature for communicating with other players. Although the social experience is incomparable to that of a traditional casino, the difference may help as much as it hurts. Internet poker provides a non-committal, anonymous environment to play and interact with others (and for the sadistic, to take their money). These factors are likely to attract latent markets of individuals greatly discouraged by the prospects of visiting a local casino.

The products supplied by the casino can be understood in terms of the different games in which one can wager. B&M establishments, to add one new game, must allocate floor-space for it, pay for the table or machine, and hire staff to operate and oversee it. On the other hand, computer software only needs to be designed once to be replicated infinitely; it only occupies abundant, cheap memory and processing power; and it requires a minimal fraction of the oversight. This has allowed a wide variety of games and stakes to be available instantly when there is a demand for them. Expenditure on the construction of massive buildings, their aesthetics, and their infrastructure is no longer needed. Meanwhile, internet servers can support numbers that would conventionally require an entire stadium: in 2005, PartyGaming Plc often hosted over 60,000 players at one time. Hosting is so cost-effective that most sites offer an amount of “play money” games identical to real ones. This has the added benefit of letting customers get comfortable enough with the games and software interface to make the transfer to real wagers.

Relative ease of physical set-up is also a great boon of efficiency. Unlike in most material goods and services industries, infrastructural concerns including electricity, water, and mass/rapid/heavy transportation are not troublesome. Internet server housing facilities can be built practically anywhere, while only needing one or two landlines to a web source or a satellite uplink. Electricity and power demands can be met by autonomous sources. Transportation only needs the capability to support individual commuters. Most importantly, internet infrastructural technology has become so advanced that, especially for activities demanding as little bandwidth as online gambling, almost any two places on the globe can be seamlessly connected.

The Importance of Financial Transactions

It can be said that automobiles benefited from prior development of the petroleum industry. Similarly, internet gambling has profited tremendously from the well-developed financial system that preceded it, though this analogy does not do justice to the critical dependence of the former on the latter. The modern, advanced international financial system provides a strong foundation for the rapid and convenient placement of bets. The popularity of electronic, low-cost bank transactions goes hand-in-hand with an industry that is inherently monetary in its end product: money flows in for wagers, and money flows out for winnings. Inconveniences or long wait periods at either stage result in lost profits, by slowing down the wagering process and alienating casual consumers.

As it is in the B&M business model, the average user is potentially the source of greatest revenue. Millions of users around the world are already acquainted with using credit cards, and EFT-funded “e-cash” accounts such as Paypal to purchase goods on Amazon, eBay, and major retail stores’ websites. These stores have brought interstate and international trade closer to the average consumer by making him a direct participant. As buyers’ comfort with purchasing on the internet increases, so increases their likelihood of gambling online.

Internet gaming has even caused some minor new developments in the financial system. U. S. prohibition of credit card use for e-gaming transactions has itself produced an evolution of payment methods. Several offshore “e-wallets” and other accounts out of the reach of U. S. regulators sprung into existence to meet demand for legal and safe transfer points for gambling funds. International phone card balances became legal tender for some sites. Exchange rates play a major role in allowing individual sites to unite markets. Some sites, such as those hosted by Cryptologic, Inc. allow users to keep their accounts and even wager in different denominations.

In the past four years, investment has reached online betting. Explicit legalization and effective regulation has made the U. K. the de facto capital of online gambling, and the London Stock Exchange is host to all major publicly-traded gaming sites. The introduction of new cash reserves was originally part of an expansionary plan that shifted to consolidation via acquisition, following U. S. legislation in 2006 that prevented American financial institutions from dealing with online gaming sites, yielding devastating effects on revenue. [iv]

Global Markets

Games of chance are nearly cultural universals, especially in the Western World. Any person with access to a personal computer and the internet is a potential customer, and the internet is a single, united global network. As such, internet gambling is a truly global market. Ownership of computers and internet access has grown significantly in the past 10 years, and continues to grow quickly. Internet users constitute 16. 6% of the world’s population, for a whopping total of approximately one billion. [v]

North America is the first and biggest market considered by large online gaming firms, and the European Union is the second.

 | The Online Gambling Industry[Part 1] | The Online Gambling Industry[Part 2] | The Online Gambling Industry[Part 3] | The Online Gambling Industry[Part 4] | 

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