WMS: Revenue Model Innovation For Gaming Solutions: Company Background

KEL951
June 23, 2016
M O H A N B I R S AW H N E Y, PA L L AV I G O O D M A N , A N D O R I B R O I T
WMS: Revenue Model Innovation

for Gaming Solutions
In April 2014 WMS Gaming Inc., headquartered in Chicago, Illinois, was considering whether
it should redesign the way it priced its products. WMS designed, manufactured, and sold slot
machines to casinos. A pioneer in the casino gaming industry since the 1990s, WMS traditionally
had sold its machines for an upfront fee. In the traditional model, customers paid a fixed fee for its
Hydra slot machine and paid extra if they wanted to upgrade various components of the cabinet.
As the gaming industry evolved and customers demanded the latest games and machines,
WMS wondered if it could learn from innovative revenue models being used in other technology
markets. For instance, the subscription-based revenue model had become popular in the software
business, and most software companies were moving toward the software as a service (SaaS) model,
wherein customers paid a monthly subscription fee rather than a large upfront licensing fee.
Product manager Dayna Stone was tasked with determining if an alternative revenue model,
such as a subscription-based model, would be advisable for WMS as it sought to increase revenues
and market share. Stone realized that she would first need to research revenue models being tried
in other industries so she could understand their pros and cons. Next, she would have to quantify
the revenue and profit implications of different revenue models for WMS and the casino operators.
Stone’s task was complicated by the fact that the various segments of casino operators were likely
to respond differently to any proposed change in the WMS revenue model.
Company Background
In 1943 Harry Williams founded the company that would become WMS. A Stanford-trained
engineer, Williams devised the “tilt” for pinball machines, which changed the nature of pinball in
©2016 by the Kellogg School of Management at Northwestern University. This case was prepared by Professor
Mohanbir Sawhney, Pallavi Goodman, and Ori Broit ’14. Cases are developed solely as the basis for class discussion.
Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective
management. To order copies or request permission to reproduce materials, call 800-545-7685 (or 617-783-7600
outside the United States or Canada) or e-mail [email protected]. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—
electronic, mechanical, photocopying, recording, or otherwise—without the permission of Kellogg Case Publishing.
This document is authorized for use only in Valérie Claude-Gaudillat's Full-time MBA: Busines Model Innovation at AUDENCIA Nantes School of Management from May 2023 to Jun 2023.
WMS: Revenue Model Innovation KEL951
America. The casino gaming industry borrowed this innovative spirit in the 1990s and leveraged it
to pioneer innovations in products and solutions for global online wagering and social and mobile
gaming. In 2013 WMS became a wholly owned subsidiary of Scientific Games Corporation. By then
WMS had become a leading provider of gaming products and technologies to casinos worldwide.
Its gaming machine products were installed in all of the major regulated gaming jurisdictions
in the United States, as well as in more than 160 gaming jurisdictions overseas.1 WMS’s gaming
portfolio comprised a mixture of proprietary titles, such as Reel ‘Em In, Life of Luxury, Zeus, and
Jackpot Party, as well as licensed themed titles such as Monopoly, The Wizard of Oz, The Lord of the
Rings, and The Price is Right (see Exhibit 1). In recent years, in the wake of the explosion in digital
entertainment and social media, WMS had pioneered innovations such as the launch of Jackpot.
com, its online casino in the UK, and the Lucky Cruise social casino, on Facebook.
With casino gambling rapidly gaining popularity, casino operators were always interested
in introducing new technologies on the casino floor to attract even more visitors. One notable
innovation was ticket-in/ticket-out (TITO) technology, which substituted tickets for cash in the slot
machines. Other innovations included server-based games that allowed operators to make changes
to any machine on the floor from a single computer server in the casino; multiplayer games in
which players could compete against one another on the same machine; and radio frequency
identification (RFID) that facilitated security and player tracking.
The Casino Gaming Industry

