In the past I’ve written about the future of online poker but a rather well-known affiliate sent me an email recently and in my response I threw out a scenario that would not be very good for poker affiliates. I mentioned in the email that I might elaborate on the thought on my blog so . . . here we go.
I think when we look at the future of online poker in the US in a legalized environment it’s best to view it through Mitch Garber’s eyes. First, as the head of Harrah’s online division he’s got a huge stake in legalized poker in the US. Second, he used to run PartyGaming so he knows the market very well.
I worked with Mitch for a little over a year so I can’t say I know his deepest darkest secrets but I do know he’s not the kind of guy who is going to give up anything if he doesn’t have to. He’s a savvy business guy and knows his way around the business so it’s going to be difficult for anyone to get a edge on him. In the poker world, I’d call him a TAG (tight/aggressive).
So, I sort of try to think about how a tough business competitor who runs the online portion one of the largest gaming companies in the world and already contributes huge amounts to US political campaigns would go about trying to shape online gaming. That’s where I come up with a lot of my ideas on the overall predictions about online poker. I just think about how I would hold off the competition while stacking the deck in my favor.
And when it comes to affiliates, they’re a huge marketing expense. The large percentage payouts and such are a leftover from the online poker industry’s startup days when it was willing to finance customer acquisition with lifetime MGR payments rather than spend huge amounts on media buying and branding. Affiliates were willing to role the dice and take chances doing all sorts of things and you only had to pay them when they hit. If they missed and went bankrupt then you paid nothing.
The downside, of course, was that if they did hit you weren’t just paying for the customer once. You paid for the customer for as long as that customer generated revenue. In some cases that means paying thousands or tens of thousands for a customer.
But someone like Harrah’s doesn’t need to build a brand. They are a brand. And on top of that they own one of the biggest brands in poker, the WSOP. They don’t need to pay large MGR percentages because they don’t need affiliates as much.
But, how would I stack the deck in my favor? Well, those affiliates are a nasty bunch. They lie. They spam. They deceive players with deceptive advertising. Wouldn’t it be in the consumer’s best interests if advertisers were prohibited from being compensated on a percentage of their revenue or for signing up for an account? That would remove all incentive for unscrupulous advertisers to tell lies to induce people to sign up to gamble online. Much better that the online poker sites who are licensed and regulated take all of the legal risk.
Of course, that’s not my personal opinion. But if I was running a well-known gaming brand and I wanted to make as much money as I can, that’s one way I would keep affiliates out of the market. If nobody is competing for the key phrase “Harrah’s Poker bonus code” it’s fairly easy to rank in the top spot.
When online poker becomes legalized and regulated it will be easy for well-recognized corporate brands to sell the public and regulators on very restrictive rules. Everybody has received more than their fair share of spam so when Harrah’s and other gaming companies talk about the need to keep affiliates from using illegitimate means to send them players even the most Luddite regulator will be easily convinced that keeping these bad influences out of the market is the best solution for consumers.
Of course, that isn’t true for most affiliates but the market if fragmented, highly competitive, and unlikely to come together quick enough to make a convincing argument before they’re shut out. For affiliates it will be like the UIGEA was for poker rooms. They’ll need to fight to get back in. In the process they’ll have to prove how they can be regulated and keep the black-hat elements out.
So just like I keep warning players (and even some poker rooms), if you’re an affiliate, be careful what you ask for. You just might get it.
I believe that if an affiliate is getting ongoing revenue, he or she will be more likely to increase their marketing, and it would not go into a black hole. Sooner or later however, everything evens out, because if it did not, then at some point everyone in the world would be playing online poker! I think that the gaming sites need to compensate their affiliate adequately unless they have such a big brand that they don’t need affiliates. Heck, even Amazon.com which is a very well known brand, still uses affiliates as they may reach someone who was not exactly thinking about Amazon at that time. The same is true for gaming sites. Someone reading a blog (like this one) my decide at that moment to sign up for a gambling site, and if they do, they should get their fair share of commissions.
A lot of big brands – like Sega, Virgin, Yahoo etc. – have been trying (or tried) to enter the poker market, with little success.
Mostly because they aren’t trying very hard. I know in the case of Yahoo they farmed out almost everything to someone else. I’ve never seen them actually push poker on any of their properties. Besides, I don’t know if Yahoo is a great example since they seem to be showing a history of f*cking things up recently 🙂
Virgin has gone where the money is, Bingo. They’re mostly a UK brand and bingo is huge in the UK market. Many of the other big media brands (ITV, Sky, etc) all opened up betting, poker, bingo, and casino sites so Virgin was simply following suit.
