Integration is over, back to digital innovation for Paddy Power Betfair


Paddy Power Betfair has completed the necessary platform integration following the merger, but that’s come at a price as the firm’s lost digital leadership to rivals. Time to play catch-up.

Paddy Power Betfair After two years of working on platform integration following the merger of Paddy Power and Betfair, it’s time for the combined firm to get back to focusing on developing new customer-facing products in order to restore leadership in the online gaming and gambling market.

That’s the view of new Group CEO Peter Jackson, who talks of great potential in the online space, but is also conscious that this essential work has also had a negative impact on the competitive functionality of the firm’s offerings:

The final piece of merger integration has now been completed. The platform integration was finalized in January, almost 2 years to the day since the closure of the merger, and it’s one of the most successful technology integrations I have seen. Many take three times as long in my experience. With the scalable, flexible platform, it can operate multiple brands and in multiple jurisdictions. Integration, however, was a material headwind for our European brands over the last 2 years.

Essentially the integration work has resulted in some slippage in terms of leadership in the increasingly competitive world of online gambling and gaming apps:

While our gaming proposition has benefitted from some important product improvements in recent months, including a new games app for Paddy Power customers and an improved live casino product offering on both brands, our gaming product still requires additional investment to address gaps versus competitors.

There’s a need to square some circles ahead:

When the platform integration commenced, Betfair enjoyed product leadership, but Paddy Power was about to receive significant investment to overhaul its products. And to deliver our integration objectives, we had to take the hard decision to disrupt those plans. This means the product has fallen further behind the pack and is a contributing factor behind Paddy Power having a relatively low share of its customers’ wallets.

Happily, completion of the platform integration means that Paddy Power customers are already enjoying an improved product, and our substantial product development resources are deployed on addressing product weaknesses. Ultimately, our ambition is to return to product leadership.

Catch-up first, then innovation

What is interesting is that in the short term Jackson sees the priority for digital development as being to play catch-up with rivals:

While over time we expect to return to product leadership, in the near term, our development output is more about addressing gaps against competitors that emerge over the last few years whilst we had limited product development and our competitors did not stand still. Customer research highlights that our products have fallen behind on key metrics such as on speed and ease of use, and competitors have also introduced some features that aren’t currently available from Paddy Power and Betfair.

There has been some improvement already, he adds:

Product gaps have been partly addressed for the Paddy Power brand since customers were migrated to the integrated platform in the last few months. We set out to build the fastest app on the market, and we believe we have achieved that goal. For example, the app load time is now 50% faster. Also, navigation is much improved and the app is using the superior Betfair cash-out algorithms, which has driven a 60% increase in the cash-out usage by Paddy Power customers since migration.

But to close all the gaps, some significant investment is being teed-up:

We have substantial resources with approximately 1,000 product development specialists across the group, including our development Centers of Excellence in Porto [in Portugal] and Cluj [in Romania]. The platform has been built to be scalable, flexible and responsive, and crucially now enables us develop once the deployments across multiple brands, not just our two current European brands. With key technology components both from proprietary systems and with the sports betting expertise we process across risk and trading and the exchange, in sports, we’re in a great position to differentiate our products.

Across the coming quarters, our product development resources will continue to address the remaining gaps in our products. For sports, this includes addressing pain points around ease of use and accelerating developments of new product features, some of which will be launched ahead of the World Cup. In gaming, we will make further enhancements to our apps to improve customer journeys and promotional capabilities.

We will release new casino apps, and we’re developing a single content management system across our brands. We’re also assigning some product resource to support international growth, which requires specific additional development work. Overall, this means that from now on, our customers will benefit from the continuous rollout of improved products as we begin to capitalize on the material product development resources enabled by the merger.

Other complications lie ahead in terms of regulatory regimes which inhibit global expansion. The U.S. is a case in point, says Jackson:

Before the market opportunity materially expands in the U.S., there’s still significant regulatory and other hurdles that need to be cleared. And let’s remember, people have been talking about this market opening for many years. Whatever happens, and certainly in the first instance, it is unlikely we will see a single, unified online market structure across country. But should attractive market opportunities arise, we are well-placed to take advantage.

It’s clear the stakes are high here in terms of being able to claim market leadership again, but Jackson is convinced that the combined firms track-record supports his ambitions:

I think we’ve demonstrated with our retail business that we are very, very professional operators in that space… Every space, whichever category we look at, there aren’t many businesses that made the transition as successfully as we have from asset [based] retail-focused business, to one which is a proper omni-channel one.

My take

It’s a cautious outlook from Jackson, only 8 weeks or so into his role as Group CEO, but a pragmatic one. It’s unlikely that shareholders were particularly pleased by admissions that the integration process has negatively impacted on functional competitiveness of the digital offerings, but it’s a a refreshingly honest one. You can’t fix a problem unless you admit there’s a problem there to fix. Over the years we’ve written a lot about Paddy Power and Betfair as digital exemplars. It’s a fair bet we’ll be doing more of that in 2018 now that the two year platform integration process is over and innovation can get back on the digital agenda.

Image credit - Paddy Power Betfair

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