Modern casino gaming had come a long way since the early days in Nevada, when the
quintessential male gamblers played table games while their wives were left to entertain
themselves at a few obscure slot machines stuck in the back of the casino floor. Rigorous regulation
and industry oversight led to sweeping changes, most notably the transfer of ownership from
private to public companies, which resulted in the creation of gleaming resort casinos that became
the hallmark of the industry. Even non-resort casinos offered patrons sophisticated games that
promised an entertaining experience. Casino patron demographics had also changed significantly;
men and women of all ages and from all walks of life frequented modern casinos, attracted not
only by gambling but also by fine dining, shopping, and world-class shows (see Exhibit 2). Casinos
had also expanded beyond Nevada to forty states, making them within driving distance for more
potential patrons. By the first decade of the twenty-first century, casinos had become a global
phenomenon, with significant industries in Asia, Europe, South America, and Australia. By 2013,
the gaming revenues of Macau were almost seven times greater than those of the Las Vegas strip.
Two recent trends had ominous implications for the casino industry. First, the proliferation of
casinos meant increasing competition for gaming dollars. Secondly, the fallout from the financial
crisis of 2008 had left consumers cash-strapped, thus weakening demand. Gambling revenue in
New Jersey, for example, had fallen 44 percent from its peak in 2007 (see Exhibit 3). The four largest
Midwest states—Illinois, Ohio, Michigan, and Indiana—saw casino revenue fall in the first quarter
of 2014. In Las Vegas, revenues were down 12 percent.
The decline in revenues was taking its toll on casino slot machine manufacturers. In March
2014 International Game Technology (IGT), the world’s largest maker of slot machines, citing a
decline in North American gambling operations and an 8 percent decline in revenue from its leased
1
WMS Gaming 2013 Annual Report.
2 Kellogg School of Management
KEL951 WMS: Revenue Model Innovation
machines in the quarter ending in December 2013, announced that it would reduce its workforce
by 7 percent. Evidence suggested that gambling in the United States had reached saturation levels
by 2013, and competition for gambling dollars was rising across the nation.
Revenues
According to the American Gaming Association, the commercial casino industry had a gross
gaming revenue of more than $37 billion in 2012. This figure represented sales, not profit, so it
included earnings before taxes, salaries, and other expenses. More than $20 billion was paid in
wages, benefits, taxes, and other expenses in 2012.2 Gaming machines comprised 20 percent of
the global gambling market, which was estimated at $344 billion.3 Global casino revenue was
estimated at $147 billion in 2012, about $60 billion of which was generated in the United States.
The American Gaming Association pegged consumer spending on casino gambling in the United
States at $37 billion.
Electronic slot machines and video games had revolutionized the casino business, and casinos
were increasingly looking to new technology to quench their patrons’ thirst. Slot machines, favored
by 53 percent of the U.S. gambling public, were more profitable than table games, which had been
steadily losing ground to digitized machines despite the human interaction table games afforded.
By the late 1990s, machine games generated twice as much revenue as all “live games” combined.4
Recent research showed that 70 percent of casino revenues came from slot machines,5 compared to
just 40 percent in the 1970s.
Innovation in Casino Gaming

