Q & A: David Outhwaite, dot com Entertainment Group

David Outhwaite is a true veteran of the online gaming software business. He was employed by Toronto-based CryptoLogic Inc. from April 2000 to August 2002 as the COO and vice president of compliance and regulatory affairs. Then in October 2002 he joined dot com Entertainment Group Inc., a software design firm in Oakville, Ontario, as its CEO. Outhwaite recently talked with IGN about his new company and the direction its going.

IGN: How did you come to head up dot com Entertainment Group?

DO: I actually got interested in dot com Entertainment while I was still working at CryptoLogic. In my role there, we were looking to acquire companies that had technology that was complimentary to ours, and was built on a very strong framework that would allow it to be used in a modular environment. Dot com was one of the companies we looked at, and at one point we had made an investment in dot com, and we owned about 10 percent of the company at that time. Due to differences on valuation and some business principles, we decided not to pursue that at the time, but I always stayed very close to the company and quite interested in the company. When I decided to leave CryptoLogic, I was looking for a company that I could take into the regulated market in the U.S. as well as operate in any regulated environment around the world. Dot com was the perfect candidate for that. For me, it was a logical choice to switch to a company in which I knew the technology already, it was a soft gaming marketplace, being the bingo and lottery products primarily is what the company concentrated on, and it had always operated under a regulatory model that was very friendly. So they had never operated, never owned, never done any e-commerce, never hosted, so it's just a standard operating model in which they license out the software.

IGN: When you moved on to dot com, did you bring a few people from Crypto with you?

DO: There's a couple people who came over, most notable is Christopher Smith, he used to run the marketing group over at CryptoLogic. With Crypto moving that function, Chris' job moved to the U.K., and he was not prepared to relocate. It was an easy switchover to come and work with us at DCEG.

IGN: What has happened during your first six months at dot com?

DO: There's been a bit of change. What we're doing is taking the bingo product and the advantage we had being the first company into the bingo marketplace and broadening out that suite of products to give our licensees more products, more advantage in the marketplace. We're well positioned with a sound business strategy, we've got a sustainable business model, we're a small company but we are profitable, we do have cash in the bank, so we're not under strains a lot of companies have at this point in time. The product is everything from a downloadable product to a flash product, so it fits almost any marketplace and gives us great flexibilities in moving into different areas. The restructuring is aimed at moving the company from being product-driven, which a lot of the entrepreneurial software companies are, to more of a marketing driven company. We've done that at the corporate level and all the way through the organization. On the customer side, we've really dedicated ourselves to operating with excellence, which means that we try to satisfy the customer in every aspect of the relationship, within reason. And really we've tried to create a results-oriented corporate culture--value, reliability, responsiveness are the guiding principles in everything we do at this point in the company, so it really is turning more customer-centric in the marketing-driven organization. On the product side, we have great flexibility on the products because they are built on an open-architecture industry standard, we deliver on time to the licensees, we've got localization of the software and so on. From a revenue model, just to give you an idea, we do follow a standard software model. In other words, we charge a fee up front for the software, and then we charge a concurrent user or a user headcount fee, we do not charge royalty fees whatsoever. So we're not linked to the outcome of any site; we instead are linked more to the number of people utilizing the software at any given time.

IGN: What's the advantage to that?

DO: It means the regulatory models that are required (are in place) if we want to do business in Nevada under the regulations the way they are proposed there now. What it does is remove you from any activity or any involvement in the outcome of the game, and that's really what we want to distance ourselves from, although the product is used in the gaming marketplace, we didn't want to provide any service or be involved in the actual royalty profits generated from the end users on the site. So what we've done is follow a software model that's been used for years in the software industry and come back with something that's similar to an Oracle or a Microsoft, which is very well understood and accepted by different regulatory bodies around the world.

IGN: When you mentioned that that structure allows you to fit in with the Nevada gaming regulations, did you mean the land-based regulations?

DO: In the proposed Internet ones. We also, just so you know, are in play for fun in the U.S. An example is the Hard Rock Hotel in Nevada. Because of the model we follow, we are able to go into the play-for-fun market in the U.S. today, we're able to go into the charity bingo and lottery marketplaces today, as well as the skill game base within the U.S. today. So we have more flexibility, given that we follow this business model.

IGN: What do you see as the biggest challenge facing online gaming as a whole and DCEG specifically?

DO: I think online gaming as a whole really is a combination of the regulatory structure and the e-commerce side, which is a spin-off of the regulatory structures or lack thereof. The biggest challenge the whole industry has is what the U.S. is going to do. We watch the things that are going on in the U.K., everything from the Budd Report to the proposed infrastructure they are putting in place, which they expect to do in 2004, which is very positive for us. We're just hoping the U.S. will follow the same pattern and we very much want it regulated. We do not want an underground industry that is forced to operate offshore or in other jurisdictions. We really would like to operate at home, like anybody would. So, I think that's the biggest challenge for the industry overall. For our company overall, I would say a bit of the same things. ... We're fortunate that we're in the bingo industry and the bingo industry continues to grow. We're looking at growth of around 25 percent year-over-year this year and it's much more of a growth than the casino marketplace or the sports, which has really leveled out at this point in time. So we haven't seen the consolidation. We haven't been hit with that yet, but we see it going on elsewhere in the industry. So I would say our biggest strength is that we're in the part of the vertical that has not yet plateaued, and the weakness side is planning for and preparing for that plateauing, should it occur. And number two is managing our growth cautiously as we get more and more business through the door.

IGN: What do you see coming up in the future for DCEG, say, in the next six months to a year?

DO: We're going through some corporate restructuring in which we're trying to enhance our shareholder value. We've done some reorganization and now do part of our development down in Barbados, which is an important area for us. And just so you know, to go into Barbados we had to go into probity to make it very certain that we were not in gaming in any way whatsoever, other than being a software supplier, because they do not allow Internet gaming in Barbados yet. I think in the next six months we'll see a consistent growth within the company, strengthening of tier-one licensees, adding some names. We're doing a lot of work over in the U.K; we're doing a lot of work with South American licensees. We're just taking, really, as we restructuring ourselves, we're taking our time to properly position to go forward, to be able to grow with the industry as the regulation takes place.