3

2. About Betsson Betsson is a company offering online gambling products and games to customers. Its portfolio

includes: Poker, Exchange betting, Sports book and Casino. Betsson’s business idea is stated

as “to offer a wide variety of top notch online gaming products in a secure and user friendly

environment”.1

The Betsson group was formed in late 2000 and is fully owned by Cherry Co, a company with

over 40 years of gaming experience that is quoted on the Swedish stock exchange.2 The

technical development of Betsson.com was initiated in the beginning of 2001 and the site was

launched in English and Swedish in May 2002. The same year in June, Betsson was one of the

first companies in the world introduced Betting Exchange, which allows customers to lay bets

against each other instead of betting against the operator. In 2003 Cherry became a

shareholder of Betsson and in 2004 Betsson introduced poker by teaming up with one of the

largest poker networks in the world, Ongame. The poker operation has since then become the

most important part of the Betsson group. By 2005 Betsson had launched its site on the

Swedish, English, Finnish, German, Czech, Norwegian, Danish and Turkish markets.

The firm has experienced rapid growth. From having virtually no sales and only 4 employees

in 2003, it has grown to have worldwide sales of !15M and 40 employees in 200517. Under

Q4 2005 the number of Betsson’s registered customers rose with 28% up to 242,000. For the

biggest product, poker, the number of registered products rose with 28% up to 186,600 under

Q4, and the number of active poker players rose with 47% up to 30,9004.

How does Betsson compare with the other major players in the business? Below is a summary

table of some known facts:

Unibet: 919,000 customers5

Unibet: Swedish poker customers: 100,0006

Expekt: 800,000 customers7

1 https://www.betsson.com/en/about/available-jobs/index.asp?jobid=8 2 https://www.betsson.com/en/about/company-information/index.asp 17 Appendix C – Questionnaire: Management of Growing Business 4 http://cherry.netent.com/cherry_en/index.htm Quarterly Report Q4 , 2005 5 http://www.unibetgroupplc.com/corporate/templates/InformationPage.aspx?id=148 6 http://www.unibetgroupplc.com/corporate/templates/ObserverPage.aspx?id=270

4

Ladbrokes: 2,000,000 customers8 (world’s largest betting company)

PartyPoker: ca. 1,500,000 active poker customers (world’s largest poker operator)

3. SWOT Analysis SWOT analysis is a tool for evaluating a company. More specifically, it’s concerned with

finding out the strengths, weaknesses, opportunities and threats that a company or an

organization faces. Strengths and weaknesses are internal factors, while opportunities and

threats are external. The purpose of a SWOT analysis is to help shape the strategy of a

company, in order to maximize the profits and growth of that company – i.e. to compete

successfully in the marketplace. In our case, we will use a SWOT framework as a basis for

further analysis of the key potential growth areas for Betsson.

3.1 Strengths • Betsson’s main strength is its poker offering, with a poker brand that’s among the best

in Sweden. There are no official comparative figures available, but the main

competitors are known to be Unibet, Expekt, Ladbrokes and PartyPoker. Betsson’s

almost 200,000 registered poker customers compare quite well with, for example,

Unibet’s 100,000 Swedish poker customers (the majority of Betsson’s poker

customers are in Sweden).

• Betsson is the largest and most dominant company in Sweden with a betting exchange,

which gives them an edge. A betting exchange is basically an exchange – much like a

stock exchange – where people offer other people odds on different games. In a

traditional betting situation, it is the house/casino that sets the odds towards the

gambling audience. With a betting exchange, gambling becomes much more dynamic,

odds are better, and bets can be made in real time. Betting exchanges have become

very popular in recent years, and Betsson’s strong position here has positive spillover

effects in other areas, such as poker.

• Betsson claims to have the best product mix on the market, combining the best poker

room (powered by Ongame) with the best online casino. Having a broader approach

than competitors and being something of a gaming portal gives a competitive edge.

7 http://www.expekt.com/ 8 http://www.newsdesk.se/view_pressrelease.php?id=86818

5

• Betsson has relatively good product management routines, which gives them an edge

in controlling new product releases. (There are examples in the business of less

successful product management, e.g. in the Tain network.)

• It’s relatively easy for Betsson to raise capital since its mother company is listed on

the Stockholm Stock Exchange.

3.2 Weaknesses • Betsson lacks a clear growth strategy. It has a clear strategy when it has decided which

new market to enter, but there is no “global” growth strategy that penetrates the entire

company.

• Betsson is smaller than some of the main competitors – such as Unibet and Expekt.

