Update on bwin Loyalty Program

Earlier I wrote about a radical change to the bwin (and thus entire Ongame Network) loyalty program codenamed Essence. It’s not unusual that when I take a less than enthusiastic view on things I’m contacted by folks from the room to “explain” their side and hopefully get me to come around to their line of thinking. Such was the case here but so many restrictions have been put on what I can and can’t say, quote, or divulge that I’ll just go with what bwin/Ongame is saying in public since I don’t have to worry about stepping on any toes.

On 2+2, on Ongame rep said the following:

Firstly, the direct communication to players is handled by each of our partners, so whether or not you have got an e-mail about the implementation of Essence is depending on how the partner you play at chose to communicate this. This is also the case when it comes to where you can see how many points you have, the implementation of that is up to our partners and such questions should be directed to their support.

No player is paying more than before. The same amount of money is removed from each pot in the form of rake as before. So it has not in any way become more difficult to win at the tables. Hopefully, Essence will make it easier to win at the tables because the overall level of play within the network will become softer.

As for time to clear a bonus, it might be that it could take longer time to clear bonuses, but that totally depends on the opposition at your tables and their playing style. Even though you are a winning player that does not automatically mean it will take longer time, it all depends on the opposition.

The table referred to in a couple of posts does not reflect actual numbers in any way, it is only one of our partners attempt to visualize the concept as such. It is very important to understand that there is no strict categorization as such; Essence is about looking at all players’ outcome over a set period of time – saying that any given player DID so and so, and not about saying that one player IS this or that.

We would also like to point out that with Essence NO ONE “loses”, all players will be valuable and no funds would be endangered in any way. We are not penalizing partners or players.

By using Essence as the new way of valuing players we are ensuring that there will be incentives for partners and affiliates to recruit casual players, and more efforts will be put into feeding the poker ecology with new players which will benefit everyone in the end.

I wanted to give that in it’s entirety so it’s clear that I’m not taking things out of context here. But I do want to deconstruct what was said statement by statement.

No player is paying more than before. The same amount of money is removed from each pot in the form of rake as before. So it has not in any way become more difficult to win at the tables. Hopefully, Essence will make it easier to win at the tables because the overall level of play within the network will become softer.

This seems to be a mantra that Ongame is going with. Nobody is paying more! They’re right, technically. Some players are just getting back less. So whereas before you paid $1 in rake and received maybe 5 points (I don’t remember their old model), which could be redeemed for various items that have cash value, now you might receive 1 point (totally hypothetical since nobody knows what the formula is).

The thing that I think Ongame might be missing is how players look at it. Let’s say that the points are worth .01 each.

Old system:

$1 paid in rake – .05 value of points = .95

New system

$ paid in rake – .01 value of points – .99

So, yes, in the view of players you are paying more rake. The fact that they’re giving those points to the fish is irrelevant to them because in order for them to recapture the lost .04 they have to win it back at the supposedly softer tables.

As for time to clear a bonus, it might be that it could take longer time to clear bonuses, but that totally depends on the opposition at your tables and their playing style. Even though you are a winning player that does not automatically mean it will take longer time, it all depends on the opposition.

“The opposition at your tables and their playing style” are things totally beyond the control of the player. The whole idea of a bonus is that if you do X we will give you Y. Now it would seem Ongame is saying, “We’ll give you Y but we can’t tell you what you have to do to get it.”

And the rep then goes on to say that even though you are a winning player that does not automatically mean it will take longer to clear the bonus. Again, a statement that is technically accurate but ignores the fact that it’s highly unlikely. Most winning players will have to play more to clear bonuses. That is a fact. Saying that it isn’t a certainty that this is the case simply because some situations *might* result in winning players clearing bonuses at the same rate is really bending things.

The table referred to in a couple of posts does not reflect actual numbers in any way, it is only one of our partners attempt to visualize the concept as such. It is very important to understand that there is no strict categorization as such; Essence is about looking at all players’ outcome over a set period of time – saying that any given player DID so and so, and not about saying that one player IS this or that.

Here is the table that was posted in the 2+2 thread that the rep is referring to.

I think the rep’s response is merely semantics. What a player DID is what they ARE if you’re using it to calculate how many points they receive. While the above table might not be representative of how they actually look at you, the fact of the matter is that they are classifying you based on your play. That means that they are looking at what a player IS based on what he DID.

