Deal Me In!

10 steps to a successful online poker room

Congratulations! You’ve just received regulatory approval to offer real-money online poker in your state. You and your company have been looking forward to this for a while. You have big dreams of running scores of games and raking a lot of money.

But how exactly are you going to get there? How well do you know the online poker business in the first place, and through what means do you plan on becoming and staying competitive?

This step-by-step guide puts you in the position of having to build your online poker operation from the ground up in the contemporary U.S. environment. The advice you are about to read was sourced from conversations with several individuals who have shaped the U.S. regulated online poker industry since day one. These include top operational managers and market analysts, along with actual online poker players, casual and serious alike.

Before you invest any of your company’s resources into the uncharted territory of U.S. online poker, heed this wisdom by those whose successes, failures, experiments and embarrassments have conveniently mapped out much of the road for you.

1) Choose A Software Platform—Or Create Your Own

First order of business is to figure out the software platform your players are going to play on. Normally, you have two options: develop your own from scratch, or “rent” one from experienced providers. Each option has its advantages and disadvantages.

The upside of owning your platform is control. You get to decide the platform’s look, features and upgrades, ordering them by importance however you want. You can base these decisions on what you believe to be better for your business, and you can act on them at the pace you desire.

When you don’t have this amount of control over the platform your players use, requests to amend and improve it will need to go through your software provider first. This may take more time and cause disagreements, because a priority for your business may not figure as highly on your partner’s agenda—or it may not figure at all.

The downside of building an online poker platform from the ground up is that you start out with something far behind the sophisticated platforms that have been in development for years. If your platform is so handicapped that it complicates play, players won’t have the patience for it and they’ll opt to play somewhere else.

2) Bring Your Best Assets To The Table And Expect Your Partner To Do The Same

Succeeding in the U.S. online poker market is like tango. Or an ’80s hit song. Either way, it takes two.

 One of the most valuable assets you should look for in a casino partner is an up-to-date, preferably large database of live poker players. Some online poker software providers have player databases too, but most legitimate operators quit the U.S. market in 2006, meaning it’s been a while since they could get through to American players. If you are the casino in the relationship, you hold access to a group of players you can realistically market to right now—your live poker room players. Your software partner’s responsibility is to serve these players a user-friendly platform.

If your live poker business isn’t very robust, it would help if your partner’s poker brand were.

3) Get Your Payment Processing In Order

Nothing can drive away players more quickly than being unable to deposit and cash out in a timely manner. It seems obvious, but it bears repeating: If players can’t deposit, they can’t play. But that is only half of the equation. If players who cash out don’t receive their money within a reasonable period of time, they will be extremely dissatisfied and less likely to come back.

 Short of recruiting shady payment processors, do whatever it takes to ensure that deposit and cash-out experiences run smoothly for players. Be ready to face challenges: some banks and credit card companies have hesitated to process U.S. online gaming deposits, but thankfully, they are starting to come around. PayPal and Neteller have shown an inclination to cooperate with U.S. iGaming operators, and plenty of legitimate payment alternatives exist on the side.

Finally, if your brick-and-mortar casino can support it, permit deposits and cash-outs at your casino cage. Players love this option because it’s fast and cash-based. It also stimulates foot traffic to your property.

4) Be Prepared To Contend With Some Surprising Realities About The Online Poker Market

Do you subscribe to the belief that “if you build it, they will come?” When it comes to online poker, get that cliché out of your head immediately. It has never been harder to get people to play on your online poker site.

You may be new to it, but the online poker industry has been around for over a decade. Years’ worth of data have let analysts derive dependable judgments about how the market behaves.

Some of these forces of nature seem counter-intuitive. For example, “stealing” players from other sites is much more uncommon than you might imagine. Contrary to the belief that online poker players are all value-hunters who stalk every site in search of better deals, the majority of players are actually stationary creatures who get comfortable with one site and stick with it.

The data bears this out. Generally, when an online poker room’s traffic spikes—thanks, for example, to a successful promotion—other rooms’ traffic does not decrease much, if at all. Rather than taking players away from other rooms, the traffic spiker is mainly energizing its own player base or awakening a dormant segment that hasn’t played as much.

The heartbreaking takeaway is this: It is very rare and difficult to enlarge your market share so much that you permanently overtake another site. Domestically and internationally, online poker room traffic rankings have looked much the same way for years. Most of the big shake-ups only took place after cataclysmic events like UIGEA and Black Friday, which removed competitors from the space and gave others a leg up.

5) Look Out Your Window

In anticipation of interstate liquidity agreements, if you enter the U.S. online poker market today, you commit to an intrastate campaign, where one geographically contained populace equals your entire market. To succeed in your own neck of the woods, you’d do well to acquaint yourself with every tree, bush and gully.

In a country as big and diverse as the United States, the one-fiftieth you can lay claim to is guaranteed to be unique in several key ways that should influence not just the decisions you make, but your expectations, too. What is the average income of your population, and what does it suggest about disposable income? How large is the adult population, particularly in that critical 21-45 age bracket that plays the most online poker? Is your state densely populated, especially near the borders? How will this affect the geolocation process? Do many residents of nearby states visit or commute to yours? Should you market to some of those migrants in their states?

6) Meet Your Top Rakers

A minority of your players is going to generate the majority of your rake.

Fortunately for rule-of-thumb fans, the online poker industry embraces the Pareto principle, which postulates that 80 percent of your business comes from 20 percent of your customers. Translated for poker, this means 20 percent of your players generate 80 percent of your rake.