The stakes in the casino industry were high. The cost of operating even a small casino with
modest ambitions ran into tens of millions of dollars and could quickly reach hundreds of millions.
Many casinos had fallen into bankruptcy. Thus casino operators were always looking for ways to
make their casinos more efficient and more profitable.
Although some brick-and-mortar casinos still carried three-reel slot machines that could
spin, the vast majority of casinos had migrated to electronic and video slot machines. This change
allowed casino operators to provide users with a richer experience by weaving in video content
from movies and popular culture and allowing users bonus rounds. Further, video slot machines
could be configured to download any gaming software, thus eliminating the need to install costly
new slot machines every time the casino wanted to upgrade.
In the mid-1990s online casinos and poker rooms began to pop up, allowing gamblers to wager
from the comfort of their homes. The quality of the online gaming experience improved as the
access to and the speed of the Internet advanced. Online gaming offered players—especially new
players—a convenient and unintimidating opportunity to learn the games. Land-based casinos
began investing in new technology to avoid losing customers to online gaming, but it soon became
apparent that online gaming appealed to a completely different customer segment. Far from
2
American Gaming Association 2012 Annual Report.
3
Ibid.
4
Tom Vanderbilt, “Slot Machines: A Lose Lose Situation,” The Guardian, June 8, 2013.
5
Oregon State University, press release, “Study Finds Slot Machine Players Don’t Fit Stereotype,” November 9, 2012.
Kellogg School of Management 3
cannibalizing the revenues of land-based casinos, online gaming was more likely to complement
them, thus enhancing all casino revenues.
Another innovation that improved both the overall customer experience as well as casino
operations was TITO technology, which enabled cashless floors (i.e., coin-free slot machines) in
modern casinos. TITO technology was used in slot machines to print out a slip of paper with a
barcode that indicated the amount of money it represented. The paper could be redeemed for
cash at an automated kiosk; players thus no longer needed to wait for an attendant for a hand-
delivered payout. For the casino, TITO technology led to cost reductions related to coin handling,
redemption, and sorting, and made feasible multi-denomination gaming machines.
Some customers were slow to warm to innovation. The comparatively quiet payout for slot
machines with TITO technology turned some players off, for example. By and large, the nature of
the innovations and their popularity depended on the type of casino patron. With the widespread
proliferation of casinos, operators knew that they needed to innovate both on the casino floor and
on service to protect market share, stay solvent, and attract more customers.
Casino Patrons/Gamers
Americans’ burgeoning enthusiasm for casino gambling also led to their desire to experience
a wide array of entertainment choices at gambling venues throughout the country. The average
gambler visited a casino about six times a year. The average casino visitor was more likely to
be a male who was, at 46 years, slightly older. Casino customers were better educated and had
higher-than-average household incomes.6 Casino visitors also had become trendsetters in subjects
ranging from dining and hotels to shopping and technology. This dispelled the traditional notion
of a gambler as an outlaw or degenerate looking to improve his fortune. Although casino floors
provided many options, such as slot machines, video poker, live card games, and table games, by
far the most popular choice was slot machines (see Exhibit 4).
Slot Machine Gambler Segments

The profile of the typical slot machine enthusiast differed somewhat from that of the average
casino gambler.7 Slot machine players tended to be female homeowners between the ages of 55 and
60, with a minimum annual household income of $55,000. Slot machine players generally fell into
four main groups: utilitarian, excitement, multipurpose, and relaxation seekers. This suggested
that casinos needed to take a segmented approach to attract these various groups.
Utilitarian gamblers were looking for ways to reduce boredom and pass time and were less
motivated by winnings and excitement. Many senior citizens fell into this category. This segment
comprised the fastest-growing group of gamblers. Casinos from Las Vegas to Indian reservations
catered to this segment. Casinos noted that older people were becoming addicted to slot machines8
and that casino gambling was a favorite pastime for this segment.
6
Harrah’s Entertainment, Inc., NFO WorldGroup, and U.S. Census Bureau.
7
Sandy Chen, Stowe Shoemaker, and Dina Marie Zemke, “Segmenting Slot Machine Players: A Factor-Cluster Analysis,”
International Journal of Contemporary Hospitality Management 25, no. 1 (2013): 23–48.
8
National Council on Problem Gaming, “News for Older Americans: Seniors May Be At Risk For Gambling Problems,”
http://www.ncpgambling.org/files/public/Seniors_FINAL.pdf (accessed September 18, 2015).
Excitement gamblers looked for the high that came with the thrill of winning and having a good
time. Modern slot machines with bells and whistles and bigger payouts were not attractive to this
group because the payouts weren’t frequent enough to sustain the excitement.
Multipurpose gamblers typically were younger and less educated and had lower incomes. They
played machines for fun and were motivated by the thought of winning money. Themed games
appealed to this segment of gamblers.
Relaxation gamblers were often well-to-do and played slot machines as a way to relieve stress
and to socialize and have fun. The most educated of the segments, they were more “controlled”
about the money they wagered and preferred to stick to machines that used denominations of 25
cents and $1.
The study also revealed differences in motivation between male and female gamblers. Women
generally were drawn by the fun and by the social aspect of slot machine floors, whereas men
tended to be motivated by financial rewards.
Casino Operators
Commercial (Mainstream) Casinos