And Sega barely announced their launch a few months back so it’s too early to tell.
But the bigger issue here is that in many cases what these companies are doing is getting their toes wet. It’s fairly obvious that none of them has put any major effort into their properties. In some cases it’s because they want to test things out first. Some like WSOP.com, IMHO, are really just fronts experimenting, hiring, and having a non-threatening presence until the US market opens.
I mean, Sega did one press release about their poker room. One. Compare that to how they role out a game title. They’re definitely not going at this at full throttle. I’m sure part of that has to do with a lot of nervous lawyers and execs sitting around a room and saying “Okay, but we’re still not sure how this is going to pan out so don’t push it too hard.”
Yes, many affiliates overestimate their sense of importance.
This is absolutely true. In my opinion the big rakeback affiliates who has managed to build a strong brand, but do not generate any content are not useful for the poker industry, if we see the big picture.
“The affiliate may never re-enter that money into the poker economy and thus it is a black hole. “
I think you share my opinion that this is simply not true. A lot of affiliates spend a lot of money to create really valuable and unique content (videos, news etc). This content leads to new poker players, new signups.
This way affiliates help to make the poker more popular and more trendy. And this is good for the poker industry. They do reenter the money in the poker industry, right?
Now, if someone like Harrah’s enters the market with their existing brand, the WSOP, and very deep pockets . . . I think they would rather just pay CPM advertising rates rather than CPA or MGR. And if they can influence regulators to make it illegal for any US site to pay affiliates . . . they can pretty much dictate whatever they want to the market. No matter how big the affiliate is, if no US poker room is able to pay them CPA or MGR they have to take whatever they’re offered.
A lot of big brands – like Sega, Virgin, Yahoo etc. – have been trying (or tried) to enter the poker market, with little success. Maybe Harrah’s is a bit different kind of brand, with some experience in the gaming market, but I still think that they will have a hard time to compete with PokerStars or FullTilt.
And if they do not want to pay MGR or CPA, they will have to pay with media buys for the chosen affiliates. 🙂
@Tim: I don’t think it’s that clear-cut. Many of the larger poker rooms that advertise extensively get a very small part of their new signups via affiliates. I’m talking in the 10% – 20% range. Smaller poker sites might be getting up to 60% to 70% of their new player signups via affiliates.
Now, if someone like Harrah’s enters the market with their existing brand, the WSOP, and very deep pockets . . . I think they would rather just pay CPM advertising rates rather than CPA or MGR. And if they can influence regulators to make it illegal for any US site to pay affiliates . . . they can pretty much dictate whatever they want to the market. No matter how big the affiliate is, if no US poker room is able to pay them CPA or MGR they have to take whatever they’re offered.
@PSG: I’m not sure what you mean. If online poker is huge then why would an online poker room need affiliates?
It may cause a dwindle but I don’t think it would kill it. Online Poker is huge and it would really take a lot to take away from that.
Failed to mention that it’s really fascinating to me that right below your article you have the rake back info. While I don’t have rake back adverts on my site I do have poker banners and I’m glad I’m making some coin from them but still I wonder if I need them far more than they need me.
I have always wondered why affiliates exist in today’s environment. Looking from the outside in it doesn’t seem like Pokerstars/Fulltilt need affiliates any more than Bellagio would need affiliates to get players through the door. I understand it’s advertising but can’t a good P.R./advert dept. do the same thing for a whole lot less money.
It wont kill the affiliate market in the US, its too popular everywhere, who hasnt played cards, everyone has.Affiliates are making bank as they say, tell me one affiliate webmaster whos packing their bags & moving on?.
That’s an interesting view Bill, but I don’t share it. Yes, many affiliates overestimate their sense of importance. But I think there’ll always be room for affiliates in one form or another. But paying out “lifetime” revenues and outsourcing retention tools like rakeback is stupid.
Well, I don’t think I said that they player is getting rakeback. I said the affiliate was getting paid. Therein lies the problem. The affiliate may never re-enter that money into the poker economy and thus it is a black hole. But if the poker room never had to pay an affiliate they can pump that money back into the poker economy in a manner that proves to be the most productive (rakeback, bonuses, advertising for new customers, etc).
In some cases that means paying thousands or tens of thousands for a customer.
If you are paying thousands of dollars in rakeback, that means the customer is playing a lot on your site. Isn’t that a good thing?
If you didn’t give him the big rakeback, might he not be playing on your competitor’s web site? (and isn’t that a bad thing?)