Online Poker Has Been Hard Hit By iGaming Consolidation

Steve Ruddock : August 12th, 2016


At their peak, the most successful online poker sites in history all seem to have one thing in common. They were all private companies that focused almost, and in most cases, exclusively on poker.

Discounting the early market leaders like Planet Poker, sites like Paradise Poker, Party Poker, Absolute Poker, Ultimate Bet, PokerStars, and Full Tilt Poker, were poker-centric, privately owned companies, and in most cases, they brought something new to the table, whether it was software enhancements, marketing campaigns, or innovative products and features.

With the exception of the now defunct and scandal-ridden Absolute Poker and Ultimate Bet, all of these sites (and many other smaller online poker companies) have been scooped up by publicly traded companies. Some have been acquired by publicly owned online gaming firms, while others have merged with casino and sports betting focused companies.

In each instance, it’s been the poker product that has taken the biggest hit, and faced the most cuts, from these mergers.

Without exception, the surviving online poker sites, all of which are now part of a comprehensive suite of online gaming verticals, have shifted focus from poker to the more lucrative verticals of casino and sports betting.

This doesn’t mean these companies aren’t actively marketing and working on their poker businesses, but when push comes to shove it’s much easier to grab the low hanging fruit, and in online gambling, the low hanging fruit is on the casino and sports betting side.

There are several reasons why poker is on the bottom of these companies’ to-do lists.

Emotional investment

First, the executives at the companies that have acquired online poker products are less likely to have the same emotional connection to their success as the people who created the product from the ground up.

These companies didn’t go through the blood, sweat and tears of developing the software, and marketing the final product. They weren’t around for the celebrations when important early milestones were reached, and they don’t know what it’s like to go through a full-blown anxiety attack as you pin your hopes on one big marketing campaign or promotion.

The original owners are far more likely to take risks in an effort to stay competitive and push their product forward. It’s sort of akin to wanting your child to succeed.

What the acquisition company sees is the bottom line, not 10 years of someone’s life.

Long term plans vs. the bottom line

In addition to being somewhat detached emotionally, publicly traded companies also have a fiduciary responsibility to their shareholders. They can’t take risks, or offer a promotion as a show of good will to the poker community that a privately owned business is capable of doing.

Think of it this way, if a privately owned poker company has a great year and makes $10,000,000, they could, if they so desired, offer all of their players a special $1,000,000 freeroll as a display of gratitude. It’s up to the owner(s), whose pocket(s) the money is coming out of.

A publicly traded company would have to somehow prove that this spend will pay off down the road; it can’t simply do it just to do it, because of the fiduciary responsibility it has to its shareholders.

There’s not as much money in it

Under normal conditions, online poker has, at best, pretty small margins – the obvious exception being PokerStars because of their overwhelming market share. Generally speaking, online casino margins are higher, and sports betting margins are even higher.

Basically, it’s in a company’s best interest to push players towards its casino and/or sports book. These products are the fountain soda of the gaming industry.

One reason for the discrepancy is, compared to online poker, online casino customers receive minimal kickbacks. Online poker players, many of whom understand they’re playing a skill game, are more discerning than the traditional slots players, and place a much greater emphasis on their ROI, which often comes down to the rewards they are receiving from the site’s VIP program.

Another reason is the player acquisition costs for each vertical. Online sports betting’s cost per acquisition is roughly half of what they are for online poker and online casino. If that’s not enough, sports bettors also have a longer life span.

Finally, in poker you need players to attract other players, this is known as liquidity.

Think of it this way, if an online casino happens to grab the attention of a potential customer that person doesn’t know how many other gamblers are on the site, and frankly, they really don’t care. Everything on the casino side is a one-on-one interaction between the player and site.

On the other hand, online poker sites depend on liquidity. If a site’s marketing captures the attention of a prospective player and that player arrives and sees only one shorthanded table running (at stakes they don’t want to play), the marketing campaign was all for naught.

In fact, it’s essentially free marketing for a site with liquidity, as the person is likely to Google the best poker sites, or some other search term to find a place where they can play the games they want to play.

Some final thoughts

It’s not absolutely necessary, but I would feel a lot better about the future of online poker if there was more private investment (such as Alex Dreyfus’s Holdem X, or HDPoker, or the Hands of Victory game being developed by Kim Lund and others) and more privately owned companies focusing specifically on poker.

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