We would also like to point out that with Essence NO ONE “loses”, all players will be valuable and no funds would be endangered in any way. We are not penalizing partners or players.

Again, this statement is only true if you use Ongame math. If you use player math it’s patently false. If every dollar I paid in rake used to return .05 in value and now it only returns .01 in value then I’ve lost. The fact that it goes back to the fish I played against only means that I have to work harder to make the same amount.

By using Essence as the new way of valuing players we are ensuring that there will be incentives for partners and affiliates to recruit casual players, and more efforts will be put into feeding the poker ecology with new players which will benefit everyone in the end.

Again, a nice theory but why are the players expected to finance the experiment? Ongame could have easily increased the amount of points paid out to fish – at their own expense – and then had data which they could present the players, skins, and affiliates showing this to be true.

What’s wrong?

The one thing I will share from my dialogue with an anonymous inside source is that in one of my emails I said:

“My gut reaction is this is possibly the largest blunder in online poker history”

And I was challenged to post that publicly so I am.

But as I communicated to him in most of my emails, I think they’re on the right path. As much as I’m taking the piss out of them it has nothing to do with the direction they’re headed. My main points are:

1. Publish the Essence algorithm so skins, affiliates, and players can all make an educated decision. If it’s as good as they claim it to be then it can’t be gamed. Without transparency people aren’t going to trust it.

Loyalty programs are pretty standard not only in the online poker industry but all sorts of other industries as well. What if you went to your favorite airline asking about their frequent flyer program and they told you:

Well, we award miles based on your flying history with us. If your flying history meets certain criteria – which we will not share with you – you get more points. And if your flying profile includes flights on unprofitable routes, when the price of jet fuel is high, or other factors, you get less points. But don’t worry because we still issue the same number of points as we would have if we simply used one point per mile flown like everyone else in the industry. It’s just that we may be giving those points to other passengers rather than to you.

Okay, so the analogy isn’t perfect. Airlines don’t survive on an ecosystem sort of reliance but the idea is that nobody wants a really complicated loyalty program. They want to know that if they do X they will get Y in return. The coefficient algorithm already makes it complex but hiding how it’s calculated and what playing behavior triggers classifications goes against everything people want in a loyalty program.

The other problem with a black box approach is that the players have to trust that the points are being allocated correctly. I’m unaware of a poker room that hasn’t made at least one slip up in calculating either points and/or affiliate commissions. But now there’s no way to check. None. Ongame could have some flaw in their algorithm introduced in a future upgrade and nobody can put together evidence because nobody knows how the numbers are generated.

Again, Ongame isn’t just asking players to trust them (which they might since most players don’t even understand what rake is) but affiliates too. Affiliates are much more cautious about blindly trusting poker rooms to do the right thing and with no way to check they may just decide that an Ongame competitor is a better choice for them because at least they’re transparent.

2. Honesty is important. In other words, don’t go on 2+2 and and tell people it’s not going to take longer for winning players to clear bonuses or that they’re not losing anything.

When Party changed their loyalty scheme I had to go into an angry mob on 2+2 and try to clarify it. The first thing I did was be very blunt about the negative impacts it would have on various types of players. They already knew it. Why try to spin it with fancy language or carefully worded statements that are only going to piss people off who are looking for a straight answer? In the end, many people were not happy with what I had to say but complimented me on having the balls to say it.

That’s what Ongame needs to do now. They need to just put it out there on the table for what it is and defend it on its merits. When someone dances around questions it only frustrates people. And frustrated customers can quickly become former customers.

I mean which of the following conversations below do you think has the highest likelihood of retaining a customer?

Conversation A

Player: Will it take me longer to clear bonuses if I’m a winning player?

Rep: If you’re a winning player, most likely it will take longer to clear a bonus. But you’ll be playing on softer tables so your win rate should go up.

Conversation B:

Player: Will it take me longer to clear bonuses if I’m a winning player?

Rep: Not necessarily

Player: What does that mean?

Rep: Well, there are situations where you could clear bonuses at the same rate.

Player: What are those situations.

Rep: Well it depends.

Player: Depends on what?

Rep: Well, there are various factors that go into determining how points are awarded so it’s not easy to say.

Player: Then how do I know?

Rep: Well, you don’t. But it is possible that you could clear bonuses at the same rate.

