Skillz Says Real-Money Betting in Mobile Games Is Paying Off

Fill in the blank: “This videogame gets more out of its players by allowing real-money ___.”

If you said “gambling,” then nope. Or not yet, anyway. If you said “betting,” it’s probably just because you read the headline, but yes, good job! And if those two answers sound totally interchangeable to you, read on.

Zynga recently began to test the waters in the U.K., but real-money online gambling (that is, betting on games of chance like slots or bingo) is still outlawed in 47 states, and only operating in one, Nevada. In the U.S., though, players can legally bet cash on “games of skill” in 36 states; the appropriately named startup Skillz is now trying to make something out of that legal distinction on Android.

Gamers are familiar with betting virtual (fake) currency on games, said Skillz CEO Andrew Paradise — think Zynga Poker, which sells virtual poker chips in packs that can cost between 99 cents and $99.99. Skillz’s SDK, which launched in open beta late last month, cuts out the middleman: After a developer’s game has been reviewed and approved by Skillz, the company flips a switch that lets players directly bet on their ability to beat another human in a multiplayer game.

In other words, both players pay an entry fee, a cut of which gets split 50-50 between Skillz and the game developer. Then, one player finishes the game with a profit, and the cycle can restart.

Skillz spokesperson Molly Gerth said engagement and user retention for Skillz-enabled games has increased since the SDK launch, in one case by 110 minutes of additional gameplay per user in the two weeks with Skillz vs. the two weeks prior. Another game saw its total revenue triple in a little over a week, Gerth said.

Paradise made sure to say, though, that Skillz can complement rather than replace existing business models: Players can be served ads regardless of whether they bet with real money or virtual money, which is why those engagement numbers matter. He also proposed that the entry fee for a real-money game could be bundled with power-up items that would otherwise be bought in an in-app store as a sort of cheap sample (that is, rather than a free one).

Most of the people who play Skillz-enabled games currently do so with virtual currency, he said.

Skillz has to review the games that want to fully use its SDK because, in those states that allow betting on them, “games of skill” have to fairly allow players to improve over time with practice. “Skilled” players must be able to beat “unskilled” players in at least three out of every four games, Paradise said.

This is interesting because many popular multiplayer mobile games are already games of skill, or close enough to the legal definition that they could be tweaked to be in the clear. However, for the time being, Skillz’s baby beta is only available on 10 Android games, including one it publishes called 3D Cave Runner.

And why Android? Paradise said it’s because iOS has historically monetized far better than Android, even though the latter has a much larger user base. It’s not a gamble, though; he quickly added that he’s “excited about working with Apple in the future.”