The following interview was first published in May 2009 in innovation magazine HEI.

Juha Olavi Korhonen (pictured), the General Manager of the Estonian division of Playtech, a company which develops gaming software, says that the company is choosing its customers very carefully and refusing to do business with many others. The effects of the global crisis cannot be seen anywhere within this business group.

The Playtech Group (an important software development company which has a division located in Estonia, Tartu) showed excellent results in 2008: turnover was up 70%, and revenue was up 55%. What’s the cause behind such a brilliant jump in development?

The reason is organic growth, something that has become entirely customary for us. The renters of our software (licensed online casinos) are doing well: The number of their customers is increasing. Their growth equals our growth.

Thanks to the Playtech business model our results do not depend so much on the sales figures for a specific year because we do not sell our software. Instead, we rent it to well-known operators, to those who have enough power and the finances to market their games. In exchange for granting a licence, we will earn a certain percentage of their revenue. This means that we need to sell only once, and after that a long-term flow of funds is guaranteed. We need to make sure that our customers are happy and keep upgrading their software according to their needs.

Our results were also influenced by our acquisition of the software company, Tribeca Tables, as a result of which we acquired one of the largest poker customer networks in the world.

How large is the percentage that Playtech earns from the gaming revenues?

This percentage is not made public. If, for example, some big operator were to rent software from us, we would offer them a better deal due to their position and brand.

Any customer who wants to rent software from Playtech needs to have power and finances in place. What does this mean?

We hand-select our customers. Let’s look at the brand name, Hard Rock Café, for example. Any operator who wishes to rent our software must have a well-known name. We simply do not have time for all our potential customers. And, in essence, it’s fantastic!

If the customer is a stable and expanding company whose finances are in order, we can start cooperating with them with more confidence. But there are numerous companies in the world that we would not want to cooperate with at all. And we don’t, because online gaming is a sensitive, money-related sphere of business.

It’s true that the casino business, especially in its virtual form, is a very dark sphere of business. The server is located in one country, the taxes are received in another country, the customers are in yet another country and nobody knows where the owners are located…

We need to follow the rules and regulations of the London Stock Exchange (Playtech was quoted on the London Stock Exchange’s AIM market in 2006).
If a customer who is using our software is caught for being engaged in fraud, we are very likely to stop cooperating with them because we can be very chosy about our customers.

Since our reputation is at stake, we monitor the activities and relationships of our licensees very carefully. However, our products are the tools in the hands of our customers, so any liability lies with the customers.

How many virtual casinos are using the software designed by Playtech?

Since we are a developmental division (the division in Estonia develops software for poker, casino and mobile games), and we do not deal with sales, it is not the most important aspect for us. What is more important for us is the number of people simultaneously playing the games based on any particular piece of software. For instance, in the case of poker, this number can reach up to 35,000.

Initially, our activities were mainly targeted at the US market but in 2006 the laws in the US were changed, and thanks to this our licensees could no longer continue their activities (transactions between the US banks and online-based game environments were banned). After that, we started focusing mostly on Europe and Asia.

What is the most important aspect of gaming software as a product?

We believe the design and functionality of our products to be better than those of our competitors. Each of our customers receives a visually unique product and we allow them to participate actively in the creation of the gaming environment. Many companies at least claim to be orientated towards their customers, but we actually are orientated towards our customers.

After all, the customer knows best how to market their games.
Players need to be able to identify with the visual image of the game. We have created games with hundreds of different designs by buying the rights that are required to achieve this. For example, just recently we reached an agreement which granted us the right to use the cartoon character called the Incredible Hulk. We have also created a game based on the theme of the film, Gladiator.

The appearance is not the only important criterion for the player. What is also important is how much of the money that the player pays out can be earned back by them.

Another strong advantage is our reliability. The software which was designed by Playtech has a logically sound structure.

We have also reduced the risks: our games cannot be played in Estonia. This rules out the possibility that the games which we ourselves produce can be played by us, so also ruling out the possibility of us winning large sums of money.

What are the components of a software product designed by Playtech?

You know, I am not even going to try to answer this question. I am a psychologist and an officer by profession and neither of these positions qualify me to be able to describe the minute details of software.
Our software combines a strong multimedia component which is visible for the customer and a background system which is visible for the operator. These two components are linked through a reliable banking service which we have also created ourselves.

Who do you regard as your competitors?

There are dozens of service providers. But there are only a few that we would consider to be our true competitors: MicroGaming, PartyGaming, Boss Media and Cryptologic.

What kind of an influence is the global financial and economic crisis having on Playtech?

At Playtech there are no signs which hint at the fact that things will be getting worse, or that they have already become worse. We are very careful, and keep a constant eye on our regular expenses, making sure that they do not get too high. But there has been no visible decrease in how much the games are being played. Quite the contrary, we are witnessing a level of growth because more and more physical casinos are moving onto the internet.