Player: Arrrggh!!!!!!!!

See what I’m saying? Nobody wants a bunch of dancing and word games. If it takes winning players longer to clear bonuses man up and say so.

3. Fix the model. One of the key selling points is how much softer the games will become. So far, that’s just theory. It’s also based on the assumption that because the skins are incentivized to send fish that they will send fish.

However, I would argue that the reason all of these networks are clamping down on under the table deals, rakeback, and coming up with these new incentive (or in the case of iPoker penalty) models is because skins can’t deliver fish. Well, not at the rate needed to keep the network healthy.

The problem is one of how the industry has evolved. When fish were plentiful you didn’t have to worry about the ecosystem. As a result most skins focused on bringing in players who could generate rake and thus revenue for them. The poker room might also cuddle up with a few affiliates here and there to get new signups and such but getting and retaining fish has never been much of a priority for most skins.

And the network didn’t care either. In many ways, they encouraged the practice by handing out rooms to anybody who could put up the initial licensing fees. There was no due diligence as to whether or not they were funded well enough to run a proper marketing campaign to bring in the right blend of winning and losing players. There was no review of their marketing plans. They just signed them up as fast as they could pump a new skin out the door.

But then the UIGEA happened. And mega sites like Stars and Tilt started paying attention to Europe, Latin America, and other markets as they looked to diversify their income streams. And they just came in and started outspending everyone.

Let’s say that in Imagistan when you average together the lifetime rake generated by all of the players on your site the life time value (LTV) is $200. Some players will generate next to nothing and some will generate tens or hundreds of thousands in rake but the average is $200. So basically, you can’t spend more than $200 to acquire a customer or you’re losing money.

But now here come Tilt and Stars and they start buying up all the ad space in the places you used to dominate. They go to all of your big affiliates and agree to pay more than what you’re paying. Plus they convert better because they have international brand recognition. And they play longer and have a higher LTV (which benefits affiliates on rev share deals) because they can run huge guarantees and have almost limitless liquidity in every game they offer.

So, in order to keep up you have to pay more for your advertising, pay out a higher percentage to affiliates, and now your cost for acquiring a customer is closing in on the LTV of the customer. Oh, and with more competition in the market, more bonus offers, more affiliates promoting competing brands, your LTV is falling because players are switching rooms more often. In other words, you’re getting squeezed. I know of some companies that actually have a negative ROI in certain territories so they just quit marketing there.

Therein lies the rub. Most of the skins on a network are too small to compete. The cost of player acquisition is either greater than or close enough to the LTV that even with this model, it’s still makes more financial sense to take a smaller piece of the high raking players than it is to go out and spend money trying to bring in fish who may or may not pay off.

Because the main problem with bringing in fish is that the vast, vast majority of your players will never make a second deposit. The typical profile of a first time depositor is one deposit for the room minimum. They lose it and are never seen again. A small percentage will continue to deposit and play but the rest aren’t even going to come close to cover the cost of acquiring them.

So if a central pillar of the argument is that by providing skins an incentive to bring in fish the skins will react and bring in new fish, Ongame needs to demonstrate how that’s going to happen. How does this loyalty model address the trend that I just outlined above?

The whole problem with this is that it’s based on the following mathematical model:

More points for fish + ??? = More fish

Fish don’t play for loyalty points. Most never even earn enough to cash them in. This change does nothing to lure in more fish. And as pointed out above, all it does is provide an incentive for the skins to offer more to fish but it doesn’t require them to.

Perhaps if the change also came with new rules for the skins to spend X% of their revenues on various types of advertising activities or reserve a certain amount for reactivation or reload bonuses for fish that might increase the number of fish at the tables but simply putting the money back into the hands of the very same skins that have shown no particular skill in recruiting fish seems like a bad tradeoff for the players who are being asked to finance this experiment.

Summary (yeah, right)

I think most winning players will accept a system like this IF it’s transparent, it’s communicated openly and honestly (which is sort of taken care of if it’s transparent), and there’s a clear strategy for bringing in more fish. Because other than some very shortsighted people most winning players recognize that their play has a detrimental effect on the poker ecosystem and if there was a way to fairly balance things out many would be in favor of such a scheme. A healthy ecosystem is in everyone’s best interests.

But the reason I have my doubts is that in speaking with my anonymous source and seeing the response on 2+2 those critical factors are not being addressed.