Rake and the Customer Experience

Kim Lund recently left bwin and has started a new blog about the poker industry. Though Kim and I don’t always agree but he’s got a bright mind and understands the business side of online poker so it’s always good to exchange ideas.

He recently wrote a post on his new site titled, The Price of Poker, in which he discusses the mistake poker rooms have made by disclosing their rake allocation to the public. I’m quoting very liberally here but please go read the rest of his post as he makes a lot of good points.

If rake is assigned in a specific manner to accommodate business deals struck with affiliates, network partners or even to help keep track of the business targets of different internal divisions, the players have no business or need to know this. If you choose to assign rake in a specific manner in order to simplify the creation of a loyalty program of some sorts, the players have no business or need to know this. They just need to know about the actual loyalty program constructed from it.

Previously Kim had made the point that rake is only paid by the winner of the pot. That was money that the player won but the house has subtracted their cut from his winnings. Had his opponent won the pot he paid zero rake to play and his opponent would be paying 100% of the rake. He calls rake a “Pot Retrieval Cost.”

So in the quoted section above what he’s saying is that players have no need to know how rake is allocated for affiliate (or other business) purposes. In a way he’s right. As long as you’ve communicated the rake percentages that’s all the consumer needs to know to make a decision about the cost of playing poker on your poker site.

Or is it?

Kim says:

If you choose to assign rake in a specific manner in order to simplify the creation of a loyalty program of some sorts, the players have no business or need to know this.

If the allocation of rake is in any way tied to the loyalty program then the players have every right to know how the rake is being allocated. That’s like saying, “yeah, we have this frequent flyer program but you really have no right to know how we award points. You just jump on the flight and you find out how many points you earned when you get your monthly statement.”

A large percentage of affiliates are poker players. The information is still going to leak out to the same people who are the ones who care about how rake is allocated right now. Whether or not the poker site itself discloses the the information it will get out there.

The statement “Information wants to be free” dates back possibly as far as Thomas Jefferson. Even back then it was known that the more you try to wall off information the more the information will eventually find its way out.

Kim goes on to say:

The rake the different rake models assign to various stakeholders in a player shouldn’t be equated with “rake costs” for a specific player.

By communicating your rake model to players you are starting your relationship with them by saying something like: “Welcome to the site. Click here to see how we collect rake. Rake is money we, the house, take from the pot. Essentially you pay us every hand you play.”

Compare that with the actual reality dictated by all-rake-is-paid-by-the-winner:

“Welcome to the site. Playing poker is free. However, when you win a pot, we deduct a small percentage fee from your winnings.”

Why would anyone in their right mind ever present Player Experience number one over Player Experience number two?

And the latter IS the correct one. In the eyes of a player, rake is not a betting fee. It is not a see-the-turn toll. Regardless of the method you use to valuate players and businees partners, from the players point of view, rake is a pot retrieval cost.

I think there are a couple of errors here.

No poker room starts off the communication with players talking about rake. The discussion of rake is usually deeply buried on the site in places beginning and novice players aren’t likely to look.
I believe it is an error to assign no value to a player in a hand that did not win the hand. My mere presence at a table provides game liquidity. The more players seated the more games can be offered, better table selection can be had, and success breeds success so more liquidity means it’s easier to convince people to play on your site.

So looking at rake as a pot retrieval cost basically says that everyone except for the winner of the hand is contributing zero value. And if your loyalty program does allocate rake on anything other than a pot retrieval method then you acknowledge the fact that I am providing value but then say it’s not my right to know how much you value me.

There are basically three types of players within this context:

Players who have no clue what rake is or if they do they don’t know and don’t care what they’re paying (i.e. New Players)
Players who have a clue about what rake is and might even have an idea how much they’re paying and/or what their value is (i.e. Novice Players)
Players who not only how much they’re paying in rake but also how much value they are adding to the website and how they are valued across different websites and will go to the website who assigns them the most value (i.e. Experienced Players)

The problem with this line of thinking is that players aren’t static. A New Player will eventually become a Novice Player if he plays long enough. And if he continues to keep playing he will likely become an Experienced Player.

This creates a problem because while New Players don’t much know about or care about rake as they progress up the ladder they start to become more and more aware of it. And if you are not transparent about how you value my play or allocate the rake it becomes a much easier decision for me to go to a competitor who is transparent.

And since it costs less to keep a player than it costs to acquire a new one I think this is a tragic, tragic error. By telling players they have no right to know how your value them you greatly increase the chances of alienating them and making them go to a competitor’s site. You’re increasing your attrition rate of players that are relatively inexpensive to maintain which means that to stay at the same liquidity levels you have to recruit new players who are very expensive to acquire.

Like I said, Kim and I sometimes disagree and this is one of those times. However he does have some valid points though in the end I think the only way this works is if it becomes the industry standard. Sort of like if one airline begins charging for checked luggage the other airlines either have the choice of following along or distinguishing themselves by not charging for checked luggage.

In this case, companies like PokerStars and Full Tilt seem to be moving in the opposite direction by fully communicating every aspect of how they allocate rake which means that companies that decide to take such a radical change on their own (i.e. bwin) may be setting themselves up for a fall.