Pokerstars

The Evolution of the Online Poker Industry

From Entrepreneurial Innovation to Corporate Verticals

Poker Industry"Live the life that you have imagined." -- Henry David Thoreau

Like most things in this world, the online poker industry has evolved over the years. At the same time, most poker players evolve at a glacial pace. They get comfortable with things one way, and then resist change.

Besides Black Friday, the most important evolutionary change in the history of the online poker industry is the shift from the cardrooms being owned by entrepreneurs to the largest ones being owned by corporations controlled by investment banks. Given the multi-billion dollar nature of the industry, this circumstance will never evolve back the other way. An entrepreneurial startup may come along and shake things up, but inevitably in a mature industry the collective resources of corporate entities will swallow up any small outfit.

The key instigator of many changes at PokerStars has been the evolution of the company from an entrepreneurial upstart, to a mature company, to a longstanding industry leader still owned by its entrepreneurs, to finally being publicly acquired via debt by banks and institutional investors... with the pride of individual ownership lost.

Responsible people in a corporate environment make decisions differently than in an entrepreneurial structure. Corporate people will often express themselves by thinking: "Let's try this". In contrast, entrepreneurs decide what they want to do by thinking: "We will build this". Building takes both commitment and time while "trying" is something you do with something you don't fundamentally care as much about. (There is a Yoda line in there somewhere...)

There are two completely different approaches to risk versus reward. Almost all corporate people have jobs where they are tasked with one line item prospering, one area on the profit and loss sheet that shows improvement quarter over quarter. In contrast, sensible entrepreneur owners will prioritize avoiding the destruction of the whole business.

For example, corporate PokerStars' "rebranding" of the European Poker Tour was an extreme example of short-term "employee-think" that would be completely alien to an entrepreneur. The EPT, the Latin American Poker Tour and other Tour brands were not negatively impacting the overall value of the company. The brands existed due to a company-wide philosophy of both integration and uniqueness. They weren't just random names. The reasons to not rebrand them start with "if it ain't broke, don't fix it", but go far beyond that. I don't think I ever saw anyone point to the rebranding and say: "oh, that's a good idea they did that for this and this and this reason."

As bad an idea as "New Coke" was, there was at least a reason to do it (performing better in taste tests with users of other products), but that fiasco was still screwing around with a multi-billion industry-leading brand. To do that, you should be certain the change should take place. The PokerStars tournament rebranding had absolutely zero understandable public rationale, let alone a compelling one -- even if there might have been an interior Power Point presentation that showed the change may lead to the isolated tournament vertical being somehow more profitable.

If such a "rebranding" works, the employee of a corporation can reap benefits that make a big difference to the employee -- if an employee making $100,000 saves a company as little as $500,000, that might lead to a $50,000 bonus. On the other hand, if the rebranding doesn't work, the employee can hunker down and ride out the flak or just move on to a different job (assuming they are qualified for the sort of job they have, and it isn't a fluke). So, the risk of rebranding to the person pushing the rebranding is relatively small, while the reward could be a meaningful 50% increase in wage. So there is little downside to advocating making risky changes. This is completely opposite of what it takes to make an entrepreneur advocate changing something that is working... or at least not badly broken.

I'll write more about this elsewhere, but a counterexample of this phenomenon occurred at PokerStars during the entrepreneur regime. The company was continually pestered by many "black hat" search engine spamming companies promising otherworldly improvements in search rankings. Most of these black hat companies were so utterly clueless they didn't even know about how spamming done by/for Party Poker ended up costing them hundreds of millions of dollars, but that didn't stop them from promising better rankings within a month... within a month after they were paid of course. But PokerStars already had the best search rankings in the world, so some hustler waving his arms about ranking better next week was the wrong approach to take. If you have the best search rankings in the world, your top priority is to not screw anything up, rather than rank somewhat better than currently. These hustlers were literally suggesting "take a chance at losing hundreds of millions of dollars to maybe get some thousands more a day, based solely on this line of baloney I'm pedaling you."

Decisionmaking entrepreneurs have to look at the big picture, but employees simply looking out for the bottom line of their own single vertical do not. Ranking better next week might make an employee look better next bonus cycle, but protecting the core value of the company is what entrepreneurs value... unless you totally suck at being entrepreneurs like the old Full Tilt Poker management team, who made a series of hysterically risky moves and in the process destroyed what should have been the second most profitable online poker business.

Of course, this "protect the core asset" concept does run the risk of some innovation stagnation with entrepreneurs. In PokerStars' entrepreneurial era, one such error was not fixing the ill-conceived rewards program, which rewarded sit-and-fold players merely dealt into hands instead of the actually valuable players who did one or the other of the truly profit-generating actions a player can do: either making $-deposits or voluntarily betting money into a pot. In this case, a corporate bean-counting environment recognized the obvious problem and set out to put an end to it... even if in cloddishly ending the problem they created a different public relations problem for the company.

But then, public relations is a different vertical...

