Tuesday, October 11, 2005

24 Hour Party People

One interesting thing to note in all the fallout from the recent actions by Party is the strange relationship that's developed between poker sites, players, and affiliates.

If you draw up a short list of things that enabled Party to become the poker behemoth that it is (keeping in mind that it wasn't long ago that Paradise was far and away top dog in the poker junkyard), you'll find the following differentiators pretty dang high on the list:

1) Aggressively investing in mainstream media advertising.
2) Embracing the affiliate model as a low-cost means of acquiring a player base.

The interesting thing is that #2 also included being an early enabler of rakeback deals by incorporating the ability of tracking individual player in its affiliate interface. Party realized early on that one of the most effective ways for it to build market share was to arm a legion of affiliates with all the tools they needed to acquire and retain players.

(It's a bit apples to oranges, but the average player acquisition costs for online casinos/sportsbooks are surpringingly high, often in the $400-$600/player range. That said, their profit margins are pretty sick, once players are acquired, often in the +$700-$1,000/player range. With that in mind, it's pretty easy to see why most sites offer affiliate programs, as it's a low cost way of acquiring new players.)

So Party sent out its legions of affiliates, many of whom were offering rakeback deals, and everything was copacetic. Affiliates made money, Party made money, players got some of their rake back, and all was well.

Until a year or so ago, when Party suddenly started waging war on rakeback, removing the ability to track individual players and aggressively cutting off any affiliate they discovered who was publicly offering rakeback at Party. At the time, Party's "official" stance was that it was merely looking out for the best interest of its affiliates, and that rakeback deals enabled a few high-volume rakeback affiliates to enormously prosper at the expense of many other "normal" affiliates who weren't offering rakeback. So removing it was ostensibly to level the playing field among Party affiliates, preventing the larger, profitable affiliates from essentially buying new players with the superior deals they could offer.

To be fair, there are many affiliates who agree with the above reasoning and oppose rakeback deals of all sorts. It does often reduce player acquisition to a bidding war, one which you're likely to lose unless you already have a large player base and can offer a higher percentage of rakeback. Again, more information than you likely care about, but most affiliate agreements pay a higher percentage out based on your gross; an affiliate that produces < $10,000 in total rake in a month gets 20%, while an affiliate with > $30,000/month gets 30%. So the latter can offer 27% rakeback and still make a decent profit, while the former can't even profitably offer 20%.

So no more official rakeback at Party. Obviously this upset many players and affiliates and much brouhaha resulted. End result? Tough luck, kid, Party makes the rules and can change its affiliate terms at any time, and retroactively apply them.

Wait, what's that? You mean they can sign an agreement with affiliates and, at their choosing, completely and utterly alter it? Yes, yes they can.

Party also made a few other less obvious changes to its affiliate agreements around the same time and shortly thereafter, including completely changing its terms in regards to lifetime acquisition of players. In the past, once you acquired an player via your affiliate code they were yours, for the lifetime of their account. Now, suddenly, Party changed that, instituting a policy where if the player is inactive for 60 days, they're suddenly fair game, and can sign up under any affiliate they wish.

Unlike the rakeback policy change, this new wrinkle was met with pretty widespread displeasure. It made very little sense to most affiliates, and, more importantly, it completely violated the original agreement they had signed with Party. Many affiliates had spent considerable sums of money on marketing and acquiring players, under the assumption that the terms of their contract would be honored and those players would remain theirs for life. Now, suddenly, this was no longer the case, and other affiliates could actively poach players you'd spent money on acquiring.

Again, the response from Party to complaints was pretty much silence, and the reiteration of the fact that the affiliate agreement every affiliate had signed also includes the little nugget that Party reserves the rights to change and modify that same agreement at any time.

So a year or so passed after the banning of rakeback and things pretty much settled out, with players and affiliates interested in rakeback moving to Party skins that allowed rakeback, etc. Then, suddenly, boom, Party pulled the rug out from under the skins and decoupled the player pools from each site.

By many reports, lo and behold, Party is now allowing rakeback again, and setting up selected affiliates with the trackers they need to track individual players again. Keep in mind, too, that the 60 day inactive policy is also still in effect, so not only is rakeback available at Party again, but inactive Party accounts are suddenly able to take part in rakeback without creating a new account. Since many high-volume players left for a skin that allowed rakeback, many of them currently have inactive Party accounts.

So what exactly did Party accomplish with all this wrangling? I won't go so far to say this was their plan all along, but if they do indeed allow rakeback, they've set themselves up to completely churn through much of their player base acquired through affiliates, and to effectively weed out less profitable affiliate relationships.

At a certain point, it's a good thing for Party to consolidate its affiliate relationships with a small number of high-volume affiliates, as opposed to maintaining agreements and making payments and providing support to thousands and thousands of affiliates, some of whom make less than $10/month. So now, suddenly, rakeback is on the table again, inactive accounts can be required by anyone, and the larger affiliates are able to offer rakeback deals at or greater than 25%. It's not hard to imagine that the end result will be a consolidation of players under the biggest affiliates offering the best rakeback deals.

