Monday, February 20, 2012

Underachievers, Please Try Harder

The past year has been an annus horribilis for the online gaming world, with the actions of the United States Department of Justice acting as a catalyst to the downfall of some of its biggest brands, millions of dollars of player funds remaining in perdition, and an ever rising mistrust for the businesses that comprise the online poker industry. But it has also been an unprecedented opportunity for smaller online poker rooms to break out and make themselves a big success – with the goliaths like PokerStars and Full Tilt handicapped by Black Friday and it's repercussions, there hasn’t been a market as ready for the taking since 2006.

Despite this opportunity, not much has changed and the top spots remain in roughly the same order. PokerStars remains the giant it has been for the past five years, and is distantly followed by the Party Poker and iPoker platforms, fighting over the runner-up spot.

Much has been written over the past year about what made PokerStars and Full Tilt the dominant players in the market.  There has been a tendency among some to cite unfair competition – the fact that these sites could remain in the US, literally rake in the cash, and then utilise that money to finance their expansion into Europe. The publicly listed operators in particular seem to constantly blaming the ‘US-facing’ sites for their woes, with the CFO of, Martin Weigold, going so far as to remark that they needed to see PokerStars ‘shutting down’ before they would benefit from the events of the past year.

However – is this really all about money? After all, it’s not like is short on cash – this is the company which was valued in 2011 at over $2 billion USD, which has some of the strongest brands in the market (think PartyPoker and the World Poker Tour), and which has several revenue streams like casino and bingo which a company like PokerStars doesn’t have. Perhaps it’s now time to stop making excuses about unfair competition, and instead of analysing what made PokerStars a success, analyse what it is that has caused some of the ‘euro sites’ and networks to underachieve so much.

Is it harsh to say that a company like is an underachiever in poker? Personally, I don’t think so. In 2006, Party Poker, then the group’s flagship brand, was the biggest online poker site by a significant margin. The site was well-known for its juicy games and generous bonus offers, ensuring it was packed with recreational players and serious players alike. Having just floated on the stock market and raised around a billion pounds for its owners, the company had plenty of money to reinvest and grow the business.

Then the UIGEA hit, and Party made the cautious decision to withdraw from the US market, losing the majority of its customers overnight. This was a turning point for the company, and the decision was understandable given that the company was publicly traded and investors had been concerned about US legal intervention even before its IPO. But what weren’t understandable were the company’s actions after the UIGEA.

By withdrawing from the US voluntarily, Party left a gap in the market for other operators. At this point, the sensible thing to do would have been to invest in development of the business – either to plug that gap in the USA with an alternative product such as subscription poker or a Zynga-style monetised social game, or to develop the business elsewhere by investing heavily in marketing to emerging markets like Germany and Russia. But Party did neither – instead, they took their now greatly-reduced player base and diversified into new products like casino, bingo and backgammon. Not only did this kill of much of the company’s poker liquidity at a time when poker was its biggest vertical, it reduced the marketing budget that was available to poker. Gradually, the company shifted from being entirely poker-centric to earning less than 30% of its revenue from poker in 2010.

To single out would be unfair, however. There are plenty of similar companies out there, many of them also publicly traded, that have failed to capitalise on the opportunities available to them post Black Friday and in general. But what do these companies have in common that has caused them to underachieve?

First could be the tendency for these companies to undervalue poker expertise. I’ve written about this subject before for InsidePokerBusiness, and I feel strongly that in order to succeed in the online poker business, your company needs to recruit people who are passionate about the game and teach them to be businesspeople (if necessary), rather than taking businesspeople and teaching them poker. Ideally, a poker company would have a mix of highly passionate and knowledgeable poker enthusiasts, and experienced businesspeople – this type of culture ensures that both types of employee have something to learn from the other.

However, the underachievers prefer to spend their money on hiring transient CEOs and non-executive directors, and place too much emphasis on experience in business and not enough on passion and knowledge of the product. It seems almost inconceivable that you would hire a head chef who didn’t enjoy food, or a bank teller who couldn’t count, but the underachievers will happily place somebody who has never played a hand of poker in the most senior of roles.

Another possible cause could be a tendency to underinvest in software. A clear example of this has emerged after the closure of Full Tilt Poker on June 29th – which took with it the popular Rush Poker product. At the time of writing (February 2012) Full Tilt has been closed for eight months and the only competitor that has announced it is developing a competing product is… wait for it… PokerStars! How the underachievers could miss such a major opportunity is beyond me*.

But the biggest and most fundamental mistake the underachievers make is failing to realise that at its core, poker is a game of liquidity. If you have two players, you can have only one game running. But if you have three players, you can have three games running – Player 1 vs Player 2, Player 1 vs Player 3, and Player 2 vs Player 3 – you’ve increased the number of players by 50%, but liquidity by 300%. With one thousand players, you have upwards of 20,000 potential games (assuming there are reasonable restrictions in place as to the number of tables each player can play at once). Each active player that you add to the ecosystem has a disproportionately positive effect on the number of potential games, especially if your site is small.

Therefore, it’s a big mistake to hurt this liquidity by spreading it across too many stakes, currencies, and products – but this is something the underachievers all do in spades, especially by chasing the easy money in casino and bingo. It’s also a mistake to undervalue your serious, winning players – as these are the players that are most likely to start games and build your liquidity. The recent trend towards penalising winning players amongst the underachievers is likely to hurt them more than it helps.

This is not a rant – it’s a call to action at a time when the online poker industry needs an injection of competition and innovation to prevent it from becoming stagnant. It’s time to stop making excuses and face up to facts – has your company been an underachiever? If so, get out there and make a change.

This article originally appeared in InsidePokerBusiness, Jan-Feb 2012. 

*After this article was published, bwin.Party, iPoker and Microgaming all announced their own versions of Rush Poker with various different names.