This article is for information only. It should not be taken to form a recommendation to invest in shares of the 888 Group Plc. The value of an investment may fall as well as rise. If in doubt about an investment, an investor should seek professional advice from a qualified investment adviser.

How does 888 plan to stay ahead of the pack in 2008?

You have to admire Gigi Levy over at Following the UIGEA anti-gaming legislation bringing the online gaming industry to a stand still in October 2006, the 888 Group have not only rallied but have reacted aggressively to report tremendous financial results in 2007. Revenue is up 38% to $216m, and EBITDA is up 177% to $45.5m. Shareholders have been rewarded with a final dividend payment of 5.0 cents. All in all, it’s been a smashing year for Gigi and his team, and the indications are they are not going to rest on their laurels.

Reading’s financial statements is I’m afraid to say a bit of a chore, and that’s saying something, as numbers are what I do to earn a living. Whilst they may not possess the glitzy, image rich content of Party Gaming’s results, they do highlight one element of strategy that differentiates the company from its competitors, and which is going to be key basis of revenue growth in 2008.

Investors new to the online gaming sector could read both 888 and Party Gaming’s 2007 financial results and may struggle to find any major differences in strategy between the two firms. Throughout 2007, both companies have diversified their product base, have upgraded their systems to enable the cross selling of products, have aggressively expanded the marketing efforts to attract new geographical segments, and have attempted to ‘localise’ their products by rolling out new products in local languages with local language customer support. Yet, if the same investor was to look at the share performance of the 2 companies, they couldn’t be further apart.

Industry observers will be quick to point out that as the smaller of the two organisation, 888 were quicker to react to the challenges faced by the passing of the UIEGA, and were thus able to benefit from being ‘first to market’ in new geographical regions . However, what is clear is that 888 have a history of being one step ahead of everyone else in the industry.

This trend looks likely to continue in 2008, with one component of their strategy standing out as a key area of growth. It’s called the “ecosystem”.

What is the “ecosystem”?

It is the term used to describe the technological infrastructure that has been developed to enable 3rd party software providers to seamlessly integrate with the gaming environment.

What is

Set to be launched at some stage in 2008, is a platform for third party game developers, no matter how large or small, to debut themselves and their games to the online gaming world.

Why will this benefit 888?

Key to 2007’s financial success has been the importance of ‘video slot machines’, which have shown rocket like growth. It’s a phenomenon that hasn’t gone unnoticed within the industry. In fact Party Gaming, realising the importance of slots, have signed agreements to roll out slots based on Blockbusters like Top Gun, Mission Impossible, and The Godfather.

However, 888 are ahead of the game with their “ecosystem”, which will enable the following benefits to be achieved:

1. Seamless Integration

Costs associated with integrating 3rd party applications will be minimised. The integration of attractive games can be done swiftly and effortlessly. Slots can be added and removed from the platform according to popularity, which provides their customer base with a variety of offerings, constantly changing, improving and responding to the market demand.

2. Innovation

By establishing the “ecosystem” and the platform, 888 are in a position to tap into ideas from anywhere in the world. Innovation will come from 3rd party software suppliers, whether small or large… it’s a developers dream!

3. – Market Research will provide an environment from which the best and most innovative games from 3rd party providers can be trialled and tested prior to them being selected for integration to the 888 platform via the ecosystem. This is market research at its best and most responsive. Not only will they then be at the forefront of showcasing new games (without the associated huge development costs), they will be sorting out the “wheat from the chaff” in the process, only fully integrating the “successful” and “revenue generating” games into the 888. platform… genius!

4. Cost

The best thing about this strategy is that it’s bound to be successful. Great games bring customers in their droves, and the financial cost to 888 is in financial terms a sunk cost, having being absorbed into 2007’s accounts. Furthermore, all the risk sits with the 3rd Party suppliers, with 888 left to pick what they deem to be the best and most successful games to integrate with their gaming platform.

5. Product localisation

The localisation of products has proved to be a key driver in the success 888 have experienced in 2007. Localised products (eg. Games tailored to a country / area / language) enable easier access to new geographical markets. 3rd Party software suppliers can concentrate on providing local slots that are attractive to local geographical regions. If successfully trialled at these slots should provide an ideal platform to break into new emerging gaming markets. With new innovative slots attracting new customers in new markets, 888 will be well placed to exploit these opportunities even further with their more traditional casino, poker and sports betting products.

In summary, expect 2008 to be a bumper year for the 888 Group. Assuming their “ecosystem” is technically sound, 888 should end up providing some of the most innovative games the industry has seen in years. These games will be ‘localised’ and will be an ideal tool to utilise when entering new geographical markets. Expect strong revenue growth and an accompanying diversification of business and legislative risk on a geographical basis. Expect the rest of the industry to follow in hot pursuit. Hat’s off to the boys and girls at 888 that came up with this idea.

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