Most of your cash games will be low-limit games—nickels and dimes, sometimes even lower. Although the quantity of these games is higher, the amount you rake from each of them is so small that it does not add up to much.

We need to move up in limits to find the kind of rake that really influences our bottom line. Bigger bets mean bigger pots mean bigger rake. Look for your “top rakers” here—the prized 20 percent.

But if these players and their higher-limit games are so valuable that they overshadow everyone else on the site, why should we bother with offering small-stakes games at all?

Because…

7) If You Don’t Have Casual Players, The Serious Players Won’t Come—And Vice Versa

Call them what you want in private—“shark” and “fish” are controversially common—but here we will divide them into “serious” and “casual” players.

Serious players play longer, more often and more voluminously, usually at higher limits. Some of them “multi-table (play multiple tables simultaneously).” Generally, these are players you can count on to generate much of your rake. They don’t just start higher-limit games, they keep them going.

Don’t assume all your serious, higher-limit players must be skilled or “professional” players here. Although many of them play at an above-average level, some are huge whales. But for the most part, what sets serious players apart is their passionate drive to win money, through consistent play, from less skilled, more “casual” opponents.

Casual players care more about playing “for fun.” This does not mean they enjoy losing—no one does. But whereas serious players worship value, casual players prioritize an entertaining experience in exchange for their time and money. Casual players are generally found at lower limits, where they tend to stick to one table.

Serious and casual players alike play a critical role in your online poker ecosystem. In fact, your room is unlikely to survive without one or the other.

Your top rakers (serious) may be your most valuable players from an economical point of view. But if you don’t have plenty of casual, recreational players, serious players won’t come. And because your serious players usually start and keep games going, once they go away, casual players won’t show up as much either, and those who do probably won’t play as long.

Here’s a simplified recipe for a healthy online poker ecosystem: maintain a minority of serious players and a majority of casual players. Some will win, some will lose—you, on the other hand, are always winning because you rake as they play. But in so doing, you are taking money away from everyone. Therefore, deposits are the fuel that keep this system alive. Your goal is to ensure the longevity of the system by making sure serious and casual players alike remain happy and keep depositing.

Unfortunately, your goals are seldom your players’ goals. So watch out.

Serious players care primarily about winning as much money, as quickly as possible, from casual players. If this got broadly out of control and the well of casual players dried up, the serious players would leave too, killing the room entirely. Over time, several online poker rooms wised up to this, and a variety of protective measures have since become industry standards. For example, the number of games a player can simultaneously multi-table is usually restricted, as is the max amount of chips a player can bring to a table when he first sits down.

8) Players Like Tournaments. You Like Cash Games

You’ve determined what kind of player supplies most of your revenue. Now we turn to what kind of game: cash games or tournaments?

The answer is cash games, and there is little to no debate about it in the industry. On practically every online poker room, cash games account for well over half of total revenue.

Cash games are straight-up rake. As long as one is running, you are making some money on every hand that sees a flop. Tournaments work differently. Once registration closes, part of the prize pool becomes your revenue. Ultimately the tournament plays down to a final table and then a winner. Due to the “top-heavy” prize pool structure of most tournaments, a few top finishers typically end up with any significant amount of money. Therefore, whereas cash games are win some/lose some for most players, tournaments are most lose, some win a little, and a few win a lot.

This is riskier for your bottom line because of what most players do after a big tournament win: they cash it out. They take that money off your site and thus away from your tables, where its chances were otherwise good of feeding the well-oiled rake machine.

So why should you run tournaments at all, if they have the potential to impoverish your ecosystem?

Because they are popular. Players like tournaments because they are fun in a way cash games aren’t. Moreover, the majority of players, especially casual, prefer having access to a variety of games. You will seldom hear “I only play cash games” from anyone besides pros or players who think they’re pros.

An additional upside to tournaments is that they draw attention and generate traffic when you “guarantee” the prize pool or, better yet, add money to it. In your heart, you always hope players come for the tournaments and stay for the cash games.

9) Plan Your Marketing Spend Carefully

There once was a time when U.S. online poker players could play against anyone in the world, creating these massive player pools that let operators throw money at marketing and get away with it.

Then there’s today.

The cost of buying a TV ad in New Jersey probably hasn’t changed much in the last few years—but the amount of money you generate from a New Jersey player diminishes in a state-only environment. The marketing ROI has nose-dived since the U.S. online poker market went from borderless to intrastate.

In all likelihood, the majority of your players will create their accounts during the first month or two of your launch—meaning you don’t need to keep spending the same amount of money each month to “attract new players.” Over time, the emphasis should shift from acquisition to retention. Take some of the money you were going to spend on marketing to “new” players and consider reinvesting it to keep your current players happy—say, by adding it to an upcoming tournament’s prize pool. Players really like that.

10) Know Why You Are Doing What You’re Doing

If you enter the U.S. online poker space with the only goal in mind to make a lot of money, you’re in for spectacular disappointment. The market is small and the competition, oddly enough, is stiff. It may be years before any U.S. online poker company turns a profit.

Then why get into online poker at all? Because now is the time to start building customer loyalty, brand recognition and player databases—all to be leveraged later when things do begin looking up and the market expands.

In the present era, a well-run online poker room can do much to complement your casino business, not only by driving more awareness and traffic, but also by providing you data you never had about your players’ identities, preferences and habits. If you can bank on these opportunities and develop your online poker product while trying to lose as little money as possible for the time being, you are doing a job well worth doing.