Commercial casinos were run by private companies on non-Indian land. Over the past two
decades, commercial casinos had undergone a significant transformation into complex and
diversified businesses that offered more recreational options to consumers than ever before. By
2010, they produced gross gaming revenue of $34.6 billion but also relied on lodging, food and
beverages, and other revenue sources, such as retail outlets, nightclubs, and spas, as a complement
to business operations. See Exhibit 5 for gaming and non-gaming revenue information. The most
recognizable form of commercial casino was Las Vegas–style casinos, often known as destination
resort casinos. As of 2011, there were 566 commercial casinos in twenty-two states. Commercial
casinos generated $49.7 billion in consumer spending and about 350,000 jobs, with salaries and
benefits totaling nearly $15 billion in 2010.9
Below is a brief overview of the main commercial casino segments.
Resort/Destination Casinos
Typically, a resort casino was a full-service casino with top-quality restaurants, high-end retail
and shopping establishments, luxurious hotel rooms, and meeting and convention facilities, as
well as non-gaming leisure options such as golf courses, spas, theaters, and nightclubs. Most of
the resort casinos generated more revenues from their non-gaming facilities than from the casino
floor. These casinos often attracted customers from across the country and all over the world who
were drawn to these resorts because of their architecture and numerous gaming and non-gaming
offerings. Examples of such resort casinos were the Venetian, the Wynn Las Vegas, the Mirage,
ARIA, Harrah’s, and the MGM Grand in Las Vegas; the Four Winds Casino in Michigan; and
Harrah’s in Atlantic City.
9
Brattle Group, “Beyond the Casino Floor: Economic Impacts of the Commercial Casino Industry,” prepared for the
American Gaming Association, February 6, 2012.
Commodity Casinos
Commodity casinos were less expensive to build and maintain and commanded lower prices.
Typically, they housed a small restaurant/dining room or a snack bar, and their austere rooms and
low-key amenities meant they subsidized the cost of the guests’ stay to encourage them to spend
as much time and money as possible on the casino floor. Commodity casinos had lower fixed and
variable costs and were architecturally inferior to their competitors, the resort casinos.
Unlike destination resort casinos, commodity casinos were often less expensive to build and
operate and earned a higher percentage of revenues (80 percent) from their gaming offerings. The
typical visitor was more likely to be someone who lived close by and thus tended to stay for a
shorter period of time than the resort casino patron did.
Indian Reservation Casinos