From the independent portal/affiliate side
When PokerPages launched in 2000, they were the first poker information/news portal. I was writing for Cardplayer Magazine at the time, getting $75 an article. The first conversation I was a part of about PokerPages was at a Commerce Casino tournament where we were all stunned some online site was offering $100+ for poker articles. Soon after that, Kathy Liebert suggested I put up a website for my writing, and to send people to online cardrooms. A few months later I did that, and wrote the first guide to playing and winning online, as well as other online-focused content.

When UltimateBet and TruePoker launched for real money in spring 2001, PokerPages was the only poker news site (also with other content), while my site was the only strategy-only site, and Two Plus Two was the only forum site (besides the RGP newsgroup, which was difficult to access). There were a very few other small sites, but these three were the only ones to send significant real money players to Paradise Poker, which had 90% of the market. Fortunately for me, PokerPages was not good at attracting diverse search engine traffic (besides the single-word [poker] search)... and Two Plus Two was virtually non-existent on search engines. This lack of search traffic also held true for Cardplayer.com when they finally launched a site.

Both Two Plus Two and Cardplayer (and the World Poker Tour) tended to have us-against-everybody worldviews, which was counter-productive in terms of Google back then. Google valued quality websites that valued each other... so when PokerPages linked to me, or I linked to them, or smaller sites like lowlimitholdem.com or thepokerforum.com linked to our sites, Google liked that. Very long story short, both Cardplayer and Two Plus Two missed out on tens of millions of dollars during the poker boom because they didn't recognize early on the "a rising tide lifts all boats". If Cardplayer and Two Plus Two had properly organized and exploited their massive amount content properly, a site like mine would never have been able to get 20,000 people a day via search engines at its peak, nor would Pokerlistings or any of the other post-boom sites be able to also get thousands every day.

But since they did not, entrepreneurs like Tony Guoga (Pokernews.com) and Andreas Oscarsson (Pokerlistings.com) built eight-figure companies. Cardplayer and Two Plus Two did just fine making their own millions during the boom too, so need to shed tears for them, but the point is they left an market opening for myself, Tony and Andreas to entrepreneurially prosper in.

Shirley RosarioWhen the boom started in 2003, and Pokernews and Pokerlistings gave my site its first real search engine competitors, I asked my friend, Shirley Rosario, if she wanted to partner on a website aimed at the combination of female players and horny males. In the days after the first World Poker Tour broadcast, my website was getting 800+ visitors a day from [Shana Hiatt] searches, so I wanted to build on that. On the other hand, Shirley wanted to focus the site on profiles of successful poker players, especially those who would be appearing on World Poker Tour and World Series of Poker broadcasts. I thought that wasn't much of an idea, but... as she loves to hear me say... she was right and I was wrong.

Even though the general public never heard of any poker players besides Johnny Chan and Amarillo Slim prior to the WPT broadcasts and Chris Moneymaker winning the WSOP, that changed dramatically. Our no-longer-well-named Poker-Babes website ended up primarily being 100+ bios of players, most of whom would generate dozens of search visitors every day, while the most popular players like Moneymaker could bring hundreds of visitors daily.

Our two websites together, my Playwinningpoker and Shirley's Poker-Babes sites, at their peak were sending over 900,000 clickthroughs to the online cardrooms a year. But we both recognized the evolution from entrepreneurialism to corporatism the industry was going through, especially after the Party Poker IPO. So we estimated that by 2010 the party would be over, so to speak. We knew our two person, multi-million dollar company couldn't compete indefinitely with multi-billion dollar public company cardrooms, nor with independent companies like Pokerstrategy.com or Pokerlistings.com, where large company profits were split into dozens of smaller pieces among groups of owners and scores of employees.

Tony GShirley likes to tell the story about the last WSOP tournament I played in before retiring from tournament poker in 2008, where during the $10,000 Omaha8 event, Tony G and I had a half hour conversation, while our chips were being blinded off, about selling our businesses, and how the buyer universe was so small (basically, PokerStars for him and PokerStars and maybe Pokerlistings for me). She first thought it was funny that no one was paying attention to us, even though we controlled a large percentage of the player traffic to the online poker rooms, but then she also realized that she was witnessing the beginning of the end of the entrepreneurial era for independent poker portals.

Shirley and I sold our sites to PokerStars in 2010, just about a year exactly before Black Friday. The 2010 aspect was part of our business plan, but the Black Friday part was lucky for us. The majority of our traffic had already evolved to non-USA, non-English-speaking players by design, but while Black Friday didn't kill independent poker portals, it sure made it more challenging to be an entrepreneur. It took awhile longer, but Tony also eventually completed the sale of Pokernews to PokerStars.

As the boom wore on, the poker business continually changed, but strangely many business people and poker players alike took the view that everything should and would stay the same -- especially those things they liked. But the power and inevitability of evolution disappointed them. Adapt or die.

Now that corporatism rules the cardrooms, and fewer entrepreneurs innovate in all aspects of the business... this might be the start of when things evolve much slower, but I doubt it. Regulated poker expanding to more states in the USA likely will lead to another boom once critical mass is reached. What the poker universe will look like then will be up to the corporate suits and whatever entrepreneurial innovators who seize the day can introduce.

See also The Poker Plateau, PokerStars vs. Full Tilt Business Pre-Black Friday and Most Googled Poker Players