This is a guest contribution by Derek Coetzee, Innovation Architect at mLabs. If you would like to submit a contribution please contact Bill Beatty for submission details. Thank you.
Competition commissions and takeover panels exist not as a retirement home for long-serving civil service types to pass away their dotage in the style to which they have become accustomed but rather because M&A activity is inherently anti-competitive.
The phrase of the moment in the betting space is ‘gaining scale’ – or taking competitors out of the market to put it in plainer language. Even if the relevant competition authorities don’t end up intervening in any given corporate action, the consumer will inevitably be faced with less choice once a deal comes to fruition.
So with the current spate of deals in the online betting space we can see a market shaping up that will contain fewer operators, even if some of the separate brand names live on with a kind of nuclear half-life as the larger entities persist with, presumably competition-authority pleasing, dual-brand strategies.
It’s easy to see how large-scale M&A can stifle innovation, particularly at the acute levels we are witnessing right now. New ideas need room to grow, and room to fail; neither of these conditions is available when boardrooms are either locked in discussions or looking over their shoulders at talks going on elsewhere.
To use a word popular in tech circles, M&A is disruptive; just not in a good way. The uncertainty of being caught up in corporate activity has widespread effects on the organisations involved, right from the top – where management refrain from investing resources in future growth strategies – down to the ‘shop floor’ where nervous employees will spend their working days pondering where the cost synergy axe will fall.
Of course, just being a scale operator does not necessarily mean that innovation is stifled. Examples of successful marketing and product initiatives from the larger operators in the online gaming space abound, and some of them can claim to having been genuinely disruptive in their prime – Betfair being the most obvious example.
But the current drive towards scale does have another driver which – not to confuse the metaphor – definitely acts as a brake on innovation; that being the further moves towards individual country regulation in Europe and further afield.
The view of the regulators, and the politicians that empower them, have of the online gambling industry inevitably has a huge impact on the evolution of new ideas and creative expression in the sector. Other areas of online endeavour have a much freer rein when it comes to challenging previously held business beliefs. In other sectors it is far easier to release new concepts in beta stage, try out new ideas and if they don’t work as intended, drop them and move on.
This is the concept of ‘permissionless innovation’, the idea that risk-taking is the heart of an entrepreneurial business culture. Experimentation is not only permitted, but also celebrated. It is hard to say this is true anywhere in the online gambling space at present. This is an already heavily regulated industry, and there is a lot more process involved in getting a product idea to the starting line. Any operator looking at innovation needs to be much more certain than their counterparts in other industries that new ideas will more likely than not succeed and so be worth investing the time and capital.
Economists refer to this as the precautionary principle; the idea that governments and the authorities need to be reassured that new innovations will not cause any harm, and will likely impose controls and regulations which to some eyes can stymie free enterprise.
There are in truth no easy answers to the dilemma that regulation poses for those hoping to innovate in gambling. Even those unicorns of the new sharing economy, such as Uber and Airbnb, have run up against the regulatory restrictions and hurdles in some jurisdictions at the very same time as the promise those businesses represent has sent their VC-funded valuations into the billions of dollars.
In our own small way, we at Matchbook are aiming at pressing the case for more innovation in the sector by launching our own incubator ‘mLabs’ designed to encourage cooperation and collaboration among start-ups looking to gain a foothold in the gambling space. We think the opportunity exists for more nimble entrepreneurs and start-ups to steal some ground even while the centrifugal forces at the top of the industry pick up speed.
But as for the regulatory landscape that our start-ups will inevitably have to interact with at some point, it is to be hoped that at some level the authorities in individual jurisdictions will at least take heed of the issues caused for new businesses by overweening regulation.
In a recent online posting, Samir Nanji, executive for policy and communications at strategic policy agency Delany & Co, made the point that governments should be wary of exerting their power to such a degree that it harms consumer choice. In comments that I believe have particular resonance in the gambling sector, he said that “governments should look to remove unnecessary barriers in order to catalyse innovation”.
We couldn’t agree more. As Nanji said, “start-ups matter”. “They create jobs and perhaps most importantly are a source of productivity, growth and innovation. They are hubs of creativity and form the foundations of the knowledge economy.”
The view finds support from a surprising quarter. In a speech made to the US Chamber of Commerce in 2013, Maureen Ohlhausen, a commissioner for the Federal Trade Commission, said in relation to regulatory attitudes towards the internet of things that government bodies need to adopt a degree of “regulatory humility” towards innovation before they look to stifle it with red tape. A bit of that humility in the European online gambling arena wouldn’t go amiss right now, and might help us avoid an unhealthy concentration at the top of the market.
“Derek Coetzee is innovation architect at mLabs. Any entrepreneurs and start-ups that are interested in talking to mLabs should in the first instance contact Derek at firstname.lastname@example.org or visit the website mlabs.io.”