In 1979 the Seminole tribe opened the first high-stakes bingo operation in Florida, thus initiating
Indian reservation gaming. The state tried to shut down the operation and a slew of lawsuits
followed, but the Supreme Court ruled that Florida did not have the right to regulate activities on
Indian reservations. In 1988 the Indian Gaming Regulatory Act legalized tribal gaming operations.
Tribal casinos were not always run by the tribes but sometimes by an outside management company,
such as Harrah’s. Las Vegas casinos comprised just 10 percent of the U.S. gaming industry, while
regional commercial gaming accounted for 47 percent and Native American gaming contributed
43 percent.10 In just twenty years, Native American gaming had grown from almost nothing to
become a $27 billion industry.
Gambling on Indian reservations generated more revenue than Las Vegas and Atlantic City
combined. In 2013 a total of 243 Native American tribes operated 468 gaming facilities in twenty-
eight states and generated $91 billion in output; 612,000 jobs; $27.6 billion in employee salaries; and
$7 billion in taxes and revenue-sharing payments to federal, state, and local governments.11 Still,
Native American gaming grew only 2 percent in 2012 (down from 3.4 percent growth the previous
year), whereas the commercial casino segment grew 4 percent. The year 2013 marked the fourth
consecutive year of growth for Native American gaming; revenue grew by 0.5 percent to an all-
time high of over $28 billion. However, the growth rate was slower than that in 2012 (2 percent) and
2011 (3 percent), largely as a result of the sluggish economy and increased competition.
Revenues from gaming at Indian reservation casinos were required to be used for tribal
government and charitable uses only. These casinos were mostly exempt from federal, state, and
local taxes. State taxes were levied for large-scale casinos. Some of the largest casinos in the United
States—such as Foxwoods Resort and Mohegan Sun, both in Connecticut—were operated by
Native American tribes.
As Dayna Stone reviewed the various casino operator segments, she knew that the nature of
their operations and their patrons would determine the type of revenue model WMS would prefer.
10
Sam Ro, “Chart: The Extraordinary Rise of Native American Casinos,” Business Insider, March 10, 2013,
http://www.businessinsider.com/the-rise-of-the-native-american-casino-2013-3.
11
Casino City Press, “Indian Gaming Industry Report,” 2013, http://www.casinocitypress.com/gamingalmanac/
indiangamingreport.
Product Overview
WMS manufactured slot machines for the casino gaming industry. Traditional slot machines
were mechanical devices with physical reels that spun in coordination to produce an outcome.
WMS’s slot machine was called the Hydra cabinet and consisted of wide-screen displays; surround
sound; full-color, animated images; an illuminated printer; and a bill acceptor. WMS sold the
traditional model as a one-time purchase to its casino customers.
Revenue Model Overview

To gain an understanding of revenue models, Stone decided to study models in comparative
industries, short-listing six for further analysis (see Exhibit 6). She learned that although the shift to
subscription models was a broad trend, it was not clear whether companies improved margins by
moving to this model. Profitability certainly was possible but appeared to depend on competitive
strategy.
Stone decided she would consider two new pricing models to determine the future pricing
structure for the Hydra cabinet. Because gambler preferences ultimately would drive the revenue
model preferences of the casino operators, Stone knew she would have to keep in mind which
casino customers preferred the novelty of slot machines over card games.
Traditional Model
In WMS’s traditional revenue model, customers paid upfront for the complete cost of the slot
machine. There was no option to update the machine’s components, such as its central processing
unit and its skins. The machine’s typical lifetime was fifteen years. A Hydra cabinet cost WMS
$10,000 to manufacture; the company sold each one for $17,500.
This current revenue model’s simple cost structure and inability to update benefited WMS
because it translated to more frequent cabinet purchases. Component upgrades yielded no
additional revenue streams for WMS, however. Further, from a consumer standpoint, customers
did not have the ability to extend cabinet life, and they were responsible for maintenance of the slot
machines, or they could purchase a warranty.
Hardware Assurance Model

In the hardware assurance model, customers would pay for the cabinet upfront but also would
have the option to purchase a warranty and upgrades package at that time. Once the cabinet
was purchased, customers would have the ability to upgrade components for no additional cost.
The purchase of a new Hydra cabinet with a service contract meant that the casino could use
the machine for its full lifetime of fifteen years. The cabinet and upgrade package was priced at
$32,000. Because of the additional costs associated with the upgrades, the cost of the machine for
WMS would be higher than under the traditional model, at $13,000.
Under the hardware assurance model, all future service and upgrade costs would be covered
on the initial purchase and the margins for the upgrades were high, depending on the upgrade
rate. But WMS wondered if the upfront cost might be too high for customers. This would be a
problem for cash-strapped casinos.
Similar to the traditional model, customers could purchase an annual warranty for the cabinet.
Because of the frequent upgrades, WMS would charge less for the warranty in this model.
Subscription Model
Unlike the traditional model and the hardware assurance model, the subscription model
involved no upfront cost for customers. In the subscription model, customers would pay an annual
fee for the cabinet, with a minimum contract term, and all upgrades would be included in the
cost. The purpose of this model would be to minimize the administrative headaches and the cost
associated with warranty and upgrades. WMS proposed to charge customers an annual $3,000
subscription fee. The cabinet cost to WMS would be $13,000 and its lifetime would be fifteen years.
The subscription model was simple for customers to understand. However, WMS would take
on additional risk because customers would be leasing rather than paying upfront for the cabinet.
Cash-strapped customers were likely to prefer this model, as would casinos that wanted to provide
customers with the most up-to-date floor. However, customers might also be resistant to switching
from capital expenditures to operational expenditures. Further, it was not certain that the upgrades
would be attractive for customers.
Similar to the hardware assurance model, the annual warranty price would be lower than that
of the traditional model.
Choosing a Revenue Model
The Customer (Casinos)

