Ringtones, CDs, games? Go to a vending machine
From The Sunday Times

THE only time most of us get excited by vending machines is when they swallow the coins without delivering the chocolate bar or soft-drinks.
That could be about to change.

This month, without much fanfare, Inspired Gaming Group (IGG), an amusement- machine developer that is quoted on the Alternative Investment Market, slipped out an announcement that it was expanding a trial to develop a new generation of vending machines in partnership with Coca-Cola.

The machines will sell not only Coke but a range of other products and services, including ringtones and pre-pay top-up vouchers for mobile phones. They will burn CDs and allow customers to play computer games. The machines can also act as jukeboxes.

Initial results have been positive, according to IGG, with the new machines taking twice as much money as normal ones.

Analysts estimate that if the figures are extrapolated to the top 10% best performers among Coca-Cola’s 2.8m vending machines around the world, revenue could be boosted by a staggering $1.5 billion (£800m).

“The possibilities are huge,” said Tejinder Randhawa, analyst at Evolution Securities, the broker to IGG. “It also represents a good way of cross-selling and running marketing promotions.”

Trials started in July 2005 on a small number of machines in Ireland. Coke was sufficiently heartened by the results that it has expanded to 220 machines in Germany and America. The trial will last 18 months.

Coca-Cola said it was cautiously optimistic about the prospects for the new machines. A spokesman said the company’s principal aim was to “test and fine-tune” its concepts. “Preliminary results encourage us to continue our trials, which will include a few cities in America in 2007,” he said.

Industry executives are particularly excited as the move represents the first real innovation in an industry that has seen little in the way of new developments for the best part of 50 years.

Norman Crowley, joint chief executive of IGG, said: “If you look at an industry such as mobile phones, Nokia brings out a new phone every month. But when was the latest vending machine brought out? Not for years. This is an industry that has had hardly any innovation at all.”

The new generation of Coke vending machines take the familiar looking “Dixie-Narco 5000” model, and add a computer display that provides customers with a touch-screen menu of services they can buy by feeding coins into a slot as they would normally.

As well as the additional services they can, of course, continue to buy drinks.

Crowley said: “Because these machines look a bit different, people are staying longer at them and they make more money.”

He declined to give specifics on the machines’ financial performance, though his enthusiasm told the story.

City analysts warn that we should not get too carried away just yet. One, who preferred not to be named, said: “I would be cautious with some of the growth estimates being bandied around.

“There is a novelty factor to bear in mind with these machines. That’s especially true when new-style machines are sited next to one of the older type. But there will undoubtedly be a boost to revenues.”

The technology that IGG has installed in Coke’s vending machines is adapted from the so-called server-based gaming system it has developed for use in amusement machines and jukeboxes in pubs.

Under the system, games and other content are stored on a central server and loaded on to individual machines through a broadband network.

This means games can be changed much more easily than on old-fashioned, one-armed bandits, and it results in improved takings because customers do not become so bored with the product.

Another bonus is that faults can be detected and dealt with much more rapidly than with older systems, meaning machines are out of action for less time.

IGG is also the biggest supplier of fixed-odds betting terminals to bookmakers’ shops. These machines, which allow punters to play virtual roulette and other casino games, have transformed the bookies’ business.

Now the company is hoping it can repeat the trick in a new and bigger market.