The tech world has its sights on online gambling, according to a recent article in The New York Times, and not just abroad. The legislative floodgates seem ready to burst open in statehouses across the country, and entrepreneurs are preparing to take full advantage:

At the moment these games are aimed overseas, where attitudes toward gambling are more relaxed and online betting is generally legal, and extremely lucrative. But game companies, from small teams to Facebook and Zynga, have their eye on the ultimate prize: the rich American market, where most types of real-money online wagers have been cleared by the Justice Department.

Two states, Nevada and Delaware, are already laying the groundwork for virtual gambling. Within months they will most likely be joined by New Jersey.

As in many states, there’s been debate in Massachusetts over the wisdom of such changes, in no small part because of the social costs of those with gambling disorders. But as the startup world competes to capture this market, there’s a real opportunity for innovation that not only produces profit, but also meaningfully addresses a serious social ill. If entrepreneurs play their cards right (pun definitely intended), they may be able to build not only valuable companies, but also design a fundamentally safer approach to gambling.

The problem with gambling

To be clear: there’s nothing wrong with gambling, per se, despite outdated moralism from some parties to the contrary. Just like with alcohol, the problem stems from the consequences of over-dependence within a subset of gamblers. That group is divided into two types: “problem gamblers” and “pathological gamblers.” As an article from NIH explains:

Problem gambling is defined by some researchers as gambling that causes harm to the gambler or someone else, in spite of a desire to stop. Between 2% and 4% of Americans struggle with this condition. Problem gambling can progress to a recognized psychiatric diagnosis called pathological gambling.

Pathological gambling may affect from 0.4% to 2% of Americans. “Pathological gambling comes with a constellation of problems that contribute to chaos,” says Dr. Donald Black of the University of Iowa. “It’s associated with worse physical health, excessive smoking, excessive drinking, not exercising, not seeing primary care doctors and worse dental care. It also fuels depression, family dysfunction, crime, bankruptcy and suicide.”

While problem gambling affects a small section of the population, it plagues a fairly large portion of those who frequent casinos. For instance, survey data from a Southern California casino published in the Journal for Gambling Studies found that:

“54 (30.3%) of respondents were non-problem gamblers, 52 (29.2%) were at-risk gamblers, 19 (10.7%) were problem gamblers, and 53 (29.8%) were pathological gamblers.”

Seen through this lense, the fierce debates over casinos may be at least partially understandable. But whatever one’s stance on casinos, it’s possible to imagine innovations in online gambling that make the practice dramatically safer for problem users.

The first challenge for startups: the 80/20 rule in gambling

The 80/20 rule – 80% of activity/sales/etc. comes from 20% of participants – should be familiar to nearly all entrepreneurs. Sadly, something similar (if, mercifully, less dramatic) is true in gambling, as an article in Commonwealth describes:

Just how much of the revenue casinos bring in is from the losses of those with gambling problems? One of the most thorough studies of this issue was done in 2004 in Ontario, where researchers had a sample of residents maintain diaries logging their gambling expenditures. The study, prepared for the government-supported Ontario Problem Gambling Research Centre, estimated that 35 percent of Ontario casino revenues were derived from moderate to severe problem gamblers. Such gamblers accounted for 30 percent of revenue from casino table games and a whopping 62 percent of revenue from slot machines.

So if any startup wants to at the very least do no harm in the world (and based on all the save-the-world talk in startups I have to think many do) they need to adhere at the very least to this principle: prove that you can make money without leaning heavily on problem gamblers.

Show me the data

The beauty of online gambling compared to casinos is the ease with which data is captured. It makes it possible to discern how much revenue is coming from what type of users, etc. But online gambling startups that aspire to fundamentally improve the sector should strive to share data with academic researchers wherever possible, in order to fuel a better understanding of problem gambling.

Building checks into the system

Beyond simply collecting and sharing data, the ultimate challenge for online gambling startups with a conscience should be to build checks against problem gambling into their apps. This is, after all, the easiest way to prove that you don’t need to exploit problem gamblers; find a way to lock them out of the system. Doing this no doubt will be difficult, but it’s way more plausible to do in an app than in a casino, and I’m confident such a feature is well within the reach of the world’s best product teams.

All of this will, of course, come with a price. Locking out addicted customers means less revenue, something cigarette companies and others have been loathe to accept. But startups are different. Startups are small enough to have a conscience, and innovative enough to pursue a social vision while building a business. If the tech world decides to hold online gambling startups to this higher standard, the result could well be a safer kind of gambling.

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