Technology companies spend a lot of time trying to capture user attention (the only good with a quantity fixed by the laws of the universe) and then trying to turn that user attention into money, the means by which a great product or service becomes a business (every online business ultimately concludes in someone somewhere buying something).
Perhaps no place pushes the boundaries on solving this problem more than Las Vegas (some might say it's the adult movie industry, and others might argue that's just a subset of Las Vegas).
Though it's behind a paywall now, Josh Eells article in the Sep 30, 2013 issue of The New Yorker titled “Night Club Royale” was a fascinating look at the latest in Vegas' monetization success.
On the final Saturday night of 2012, Jesse Waits entered the Encore resort in Las Vegas and took a private elevator to the seventh floor, where a young d.j. named Afrojack was staying. Waits wore a black Tom Ford suit without a tie, and he was texting on two phones at once. Thirty-seven and handsome, with straw-colored hair, Waits is the managing partner of XS, a club on the Encore’s ground floor, which features a vast indoor dance space and an elevated open-air stage that looks out over a swimming pool surrounded by palm trees. According to the magazine Nightclub & Bar, XS is the top-grossing night club in the country, bringing in between several hundred thousand and a million dollars a night. The Encore’s owner, the casino magnate Steve Wynn, likes to joke that the club “has a perfect name.”
There are four dance clubs inside the Encore and its sister resort, the Wynn. According to an executive at the company, the clubs’ combined revenue last year was a hundred and eighty million dollars, which was more than the slot machines earned. (The Wynn’s press office disputed all figures related to salaries or revenue, but declined to provide accurate numbers.) “Half of Steve Wynn’s profit comes from the night clubs,” Andrew Sasson, a rival club owner, told me. “Gambling is an amenity now.”
The clubs achieved this success by championing electronic dance music, or E.D.M.—an unwieldy name for a sleek sound marked by propulsive kick drums, dopamine-rush synthesizers, and soaring vocals.
No other place in the world is so brazenly focused on parting you from your money, and with its hotel replicas of places like the Egyptian pyramids, New York City, Paris, and Venice, it's nothing less than an architectural microcosm of the global capitalist economy, distilled into its purest state. For that reason, many find it grotesque. I'm amused by its honesty.
Teen-age fans seek out E.D.M. online, or at festivals such as Electric Daisy Carnival, which is held in Las Vegas each June. But listeners of legal drinking age often prefer to experience the music at a club like XS, where gold-plated molds of female torsos hang over the bar. Customers pay from five thousand to twenty-five thousand dollars to reserve one of the banquette tables near the dance floor, which are stocked with Belvedere vodka and Perrier-Jouet champagne, along with silver ice buckets, carafes of orange juice and cranberry juice, and glass tumblers stacked in small ziggurats.
Vegas is like a technology portal, or Netflix, or even a newspaper, trying to aggregate all the forms of entertainment that will induce people to fly out into the middle of the desert with their wallets in tow. There's gambling, more of it than you can imagine, running 24 hours a day. There are live shows from some of the premiere acts in the world, from musicians to magicians to acrobats to people painted blue, running every night. Some of the greatest chefs in the world have been flown in to open marquee restaurants. There are huge sporting events, from boxing to UFC. There is sex, both the suggestion of it and the actual act itself, all for a fee.
Now add to that E.D.M. Vegas saw the popularity, tested it out at its night clubs, and turned it into one of its most lucrative cash flows. But even the cash itself isn't taken directly in exchange for the music.
A maxim in Vegas goes that the person who invented gambling was smart, but the person who invented chips was a genius. The same could be said of night clubs and bottle service. Last year, XS earned more than eighty percent of its revenue from alcohol sales. A bottle of Grey Goose that wholesales for forty-five dollars costs more than six hundred in the club—a markup of more than a thousand percent. The biggest customers often spend half a million dollars on drinks in a night. Because the clubs are often full, the extravagance of the bar tabs distinguishes a great night from a good one. “It's a whole new metric,” will.i.am, the leader of the Black Eyed Peas, who also d.j.s at the Wynn, told me. “What makes a hit in pop music is how many times a song gets played on the radio. A hit in d.j.-land is how much alcohol is bought.”
Brilliant, it's virtual currency. And Vegas has many such tricks in its playbook, it mixes and matches them contextually. At the gambling tables, it's the opposite of the night clubs. The entertainment, the gambling, costs you money, and the alcohol is free. If you gamble enough, the hotel will comp you with free stays, meals, or show tickets, knowing they'll make up for it elsewhere, just like some of the most popular internet services in the world offer you their service for free in exchange for selling your attention to advertisers.
The D.J.'s themselves understand how important it is to be fluid in value capture. They were some of the first musicians to realize that selling recorded music was a dead end financially and to use it as a loss leader to other revenue streams like live performance. “You put your music on the Internet for free, and promoters fly you out to d.j. and pay you three million bucks a year,” will.i.am notes in the article.
Many businesses could learn from how quickly Vegas pivots, copies, and assimilates.
For decades, there were no dance clubs on the Strip; the big resorts worried that clubs would distract customers from gambling. In 1995, the Rio added a club, and soon other resorts did, too. Most of them played an “open format” of hip-hop, Top Forty, Michael Jackson, and classic rock. Prominent dance d.j.s performed occasionally, but none established a residency until 2008, when the British trance producer Paul Oakenfold started a weekly gig at the Palms. XS opened the next year, and by the time Afrojack signed his contract, in 2010, the Wynn clubs featured E.D.M. five nights a week.
I have many friends who despise Vegas and won't go, but I recommend tech entrepreneurs spend some time there studying the surroundings and seeing how they've engineered the entire space to lead to the only conversion that matters: transfer of cash. Recall the Russian writer Viktor Pelevin has said the main character of modern pop culture is a briefcase full of money. He was onto something.
Lest you think it's a road paved entirely with gold, Vegas also has another thing in common with the tech industry: bubbles.
The promoters at the Wynn acknowledge that the d.j. bubble will pop. “It may not last longer than next year,” Waits said. In the meantime, the resort plans to wring as much profit from E.D.M. as possible.