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In this week's article, Gamblit Gaming's CMO David Chang talks about how to monetize mobile games with real-money gambling.

What are you seeing as the latest trend in the mobile gambling industry?

David Chang: There's lots of money to be made in mobile gaming products and social games, but I think it's peaked. If you're not already a really big player or have a large audience in the social casino space, it's really tough.

The amount of money that's being spent advertising these games is so large, and they have such big installed user bases that unless you're coming to the market with something really new, it's going to be hard for you to stand out against the Big Fish Casinos of the world, or the Slotomanias or the DoubleDown Casinos.

I think the opportunity in social casino is largely over.

That's not to say that there's not still a lot of money to be made, but I think for most ordinary indie developers or medium-sized game company, social casino is increasingly tough.

Why do you think Zynga and Glu pulled out of real-money gambling?

It's taken me a while to figure out. I've been in real-money now for a couple of years, and I think there's a misconception that all you need to do is apply for a gambling license and you can change your virtual credits into real-money, and there you go - it's as easy as that.

It turns out that it's really not. It's really complicated.

Your math models for that particular casino game change. You have a bunch of advertising requirements in the jurisdictions that tell you you can't market to underage people. What people can broadcast is regulated. The social graph regulations are completely different in a real-money context versus a social context.

So it turns out it's something that shouldn't be done as a business development initiative. It needs to be thought of as an operational initiative, and my guess is Zynga and Glu thought, "We can apply for this license. That's just such as a bunch of paperwork, and we don't have to do too much new development. We can add this stuff onto our games."

Almost certainly you're going to have to make some big changes in that product. If you have a game that's already in the market and you want to add real money to it, you have to make a new version. I don't think it's a content update.

So when the rubber hit' the road, people realise they have to do a whole new version of their game and they go back to the drawing board to figure out if it makes sense.

What are the key performance indicators of gambling games?

I have information for the traditional casino industry, and I think that's why you saw people like Zynga and Glu looking at the market. The numbers are very, very different to what people are used to in games.

If we're looking at LTV, at least in the United Kingdom, it is measured in the thousands dollars.

A whale in the mobile games industry might be worth a $100, or $150 or maybe $200 if you're really lucky. The order of magnitude for gambling games is completely different. We're talking about $1,000 to $2,000. That makes people sit up and pay attention.

The other number that I can give you is in New Jersey where online gambling is now legal, the average spend per user per month is $58. It's definitely more than what people are spending on games. It's less than what people are spending on a cable bill, but it's still quite a lot.

So if you can figure out a game that makes sense for people and hit that demographic, the monetization is really nice.

What are you doing Gamblit to help developers improve those metrics?

There's a tremendous opportunity in mashing up casual games and casino mechanics and gambling mechanics. So what we're trying to do is to uncover new types of games, new types of mechanics.

We're hoping we're going to be able to acquire a new audience at a much more affordable rate, because this is a brand new audience. We're not going to compete with the really big players that are looking for the hardcore slot machine user. We're looking for people that are interested in casino games casually, have an interest in casual games, and then see how that goes.

What we want to do is look at formats like casual games, strategy games, word games, endless runners, shooters and add gambling mechanics or allow people to wage within those games.

We think we're going to hit a sweet spot where they don't monetize as much as those as hardcore casino games but they monetize much more than current mobile games, with the added benefit of reaching so many more people that it's going to be financially successful.

Can you tell us about these gambling mechanics?

We have a platform that allows people to drive wagers of game events. So let's say, you're in a platform and you get to a particular level or you defeat a particular enemy. That is a game event that could drive a wager. The wager could look like a traditional slot machine or a spin wheel. It could look completely non-traditional.

The outcome is that you may or may not win money and that's the regulated part that we control. But the neat thing about our system is that we allow a gambling event. The insertion of a digital good or a game condition changes the game significantly.

So let's say you defeated this enemy, you started this wagering event, you didn't win any money but you want to power up. This event will grant you 15 seconds of invulnerability so you can dash through a really difficult part of the level. Or you earn some experience points that allow your character to level up and now you get a few more attributes and you can distribute them.

