The Sky is Falling for Affiliates

It was recently announced that Full Tilt Poker is placing a 3% cap on margins rakeback affiliates can offer. What that means is that Full Tilt was once telling affiliates that you can offer 27% max rakeback while Full Tilt pays the affiliate 35%. That means the rakeback affiliate makes 8%. In most cases, rakeback affiliates operate through a master rakeback affiliate who provides support, a software backend, etc so they might pay the sub-affiliate 3% and keep 5% for themselves.

If you do the math, if the max margin is 3% then that effectively brings the affiliate payment down to 30%. So super rakeback affiliates offering their sub rakeback affiliates 3% are now making a 0% margin.

Many rakeback affiliates are furious about this change with many threatening to boycott Full Tilt. And I’ve been contacted furiously all week with people wanting to know my thoughts as both a rakeback affiliate, a former employee of Tilt, and as an industry insider.

Well, you’re not going to like my response but I’ve been saying for years that the payouts to affiliates is not commensurate with the value they provide. I know my friend Jeremy Enke at Poker Affiliate Listings would likely punch me for saying that but I felt that way even before I got involved in the industry as anything more than a player.

That’s not true for every affiliate. I’ve said in the past that coaching sites, poker news sites (real news, not just lifting news from other poker news sites and rewriting it), and such do provide value. But most of them are already making a ton of money because they are valuable. It’s all the rest that I’m referring to when I say that they don’t provide sufficient value for what they’re paid.

Full Tilt has cemented itself as one of the top online poker sites on the internet. They spend millions of dollars every month promoting their brand on television, in print, and on the internet. Why should they then turn around and pay an affiliate to piggyback on what they’re already spending?

As I told someone today, on my rakeback site, without any additional promotion, Full Tilt constitutes a huge portion of my signups. That’s despite the fact that Full Tilt has one of the lowest rakeback payouts of any site.

I’m benefitting from the brand name recognition that Full Tilt has paid millions and millions of dollars to create.

Some have suggested that they’ll just start promoting other rooms. Great. But your conversion rates will likely drop as will your MGR per player. Some players are throwing out names like Cake as possible alternative sites to promote but that sound like a joke to me. Full Tilt’s 24 hour peak player numbers are around 26,000. Cake’s are 2600. As one person pointed out on the PAL site, that’s like comparing a Walmart to a 7-11. Or as someone else put it in the same thread, anyone who could possibly suggest that a rakeback player is going to play on Cake instead of Full Tilt so you can make more money has never been an actual serious poker player before.

Both PokerStars and FullTilt know that as the market consolidates that the value of affiliates becomes lower. They’re simply pricing what they’re willing to pay accordingly. As an affiliate you’re free to send your traffic elsewhere but if the players eventually end up on Stars and Tilt then you’re simply cutting off your nose to spite your face.

Some affiliates have even been saying things like “This is how Full Tilt repays its affiliates after making them the second largest poker site?” Uh, first off, did affiliates really make Full Tilt as successful as they are today or might it have been the millions they spent on AFP (advertising funded programming), commercials, sponsorship deals, and slapping their logo on players at nearly every televised poker tournament? Don’t get me wrong, affiliates have played a role but to claim Full Tilt would be some 30th place unknown poker room without affiliates is really an absurd claim.

Second, let’s not pretend that any affiliate is doing what they do for any sort of charitable reasons. Affiliates get paid to promote poker rooms. And even if affiliates had made Full Tilt the powerhouse it is today, they got compensated for it already. They have already been well compensated.

And let’s not pretend that affiliates are not business people. They make decisions about what rooms to promote based on conversion rates, payouts, and so on. So does Full Tilt. This isn’t about some misplaced trust or loyalty. If Full Tilt didn’t convert well or didn’t do a good job in retaining players affiliates would turn their back on Tilt. If you read some of the stuff some affiliates are writing one would think their girlfriend just cheated on them.

I know that a lot of what I’ve written isn’t specific to rakeback affiliates and the reason for that is that the issues surrounding market consolidation and customer acquisition costs isn’t limited to rakeback affiliates. The cold hard truth is that the cost of acquiring a player has been steadily increasing over the last several years.

The rising customer acquisition cost is why iPoker has made up their silly rules about winning vs. losing players. It’s the reason why the small sites keep getting smaller and the big ones keep getting bigger.

In other words, the business model has changed from “sign them up at any cost because we’re making money hand over fist” to “hey, we’re actually losing money on a lot of these players.” And if the underlying poker business model is changing so will the poker affiliate business model to reflect those changes.

