With seven years’ experience in the online poker industry I have naturally had a lot of dealings with PokerStrategy.com. As we alluded to in Part 1, the biggest names in online poker fall over themselves to do business with them, and the companies that I have worked for are no exception – handing them the keys to the safe in exchange for a bite of online poker’s juiciest apple.
Over the course of this article we will discuss the apparent benefits of the largest online poker affiliate in the world, showing that the old adage ‘if something is too good to be true, then it generally is’ couldn’t be more true in the case of PokerStrategy. We will go on to show that their strangle hold on the online poker industry is ultimately to the poker community’s detriment.
First and foremost, what makes PokerStrategy such an attractive proposition, from a poker room’s point of view, is tapping into that 5.5 million player base and a genius business model that recognises monies earned are done so through player rake, and so teaches it’s members strategies to earn more rake. For the poker room this means that you could be getting referred up to 10,000 new customers per month – and all of them potentially valuable customers. Sounds brilliant doesn’t it?
They can command revenue share deals of anywhere between 30–60%, and with the proven ability to send affiliated poker rooms upwards of 10,000 customers per month, almost guaranteed, it’s not hard to see why. Or is it?
Uniquely amongst poker affiliate deals that I have had experience with, or heard of, PokerStrategy refers customers on a dual CPA (Cost per Acquisition) and Revenue Share deal. This means that they receive a cash sum ($50) per sign-up and a percentage of any revenue generated from that player for life – in PokerStrategy’s case up to 60%. Normally affiliate deals would be CPA or Rev Share only, so with such a heavy cost of doing business with them the payback must be huge, right?
True to their word, you will get thousands of new customers per month, however; the quality of those customers leaves a lot to be desired. The majority of customers that you will get will come through on the free $50 campaign, in which new sign-ups are funded with a $50 bankroll paid for by the poker room (PokerStrategy’s CPA). Sounds like a nice mechanic, doesn’t it? As always, not quite.
The trouble is once they bust the free $50 you never see the overwhelming majority of them again, partly because they never actually had any intention of depositing in the first place and partly because PokerStrategy shifts them to the next free $50 poker room on their list once the player has lost the initial $50. Then there’s the process they have to go through to get the $50 – membership to the site is dependent upon passing a 50 question test about poker strategy, which should see you armed with the basics as you dip your toe into the world of real money poker with your free bankroll.
Those who have taken the test will see that what it is designed to do is teach you ‘short stack’ poker strategy – the blight of online cash games. Essentially you’re paying 50 bucks a pop for a load of short stackers to take a free punt at your customers, spoil games, break up tables and seriously damage the ecology of your poker room. Splendid.
Those that do stay are a raft of short-stackers and bonus whores, and rake racing, double or nothing, coin-flipping rake machines; extracting promotional prize money and rakeback. Or, the exact same player that the online poker industry needs to, and is trying to, root out.
Ok, so what? They might not the best quality players, or the most loyal, but they are still good raking customers, right? I can still make a margin on them, who cares?
You wouldn’t believe the amount of times I’ve heard the above line used in respect to PokerStrategy and other so called super-affiliates to justify the price of doing business of them. If they were to just remove their head from their arse, look past the phantom numbers, and follow the dollar they would see what was really going on here.
The above image, although overly simplistic, is representative of how the rake would be distributed in the kind of deal a small to medium-sized poker room would have. As you can see, once the player, PokerStrategy and the poker network have been paid, there is nothing left for the poker room, in fact they are $50 down on the free bankroll. Even if you reduced those costs by 10% it would still not be enough to cover overheads such as staff wages, marketing costs, tournament overlays, hosting etc etc. When you consider that a small room would be looking at 55-60% to PokerSrategy and 18-20% to the poker network, you can see why so many start-up poker companies don’t even see out 6-months.
You have to ask yourself why don’t PokerStrategy have their own skin on one of the big poker networks when they have 5.5 million members at their disposal? They would, without doubt, be the biggest player on any poker network they joined and could feasibly give that network the liquidity to challenge PokerStars.
The reason, of course, is that running an online poker site is a costly business and they, and the other so called super-affiliates, don’t want the overheads when they can just keep leeching off the resources of online poker companies on monstrous revenue share deals. They much prefer to encourage cowboy operations to spring up thinking they can operate on the slimmest margins on the promise of hundreds of new player referrals per month, only to realise it’s not that simple and go belly up taking your funds with them.
The only real winner in today’s online poker market place are the affiliates, and if the online poker industry is to survive long-term it needs to grow some balls and recognise that PokerStartegy.com and their ilk need the poker rooms more than the poker rooms need them. The poker rooms need to learn to say no to greedy affiliates and instead invest money in marketing efforts to bring in good quality players that will have real loyalty to the brand and are not there simply to extract rakeback and promotional funds. The best operators that offer genuine value and good service to the players will flourish and the rogue operators will quickly be found out.
Affiliates must be made to do their bit also if they are to have their slice of the online poker pie in the future. They must be tasked with marketing responsibly and the exorbitant revenue share deals they are demanding, which are only serving to cripple new start-ups and hence competition in the online poker industry, need to stop. Otherwise, and as we can already see, the big boys will consolidate and grow into an online poker cartel, and opening a new poker site just won’t be viable.
A lack of competition in any industry is ultimately bad for the consumer, and online poker is no exception…