It seems my recent post on bonus whoring has set off a industry-wide chain of events resulting in many players being booted from online poker sites. Ok, maybe I’ve got delusions of grandeur (actually, I’m quite sure of it). Anyway, it looks like Empire and UB have sparked widespread panic in the online poker world by cutting off people who are generating negative rake. Don’t get me wrong here but . . . GOOD!
4Flush discusses the foolish decisions that have brought us here but I think this is more of an issue of churn. It would appear that the industry is turning away from growth and looking at firming up the books. The list of industries where high-churn rates don’t have a negative fiscal impact would fit on a postage stamp. Churn is a killer on the bottom line.
The Dotcom industry learned, the hard way, that growth purchased with high churn is suicide. As a friend of mine who ran Sony’s online operations once told the CEO of (now defunct) DEN, “I could generate tons of popularity if I stood out on Hollywood Blvd. handing out $100 bills. Problem is, it’s not much of a business plan.”
Despite the fact that eToys is no longer with us, we really understood this concept. We didn’t give free shipping. Even if it meant losing sales, we knew that was not the kind of customer we wanted. We measured our marketing campaigns to determine what kinds of customers certain types of campaigns generated. Did they make repeat purchases? Did they only purchase when another offer was sent? What is the lifetime value of this customer?
Our focus on cultivating profitable customers showed up on the bottom line. We had huge customer loyalty even if our prices were higher than our competition. We also had gross margins of approx. 28% – 30% while our competitors were selling products at half those margins and some were even losing money on sales trying to nip into our sales. Our average order size was also much larger which meant we were making more per transaction than any of our competitors.
Why might this be good for the online poker industry? Because they might finally be recognizing that the real money is keeping their regulars happy rather than chasing bonus whores with reload bonuses. In my post linked to at the beginning of this post I note how bonus whoring is a likely -EV practice for all but newbies but now it seems the poker rooms have finally figured out it’s -EV for them as well.
Based on some of the emails I received on that post I think that some folks got the wrong impression and thought that I was against trying to clear bonuses. No, if you were already playing at that site and they send you a reload bonus email, hey, free money! If you’re bouncing around a new site every month because someone is dangling $100 in front of you then it’s -EV for you and -EV for them. Now that some poker rooms are starting to realize this, hopefully they’ll figure out that it’s much more profitable for them to offer me more perks to boost my loyalty than it is to chase after every doorknob with $200 trying to grab a 50% new account bonus. I generate thousands of dollars in rake every month but most of the money they could be using to keep me happy has traditionally been spent on attracting bonus whores. So now that they’ve presumably figured out this Business 101 concept I’m hoping to see a little more of the perks flowing my way.