A23 owner Head Digital Works forays into online poker ahead of the 28% GST rollout

A23 owner Head Digital Works forays into online poker ahead of the 28% GST rollout

Head Digital Works’ decision to expand into the online poker space by launching a new platform aligns with a broader strategy of diversifying its offerings. This move is likely driven by several factors, including the potential for growth in the online gaming industry and the desire to tap into new market segments. Online poker is a popular form of online gaming, and entering this space could allow Head Digital Works to capture a larger share of the market.

However, the timing of this expansion is noteworthy due to two significant challenges facing the Indian online gaming industry:

1. GST Regime Change: The impending implementation of a 28 percent Goods and Services Tax (GST) regime could have financial implications for the online gaming sector. GST is a consumption tax that can affect the cost structure of gaming services and may impact consumer behavior.

2. Retrospective Taxation: The possibility of retrospective taxation is a concern for the industry. This means that the government may impose taxes on past revenues, potentially leading to significant financial burdens for companies operating in the sector. Such retrospective measures could indeed have a devastating impact on the profitability and sustainability of online gaming platforms.

Siddharth Sharma’s statement highlights Head Digital Works’ commitment to maintaining a long-term perspective and adapting to the changing regulatory landscape in the online gaming industry. Here are some key takeaways from his remarks:

1. Resilience in the Face of Regulatory Changes: Sharma acknowledges that the new GST regime will present challenges to the business. However, the company is determined to weather these challenges and maintain a forward-looking approach. This resilience suggests that Head Digital Works is prepared to adapt and evolve its strategies to remain competitive and compliant in the evolving regulatory environment.

2. Focus on Skill-Based Card Games: Sharma emphasizes that online poker is a natural next step for the company, aligning with their focus on skill-based card games. This choice reflects the company’s understanding of its target audience and its strategy to cater to players who prefer skill-based gaming experiences over games of chance.

3. Unlocking Value and Scale: The launch of A23’s Poker platform is seen as a strategic move to unlock more value and scale within the card-based gaming segment. This suggests that the company sees potential for growth and profitability in the online poker space and aims to leverage its existing expertise to tap into this market.

4. Commitment to Profitable Sustainable Growth: Sharma underscores the company’s commitment to “profitable sustainable growth.” This indicates a strategic approach that prioritizes not only expansion but also profitability and the long-term viability of the business.

In summary, Head Digital Works appears to be taking a strategic and measured approach to its expansion into online poker while acknowledging the challenges posed by regulatory changes. By focusing on skill-based card games and maintaining a commitment to sustainable growth, the company aims to navigate the evolving landscape of the Indian online gaming industry.

Siddharth Sharma’s insights into the expectations for real-money poker in Head Digital Works’ revenue mix provide valuable context for the company’s expansion strategy. Here are some key points to note:

1. Revenue Expectations: Sharma anticipates that real-money poker will contribute nearly 20 percent of the company’s revenues over the next three years. This projection underscores the company’s optimism about the growth potential of online poker as a source of income.

2. Poker vs. Rummy: Sharma acknowledges that while poker may not be as large a market as rummy, it is a highly profitable and attractive segment to be in. This suggests that Head Digital Works sees the profitability of poker as a key driver of its expansion into this space, even if it doesn’t reach the same scale as rummy.

3. Higher Revenue Per Player: Sharma highlights that poker offers the advantage of a higher revenue per player compared to rummy. This is attributed to the faster pace of poker games, leading to players participating in a greater number of games. Despite a lower take rate (the percentage of each bet that the platform retains as revenue), the cumulative revenue per person is higher.

4. Lower Retention Expenses: Another factor contributing to poker’s attractiveness is the lower retention expenses when compared to rummy. Retention expenses typically refer to the costs associated with keeping players engaged and returning to the platform. The lower retention expenses in poker could be due to factors such as player engagement and loyalty in poker games.

Overall, Head Digital Works’ strategy appears to be grounded in the understanding that while poker may not have the same market size as rummy, it offers a more profitable revenue model per player. This assessment reflects the company’s focus on optimizing profitability and long-term sustainability as it ventures into the online poker space.

Siddharth Sharma, senior vice president of business strategy at Head Digital Works, reveals the company’s cautious yet strategic approach to launching its online poker platform, A23 Poker, over the next year. Head Digital Works, majority-owned by Canadian private equity firm Clairvest, understands that the online gaming industry is not one where a rapid cash influx guarantees immediate market success. Therefore, the company is taking a patient and graded approach, focusing on sustainable growth rather than aggressive expansion.

One significant challenge they face is the regulatory landscape. The government has yet to establish self-regulatory organizations (SROs) to regulate the sector, despite amendments to the IT Act in April 2023. SROs will play a pivotal role in determining which real-money games can operate in India, adding an element of uncertainty to the industry.

A23 Poker will enter a competitive field, competing against established online poker operators like PokerBaazi, Adda52, SpartanPoker, and platforms like Mobile Premier League (MPL) that offer online poker. However, Sharma believes that the market is still in its early stages, with many offline users yet to transition to online platforms. He sees potential for growth in the online poker sector and believes that there is room for multiple large operators to enter the market and contribute to its expansion, rather than a monopolistic outcome. This perspective reflects the company’s optimism about the market’s potential and its willingness to invest in its long-term development.

Siddharth Sharma’s statements offer a glimpse into Head Digital Works’ strategic approach as it ventures into the online poker space. Recognizing the inherent challenges posed by poker’s steep learning curve compared to other real-money gaming formats, the company is poised to address this hurdle with a multifaceted approach. They plan to invest in educational initiatives such as poker schools, workshops, and offline activations to facilitate player understanding and skill development.

Despite leveraging their expertise in player behavior and analytical engines from their online rummy product, Sharma acknowledges that there’s limited overlap between online rummy and poker players. Consequently, Head Digital Works sees this poker launch as an opportunity to tap into a new player base and drive growth.

Sharma’s mention of a five-year roadmap underscores the company’s commitment to a long-term vision for establishing itself as a prominent player in the poker segment. Moreover, the statistics from a recent FICCI-EY report highlight the substantial growth potential in India’s real-money gaming sector. With the segment accounting for a significant share of the gaming industry’s revenues and anticipated growth in the coming years, Head Digital Works appears well-positioned to capture a piece of this expanding market.