Because slot machines were important to all casinos, all casinos were important customers for
WMS. Stone knew that this fact would not drive the choice of revenue model. Each type of casino
attracted a different mix of gambler segments, which in turn determined the type of revenue model
the casino preferred. The casino’s preference also depended on its attitude toward innovation and
its preference for cash flow.
A casino’s preference for a particular revenue model was thus driven by two sets of criteria:
casino criteria and customer criteria. Casino criteria were based on the preference for capital
expenditures versus operational expenditures and how much the casino cared about innovation.
Casinos’ appetite for innovation was driven by customer preferences. Older customers, for
instance, were confused by too many technology choices and didn’t care as much for innovative
slot machines.
Some casino segments were more open than others to changing revenue models. Private
companies, for example, which did not have to publicly reveal their financials, were more
amenable to this shift. Casinos with short-term cash constraints also appreciated this flexibility.
Aesthetically minded casinos, such as the Wynn Las Vegas, that wanted to distinguish themselves
with the freshest floor fell into this category, too, as did casinos with high market dominance.
Further, casinos located near states that had recently been deregulated were open to experimenting
with a different revenue model; those casinos had been feeling pressure from their competitors’
brand-new machine assets.
Some premium machines already employed a daily fee, and offering this model on those,
or closely related, machines could be a way to extend decisions already made by buying teams,
instead of attempting to win new decisions. One of the pressures on a casino slots VP was the
correct allocation of budgets across properties; transferring a portion of that decision power to slots
directors in the form of a slots refresh decision could potentially mitigate those pressures. Rather
than spending all capital budgets early in the year (to prevent excess funds from being reclaimed),
the slots director could benefit from this program by being able to make more agile decisions
throughout the year or to have the chance to purchase hot new machines as they gained popularity.
The Economics
The financial/economic considerations boiled down to which casinos currently were profitable
and their projections for future cash flow. Stone knew a gambler’s optimism often colored casinos’
financial projections. Given the economic climate, some casinos were cash-poor and lagged behind
cash-rich casinos in upgrading to new technology. The more cash-constrained the casino, the
higher the chances of its opting for the pay-as-you-go model to help defray the capital cost because
it lacked the cash reserves to make upfront purchases. Conversely, casinos that wanted to be at the
cutting edge wanted the latest games on the floor and were willing to pay for them. These casinos
would also likely opt for the subscription model. Stone would need to calculate the net present
value of all three revenue models for each of the segments to be able to estimate correctly the
projected revenues.
Other Considerations
Casinos typically set themselves apart through either a pricing strategy or a differentiation
strategy. Upscale resort casinos with lush landscaping, beautifully designed restaurants, and richly
appointed rooms differentiated themselves on product amenities, not on price. Customers looking
for such an experience sacrificed price to play at a luxurious casino. These casinos were designed to
attract the well-heeled gambler. By contrast, casinos with fewer amenities and more austere rooms
chose to compete with a pricing strategy designed to attract wider sections of the paying public. This
strategy allowed them to deliver a gaming experience at lower prices and still make a decent profit.
Competitors
WMS’s competitors were IGT, Bally Manufacturing, and Sigma Game, to name a few. IGT,
which made roughly half the slot machines in the United States and earned $2 billion annually in
revenues, was acquired in July 2014 by GTECH. One notable consequence of the financial crisis of
2008 was that wary gamers stayed away from casinos. Adding to this trend was the widespread
proliferation of casinos, which meant a casino was within driving distance for most Americans. As
the competition for gambling dollars increased, another directly competitive front opened against
casinos when drinking establishments in some states, such as Illinois, introduced video gaming
machines. Casinos began spending on promotions to lure casino-goers and to differentiate on
service to customers. But service cultures did not hatch overnight; it took years of training and of
delivering on expectations to gain a service reputation. WMS would need to evaluate the pricing
model of its slot machines against this backdrop of increasing competitive challenges.
Stone wondered about the likelihood of competitors replicating WMS’s possible new pricing
model to retain customers. Competitors could also react by lowering prices to match WMS. Thus,
a new revenue model could unwittingly lead to a price war.
Risks
Many risks were inherent in adopting a new revenue model. A revenue model was essentially
a profitability model based on assumptions about revenue, cost structure (direct and indirect
costs), consumer behavior, and the prevailing economy. Companies often underestimated the
costs involved in shifting to a new revenue model. In addition to the upfront costs, there were
also hidden costs, such as the cost of related research, resources diverted to the research, cost of
reaching existing and new customers, hiring costs to execute the new revenue model. Often these
costs added up to much more than what the company originally had estimated.
Although a company could expend a tremendous amount of financial heft and many resources
in adopting a new model it believed could afford it the best chance at profitability, that model
might not be aligned with customer needs and expectations. Thus, no matter how well a new
revenue model was marketed, the customer response could be less positive than WMS might have
hoped. One consideration WMS needed to factor in was the possibility of early termination by the
customer. Should WMS charge an early termination fee to mitigate this risk? Stone would have to
carefully weigh the risk of early termination.
Conclusion
Stone reviewed these considerations as she made final touches to the presentation she would
deliver to senior management the next day. She had to evaluate both the appeal of WMS’s revenue
model to the casinos and the impact of a new revenue model on WMS’s profitability. This decision
ultimately would drive WMS’s share of the market and revenues. The different revenue models
raised various questions:
• What value was WMS creating for its customers?

