Recently the poker innovation start-up I am currently devoting my time to revealed itself to the world.  In short, we are focusing on innovating poker in a way that is inspired by other strategy game genres and that adapts online poker to e-sports. Our main product is the highly competitive Free-to-play (FTP) tournament poker game Hands of Victory.

Thanks to feedback from people who have been gracious enough to go through our material, we know that the market opportunity we have spotted will likely be met with raised eyebrows by people not so familiar with the rest of the games industry.
So to get ahead of the game, I am publishing this revenue generation and player engagement capacity study that compares online poker, real money and F2P, to leading competitive free-to-play games. Hopefully it answers some of the instinctive questions people are likely to raise.

Poker is slowly losing out

The hypothesis behind why our start-up even exists is that poker’s stunted growth is not only a result of it running out of regulated (or grey) markets in which it can rely on its core, computer savvy, young and competitively inclined demographics to drive growth. On top of that, it is failing to connect properly with its core demographic in existing markets. By not catering to the needs of the modern competitive gamer, online poker is slowly losing out. 

That is what we want to change by innovating how poker is played, consumed and monetized. But do we have any data to back up our theory? That’s the question this  analysis attempts to answer. You decide for yourself if it does.

But wait, haven’t you spent five years telling the online poker world to focus on recreational players? This game of yours doesn’t sound like something that caters primarily to recreational players. I have and it doesn’t. But the need to adapt a more recreational player friendly approach stems directly from the rake model.  By relying on other sources of revenue than player deposits, you are released from the shackles of having to drive development based on the preferences of the moderately interested. I’ve been making that point as well for years, but fewer people seems to have listened to that. So I risk ending up having to argue against myself.

 

Methodology

In order to test poker’s popularity and revenue capacity within  ”the competitive skill games” segment, we have pinned it against three leading highly competitive F2P games. Actual data is hard to come by for a shoestring budget start-up, but after some diligent data gathering from all corners of the internet (Superdata Research and Newzoo mostly) a picture we think is telling has emerged. Individually, non of these data points can be taken at face value. But for comparative purposes we think they are solid enough.
How we have arrived at the presented data, is explained, digit by digit, in the ”Revenue Data” and ”Daily Paying Players Data” sections below.
The chosen F2P games are: Multiplayer Online Battle Arena Behemoth League of Legends, the Tactical Shooter hit World of Tanks and Card Battler phenomena Hearthstone. Not only do these games represent different genres, they are also popular in different regions, have very different monetization structures and grade differently on the softcore-to-hardcore scale.

For a comparison to be relevant, a common ground needs to be established. Since the latter three games are all free-to-play games, it is vital that real money player numbers are measured only against paying players data. Also, due to the market restrictions of real money online poker, the revenues and player data of the other games need to be broken down into equivalent territories.
In order to handle the fact that some players are bound to play several of these games, the findings talk about ”revenue generating sessions” instead of ”paying players”.
Lastly, discrepancies in F2P playing-to-paying conversion rates and Average Revenue Per Paying User (ARRPU) between regions must be dealt with. I’ve sifted through various studies but I don’ have a conclusive enough picture. To avoid head-aches, I’m assuming that any difference in conversion rate (generally higher in Western markets) is offset by an identical difference in ARRPU (higher in China) meaning that all relevant regions have the same revenue generating capacity. I have seen some data that indicates that’s a valid approach. Feel free to school me.

 

Key Findings 

1. Online poker may have hit a growth snag, but it is certainly not dying. It continues to be the most revenue generating digital competition game – in markets where it is available in all forms.

2. Despite its superiority as a revenue generator, players play more revenue generating sessions in each of the three F2P games than they do online poker. F2P/social poker games included.

3. In markets where real money poker isn’t available, poker stands for less than 5% of the number of revenue generating session the three other F2P games do. And keep in mind that this comparison is made against only three out of many popular competitive F2P games.

4. On a global scale, current F2P/social poker games capture less than 10% of the total f2p competitive games market.

5. The total size of the competitive free-to-play market worldwide is likely 3+ billion dollars.

6. Current F2P/social poker games aren’t capitalizing on many of the most popular reasons for spending in a F2P game.

 

REVENUES (USD)

2014

ESTIMATES
Game Global ROW Asia+NA
League of Legends

1 200 000 000

275 000 000

925 000 000

World of Tanks

600 000 000

480 000 000

120 000 000

Hearthstone

350 000 000

105 000 000

245 000 000

Real money online poker

1 300 000 000

1 040 000 000

0

F2P Social poker games

250 000 000

100 000 000

150 000 000

DAILY PAYING PLAYERS

2014

ESTIMATES
Game Global ROW Asia + NA
League of Legends

1 012 500

337 500

675 000

World of Tanks

525 000

420 000

105 000

Hearthstone

540 123

437 500

102 623

Real money online poker

396 000

330 000

0

F2P Social poker games

112 037

44 815

67 222

Hang on, this is an unfair comparison. Social poker games aren’t designed to appeal to the competitively inclined.
Fair enough. That’s basically our point. Design a game that is – or sit around and wait for the entire world to regulate online wagering games.

