With the chances of online poker being regulated on a federal level anytime soon in the US slowly slipping away, concerns associated with operating an online poker room in a market where player liquidity may be scarce have resurfaced with renewed strength. The fact that this fear likely fuels the seemingly increased desire amongst state regulators to form compacts (a regulated scenario I prefer for several previously stated reasons) is obviously great. But it also places a wet cloth on market expectations; it kills excitement for the game and risks turning poker into an even more fringe concern and/or opportunity for big corporations, lobbyists, policy makers and politicians. And that is obviously not so great.
While limited liquidity concerns in the US market are warranted to a degree – I generally back the conclusions drawn by Chris Grove in this speculative but relevant review of state-by-state liquidity – I have not spoken out against this player liquidity fearmongery for several years just to stop now.
In the past I have focused my opposition by trying to uncover and explain some of the mechanics of poker liquidity and the economy of standard rake based poker rooms that negate the risks often associated with operating in a limited liquidity market.
One example is the idea that one has to spread a really wide range of games in order to cater to players’ needs. One doesn’t really. Only a minority of players stray from a fairly restricted range of games and stake levels. And these other games tend to be either less profitable than the mass market range of games or even contribute negatively to the overall revenue generation of an online poker room. In many cases they also contribute negatively to the play experience of the players playing them. It’s where they go to be slaughtered.
Another reason is the now well established fallacy that highly active players are by default the most profitable players. Their demands for a massive amount of opponents to play against can be downgraded on the eternal list of shit to do to please players and optimize operations.
This post approaches the subject from a slightly different angle and attempts to claim that few in the current poker space really has a right to even argue that it is impossible to operate profitable under this or that liquidity condition. The reason? They have not actually created a product and a game experience designed for a limited liquidity market in the first place.
So it’s like complaining that you can’t make short-distance commuter air travel work with a hangar full of 747s.
Fact is, online poker, generally, is still a captive of its own short legacy. “Way back” we created a product without much product or business strategy behind it. Then the demand for the game exploded as wave after wave of new players were exposed to the wonders of poker and stormed our doors. It didn’t ever seem to cease.
So the last concern we addressed when we scoped future releases, when we designed new features, promotions and marketing campaigns and figured out the best policies to operate the room under on a day to day basis was how liquidity dependent something was or how suitable it was for this or that liquidity scenario.
Everything we did was focused on taking advantage of this seemingly never ending stream of new sign-ups and our massive player numbers. Gradually increasing and communicating the total guaranteed prize pool offered was a near fool proof tactic. So was/is offering gargantuan prize pools that rely on funneling a lot of play time and player funds towards a single goal. We wanted to go big and take over Vegas. Not go local and be bored by some local event in Nowhereville. We spread higher and higher games only vaguely concerned about what the effects of having players play for six and seven digit amounts each hand might be. And we didn’t really discuss whether or not it at some point might stretch our playing liquidity dangerously thin. We let players choose exactly which table to play at. A risky feature if you hope to get the most gameplay possible out of fixed amount of players (it is also dumb for other reasons). We imposed no restrictions on which games certain players could play other than the natural restriction of insufficient funds. And we implemented that restriction the weakest way possible. Not based on bankroll requirements. Not based on any kind of buffer.
We saw no reason not to offer multiple variations of the same games only differing from each other by factors such as the amount time players had to think, the maximum number of players that could play at table (sometimes five and six handed tables existed in parallel) and whether a tournament featured eight, ten or twelve minute blind levels.
We could accommodate all of this as long as the poker booms kept echoing across the world and new waves of players kept drenching our dollar soaked digital floors.
Our business model reflected this mindset as well. We introduced a method for calculating the value of each individual player that was actually not a measure of how much each player had paid us for our services. Instead we arbitrarily assigned (and still assign) value to players based on the rake generated by the liquidity as a whole. We still talk about liquidity as if it is a living breathing entity that needs to be nurtured. It’s the entity that generates the money. Not the individual player. To do so is not wrong. But it is indicative of the lack of focus on the individual and the small scale that permeates the industry
I mention all of this to emphasize how little we were concerned about liquidity back when we didn’t have to be. And why so many are so concerned about it now. Most of the above is old news. A lot of it has since been improved. The poker world is way wiser in 2013 than it was in 2011 even. Yet we still tremble at the prospect of having to operate in a market with only five million residents.
That’s why the above is a suitable backdrop, a healthy reminder and evidence to back my claim that the industry, although it has wizened up, is still stuck in an excess liquidity mindset. And why I believe breaking free of that mindset offers one of the few paths to a profitable poker operation going forward.
I call the required shift in mentality “Design for Ten”.