That's really not the point of all this babbling, though. The point of this is to be careful out there when you deal with Party, whether you're an affiliate or a player.

If you have any lingering doubt in your mind that they care about the welfare of players or affiliates, erase it. They don't. They've eclipsed the point where projecting a warm, cuddly image does them any good and are entering the ruthless, boost profit margins at all costs phase. They've built critical mass so they're willing to do basically any and everything that will boost their profit margins, regardless of how it's perceived, regardless of who they step on.

If you're an affiliate and you depend on Party as a majority of your income, get at least some of your eggs into another basket as fast as you can. Rely on them at your own personal peril. Their interest is solely on their own bottom line, not in honoring any agreement you have with them. I'm not saying to not work with them, as you obviously should, but always have a plan in place for what you'd do if they simply ended all affiliate agreements tomorrow.

If you're a player and rakeback at Party/Party skins is a large portion of your profits each month, start playing better poker. Then make sure you have a backup plan if Party yanks rakeback tomorrow. Because even if they allow it now, they might not tomorrow, if they think they can make more money that way.

10 comments:

Performify said...

Great writeup Scurvy.

I'll be in the boat of those who reactivate a Party account for rakeback once this situation resolves itself.

Donkeypuncher said...

Woulda thought that you would have killed so many brain cells in Vegas that a post like this wasn't possible. Great job!

ToddCommish said...

Hey, is it merely coincidence that your comments come from the FFL?

Anyway, on a more cynical note...

If you thought Party "cared" about you more than your money, um, you're desperately naive. These are gambling sites, not charities. Their loyalty should be to their shareholders and investors, not to some degenerate gamblers. If it is more profitable long-term to cultivate thousands of fish than it is to satisfy hundreds of loyalists, then dammit, screw customer service.

And it's no different for the players. How many players will now abandon Party because of their blatant disregard for customer convenience and affiliate loyalty? Ummm, none. In fact, I would bet that their deposits just went up by the same amount that the affiliate acocunts went down.

Bill Rini said...

Great, greaty post Scurvy.

ToddCommish, I think you might be missing the point. They screw everybody. Skins, affiliates, players, etc. Part of their duty to shareholders is not to f*ck so many people that nobody will do business with them.

ToddCommish said...

Yeah, but my point is that as long as they provide a large pool of fish (or a large stable of donkeys, depending on your metaphor of choice), the vast plurality of poker players will continue to patronize Party Poker. They have the most media advertising, as well as the most name recognition, so they will continue to be the Microsoft of the online poker world, which in turn allows them to be the Microsoft of online service as well.

Bill Rini said...

Todd,

Gotta disagree again. They are the biggest but Paradise was the biggest at one time too. As noted by Scurvy, Party built its critical mass mostly off of aggressive affiliate deals.

They will continue to be a major player but by screwing everybody and everything around them they really open themselves up to competition. Many affiliates refuse to do business with them over what happend the first go around with rakeback. Many more skin affiliates won't touch them with a ten foot pole after getting screwed this weekend.

And, I do take some issue with your comments about most advertising. Almost every final table televised at the WSOP has FullTilt pros wearing their logo. FoxSports is airing Learn From the Pros with Howard Lederer (Team Full Tilt), Phil Ivey (Team Full Tilt), Chris Jesus Ferguson (Team Full Tilt), Jen Harman (Team Full Tilt), and Layne Flack (Full Tilt Player).

Party is in the lead at the moment but other sites aren't far behind and making a few major blunders (i.e. like this one) could open the door for other sites to draw the fish/donkey crowd (and thus the grinders).

Interesting that you use Microsoft in your analogy since they only became who they are today by besting IBM who was the 800 lb gorilla of its day. No company is safe from being a victim of its own stupidity.

ScurvyDog said...

ToddCommish,

I pretty much agree, as far as a public company's responsibility lying largely with its shareholders, but I also see Bill's point. Companies (public or private) that continuously screw over their customers and partners are walking a dangerous line, and can negatively impact shareholder value by doing so, even if the ostensible reason is to make more money.

There are also plenty of examples of companies that dominated an industry, with a captive audience, that eventually went bankrupt. You can't project their current success forward indefinitely, or use their past success as a justification for what's viewed by many as shitty current behavior.

That said, I definitely hear you. They'll continue to make lots of money, lots of players will continue to play there, and the current changes won't affect their short-term results in any discernable way. If anything, like you say, total deposited funds and rake money/hour are likely higher now than last week.

My main point was to be sure to cover your ass when you deal with them, whether you're a shareholder, player, or affiliate.

StudioGlyphic said...

Nice post.

masterp said...
This comment has been removed by a blog administrator.
masterp said...
This comment has been removed by a blog administrator.