Betsson invests as much in marketing as these two companies, but there still are

economies of scale in the business. Margins are higher if a company is big. To put

another way, Betsson has less muscle and endurance than the bigger competitors.

• Betsson has a weak lobbying organization. Some of Betsson’s competitors, most

notably Ladbrokes, have chosen to fight the Swedish gambling monopoly heads up,

which has given them a lot of press and attention. Betsson’s main opponent – Svenska

Spel with at least 50% of the Swedish gambling market – has a very powerful

lobbying organization and excellent connections to politicians.

• Betsson is geographically spread out, with management and customer support in

London, some management and the tech department in Stockholm, and the product

manager and technical support staff in Malta. This structure has to do with legal

issues, but it makes running the company somewhat more complicated.

• Betsson is in constant need of new and skilled labour. The lack of human resources

restrains the company’s growth.

• Betsson does not use affiliates. For many of Betsson’s competitors, affiliates generate

a substantial share of revenue (PartyPoker: 34%, Parbet: 80%). By not using affiliates,

Betsson restricts its growth. At the same time this is a conscious decision, since

revenue has to be shared with affiliates, which lowers margins.

3.3 Opportunities Currently Betsson has a relatively good and growing (500% 2003-200517) market share in

Sweden, Norway, Denmark and Finland. For the analysis of the opportunities Betsson can

17 Appendix C – Questionnaire, Cherry företagen Pontus Lindwall

6

realize we implement the theory of the “Core business”, basically meaning that the closer the

new activity is to the core business the more chance it has being successful. Following the

Bain & Co model of the probabilistic of this we will focus and examine new products &

services, geographic markets and customer segments.

New product and services

Betsson has the edge of having one of the highest quality and best online poker and casino.

The opportunity is to enhance the gaming portal image and adding new related products

towards the same customer group, which is mainly male 20-30 years old.

New geographic markets

Betsson’s attitude towards entering new geographic markets is to do it heavy, building strong

brand recognition within the segment. To do this they launch strong market campaigns, and

go in physically through throwing events and being present in the market so that the

customers get a feeling that they exist and aren’t just a online-gaming site.

Currently they are about to enter Poland with the same marketing strategy. Betsson is at this

time in the position where they feel that they can’t manage more than one market launch at a

time because of the HR restrain problem of finding suitable people managing the different

markets. Therefore Betsson’s current strategy is to launch country by country, while many

competitors don’t share the same view and instead approach a more portfolio examination

towards the business launching in 15+ countries at the same time. Besides Poland new

interesting markets could be Ukraine, Russia, Turkey, Greece, Spain and Portugal among

others.

If Betsson is not ready to make a full-scale launch in these countries they could consider

marketing there through affiliates. Basically, affiliates are companies or individuals who agree

to bring customers to Betsson, if they in return get a share of the revenue their referred

customers generate to Betsson. Using this method Betsson could minimize their fixed

marketing costs in these countries.

New customer segments

7

The average customer in Las Vegas casinos is said to be a 4910 year old lady, meanwhile the

normal customer of an online gaming site is as stated before typically a male 20-30 years old.

There exists a tremendous large customer segment that has not yet been approached nor

seduced into a variant of online gaming. We believe that it is possible to launch a product or

service that could be appreciated and used within the typically casino segment. A product that

lately has been mentioned as the next rocket or new success is bingo, which we can see a

great potential in bringing back to life and make popular.

3.4 Threats Volatile Market

It is always important to stay updated on the market and the way it is developing. Internet

gaming is a new market and very volatile. You can’t predict the popularity of Internet gaming

in a few years since it is a new thing, and even if it may have passed the “fling-stage” it is still

not impossible that the market will start to decrease in a few years.

Competitors

In such a lucrative business as the betting industry is it is hard to always stay on top of the

competition. You need to foresee your opponent’s moves and capitalize on making the same

move before them. Other, bigger, companies can swoop over Betsson and, because of their

ability to do more advertisement, steal Betsson’s customers. The most important competitors

in Betsson’s market are15 Svenska Spel, Ladbrokes, Expekt and Unibet.

When people choose what Internet gaming service to use they often try it out first after seeing

an advertisement, but what makes them continue using a service is, in Betsson’s case a variety

of things that Betsson needs to have.

• Better poker software than the competition

• A good support to answer any questions that might arise

• Better or a more broad selection of sports betting

• More customers, because, specific to the online poker world, the more customers you

have, the more customers will want to play on your site

15 Appendix A – Interview with Pontus Lindwall, CEO of Betsson. 10 http://www.worldseriesofpoker.com/lifestyleshow/2006salespresentation.pdf

8

Suppressed margins

Probably the main threat toward Betsson comes from suppressed margins, resulting from new

entrants in the online gambling market and increased competition.