 

F2P  can be great for conversion

The arguments for competitive f2p poker do not end at an under-served three billion dollar competitive F2P market.
The existing single mould F2P/social poker games on the market have so far proven to be inefficient recruiting tools for real money wagering businesses. Not surprising since the game experiences are fundamentally different. It took the poker world a long time to understand that social poker games like Zynga Poker aren’t just offering a dumb-down second rate poker experience.
A different type of F2P poker will be better suited for establishing a player base in a yet-to-be regulated market that can be converted later on.

A third argument is that once regulated, competition in a market like California will likely be fierce. One way to get a leg up in that race for dominance is through innovation. And innovation is far easier to introduce  in a F2P environment. By the time a market regulates, one site might offer unique features and functionality that players have already gotten used to in a F2P context.

 

Free-to-play is not a one-trick pony

In a recent conversation with a  online gaming tech executive the following sentence was uttered: ”we’re not interested in free-to-play, we do social.

Since the window nearby was locked, I saved myself a two second direct flight to ground airport. Nonsense like the above comment is far too common in this follow-the-pack industry. There’s a perception in online gaming that F2P is some sort of one-trick pony that all the current social poker games ride to perfection.
That some F2P games (like World of Tanks) convert up to ten times as well as F2P games generally do should be enough to dispel that myth.

What games monetize throughfree-to-play and in-app puchases varies greatly. So does pricing and the the point during a player’s lifetime where monetization occurs. Even games in the same genre approach f2p monetization very differently.

By looking at what people pay for in other competitive f2p games you can get some idea of why current f2p poker products, and real money games too to some extent, fail to capture a larger share of the paying competitive games audience.

The top IAP in Hearthstone, which is out-earning Zynga Poker three to one in the US,  is ”Arena Admission”. ”Arena” is a game mode that levels the playing field. Every player in Arena get a random set of cards (that perish once the game is over) to choose from. Then they get to play with the deck assembled from the selected cards until it is beaten three times. You essentially pay to avoid having to play against players who have spent money or time to acquire cards that are way better than yours. I refer to these types of level-playing field competition purchases ”pay-to-compete” (unfortunately I’ve lately seen the same term used to describe buy-to-win).

Other examples of  playing field leveling pay-to-competes includes the  concept of ”draft play” in collectible card games like Magic the Gathering.

Dota 2, a League of Legends competitor in the MOBA genre, pulls in well above $100 million a year in revenues from purchases of digital cosmetics.  And only from cosmetics (well…).  And if anything, Dota 2 is a more Hardcore game than League of Legends.
This is a great article on the allure of cosmetic purchases in Dota 2. 

In League of Legends, the ability to play with different Champions that you either earn or buy  is a central theme. In Dota 2, just to further dispel the f2p one-trick-pony myth, the Champion equivalent ”Heroes” are all free.

The top IAP purchases in Zynga Poker and the World Series of Poker social game are, minus a few chip-rewarding lottery style mini-games, all direct chip purchases. I suspect that the likelihood of those two games being representative of all social poker games (I have not gone through every one of them) is as likely as a Hippo winning a yawning contest.
Players pay to extend game time and to access higher buy-in games that offer the same experience. And that’s pretty much it.
This list of the top reasons why people spend on mobile game IAPS in general, provides further evidence that perhaps that shouldn’t be it.

Unlock new content. Customizing my character. Add variation to gameplay experience. Enhance my character’s skills.
Our game  enables all of these.

The legal impact of various ways to implement free-to-play monetization is another aspect worth mentioning. The current industry-standard chip purchase model is buy-to-win. Combined with a game-of-luck classification, the introduction of real prizes is wrought with legal risk. You have luck. You have consideration (by allowing people to buy an advantage). So you can’t have prize. Remove consideration and you can have prize.
While impossible to know for sure beforehand, we are confident we have come up with features that allows us to monetize a F2P poker game in ways that will not be considered consideration. And if that’s not enough, we also think some of the gameplay innovations supported by our game engine may even plant games we build firmly in skill-games territory – thus avoiding the issue altogether. May. We’re realists.