Design for Ten
Forget liquidity. Forget stake limits, game variations and guaranteed prize pool promises. Sit down and ask yourself the following question:
If ten players (a full table) approach you willing to pay you for enabling them to play poker online with each other every day until they no longer enjoy themselves, what would you do?
What would your primary concerns be? What would you see as the most pressing design, business and service challenges to address? Which ideas would shoot to the top of your priority list? Where would you put your operational emphasis and how would you communicate with the players? What would you say? What would be your approach to ensuring that the players are regularly entertained and provided fresh content – if that is something you consider important.
Lastly, how would you monetize your service?
These questions have occupied me for years. Tidbits of what I believe to be reasonable and potentially profitable answers are strewn all over this blog. And I intend to continue to share albeit with some restrictions since I stand on the brink of putting all my own ideas to the test. But while I do that, I challenge everyone else to consider these questions as well.
Your best hope to navigate a state-by-state regulatory scenario in the US and coping with the massive tax pressure in nationalized regulated markets in Europe is to Design for Ten.
To produce a poker experience that instead of keeping you up all night worried because it doesn’t scale down very well (we have to drop the guaranteed prize pools!), it has you scratching your head because it is not immediately obvious how it scales upwards. This is counterintuitive in a world where the massive reach of the internet means that virtually anything can become a big business if you just optimize the upwards scaling of it.
But we don’t have that luxury. That reach. So we have to start at the other end.
The player liquidity threshold in your poker business should not define (as is the norm) at what point your business collapses due to insufficient players. It should indicate at what point you’re going to have to do something because the growing scale of your operation is messing with the quality of the game experience and the service you provide.
Design for ten. Then do what you can to figure out how to serve that to thousands.
At PokerRoom.com back in the days, community and user generated content was so central to our operation that we constantly feared that good content and good relationships established between players would drown in garbage. Garbage traffic. Garbage players. Legit players with a garbage attitude. Garbage play in tournaments that meant a lot to some but nothing to others. Garbage posts. Garbage answers to posts. Garbage spamming in our (garbage) game lobby chat.
We even “suffered” at times because things we launched simply as a tribute to or by request from a niche crowd inside our community ran away from us and got out of hand.
A couple of years later, these problems were gracefully taken care of by UIGEA. And that was it. Turned out we hadn’t designed for ten as much as we perhaps thought we had. Not everyone speaks the same language anymore? Oops!
Add up potential licensing costs and targeted taxes, game software and platform costs, investments in fraud, age verification, cheat detection and geo location systems and it is blatantly obvious that a small operation will not fly in the markets I am talking about. So why design for ten when you have to serve thousands? Simply because if you don’t, your product will not stand out enough to protect you from fierce kickback wars and force you to join the player acquisition race to the bottom.
This challenge is not easy. Once you start pondering what it would take to keep those ten people playing day in and day out, you realize that the only path forward is innovation. And innovating in a regulated market, from my experiences in Europe, is riddled with red tape.
I have pointed out the counterproductive manner in which certain regulatory gaming bodies hinder positive examples of innovation while turning a blind eye to questionable practices several times. But red tape or not, you have to cut through it.
Once you dig deep, perhaps you start remembering single-table games at someone’s place, at the casino or online that linger on as some of the most fun sessions you’ve played. Because of the social interaction with the other players. Because of the inherent challenge of beating those very players. Because you got to watch new players slowly get into the game enjoying every step of it. Because you hit that magic one out when you hadn’t even looked at your cards. Because of how smooth the software ran. Whatever.
You’ll be forced to dig into the nitty gritty details. Of the graphics, of the UI, of the motivation of each player at the tables. How to truly maximize the fun of winning. How to make something worthwhile out of every loss. Every action. Every game event. You’ll have to come up multi-layered countermeasures for every reason you can think of for why any one of the ten players would get up and leave.
Should you limit access to the game so that the ten don’t experience poker overload early on? Should you break the game at any point? What would change if you spread play across two tables instead of one table?
What personal service can you offer these ten heroes?
Only when you have a solid product strategy worked out for this scenario should you ask yourself what do you do if an eleventh player shows up.
Sometimes I ask people to list niche suppliers in the online poker space. Oftentimes the response is “PKR” followed by silence. I don’t necessarily think that is a complete answer, but what do you come up with?
Have I missed the Omaha oriented site? Or the site that specializes in infinitesimal stake level play?
I hear CEOs of US companies that have never run an online poker talk about player liquidity. I hear senators talking about it. And lawmakers. And consultants like myself. But are we providing the full picture? Is there simply no way to operate poker successfully in a boutique fashion, or a high-end fashion or a low-cost fashion? Is the mass market middle of the road approach the only path to prosperity?
I don’t think so. And neither do my ten imaginary test subjects.
Say hi to my readers gang! Then please get right back to playing…