Poker Software

Since poker is the main revenue driver, Betsson is very dependant on the poker network

functioning well. The bottom line is that Betsson has no direct control of the poker software,

since development is in the hands of the company that runs the network – Ongame. And

Ongame has recently been bought by one of its competitors. There is a risk that Betsson

cannot guarantee the quality of its poker room in the future, which would force them to move

to a different poker network, increasing uncertainty and adding transaction costs.

Legal Structure

The legal structure in for example Sweden, Betsson’s main market, is a threat to the

company’s future growth. Betsson is not free to advertise the way it would like to in Sweden,

but is forced to advertise from England. On a global level, few countries have liberalized their

gambling legislation, so the risk of being run over by the authorities exists in other countries.

4. Growth Challenge The strategic challenge assigned to us by Pontus Lindwall, CEO of Cherryföretagen, is to

analyze new potential geographic markets, products and customer segments and give a

recommendation on how to pursue a path of successful and profitable growth15. Beside these

three areas growth could also be achieved by for example the acquisition of other companies,

but this field is beyond the scope of this report.

To pursue the appointed strategic challenge we are going to employ the well-known “core

business” approach. As an academic resource we have used the book “Beyond the Core”

written by Chris Zook, a partner of Bain & Company. The concept is to expand the markets

without abandoning your roots. This is accomplished through adjacency moves from the core,

and the idea is to grow by leveraging existing resources through adjacency moves across new

markets.

15 Appendix A – Interview with Pontus Lindwall, CEO of Betsson.

9

Fig 1 the core business18

The book summarizes an expansion strategy based on putting together combinations of

adjacency moves into different sectors, of which are still related and adjoined to the core

business, such as what can be seen above in green. In the case of Betsson our group is

focusing on three areas: new geographies, products and customer segments. The point of the

new moves is that it carries less risk than coming up with diversified ideas or plans. The

advantage of staying close to the core is that businesses create a competitive advantage as it’s

directly related to what the company already understands and is good at achieving.

18 Beyond the core, Chris Zook; Bain & Company, Inc.

10

Figure 2: Adjacency expansion18

Listed below are the three growth options – or adjacency moves to use the language of Chris

Zook – available to Betsson, each of which will be briefly described. We will then evaluate

these adjacency moves using Chris Zook’s core business model. The growth path most likely

to produce profits for Betsson is analyzed in more detail in section 4.5. After that, we deliver

a recommendation in section 5.

4.1 New geographic markets

The poker market has had a tremendous growth the past years and is still growing fast. The

number of new poker sites and affiliates that start and exist across the world is really hard to

keep track of. The most developed poker areas today are North America and Scandinavia with

Sweden on top, followed by highly developed European countries. With these developed

markets becoming saturated over time, firms in the poker business are looking for ways to

keep up with expectations of continued high growth. One way of achieving this is to expand

into new countries where online poker has yet to take off.

Betsson’s attitude towards entering new geographic markets is to do it heavy, building strong

brand recognition within the segment. Betsson achieve this with a country-by-country

strategy, which means:

18 Beyond the core, Chris Zook; Bain & Company, Inc.

11

• Launching heavy market campaigns

• Throwing events and being present in the market so that the customers also get a

feeling that they exist and aren’t just an online-gaming site.

While Betsson has this policy, many big and new competitors have other strategies. Some

launch an aggressive portfolio approach towards 15 or even more countries at a time. Monday

the 24th of April in the Swedish business magazine “Dagens Industri” they had an article that

Expekt.com former CEO Per-Ivan Selinder leaves the company and starts a competing online

gaming company. The new company called Betway.com is launched in eleven European

countries the same day with 75% of the equity invested in marketing campaigns, with higher

bonuses and better odds for the players. The former CEO of Expekt.com believes that there is

a huge space for competition since the prices and margins are still very high, with other words

a price competition about the players is about to come. Mr Selinder is absolutely not alone in

his way of thinking in fact this is the climate of today’s online gaming market.

4.2 Reaching new customer segments

In August 2005, on behalf of the paper Poker Magazine, SIFO published a survey about the

poker habits of the Swedish population. It conveyed that 230,000 Swedes had try playing

poker online. A year earlier only 25,000 Swedes had played online, so the number had

increased by almost a factor of 10 in only a year! The survey also showed that about 25,000

Swedes played poker online on a daily basis and that 70,000 played every other week.