• How would WMS set itself apart from competitors?
• How would WMS ensure that the product remained “sticky” for customers?
• How would the company balance old and new revenue models?
• Could WMS manage short-term revenues through the transition?
Exhibit 1: Examples of WMS Gaming Products
Exhibit 2: Casino Visitors by Age
Casino Visitation Rates by Age, 2012

39%
34% 36%
28%
Age 21-35 Age 36-49 Age 50-64 Age 65

and over
Source: VP Communications Inc. and Peter D. Hart, 2013 AGA Survey of Casino Entertainment.
Exhibit 3: Gambling Revenues, 2007 vs. 2013
Exhibit 4: Top Five Favorite Casino Games

61% All Casino Visitors
Young Adult Casino Visitors
51%
24%
19%
8% 8% 7%
4% 5% 4%
Slot machines Blackjack Roulette Poker Craps

and video poker
Source: VP Communications Inc. and Peter D. Hart, 2013 AGA Survey of Casino Entertainment.
Exhibit 5: Nationwide Gaming vs. Non-Gaming Revenues

Other revenues,
$3.5 billion, 7%
Hotel revenues,
$5.1 billion, 10%
Food and beverage

revenues,
$6.5 billion, 13%
Gaming revenues,
$34.6 billion, 70%
TOTAL OUTPUT BY REVENUE SOURCE SUPPORTED BY THE COMMERCIAL CASINO

