iLottery – our burning platform…

iLottery – our burning platform…
May 2015

The industry:

The lottery industry in the United States is facing a difficult time – sales from traditional lottery products are stagnating, player numbers are falling and net income is beginning to suffer as a result.  To illustrate this, calendar year 2014 saw overall sales growth of just 0.6% over 2013, and in 30 of 45 states sales actually went backwards.  For Governors and Lottery Directors across the nation this should be a wake-up call; as things stand, budget deficits which are already substantial, and the funding programs they support, will not be rescued by lottery performance unless things change.
Part of the problem comes from a lack of innovation and no ‘new news’ for players. There has been no meaningful innovation in game propositions or channel development that has significantly benefited net revenue returns.  This coupled with the fact that lotteries have failed to attract younger players - those aged 18-24, has meant that not only is the lottery category nationwide failing to excite players, it is also seeing the demographic most attracted to playing ageing.
Changing consumer behavior:
Lotteries should also think hard about these issues in the light of changing retail trends – from a consumer perspective the internet is changing the way people shop, in particular due to the rise in smartphone ownership.  Pew research from December 2014 showed 64% of US adults own a smartphone, up from 45% two years ago.  Unsurprisingly the younger demographic have adopted this new technology more quickly – 85% of 18-29 year olds now own a smartphone1 and these devices are a key entry point for online access.
From a retailer perspective, while some have failed to take advantage of the range of opportunities presented by smartphones, others have seized upon the benefits they can bring to their business, particularly if the proposition is great for the consumer.  Starbucks is a terrific example of this, having 13 million mobile users in the US, and 16% of its in-store transactions taking place on a mobile device2.  By offering this service Starbucks can learn more about its customers, and in turn offer its customers tailored rewards for loyalty.
The myths of iLottery:

For the Lottery business, the advent of the smartphone presents a fantastic opportunity to reconnect with players, particularly the younger audience, innovate and grow sales.  Progress to date though has been slow, and there are a number of widely held myths that are worth dispelling:
Online sales come at the cost of retail: The evidence suggests that the opposite is actually the case.  A good illustration of this is the UK National Lottery, where online sales account for 18% of total sales.  In FY15, while the UK saw strong online sales growth, up 14%, retail sales also grew, with sales up 7%.  Early indications suggest a similar experience in the US.  In Michigan for example, where online sales were introduced late last year, sales in Q1 are up 7.4% over last year, with no indication that retailers are losing out.
Online sales present a risk to the vulnerable:  Again, this is not the case.  One of the advantages of an online offer is that lotteries can put in place dollar limits and other controls to protect players from spending more than they can afford; this is not something that can be done for a retail player.  With the appropriate age-verification and account controls lotteries can also ensure that only those old enough to play can do so.
Online sales might not be in-State:  Geolocation software is already extremely accurate and can ensure that only players who are in-state can play.  At a recent PA congressional hearing, software company GeoComply showed how its software could determine between two players at opposite ends of a coffee shop.  For lottery, concerns over native gaming reserves, or out of state play are not legitimate.
In summary:
To sum-up, Mobile presents a fantastic opportunity for lotteries at a time when they are in desperate need of help – they need to innovate and attract younger players.  Almost all of the consumers they find hard to reach own a smartphone, as do most of their current players, and as Starbucks has shown; consumers love the convenience and benefits of a smartphone.
So for lotteries, rather than deliberating over whether to adopt a mobile solution, they should be thinking, why have we not done this already?