The demographics of the players were maybe even more interesting. The survey showed that

86.6% were men, 51.2% were under 25 years old and only 20.7% were over 35 years old,

36.5% of the players where students and 42.1% were working in the private sector. 13 The

demographics for other countries are thought to be pretty similar, even though there are no

known surveys verifying this.

It becomes evident that online poker is very popular within a small segment, namely young

men, but that large segments still have not been penetrated. Considering that the average

13 http://www.pokermagazine.se/index.php?option=com_content&task=view&id=297&Itemid=112

12

casino visitor in the United States is a 49 years old woman14, the question comes to mind how

to introduce online poker to segments such as people over 25 years old and women. This

analysis will focus on a couple of aspects that are important for achieving this:

• Social aspects

• Security

Social aspects

There is a big difference between gambling in a land-based casino compared to gambling

online, namely the social dimension. For example, Las Vegas is one of the absolutely most

popular traveling destinations in the U.S. The vast majority of its visitors go there to have fun,

not to win money. Strolling around in the casinos amongst the poker tables and other games

one immediately notices that there is a lot of interaction between the visitors. Chatting and

joking with the fellow players seem to be as important, aspect more than playing the games

themselves.

As the reader might imagine the step to the anonymous world of online gambling is pretty big,

and this is a huge problem for the online industry. Young men might find it worthwhile

spending hours and hours in front of the computer, striving to win money, or maybe even

because of the thrill of the game, but for the large customer segments this simply is not

enough. These customers, including men over 25 years old and women, gamble to have fun

and to be entertained, and thus they want greater interaction with their fellow players. The

industry began trying to satisfy this need pretty early by introducing chat features in the poker

clients. Later on the trend has been to introduce 3D features to the software, and having online

qualifications to land-based tournaments, with the intention to bring the so much desired live

feeling to the customer. Various kinds of live events sponsored by online casinos are another

example of this motion.

These are steps in the right direction, but there still is room for a lot of improvements. As

Internet connections become faster new opportunities for enhancing the gaming software

arise. An especially interesting idea in this field is the introduction of webcams into online

poker. This way player’s are able to see and talk to their fellow players when playing online.

The online poker rooms could develop this idea further by letting famous poker players or

14 http://www.worldseriesofpoker.com/lifestyleshow/2006salespresentation.pdf

13

other celebrities join the web cam poker games. This would certainly enhance the online

poker experience, and bring the feel of internet poker as close as possible to the one of live

poker, while still providing the advantages of internet play, such as speed and accessibility.

The main problem with introducing web cam poker is probably to integrate the technology

with the existing software, but considering the huge potential upside it might be worth to

investigate the idea. Providing greater interaction is simply essential to attract new customer

segments such as men over 25 years old and women to online poker, and web cam poker

might very well be the thing that does this.

Security

According to a survey made by Nielsen NetRatings12, security is the overwhelmingly most

important factor people consider when choosing at which online casino to gamble. Bonuses

and different kinds of promotions for example, play a much smaller role in attracting new

players. The intangible nature of online casinos makes many people uncomfortable with

depositing money, and the casinos should therefore put a lot of effort into increasing their

reputation and credibility. For example there is a widespread reluctance towards using credit

cards at foreign sites, and a way around this could be to co-operate with local banks or

payment systems to add credibility.

Considering that security is the most important factor when choosing at which online casino

to gamble, it’s strange that the security is almost never mentioned in online gambling

advertisements. Operators should definitely consider communicating that they provide a fair

game and that the customer’s money is safe in their hands. This can be done by stressing that

their operations are revised by a recognized auditor etc or by providing other kinds of

“evidence”. Providing statements on paper is another way of making the online casino more

tangible and thus perceived as more safe. The bottom line is simply that online casinos have

to do all they can to build up a brand that the customer is ready to trust with his money.

4.3 Introducing new products

Our final area of potential growth is in new products. There are two ways in which Betsson

can benefit from introducing new products:

12 Nielsen NetRatings – European Internet Metrics: The Latest Trends

14

o Selling higher-margin products to existing customers helps grow Betsson’s

revenue. The basic thinking here is that it’s equally relevant to sell more to the

existing customers as to attract new ones.

o Developing new products can attract new customers.

Betsson admits that it is dependant upon poker. The poker hype just happened, and Betsson

had to take maximum advantage by prioritizing this area. Now, the online poker market in the

mature markets (Scandinavia, USA, UK) is growing more slowly than in 2004-2005. In order

to continue to grow in these markets, Betsson could introduce new products, such as:

• New gambling products, such as bingo. Bingo has been an extremely popular form of

gambling for a long time, and there are a number of online bingo rooms, but none of

the big gambling companies have managed to reach out to a broader audience with

online bingo.

