NetEnt succeeds because of the purple cow

NetEnt succeeds because of the purple cow

The growth stats of NetEnt are intimidating, certainly to any competition. Since 2011, revenue has skyrocketed 240%. And behind it all is a very simple game, one that you wouldn’t expect would fuel such spectacular growth, being that the game itself is so prosaic at bottom. Slots. From NetEnt’s most recent investor presentation:

NetEnt succeeds because of the purple cow

Slot games consistently make up around 89% NetEnt’s gamewin. Here’s a pie chart from the same presentation that shows the – at first glance – unidimensionality of NetEnt.

NetEnt succeeds because of the purple cow

This means 9/10ths of the entire company is just slot games. There couldn’t be a simpler, potentially mind-numbing gaming activity than slots. You sit there, you push a button, you see numbers, you keep sitting, and then you push the button again. But somehow, NetEnt has been able to make slots so incredibly interesting and entertaining that they are one of the most celebrated online gaming companies in Europe, and maybe even the world.

For a hint as to why this is and how they did it, just look at the charts above. Not the statistics of them or the actual data, but the design. As a researcher, I have to say, even their investor presentations are a visual masterpiece. You can tell work went into them to make them look nice so shareholders would enjoy what they were looking it. And what’s the deal with the guy with the blue raspberry head? He looks cool and it’s memorable. That’s the deal.

One a related note, I have only recently been able to see full color thanks to new-fangled Enchroma glasses for the color blind, and flipping through the pages of the investor presentation was actually enjoyable. I wasn’t just looking for data. I was having a visual experience, and I can tell that whoever designed the pages wanted me to enjoy looking at them. I don’t usually wear my color glasses indoors since they need a lot of light to work well, but I did put them on when I collected my notes for this column.

And that, essentially, is why NetEnt is so successful. Because if their investor presentations are so visually pleasing, then their slot games must be stunning to users.

The company’s latest release, “Jungle Sprit: Call of the Wild” is a perfect example. It blends beautiful graphics with new concepts. Here’s one review from Casino World News (emphasis mine):

[Users] will find one of the most graphically pleasing games to date from the prodigious creator and purveyor… Beyond the stunning graphics and onboard effects, the game sizzles with winning opportunities…The main features of the game include free spins, a symbol expansion feature, and a new concept in Net Entertainment video bonus slots called the Butterfly Boost.

A simple game of slots, but teeming with what marketing guru Seth Godin calls “purple cows”. The concept of the purple cow is taking something ordinary – a cow – and making it extraordinary. The example I like to use in explaining this concept is JetBlue. An airline is an airline. You go on a plane to get somewhere. Simple. But when I flew with JetBlue I’d always get a small bag of blue potato chips. Blue potatoes in themselves are quite unique, and granted a free bag of potato chips is not some huge amazing gift, but that’s the whole point. It’s something simple that creates a memorable experience, something that stands out from all the other flights I’ve ever taken. I associate JetBlue flights now with yummy blue potato chips, rather than with long airport security lines, being virtually stripped and borderline sexually assaulted by TSA agents, breathing recirculated diseased dank cabin air and hopefully not getting sick.

Like JetBlue, NetEnt has the mentality of selling an entire experience rather than just a game of slots. That’s why they are so successful. When users play their slot games, it’s not just another game of slots. It’s a NetEnt game. It’s memorable.

Moving back to investor relations for a second, there’s also something else that stands out. In the 2016 year-end report, after all the data is disclosed, there is a contact email and phone number for additional information. The name and phone number is not for a generic investor relations office, but that of CEO Per Eriksson.

NetEnt succeeds because of the purple cow

Sure, the email is probably vetted by a secretary and Per probably isn’t going to answer the phone directly when you call the number at 3am Sweden time, but the strategy of making it look like there is no middleman between you and the CEO makes a shareholder feel cared for, even if it is not consciously noticed. I noticed and remembered, and it’s just contact info. The point is, if this type of memorable marketing extends this far into the company structure, then it certainly extends to actual gamers and customers.

And the numbers continue to show it as NetEnt grows in the right areas. Mobile gamewin was only 10% of total gamewin in 2013. Now it’s 43%. 13 new customers were signed in Q4 2016, and 12 new ones launched. I could quote more positive stats but they’re all in the press releases.

In terms of share price, NetEnt could still be negatively affected by political and monetary tremors hitting Europe. They’re not immune to that. Nobody is. But fundamentally, NetEnt is a buy-the-dip type of company, because all the fundamentals are there. Its stock will rise in relation to online gaming markets opening up. The more legalization, the better NetEnt will do, because it looks like it will dominate the competition wherever new online gaming markets open up.

At bottom, it’s like this. If you believe that online gambling legalization will spread, then NetEnt is the top stock you want to own. If you believe, on the other hand, that governments will crack down on these markets, then NetEnt could suffer, given the very high growth expectations the company has built for itself thanks to its success so far.