Poker Perambulation’s Take on “The Business” of Online Poker

One of my favorite poker blogs to read is Poker Perambulation by Ken. Ken’s a smart, smart guy and very talented with his words so it’s a pleasure to read his take on various issues in the world of poker. He recently wrote a post regarding my last post, Rake and the Customer Experience titled Figures don’t lie; but…. I was going to respond in his comments but I am far too verbose for a simple follow up comment and I thought it might be a good opportunity to introduce some of my readers to Ken’s well written blog.

Ken says:

So Bill has a slant that is accurate and reputable. But, it is diametrically opposed to the client’s hopes and wishes. That’s far more predatory than other business models. That results in a cash cow.

I’m not sure I agree. It’s just that people may not necessarily get warm and fuzzy feelings knowing how the business operates. I try to hold various points of view in mind at all times. I usually try to view each situation from the following perspectives:

1. The beginning player’s point of view.

2. The novice player’s point of view.

3. The experienced, grinder point of view

4. The poker room’s point of view

5. The affiliates’s point of view

6. What’s fair to all parties point of view

So, within this context, I generally try to let #6 rule my decision making. Believe me, it’s very easy to be predatory in this business and only think about things from the poker room’s point of view. In fact, I think recent moves by iPoker and bwin demonstrate a thought process that only concerns itself with the poker room’s bottom line and I have come out strongly against both.

As a poker room manager I shot down hundreds (literally) of ideas that would impact either players or affiliates in an unfair manner. Yes, the poker room still has to make money but the poker ecosystem is very delicate and putting the poker room’s short-term interests above all else will kill the golden goose so it’s wise to take middle ground on most issues as in the long-term it leads to the greatest reward.

But it is a business. The poker industry isn’t doing this for free. And a good business is one where all sides agree that they’re getting a fair deal (or all think they’re getting screwed LOL).

To get to that point, they shared their profits in a system called affiliate marketing. The auto industry has a similar system called ‘bird dogging” that is frown upon and quasi-legal at best. Another affiliate system provides rakeback to the player and is also about as dumb as it gets. It is all predicated on finding warm bodies. Because warm bodies mean profit, casinos and online operators will go to great length to find them. But there is little or no benefit to the bodies found. In the final analysis it just adds to the cost.

I put emphasis on the second to last sentence there because I also feel this is an untrue characterization. Ken’s own blog runs affiliate ads as does mine. PokerNews is funded by affiliate revenue. PokerStrategy is funded by affiliate revenue. Almost every free poker resource you find on the internet is funded, at least in part, via affiliate revenue. So, of course, players end up getting value out of the affiliate model.

Obviously some affiliates give more value than others. There are the guys out there who set up spammy websites and try to rank highly for certain search terms with no intent other than to lure people to a website so they can hand them off to the poker room but there are also many, many websites that strive to deliver value to the players in exchange for the affiliate revenue.

Bill mentions another out of work guy in the industry and pointed to his blog in his latest blog. Bill has struggled with the business plan more than any other I can identify in the business. It is an ongoing struggle that he can’t resolve. He knows how flawed it is; he just can’t come up with a better working plan beyond minor, incremental improvements.

Ken is dead on here. I do struggle with this business model. Like I said, I look at this business from multiple points of view so I am constantly challenged with questions concerning fairness to all parties. But at the same time I think all parties need a reality check. I find that all parties have unrealistic expectations.

Part of the reason that coming up with a better working plan is a difficult task is that the industry started off headed in the wrong direction and there is little or no originality in the business. It’s a copycat industry. Affiliates, loyalty programs, bonuses, everything seems to have originated from a short-term outlook – which was then copied by everyone else – and now that the industry is beginning to mature some of these flaws are becoming major issues for the industry.

At the moment there are only two poker rooms of enough size and weight to make any unilateral paradigm shift in the industry, Full Tilt Poker and PokerStars. But both of them seem so focused on the legal rumblings in the US that I also see them still viewing the poker universe with short-term outlooks.

I don’t say that in a bad way. It’s just that when there is a high degree of uncertainty in any business it’s very difficult to project what’s going to happen 5 or 10 years down the road and invest accordingly.

Even when the industry first started off, I think the general mentality was that everybody wanted to stay under the radar and make as much money as they could for as long as the ride lasted. Then Chris Moneymaker came along and the online poker craze happened. But the short-term thinking had already created certain industry norms that were hard to shake off and still are even to this day.

So change has to be incremental (for now). A major paradigm shift requires risking what you have in exchange for possible rewards down the road. Nobody seems willing to do that today. And if you work within the system you have to work within those constraints. Thus you get incremental rather than revolutionary change.

I’ve written a few times about if online poker was legalized in the US and existing poker sites like Full Tilt and PokerStars were shut out of the market. That could be the basis for some major, major changes in the industry. The companies who set up online poker shops could completely erase many of the flaws in the existing model.

But, nobody knows the future for sure so . . . until then