• Differentiated products within the online poker segment, such as webcam poker. None

of the big poker operators have introduced webcam poker yet.

• New betting concepts, such as betting on the stock exchange. This is an alternative to

investing in actual stock or options. Financial spread betting already exists, but it’s not

very common for gambling companies to offer this (although Ladbrokes does it

already).

• Betsson could start a clothing brand, either on its own or by teaming up with an

existing clothes company. Betsson could also start selling branded sunglasses,

champagne and other things associated with a “gambling lifestyle”.

• Betsson could launch their own credit card, in cooperation with for example

VISA/MasterCard or AmEx. Bonus points could be earned to the card for every dollar

that is spent gambling on the Betsson homepage. This way, Betsson could increase

customer retention and make it less likely that a Betsson customer moves to a

competing poker site. This product line could be extended to include insurances, loans,

car financing and so on.

4.4 Evaluation of the adjacency moves

We have now on a general level introduced the different growth options available to Betsson.

In order to evaluate them, we will build on the adjacency expansion concept, as presented by

Chris Zook. According to Zook, three important factors can be identified when studying

15

successful adjacency expansion18. In the following, these three success factors are presented,

together with a short evaluation of Betsson’s growth options within this framework.

4.4.1 Success factors

o One: Successful expansions build on and reinforce the company core(s)

Using the information from our SWOT analysis, we are familiar with Betsson’s strengths: its

very strong poker offering, its high-quality products mix with a rather unique betting

exchange, and its marketing and fund-raising muscle. The question here is: to what extent do

our growth options build on Betsson’s core business?

New markets (example: launching online poker in the Italian market)

There is a clear link to Betsson’s core here. Betsson can build on its existing poker brand and

the player liquidity in its poker network. Furthermore, Betsson can easily raise money to fund

huge marketing drives abroad, should it wish to do so. This is the classic example of a

geographical adjacency with a strong link to the core.

New customers (example: targeting women and older people)

This adjacency expansion is more difficult to cope with. It’s not clear whether Betsson can

actually reach new customer segments with its existing core products (mainly poker). Are

women and middle-aged people ready to play poker online, or are they more interested in, for

example, bingo and other games? If Betsson needs to introduce new products to reach new

customers, then there is a very weak link to the core indeed. Betsson does have a broad

portfolio of products, including a betting exchange, but even so, it has so far been unable to

attract women and older customers.

New products (examples: online bingo)

To what extent Betsson can build on its existing strengths here varies greatly with the type of

new product being launched. If Betsson can find a product that builds on its poker brand – for

example by introducing new features to its poker offering, it can build on its strengths, and

possibly even attract new customer groups, at the same time. But for online bingo, building on

18 Beyond the Core, Chris Zook, pp 78-107

16

Betsson’s core strengths is more difficult since it would most certainly require reaching out to

customers that don’t play online poker at all.

o Two: Successful companies drive adjacency expansion toward the most solid

profit pools

The issue here is to identify the growth opportunity, which is most likely to make Betsson the

most money. A profit pool is different from a market, and includes variables such as the size

of the industry, its current and potential profits, and to which extent those profits can cover

the cost of capital for the competing players. So there is a big difference between a big market

and a big profit pool, a fact that is also pointed out by Zook. Where is Betsson likely to find

the most solid profit pools?

New markets (example: launching online poker in the Italian market)

We need a lot more information about potential markets to provide a good answer. But it’s

fair to say that the most solid profit pool today is in online poker. So a natural next step would

be to make that profit pool bigger by expanding into new geographical markets.

New customers (example: targeting women and older people)

There are no solid profits to go after here. The potential profits are huge, but they are also

speculative. It may be possible to achieve leadership economics, but it depends greatly on the

customer group that is targeted.

New products (examples: online bingo)

Mentioned above. There are no solid profit pools to go after.

o Three: Insisting on the potential for leadership economics

This success factor is concerned with whether a firm entering a new market (or introducing

new products, targeting new customers, etc) can achieve economics similar to those of the

market leader. More specifically: can the new entrant match the profitability, cash flow and

investment scheme of the leader? If not, it might find itself in a position where it is constantly

17

earning lower returns than the leader with the same level of investment into marketing and the

like. So where does Betsson have the greatest potential for achieving leadership economics?