 

The e-sport sign of approval

Thanks to a fairly recent change in live streaming platform Twitch’s policies, online poker has been granted its first taste of what it means to be part of the booming e-sports world. But the question is if access to the world’s leading game streaming platform is all we’re going to get. The stigma and legal concerns surrounding online gaming forces e-sports event organizers like Major League Gaming, Turtle Entertainment (ESL) and Dreamhack to keep real money online poker at arm’s length. And even if those barriers were lifted, traditional online poker struggles to meet critical  e-sports games criteria. More intense action is required. Less strategic decisions can be entirely internalized within the players. There must be new competition formats and more tactical choices for players to make, commentators (casters) to discuss and audiences to follow.
It is possible to meet all these requirements without sacrificing the heart and soul of  poker.

Alex Dreyfus and his team is doing a great job of sportifying live poker. We see a similar need to e-sportify online poker.

Investor money is flowing into e-sports betting and e-sports fantasy betting products. Companies like Unikrn, Vulcun and AlphaDraft are raising millions. E-sports betting is the 7th biggest market in terms of volume on Pinnacle Sports according to Newzoo.
We think it sounds more exciting to be part of it instead of just betting on it.
I think the right type of F2P poker game would be received with open arms by the e-sports community. The e-sports intel I have, agrees. Games that require and reward skill but don’t alienate anyone without the finger dexterity of a Chimpanzee and the calculus power of a chess computer are coveted. Add to that the inherent the-tables-can-turn-at-any-moment drama of poker and how naturally one can incorporate team play.
Poker is one of the greatest games ever invented. It belongs on the e-sport stage.

 

Free-to-play poker in the US

Efforts to regulate online gaming in the US have the momentum of a dehydrated snail. The slow process combined with the vacuum left behind by Black Friday has made the US a particularly interesting market for free-to-play poker games.  Zynga Poker has been joined by games like Pokerist, Dragonplay’s Live Holdem Pro, Doubledown, Pokerstars Play and the World Series of Poker game.
And the B2B suppliers are gearing up to serve their casino clients as well. GSN recently bought Fresh Deck Poker. Scientific announced a deal with Nyx last week to have the Ongame poker solution supplied through its Play4Fun Network. And so it goes.
All mostly successful games. All pretty much fighting for the same piece of the market pie.

A game like Zynga Poker probably neither should nor can morph into something different from what it currently is. It’s not in Zynga’s DNA to do it differently.  But some of the others?
In a time where slots makers are looking to incorporate skill features into their games in order to attract millenials, F2P poker games are staying put.
I get the feeling that the casinos’ attitude is ”ok guys, we got to have something” and unfortunately, the f2p poker suppliers’ attitude seems to be ”ok guys,  we just have to deliver something.”

To be fair, Pokerstars Play is showing the F2P poker experience a lot of respect by running play money versions of popular tournament series like SCOOP. The Playtika developed WSOP game is very well-produced. Fresh Deck Poker IS innovative (although merely in terms of graphics and GUI). And so on.
But none of them steps further than two feet away from the comfort of the social poker model first introduced by Zynga.

 

Innovation for the sake of innovation? 

There are wise people who claim that the biggest threat to online poker is people like me who can’t leave a game that was pretty much perfect before Paradise Poker dealt its first digital hand well enough alone. It’s a fair point. Like chess or tetris, barebones poker is brilliant. I have rallied for years against the way online poker sites have allowed the game to hijacked by number crunchers, savvy coders and ruthless angle shooters. The opinion that the best online poker experience is the one that best mimics the live poker experience is a valid one.
But it is, in our opinion, not the only valid one.

The technical infrastructure of online casino platforms have allowed small boutique slots developers to pop-up and focus solely on the art of developing engaging and innovative slots. The boundaries of what constitutes a slot are pushed all the time. The results speak for themselves.
Poker companies have, traditionally, never been organizationally structured to innovate the game upon which their business is based. Instead of hiring game designers, they’ve hired poker pros. Instead of investing in new game features, they’ve put their money into new promotional features. As a result, ambitious innovation initiatives have not always delivered. I think that has tainted some people’s opinions of the value of innovation.

Outside the realms of online gaming, the rest of games industry speeds ahead adapting to new technology, new usage patterns, new content trends and new preferences. Zynga Poker proved that poker, served in a new manner, had a place in the social gaming revolution.
We want to prove that it has a place in the competitive gaming revolution.
But we neither can nor want to do it alone.

That’s where you come in.

To learn more about us, Hands of Victory, opportunities in the B2B space and to discuss potential collaboration or investment please visit aftermathplay.com or contact me directly.
If you’re up for discussing this blog publicly, please fire your comments and questions at @infiniteedgekim on twitter.

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Revenue Data

League of Legends – $1,200,000,000
The full worldwide 2014 revenue estimate is based on a Superdata Research report released last fall.  Regional League of Legends data is really hard to extrapolate. But server load data indicates that  traffic  – excluding Asia and North America – amounts to roughly 25% of total traffic. That number aligns well with a comparison of overall region-by-region F2P market size estimates.

