Online poker: differentiate or die?
Are "trading conditions" really difficult for non US-facing poker sites, or is there an answer to the US liquidity-fuelled onslaught of Stars and Tilt? Denis Campbell of HUM4N weighs the evidence.
Consider for a moment a hypothesis: The majority of the serious poker players who want to play online are already doing so. While it may not be 100% true, many of you will know how much is being spent to attract “new” players and, unfortunately, how increasingly little time most stay active.
According to figures published by PartyGaming, US$65m was spent in 2009 to recruit and attempt to retain 380,000 players who ceased activity within 12 weeks of sign-up. Stats for other companies indicates they are not alone. Overall the active players are playing for fewer days and yield less for each day “ on average.
We do not have comparable figures for the two market leaders, PokerStars and Full Tilt, who account for close to 60% of the market measured by player numbers. So we cannot be certain that the decline in active player days and yield per player mean that people generally are playing less.
It seems more likely that the averages are being diluted by increasingly marginal players, a view which is supported by the increasing churn rates seen. And maybe, after trying several sites the majority of the serious players are gravitating to the service and choice offered by the two leaders?
So could it be that spending more and more chasing increasingly marginal players is not too rational a strategy and perhaps not a sustainable one? When marginal return is lower than marginal spend, one normally stops for a radical rethink. The following graph sums it up well, painting a bleak picture given the continuing trend towards the leaders.
You can see that the tide does not have to come in too far for many to be drowned. To put it into numbers shows the real meaning of “relative strength”.
Feel free to argue about seven-day averages and 24hr peaks but the relative positions are indisputable. And recent data confirms that the gap between the large and the rest is widening.
With their leading market position, they have an enormous cost advantage and, unless things change, they will outgun anyone attacking on a price basis.
Not only are there too many sites pursuing too few uncommitted serious players but there are more than nine providers of software platforms living off revenues derived from players they don’t even own or know.
And additionally, each of their licensees compete with each other with exactly the same platform albeit with some window dressing. So for about 580 sites, competitive action is restricted to the price element of the marketing mix, until their provider takes the initiative.
It makes GigaMedia’s sale of Everest look like a well-timed move, even though there is a chunk of consideration based on future performance. On current trends GigaMedia should exercise its put option to sell the 40% it has retained as soon as it can in 2013, especially since it no longer controls the operation.
For the future, expect to see a decline in site numbers. There will be few acquisitions since the client relationship is the basis of value and too easily lost. Platform providers will be supported by their other products but can expect these to be progressively affected for the same reasons implying that for sustainability their business model will probably have to change.
Fighting back
There are however potential defensive strategies for sites on the receiving end of Stars and Tilt’s US liquidity-fuelled onslaught. Take into account that we are talking about a game in which, to date at least, differentiation is somewhat limited but includes inter alia ease of use, reliability, choice and liquidity, service level, confidence, but predominantly price.
It is only differentiation that can counter the vicious spiral of price competition There are technologic possibilities for adding real differentiation by better targeting prospects to recruit, improving sign-up, developing novices into confirmed players, and maintaining a direct relationship with adaptive personalised commentary, reports and progress tracking “ delivering pleasure through customer intimacy in a real sense. Contagious pleasure creation. Solutions already exist which have been deployed successfully in other client management situations and prototypes. The egaming industry just needs to embrace these.