New markets (example: launching online poker in the Italian market)

If Betsson were the first to enter a specific market, it would automatically have leadership

economics there. It is not very likely, however, that Betsson would be the first to enter any

market. Even so, the likelihood of Betsson being able to match the scale of the market leader

must be the greatest in markets that it enters early. It’s hard to evaluate our three growth

options with regards to leadership economics, but we can probably conclude that when

Betsson enters a new market, it should aim at being the market leader. This could be the case

in some geographic markets, such as Italy.

New customers (example: targeting women and older people)

The potential for achieving leadership economics varies with the customer group targeted and

depends on whether any other firm has targeted that customer group already. But if Betsson

were to target women, there would be a good chance for success, since no company has done

that so far.

New products (examples: online bingo)

The potential for achieving leadership economics varies with the type of new product

launched by Betsson. For online bingo, it would probably be difficult. For webcam poker, it’s

more probable, since Betsson would be the first player to do this.

4.4.2 Results

In the table below, the qualitative results from the previous section are translated into a

quantitative ranking chart. The point system relates to 1 being the optimal growth option,

meaning it concurs with which criterion Betsson would be best suited, base upon our research.

The results clearly point out the opportunity for Betsson to enter new markets as opposed to

new customers and products.

18

Criterion

Growth option

Build on and

reinforce core

Attack solid

profit pools

Leadership

economics

SUMMARY

(1/3 weight to

each rank)

New markets 1 1 2 1.33

New customers 3 3 1 2.33

New products 2 2 3 2.33

Table 4.4.1: Ranking the different growth moves from 3 (worst) to 1 (best)

From table 4.4.1, we can conclude that the growth option that involves an adjacency move

into new geographical areas, exemplified here by Italy, best matches Chris Zook’s list of

success factors for adjacency expansion. In the following section, we will analyze this growth

option in more detail.

4.5 Analysis of new geographic markets

So should Betsson change their strategy and build to focus on launching in more countries at

the same time? Or should they focus on one key market at a time trying to earn a leading

market share? To start with we will investigate the different markets available and rank them

in most likely to succeed order. Thereafter we will make the investigation of how to conquer

these markets.

We are going to conduct a simple analysis on a few countries to have something real to use

for the strategic recommendation towards Betsson. The analysis will focus on Poland,

Ukraine, Russia, Turkey, Greece, Spain, and Portugal, since these are a selection of countries

that are very different and to our knowledge have a poker market that is either non existent or

new. While we would like to get real and highly accurate statistical facts for each area of

interest this is outside of the scope of this project.

We have decided to focus on these criteria’s:

• Number of internet users

• Internet penetration

19

These two variables are our most accurate indicators in this analysis. They are derived

from the known website of internet world stats11.

• Online poker popularity

This variable measures online poker popularity by hits on Google, divided by the amount

of Internet users.

• E-commerce popularity

Our E-commerce figures are less accurate but they will provide a good enough base for

this analysis. The E-commerce variable is derived from parts of the 2005 report about

global consumer confidence, which has been published in the CNW9 group's website.

These variables that describe the consumer confidence for E-commerce are expressed in

the terms of very good, good, poor or very poor but they serve their purpose as an

indicator in our floating scale from 0 to 5.

• Competitive environment

The ranking is based on to how many languages nine of the most prominent poker sites on

the European market are translated to. It is intended to work only as an indication of how

competitive the online poker markets are in different European countries.

For each of these criteria we ranked them on a floating scale of zero to five16, comparing each

country to Sweden where Sweden in most cases is a five on the scale. To create our own

index we have weighted each of these criteria into a weighted average floating index number

also in a scale of zero to five16. We chose Internet penetration as the most important factor. It

is expensive to market your business and helping to build a trend in a new country, and if only

a few percent, that the advertisement reaches, have access to the Internet then it is all a waste.

We figured that the online poker trend and e-commerce popularity were both very important

factors, a small company like Betsson can not afford to create a trend on its own, and if the

people are afraid of using there credit cards online there is no market. The actual number of

Internet users felt less important, but it’s still a factor that holds a high weight. For the

decision on which markets to enter the criteria for competition is very important, since

9 CNW Group, http://www.newswire.ca/en/releases/archive/October2005/19/c3000.html (May 5th, 2006) 16 Appendix B – Data from our research. 11 http://www.internetworldstats.com

20

Betsson should try to enter markets where they can be market leaders according to the core

concept.

Other criteria such as marketing costs are very important factors, these are very hard to rank.

We want to point out that to make a really accurate analysis all factors must be considered.

The higher the grade for each indicator the greater market potential the country is, so a five in

competition means that their is very little or no competition in the market. For each country

this is what our analysis told us, see appendix B for figures.