When you look back at the history of the affiliate business it’s plain to see that these changes had to come about sooner or later. In the beginning it was a huge gold-rush. Poker rooms were so hungry to get players in the door that they paid through the nose to get them. Player values were sky high and just like back in the dotcom days the motto was “get big, fast.”

Back then, poker rooms did almost nothing to bring in their own customers. Nobody advertised on television. Nobody was sponsoring poker tours. But when the rooms began branching out into other marketing media that started to signal a shift in how poker rooms valued affiliates. It wasn’t immediate. Affiliates were still sending a high enough percentage of the new signups that nobody wanted to rock the boat but the writing was on the wall.

I obviously can’t disclose proprietary information but I do know that the larger a poker room is the smaller the percentage of new signups come from affiliates. Smaller rooms often rely on affiliates for 50% or more of their players. That’s why small rooms pay big percentages to lure in affiliates. They have to. They can’t afford to outspend Stars or Tilt in advertising. And I can say that some of the larger rooms only get 10% – 20% of their new signups from affiliates. And, in most cases, 80% of those new signups come from 20% of the affiliates. The other 80% are dead weight.

Plus, the poker rooms have woken up to the value of web traffic. Poker rooms are launching blogs, training sites, Facebook accounts, Twitter updates, etc. They’re also bulking up their internal SEO teams and hiring top SEO experts to outrank their own affiliates.

But more importantly in all of this, the poker rooms started to develop a brand. More casual players know Full Tilt’s name than know your site’s name. They know all the Full Tilt Pros by name so why should they go through another site to get to a brand they already know?

And, just as iPoker and other networks have started to crack down on better players . . . this is exactly what Full Tilt is doing by targeting rakeback affiliates. Overall, rakeback players are net redeemers from the poker economy. All Full Tilt is doing is putting the crimp on the affiliates to discourage new rakeback affiliates from popping up every day. The ones who are already out there are being grandfathered with their existing players so this only impacts new signups. They’re basically trying to adjust the flow.

It may sound as if this post is a bit of a case of schadenfreude but it’s anything but. I’m a freakin’ affiliate too!! I have a rakeback site. My earnings will likely be impacted just like everyone else.

But, I also understand how poker rooms work and how they make money so none of this comes as any surprise to me. I’m also not going to spin my wheels on ineffective responses like boycotting Full Tilt.

Back during the dotcom boom years I always said “This can’t last but I’m going to ride it for as long and as hard as I can.” And I made a lot of money working from 1994 – 2000 in the dotcom industry. But when the crash came I wasn’t surprised. I had already anticipated it and had set myself up with contacts, skills, and a reputation that would help me ride out the lean years when the music stopped.

I remember back when the crash first started many of my colleagues would piss and moan on message boards and mailing lists about not being able to find jobs or couldn’t afford the lifestyle they had grown accustomed to. One, and what a crackpot she was, even suggested that it was a conspiracy by the bigger companies to drive down labor costs.

But I looked around at these people and I see a guy who read HTML in 7 Days demanding $50K a year for his unique (sarcasm intended) skill set. I saw people who spent 4 or 5 years priding themselves on having zany job titles like Director of Awesomeness suddenly being unable to transfer that job experience into real world jobs.

Well, the same is happening today. You’re starting to see the first cracks. The affiliate business will get tougher. Rooms are going to start looking at their spending and trying to find ways to maximize their return on investment. That will likely mean trimming affiliate payouts. Don’t be surprised if the bigger poker rooms buy up the largest affiliates or start competing directly with their own affiliates.

And if the US opens up gambling and anybody thinks Harrah’s or any other major land based casino is going to give affiliates a 35% or 40% cut you’re dreaming.

It’s not all doom and gloom but if you think the poker affiliate business is just going to sail on forever with huge payouts to affiliates you’re not in touch with reality. If you think you’re going to be able to make a living slapping up purchased content with the only aim to rank high for keywords you’re just like the $50K a year HTML coder.

I read the various affiliate forums and it’s quite obvious that the vast majority of affiliates have no desire to create value for others. They want to slap up a bonus website and wait for the big dollars to come raining down. They don’t say it in so many words but when you look at what they ask questions about it gives you a peek into their value system.

The people who will survive and thrive are those who innovate. The industry is changing and those who jump out in front of the change will be rewarded well and those who just copycat what everyone else is doing will be earning pennies.

So make your choice affiliates. Deny the change and spend your time gathering petition signatures or get off your ass and do something that changes the value proposition.

photcred to .A.A.