What we're trying to do is mash up the game mechanic and the gambling mechanic into something synergistically that's more fun than either of them alone.

Can I challenge my friend who's playing the same game and wager against them?

In our system, we don't have what's referred to as 'head-to-head' yet but we did that for a purpose. This is just my personal opinion. A lot of the initial excitement when people were getting into real-money gambling was kind of squashed because people didn't understand the sociodynamics of how real money wagering works.

I think the initial thought was, "We have a really big social poker game. Let's just turn on real-money," and now people are able to play with their friends for real-money. It turns out that people don't want to play with their friends for real-money because they're going to take money from each other, so these initial forays turned out not to convert any users.

On our system, we allow people to play against each other and gamble in parallel. So for example if you and I were playing Words With Friends against each other, we'll be gambling against the house (in this case it would be Gamblit Gaming). But you and I wouldn't take any money from each other.

There's an important social distinction to be made where you're not taking money off of your friends.

That's not to say that the head-to-head stuff isn't interesting. It absolutely is but I think there is a different audience. It looks like a pro- or semi-professional game where you're getting really skilled people competing against themselves or each other.

Are these gambling mechanisms sustainable for both mobile and online?

Yes, absolutely. I look at mobile and online as different mediums where people want to engage with the content. There are some demographic differences in terms of where people engage with the content but essentially it's the same experience.

Do you find any social element is essential to making this work?

Yes we do, and I think this is something that is unique to the real-money casino industry. If you ask people in real-money today if their players are social or do any sort of social broadcasting, they say 'No'. And I think that it is to do with the demographics. The people playing for real money online today are 40 years old and up.

We think that with games, people are just used to being more social. They are broadcasting wins or major game events. That is going to be an integral part of the service.

Five years ago, we were having a big privacy conversations about Facebook. That doesn't happen anymore. The generation that has grown up with Facebook takes privacy issues and social issues very, very differently. As they mature into their 30s, it's going to change the way people interact with this gambling apps.

How is Gamblit Gaming different from Betable?

Betable is bringing gambling to games and I think the way to think about us is that we're bringing games to gambling.

Betable is adding gambling real-money monetization method to social games, which is a great business. What we're trying to do is change the gambling business itself, in the sense that we think that there's an opportunity to create new and interesting content for people who don't find the traditional gambling games interesting.

If you look at surveys by the American Gaming Association, very few people under 40 are interested in slot machines. So we're trying to be a bridge for the gaming community into the gambling community. Because I spent most of my career in games, I know there's so much creativity out there. If we're able to tap in the creative ability of the games industry, we're going to have some really, really awesome casino games within a year or two.

I'm a new developer interested in adding some sort of real-money gambling into my game. How much more money can I make by introducing real-money gambling into my game? How much more do I have to spend?

I can address the cost side first. The way our system is constructed is that when you develop a casino game on our platform, your development cost are going to be exactly the same as creating any other casual mobile game.

You're not going to see a ton of incremental costs because that's why we're in business. You integrate our API, our user game development kit, we provide all the math and all the registration and then legal requirements, the stuff that the developer really won't have to deal with.

So in terms of building a game, we're not looking at anything radically different, and of course development budgets go all over the place.

And you're going to see a lot more monetization in terms of what people are spending. Here are some statistics. I've been in the free-to-play for a long time and if we converted 10% of our free players to paying users, we were buying drinks for everybody.

The shocking thing in real-money gaming is that 80% to 90% of people that download your app will deposit money.

It's not like you're going to have to deal with a lot of design challenges trying to separate the free-to-play audience from the paid audience. The people that download these games want to gamble and they want an entertainment experience that is exciting.

So what I would tell developers today is 'think about engagement'; providing an entertainment value that you think is going to be fun.

How much revenue do I have to share with Gamblit Gaming?

There's a couple of options here but for our UK launch, we are acting as a real-money mobile publisher and so we give mobile developers a standard 40% of net revenue.

We think that's fair because we're doing all of the advertising, games services, content programming, running tournaments: we're doing all of the legal requirements. We're putting up our own money so when people hit jackpots, we're going to be paying them out of our bank accounts.