21

Figure 3: Poker Potential16

We can see that our simple analysis confirms Betsson’s choice of Poland as the next country

to expand to, and that Italy, Spain, Portugal and Russia seems to be potential new markets to

enter. The best timing to enter a market is when customers have started to accept the product

right before dominant design19 occurs. As the window of opportunity moves farther away the

closer we get to the state of “dominant design”. Dominant design occurs within an industry

when competitors different business models starts to look very similar to each other, and

when the customers has learned the behavior of how to purchase the products of that industry.

There are two important factors behind dominant design. The first factor is derived from low

market concentration resulting by market leaders with few competitors. The second factor is a

stagnated market growth. Therefore the window of opportunity ends with a dominant design.

The relationship between dominant design, window of opportunity, market concentration and

market size is discussed in a well-known strategy report called “Strategies for Survival in

Fast-Changing Industries”19. The figure below places the different markets in their relative

position regarding the window of opportunity.

As can be interpreted Ukraine, Turkey and Greece hasn’t reached the qualification needed

since these markets simply aren’t developed enough. Russia, Spain and Portugal have just

entered the opportunity stage with Portugal in the leading. Italy and Poland are the markets

that ought to be entered now before the competitor concentration rises. Summing this analyze

we can say that a portfolio strategy where one invest in many markets in the same time just as

Mr. Selinder CEO for www.betway.com has done is inefficient, since many markets are still 16 Appendix B – Data from our research. 19 Strategies for Survival in Fast-Changing Industries; Christensen, .Suárez, And Utterback. 19 Strategies for Survival in Fast-Changing Industries; Christensen, .Suárez, And Utterback.

22

undeveloped. Betsson are acting strategically correct but they need to increase there

expansion pace, only having the capacity to launch one country at a time is not sufficient in

maintaining competitiveness.

5. Recommendation Based upon the result from the analysis we have presented earlier in this report we can

conclude that Betsson’s choice of a full scale launch with marketing and setting up a local

office in Poland is correct and should be performed.

However, to keep their competitiveness we recommend Betsson to start to mobilize their

gambling services for future full-scale launch in Italy and Portugal. This should be done

through:

• Translation of the gambling service in to the different languages.

• Outsourcing of customer service to local customer service companies.

• Recruitment of local staff through outsourcing to e.g. head hunters.

• Analysing and writing contracts with media channels.

• Setting up offices in Rome and Lisbon.

• Arrange for economic resources that will cover three full-scale launch’s either thru

internal resources or by emitting new shares.

When these requirements have been met Betsson should use aggressive marketing with

advertisement in the leading TV-channels and radio stations, but also with happenings like

live poker tournaments etc. They should follow the same formula but with an increased focus

on marketing towards male 20-30 years old since this is the major customer segment that

responds towards online gaming. This recommendation is supported through the core business

perspective, since it involves a close IT adjacency move where the know-how within the core

is leveraged by a repeating the formula concept.

Since human resources are an issue17 of great importance in today’s Betsson this is a problem,

which needs to be solved before launching a growth strategy. We recommend Betsson to do

17 Appendix C – Questionnaire, Cherry företagen Pontus Lindwall

23

so by increasing the amount of recruitment outsourcing and usage of headhunters. If this is

not enough Betsson might be necessary either to lower there demand of new recruits or

seduce more talented people by greater economic contribution, if not it will hold Betsson back

from growing there market share and may even lead them towards missing the surge of online

gambling.

A full-scale launch in a new market is expensive and therefore the uncertain markets are left

out from the list of markets to enter, it’s just not worth the investment needed for marketing

and hiring.

For the more uncertain markets e.g. Russia, Spain, Turkey, Greece and Ukraine, we

recommend a strategy described in Fig. 5.1. This is a strategy used amongst other online

gambling companies to attract customers with very small investments. Instead of marketing,

affiliates can be used to attract the customers. Here Betsson should:

• Only include the online poker, and hence only translate it.

• Establish a sub business unit with an internally recruited manager and a few

employees.

This sub business unit has a mission to maximize the affiliate usage for the uncertain markets,

and manage the alliances with the affiliates on operational level including all contact. As an

approach for Betsson to draw affiliates we recommend them to give them commission, e.g.

35% of all winnings from each new customer they provide. This should be handled by an

automated system, keeping track on each affiliate customer’s winnings and how much

commission they should get. This will pretty much eliminate marketing costs as well as the

lack of human resources issue.

24

This should be performed in second priority to the primary launches. The sub business unit’s

performance will in the future serve as an indicator on where to expand next. By measuring

Betsson’s success rate with affiliates in the less developed markets, they could get invaluable

prognostic information on how to expand in the future.