An average end customer who is using our bingo game, for instance, is an elderly housewife who plays as a means of spending her time. The Playtech product portfolio includes both bingo as well as casino games. Both can be played by making small bets – by paying less than one dollar, for instance. The programmes have been adjusted so that if you pay a hundred dollars you will get 97 dollars back. Thanks to this it would take quite a lot of money to be able to lose a large sum.

You can play for longer if you are online. In physical casinos that are often visited when people are drunk and where a kind of a “social pressure” can be felt, people are more likely to fail more miserably.

What does the market and the livelihood of Playtech depend on?

I would link it to the changes in the ways people think. People want to do more and more things without leaving their homes. A lot depends on how the Internet is becoming available. For example, the market in China is immense but there are currently not that many Internet users in the country in terms of the proportion of the population.

The more widely the Internet becomes available, the more people will start living virtual “lives” and the more they will start playing at home. No longer do people need to leave their homes to entertain themselves and enjoy new experiences.

How much is the politics and the banning of games a business risk for Playtech?

What happened in the US in 2006 was a very illustrative example. Instead of increasing regulation and earning tax revenue, the business activities of online casinos were banned. And we lost 40% of our income overnight. I cannot imagine a worse “favour” being granted to us!

At the moment, things in the US are moving in the direction that decisions which have been made over the past few years might now be reviewed.
What the European countries are doing is that they are tending to try and standardise the regulations concerning online games.

How many larger countries are there in which you are unable to offer your software?

To be honest, it is more the availability of the Internet that is blocking our activities. For example, we consider China to be the next great market for us. In Asia, people prefer completely different types of games from people in Europe. Instead of poker, people are keener on playing mah-jong, which Playtech has been developing for the past few years.

Estonia is being talked about as a potential export country for IT services. Do you believe in it?

Estonia will never conquer the market with volume. As soon as we start talking about a successful business, it will start requiring various resources that Estonia lacks. Even Playtech and Skype – both very successful – are unable to find as many people as they need.

Estonia should instead be a centre of ideas, competence and innovation. In such a case Estonia would be able to provide the ideas and other counties could put them into use.

In the Playtech Academy we provide training for programmers whose university education is too broad-based. In order to do so, we invite highly professional foreign specialists to Estonia in order to carry out the courses.

Juha Olavi Korhonen: Background

• Juha Olavi Korhonen (36), managing director of Playtech Estonia, came to Estonia as far back as the beginning of the 1990s and first served as an instructor in the Defence Forces in Võru.
• He has a degree in psychology from the University of Tartu and he is currently studying in the Strategic Management Master’s study programme in the Faculty of Economy.
• He started working at Playtech in 2004, first as a human resources manager and then as the human resources director for the overall group.

Playtech: Background

• Playtech Estonia, with its 350 employees, is a part of the Playtech Group, the roots of which are in Israel and Estonia. The group has five production and development centres around the world of which Playtech Estonia, located in Tartu and Tallinn, is the largest.
• In Bulgaria, the company is developing bingo. In India it is developing mah-jong, and a mass production unit has been set up on the Philippines, while Israel is responsible for maintaining customer relations and conducting marketing activities. Videobet, which is focused on developing software for slot machines, belongs to the Playtech Group as well.
• All of the Playtech products – online casino, iPoker, bingo, mah-jong, mobile games, etc – work on a uniform service platform.
• In 2008 the Playtech Group earned 40.7 million euros (637 million Estonian kroons) from its 111.5 million euros (1.7 billion Estonian kroons) of turnover. In just one year, the company turnover increased by 70% and company profits went up by 55%.
• The majority of the company’s sales are made up by poker and casino software, which is the speciality of the division which is located in Tartu, and last year the sales of such software increased by 73% and 68% respectively. Playtech owns one of the world’s largest poker networks, called iPoker, and at peak times this unites up to 30,000 players.
• Last year, fifteen new operators were added to the Playtech customer portfolio. A total of 80% of the company’s licence fees come from Europe, while 11% originate in Asia and 2% from Africa.
• One of the newest branches of the company’s business is bingo software. The goal is to create “the atmosphere of a real bingo hall”, something that would be as authentic as possible, and which is supported by a chat system that has many different features. The average number of bingo players reaches up to 3,000. Playtech’s bingo software was selected as the best of its kind in 2009 (at the CAP Euro Awards).
• Playtech has signed contracts with various film companies. For example, the contract signed with Marvel grants Playtech the rights to use the characters from such motion pictures as The Incredible Hulk, Fantastic Four, X-Men and others in its games. From the productions by Paramount heroes such as those from Gladiator and The Untouchables are used.
• Playtech Estonia is one of the biggest employers in Tartu, employing more than 300 people. The company has also a development team consisting of 75 people which is located in Tallinn. This year, dozens of new people will be added to the Estonian team.
• The Estonian division of Playtech as it is known today was established in 2000 by Rain Kivisik, someone who became a true multi-millionaire when Playtech was listed on the Stock Exchange in 2006. He still works at the company but is such a modest person that he tends to avoid any media attention and until very recently was still driving around in an old Saab.