INDUSTRY IN 2010 ($ IN BILLIONS)
Gaming Food and Beverage Hotel Other Total
Direct 34.6 6.5 5.1 3.5 49.7
Indirect 19.8 5.4 3.6 2.2 31.0
Induced 30.8 6.4 4.6 3.2 44.9
Total 85.1 18.4 13.4 8.8 125.7
Note: Direct revenues are casino revenues from gaming, food and beverage, and lodging and entertainment. Indirect revenues
come from goods and services bought from other businesses. Induced revenues are driven by individual spending by casinos and
casino industry supplier employees.
Source: Brattle Group, “Beyond the Casino Floor: Economic Impacts of the Commercial Casino Industry,” prepared for the
American Gaming Association, February 6, 2012.
Exhibit 6: Comparative Revenue Models across Industries

Previous/
Alternative Date Customer
Product Industry Description Revenue model Model Implemented Type
Comcast Cable Telecom Purchase and Monthly charge for Upfront n/a Consumer
modem rental of cable modem rental; no purchase
modem boxes charge if customer only
for Internet buys modem
access
T-Mobile Jump Telecom Subscribers Monthly fee, plus Higher Launched July Consumer
plan eligible for pay half of total subscription 2013
upgrades to device cost (min.) fees; device
earlier phones subsidy; lock-
in plans
Microsoft Office Software Subscribers get Monthly fee for full Perpetual Launched B2B/
365 access to Office access to products; licenses, June 2011 Consumer
productivity segment tiered with tiered (B2B
software bundles focus)
Adobe Creative Software Subscribers Monthly fee; bundle Perpetual Offered: 2012; B2B/
Cloud get access to and standalone licenses, became only Consumer
graphic design, options with tiered option: 2013 (Consumer
video editing, bundles focus)
and web
development
apps
Rackspace Managed Hardware Combination of Variable monthly Industry shift n/a B2B
Hosting public, hybrid, fee based on service from upfront
and private parameters purchase and
managed IT ownership
services
Amazon Kindle Consumer Tablet device Loss-leading device n/a Originally Consumer
HDX Electronics coupled supporting retail offered: 2007
with content content sales
ecosystem
including
eBooks, media,
and apps
Source: Created by the authors.

WMS: Revenue Model Innovation For Gaming Solutions: Company Background

Uploaded by

Copyright:

Available Formats

WMS: Revenue Model Innovation For Gaming Solutions: Company Background

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

WMS: Revenue Model Innovation For Gaming Solutions: Company Background

Uploaded by

Copyright:

Available Formats

KEL951

June 23, 2016

WMS: Revenue Model Innovation

The Casino Gaming Industry

2 Kellogg School of Management

Innovation in Casino Gaming

Kellogg School of Management 3

Slot Machine Gambler Segments

4 Kellogg School of Management

Commercial (Mainstream) Casinos

Below is a brief overview of the main commercial casino segments.

Kellogg School of Management 5

Indian Reservation Casinos

6 Kellogg School of Management

Revenue Model Overview

Hardware Assurance Model

Kellogg School of Management 7

Choosing a Revenue Model

The Customer (Casinos)

8 Kellogg School of Management

Kellogg School of Management 9

• What value was WMS creating for its customers?

10 Kellogg School of Management

Exhibit 1: Examples of WMS Gaming Products

Kellogg School of Management 11

Exhibit 2: Casino Visitors by Age

Casino Visitation Rates by Age, 2012

Age 21-35 Age 36-49 Age 50-64 Age 65

12 Kellogg School of Management

Exhibit 3: Gambling Revenues, 2007 vs. 2013

Kellogg School of Management 13

Exhibit 4: Top Five Favorite Casino Games

Slot machines Blackjack Roulette Poker Craps

14 Kellogg School of Management

Exhibit 5: Nationwide Gaming vs. Non-Gaming Revenues

Food and beverage

TOTAL OUTPUT BY REVENUE SOURCE SUPPORTED BY THE COMMERCIAL CASINO

Kellogg School of Management 15

Exhibit 6: Comparative Revenue Models across Industries

16 Kellogg School of Management

You might also like