Betsson HQ - Malta

Base of affiliate operations

Fig 5.1

Gre

ece

Aff

iliat

es

Turk

ey A

ffili

ates

25

6. References Internet [1] https://www.betsson.com/en/about/available-jobs/index.asp?jobid=8 [2] https://www.betsson.com/en/about/company-information/index.asp [3] https://www.betsson.com/en/about/company-information/company-history/index.asp [4] http://cherry.netent.com/cherry_en/index.htm Quarterly Report Q4 , 2005 [5] http://www.unibetgroupplc.com/corporate/templates/InformationPage.aspx?id=148 [6] http://www.unibetgroupplc.com/corporate/templates/ObserverPage.aspx?id=270 [7] http://www.expekt.com/ [8] http://www.newsdesk.se/view_pressrelease.php?id=86818 [9] CNW Group, “One-Tenth of the World's Population Shopping Online: 627 Million People Have, including 325 Million in the Last Month” 2005, <http://www.newswire.ca/en/releases/archive/October2005/19/c3000.html> (May 5th, 2006) [10] Cherry Group, <http://www.cherry.se> (May 1st, 2006) [11] http://www.internetworldstats.com [12] Alex Burmaster, Nielsen NetRatings.European Internet Metrics: The Latest Trends (seminar at the Casino Affiliate Convention, Amsterdam 2006). http://www.nielsen-netratings.com [13]http://www.pokermagazine.se/index.php?option=com_content&task=view&id=297&Itemid=112 [14] http://www.worldseriesofpoker.com/lifestyleshow/2006salespresentation.pdf Appendices [15] Appendix A – Interview with Pontus Lindwall, CEO of Betsson. [16] Appendix B – Data from our research. [17] Appendix C – Questionnaire, Cherry företagen Pontus Lindwall. Books and articles [18] Beyond the core, Chris Zook; Bain & Company, Inc. [19] Strategies for Survival in Fast-Changing Industries; Christensen, .Suárez, And Utterback. [20] Dagens Industri, Expekts förre vd startar konkurrent[2006-04-24]

26

Appendix B

Data:

Internet

users Poker hits on Google Hits per user

Internet penetration

% E-commerce Greece 3 800 000 96 900 0,026 33,7 2 Ukraine 5 278 100 669 000 0,127 11,4 1

Turkey 10 220

000 203 000 0,020 13,7 1

Italy 28 870

000 2 550 000 0,088 48,8 4 Portugal 6 090 000 155 000 0,025 58,0 3

Russia 23 700

000 3 720 000 0,157 16,5 3

Poland 10 600

000 10 500 000 0,991 27,8 4

Spain 17 142

198 1 550 000 0,090 38,7 3 Sweden 6 800 000 4 350 000 0,640 75,2 5 Ranked:

Internet

users Hits per

user

Internet penetration

% E-commerce Competition Greece 0,6 0,1 1,7 2 3 Ukraine 0,9 0,6 0,6 1 5 Turkey 1,7 0,1 0,7 1 3 Italy 4,8 0,4 2,4 4 3 Portugal 1,0 0,1 2,9 3 4 Russia 4,0 0,8 0,8 3 3 Poland 1,8 5,0 1,4 4 4 Spain 2,9 0,5 1,9 3 1 Sweden 1,1 3,2 3,8 5 2 Weighted: 10% 20% 30% 20% 20% Rank Ukraine 0,7 Turkey 0,8 Greece 1,2 Russia 1,9 Portugal 1,9 Spain 2,0 Italy 2,7 Poland 2,9 Sweden 3,5

Note: Information in table is based upon our references

27

Rank: (5 means least competition, 1 means most competition) Greek Ukrainian Turkish Italian Portuguese Russian Polish Spanish Swedish PartyPoker x x x x Poker Stars x x x Ladbrokes x x x x x Eurobet x x x x x x William Hill x x x x Expekt x x x x x x x Unibet x x x x x x x x Europoker x x x SportingBet x x x x x x x x No. of sites 6 0 6 6 4 6 4 9 7 Rank 3 5 3 3 4 3 4 1 2 The ranking is based on to how many languages nine of the most prominent poker sites on the European market are translated to. It is intended to work only as an indication of how competitive the online poker markets are in different European countries. (The fact that Spain ends up as a more competitive market than Sweden according to this ranking shows that it is not a completely reliable way of evaluating competitiveness) (No sites are translated to Ukrainian, which gives Ukraine a very high rank, but this does not take into consideration that many Ukrainians speak Russian.)