We do have options for people that if they just want to use our technology and they want to publish these games themselves, they can get better rates.

What are the limitations and regulations of mobile gambling games?

This is really great question and this is what our technology does. There are some things that developers are going to be aware of. And we provide this information through our GDK.

If people are gambling, they want to know what their e-wallet balances at all time and you have to show them. You have to show that the current time of day at all times in the apps so that people don't get carried away and spend more time that they want to in these games.

There are age restrictions. You have to make sure that you are of legal wagering age in that jurisdiction.

There are things like making sure that the math that you're offering is static. It can't be dynamic, which is a big difference between what social casino games are doing and what are real-money games are doing. If a slot machine is set to pay 95% to the player at all times, that gets tested and certified by the regulatory authority and that has to stay constant.

What social casino games do is that they tweak that depending on kind of game conditions. If you're doing well they might dial that down. If you're not doing so well that day, they might dial it back up. I think that's fair in terms of a game experience, but it's completely not allowed in a real-money gambling experience.

The last time I drove out of Atlantic City, there were a bunch of billboards about gambling addiction. Do you have to institute anything like that?

Absolutely. And we embrace that. You have to be fair to the players. We have self-exclusion rules that comply with the jurisdictions that we're in, so you can set maximum daily wagering amounts or time in that particular game.

Because we're a regulated gambling game, we can point people to self-help organizations and programs, and I think that's really important.

What countries will Gamblit Gaming platform be operating in the near future? Is China is going to be a big market?

We're going to try to be active in any place that gaming is regulated. We're launching in the United Kingdom first. We're based in California so we're obviously talking to New Jersey, Nevada and other states in America.

China is interesting because of its size. Online gambling is not permitted in China today although there's Macau. The statistic I like to throw about Macau is that global gambling is $391 billion industry. Macau is $46 billion of that. So it's insane.

We're also working with casinos to bring these types of games to the casino floor. We're having conversations with land-based casinos where we tell them they need to have casual games that appeal to the 21-to-35-year old demographic, because these guys are not going to play slot machines.

We've been fortunate that the message has been well received, so I think we're going to be in Macau sooner than later.

There's a trend of mobile carriers looking to return the power over to the mobile industry they once had. Do you think that can be successful? What role are they going to play in mobile app distribution and monetization in the future?

This is actually an interesting point for gambling and casinos specifically. I think if the carriers wanted to, they could provide tremendous value and be a key player in terms of how mobile gambling gets rolled out in the United States.

In America today, you have Nevada and New Jersey and Delaware that allow online gambling. You're only allowed to gamble online or via mobile within that territory. So when I leave New Jersey to go back to New York, I'm not allowed to play that gambling game on my mobile phone anymore.

The people that can make a difference are the carriers because they have so much data. They know who you are. They know where you're connecting from. They know what cell tower you're hitting. So they can do so much in terms of age verification, payment, geolocation.

They could create their own gambling app store where they could verify that gaming companies have the right licenses and are permitted to do this stuff. They could get involved in a really big way if they chose to because they have so many important data points that are key to the gambling industry.

So far no one's done that. We've had some very preliminary conversations with this people on the investment side of these carriers. And they're intrigued but I think it's going to be an ongoing conversation.

You've raised $12 million. How is it going to be spent?

We're completely focused on rolling out operations and territories. We've been extremely fortunate that our message has been picked up by casinos territories and mobile game developers. Based on the conversations we're having with casinos, we're going to be announcing major stuff soon.

We're going to be launching in the United Kingdom in November and a lot of that money will be spent on rolling out the operations, marketing budget, promoting our partner games and making everybody successful.

Are you going to be developing games as well?

Yes. We have our own studio. We develop our own games. We started our own studio to demonstrate our technology to regulators.

I have to explain to regulators, 'We're going to stick wagering aspects inside an endless runner', but they don't know what an endless runner is. We had to create games so the regulators understood what we're talking about and could approve them.

This is an abridged and edited interview from the AppInTop mobile app marketing podcast produced by AppInTop, an automated mobile app marketing platform.

Listen to this podcast episode or subscribe to the podcast via iTunes.