What Online Poker Can Learn From The Dotcoms
The other night I was invited to get-together with some of my comrades from the old dotcom days. It was good to catch up and see people I haven't seen since HTML programmers with no…
The other night I was invited to get-together with some of my comrades from the old dotcom days. It was good to catch up and see people I haven’t seen since HTML programmers with no formal education in software engineering thought nothing about asking for (and getting) $75K+ starting salary and a BMW signing bonus.
But it also forced me to reflect on the parallels between the old dotcom days and what’s going on in the poker world. In many ways the similarities are not just striking but kick you in the junk striking.
For instance, I got involved in the dotcom craze back before people even called it dotcom. Most companies barely had websites back then. Nobody had cable or DSL because they either weren’t available or were so prohibitively expensive that most people surfed the cyberspace desert on a 9600 baud modem.
Somewhere along the way the venture capitalists got involved and they started throwing money at anything that involved “online.” Soon this little niche industry started to go mainstream and it wasn’t long after that there were companies like Amazon, Yahoo, AOL, etc taking in millions upon millions of dollars.
You could go from doing bong-hits on your couch to multi-millionaire in months. No idea was too absurd. No business model was too retarded. If you could sketch it on the back of a cocktail napkin you could probably find someone willing to give you $10 million.
But back around 1998 the bubble began to burst. The venture capitalist money dried up almost overnight. Companies that just months ago were hosting million dollar website launch parties and buying employees $700 office chairs were suddenly bankrupt (as they should be).
Many of the old, traditional companies had stayed mostly on the sidelines during the dotcom boom. The dotcom folks called them dinosaurs and spoke of a world where these old-school companies would be mere memories that our children would learn about in history books.
But the old-school companies knew there was no long-term potential in spending $300 to acquire a customer that would only spend $100. When the bubble burst they jumped in and cleaned up. They bought dotcom companies for pennies on the dollar and/or launched their own websites having learned what not to do from all of the dotcoms.
Some dotcoms survived but most didn’t. Darwinism weeded out the weak and only the best of the best dotcoms survived. And the dotcoms no longer resembled dotcoms. They got serious about cash flow, fulfilment, strategic planning, marketing, logistics, and all of the other stuff that they mocked the old-school dinosaurs for being too focused on.
In the end, the dinosaurs became more agile as they adopted the best practices that emerged from the dotcoms and the dotcoms that survived became more like the dinosaurs paying more attention to running a real business rather than pouring all of their available cash into Superbowl ads.
Black Friday was the online poker industry’s dotcom crash. Technically, I guess the UIGEA was the real beginning but Black Friday has become the historical marker stone that most of us will, in coming years, define as the turning point.
The UIGEA started to weed out some of the stupid money. The Reefer Pokers and other companies who had no unique selling points nor particular brilliance in running a poker room began to die off after the UIGEA. Many others are in walking-dead mode hoping that some external event will save them from eventually having to shut their doors.
Black Friday was the other shoe to drop. It put a massive, massive dent in the amount of stupid money being thrown around. Full Tilt and PokerStars were the only two companies who had the cash flow to compete against each other while everyone else more or less just tried to stay out of their way. Now with Tilt out of the picture and Stars unable to throw cash at the US market a lot of stupid money has dried up.
And just like the old dotcom days, the big dinosaurs are lumbering out of the jungle to come feast on the carcases left lying around after the Black Friday apocalypse. The brick and mortar casinos are starting up free poker sites and placing big bets on legalized poker in the US.
Some of the online poker sites will make it through this but the dinosaurs, the brick and mortar casinos, will be playing a much bigger role in the future of online poker than anybody would have imagined a few years ago when the players and the industry just assumed that Stars and Tilt would continue to grow forever.
The new world order will not be run by companies flying by the seat of their pants. Gambling will become a serious business just like it is in Vegas and Macau. Instead of having some frat-boy running an online gaming site down in Costa Rica while snorting the profits off some prostitute’s breasts, you’ll need to have some serious business credentials under your belt before you can even get a gaming license.
The next phase in the business cycle is far more sober.
But being more sober doesn’t mean boring. The industry will be just as fast and just as exciting as it is today but there will be a lot more people with grey hair running things.
Look at the dotcom industry. Look at where things were back in 1998 – 2000 when the dotcom bubble burst and where things are today. Internet usage has skyrocketed from 350 million users in 2000 to over 2 billion in 2011. We are far more connected on our mobile phones, tablet computers, and other various always-connected devices than we were at the height of the dotcom boom.
What’s different is that that previously mentioned HTML programmer now makes $30K a year, you can get a website built on eLance for a couple hundred bucks instead of a couple hundred thousand, and most companies don’t blow all of their start-up cash financing a rock star lifestyle for the twenty-something CEO.
Online poker will make a similar transition. Obviously, the growth will be less dramatic than the overall internet but as countries slowly come to grips with online gaming and how to regulate it the number of players will continue to grow in fits and starts. Costs will come down as online poker sites realize that they don’t need to shell out such a large percentage of their profits to affiliates. And the entire emphasis of the business will shift towards creating a long-term sustainable business.
In 10 or 20 years we’ll look back at this period and laugh. It will be unimaginable that people used to Western Union cash to Panama to be picked up by some lady named Senorita Lopez, and this was considered a viable payment option to deposit money on an online poker site. We’ll wonder in amazement at how people played on sites where the software was not regularly audited by a government approved third-party.
The next phase in the online poker industry business lifecycle will bring us debit cards linked directly to our online poker accounts and will be able to withdraw cash from our accounts at any ATM. We’ll earn airline miles instead of FPP’s. Your play will be continuously evaluated and you’ll receive promotions that apply specifically to the types of games you play, your average reload amount, and how often you play.
You’ll be able to walk into a McDonald’s and get a scratch off card with a chance to win a seat to a WPT or WSOP event. Hell, it might even be the McDonald’s or Coca Cola WSOP just like we have Allstate Sugar Bowl and Tostitos Fiesta Bowl today.
There’s still a bright future ahead for online poker. However it will take on a very different type of growth than how we got to where we are today. Just like the dotcom crash did not spell the end of innovation in the online world, today’s issues will not be the end of growth in online poker.