2014 revenue estimate
Rest-of-world server data
Chinese servers data
F2P market size estimates

World of Tanks – $600,000,000
World of Tanks is easier since the bulk of the game’s players reside in  territories where real money poker is also available. By comparing peak reported concurrent user stats for the different WoT server clusters I’ve attributed 80% of the game’s revenues to the non-US/non-Asian markets. The revenue estimation for 2014 is based two different projections.

2014 revenue estimate 1
2014 revenue estimate 2
Peak traffic data

Hearthstone – $250,000,000 to $350,000,000
To extract regional data for Hearthstone I’ve assumed that the following reported regional data on the size of the collectible card games market as a whole (of which digital card battlers is a sub-genre) applies to Hearthstone as well. That puts Europe at roughly 25% of revenues. I’ve made it 30% for all non-Asian non-US markets.

Size of market
Hearthstone 2014 revenue estimate

Real money online poker – $1,300,000,000
Comparative real money online poker revenue data also posed a bit of a challenge. Conveniently enough Amaya, whose Rational Group pokersites represent 80%+ of the non-US market, reported the  % of combined revenue originating from Europe and the Americas in their Q1 2015 report. It was 91%.  But one has to take into account that high rake generating players play with what is best described as fixed kick-back. They play knowing that they will earn x percent back on the rake their play generates. Since the F2P games don’t offer the same opportunity, this kickback needs to be deducted.  My assumption is that the average kickback on every $ raked on Pokerstars/Full Tilt Poker is 20%. There are also factors like revenues being generated outside the US by relocated US residents that really, for a fair comparison, ought to be attributed to the US and left out. Revenues from the Canadian market is another head-scratcher.
To offset these deductions, I’m letting Amaya’s online poker revenues represent the entire market. By making their Q1 revenue data ($283,5M) representative of all of 2014, we get roughly a billion $ in revenues in comparative markets.

Amaya Q1 report
Further info 

F2P/social poker – $250,000,000

Thanks to a recent report from SuperData Research we know what that market (including mobile) is currently worth. Assuming that the regional revenue split is similar to the split for f2p casino games (social and mobile) in general, US and Asia stands for 60% of the market (with US representing  a full 40%).

Size of social poker market
Mobile and social casino revenues – per region

 

Daily Paying Players Data 

Of the three viable options, comparing Monthly Active Users, Daily Active Users and Peak Concurrent Players, I chose Daily Active Users purely on the basis that the data I have available made that metric the easiest to compile.

League of Legends
For League of Legends player-to payer-conversion data I’m trusting this analysis.

Although it increases uncertainty, I took the generally lower conversion rate in China into account by upping the 3.75% from the analysis to 5% for the ROW zone. This rate was then applied to 27M Daily Active Users (DAU) figure reported recently by Riot themselves.

World of Tanks
For World of Tanks I’m basing my 2 100 000 DAU assumption on Peak Concurrent User record (1 3000 million) and notes that WoT’s DAU metric is ”in the millions”.

Peak user data

Hearthstone
Player data for Hearthstone is hard to come by. For some reason, Blizzard has chosen not to report basic F2P metrics. That the total amount of player accounts has reached 25 million doesn’t say much. But since a ARRPU figure of $27 has been reported I have reverse-engineered monthly data and then converted it to DAU by applying League of Legend’s (somewhat high) DAU/MAU ratio. Reliable no? But acceptable given this particular data set’s limited overall  importance. I’ve basically calculated monthly revenues by diving the full year estimate by twelve and then divided that with the reported ARRPU figure. Since ARRPU is generally higher in China than in Europe I’m using $20 instead of $27 for ROW. Then I’ve converted from MAU to DAU.

Known DAU/MAU conversion data MAU DAU RATE
LOL

67 000 000

27 000 000

40 %

Dragonplay

3 000 000

700 000

23 %

All of Zynga

108 000 000

25 000 000

23 %

Real money online poker
When I sat down to write this I  didn’t think finding comparable data for online poker would be difficult. But so far I’ve almost struck out.  Fortunately bwin.party’s financial reports lend a helping hand by containing ”Daily average players” data for poker. For 2014 that figure was 33,000 players. Since poker for the bwin.party group generated about one tenth of the revenues estimated for Amaya’s B2C poker sites, I’ve simply multiplied that daily player count by ten in order to get something equivalent to paying DAU. Since bwin.party operates in less grey markets, the total is the count used for ROW.

Bwin.party Q1 2015 financial report

F2P/social poker
To get a rough estimate of the number of daily paying social poker players, I’ve adapted previously reported Zynga Poker figures to reflect the site’s reported slump in active players. But since reports indicate that players are moving to other social poker games – traffic may not have reduced much overall. I’m applying an industry-standard paying-to-playing conversion rate of 2.2% and the same regional split data used to calculate regional revenue.

Old Zynga Poker player data

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