The project, RunItOnce Poker, is ambitious. And even with his stellar reputation and good business acumen, Galfond faces a steep uphill battle, as his online poker room will be up against billion-dollar corporations in a hyper-competitive space.
Galfond is now getting a taste of the rigors and cost of launching an online poker room, and the Q1 launch date is already being pushed back.
In the meantime, another well-known online poker player, Andrew “LuckyChewy” Lichtenberger, launched his own “player-friendly” online poker room, which could serve as a trial balloon of sorts for some aspects of Galfond’s project.
LuckyChewy Poker is also trying to capitalize on the divide between PokerStars and high-volume poker players by employing a low rake/high rewards model. In theory, this model makes every game structurally beatable for a wider swath of players.
The belief is the core players at PokerStars will jump ship if they’re provided with a viable alternative, and their exodus will cause new and recreational players to realize they’re being fleeced.
These players will subsequently follow the pros to the new site where they’ll get better bang for their buck.
The problem is, LuckyChewy Poker is very basic, very oddly marketed, and quite frankly, not ready for primetime — to the point that 2+2 and poker podcasts have ridiculed the site and wondered if it’s nothing more than a level.
So, despite the low rake/high rewards systems in place, it seems like the model itself is not the be-all, end-all for the poker community. Contrary to the narrative on 2+2 and elsewhere, there are other factors that even the most miserly grinders take into account when they choose where to play.
While I expect Galfond’s site to be light years better in terms of the platform (in a recent post Galfond conveyed he has 40 people working on the online poker room), and better thought out from a business perspective, what it will face at launch will be daunting.
As LuckyChewy Poker has learned, there is more to an appealing online poker site than getting a fair shake.
It’s not a coincidence that most other online poker sites haven’t tried to reach out to disillusioned PokerStars players. (MPN has made some moves in this direction with fairly decent, but not earth-shattering, results.)
Yet, if the internal data and research from Stars showed they could scoop up a larger market share and continue to operate in the black wouldn’t they have done so?
So, there must be another reason they haven’t tried to go in the opposite direction of PokerStars — in most cases they’re following PokerStars’ lead — and it mostly has to do with online poker margins.
Online poker has pretty thin margins to begin with, so when companies decrease their revenue (rake) while simultaneously increasing their overhead (rewards), the path to profitability becomes more challenging.
I’m not even sure a site can be profitable in 2017 using this model, even if everything goes according to plan.
This is why I feel like low rake/high rewards is the online poker version of trickle-down economics, but on steroids. Of all the aspects of the low rake/high rewards business model, the overhead seems to be the part most people don’t fully comprehend.
Most people seem to think that once a site is developed it just runs itself.
Associated costs of running an online poker room include:
The costs associated with running an online poker room in the highly regulated markets of 2017 are many, and have grown considerably since the heyday of online poker when everyone was getting 35 percent rakeback and VIP rewards.
It was possible to implement this type of system during the poker boom when new players were falling from the sky. But in 2017, CPAs are much higher, and it’s not so easy to find new people who want to play online poker.
Furthermore, the more players a site has, the bigger its team has to be.
When companies start lowering rake and handing out more rewards, their already razor-thin margins start to disappear. Even PokerStars, with its massive market share, realized a sea change was needed.
To a degree. If RunItOnce Poker goes too far in the “player-friendly” direction it will have a hard time succeeding from a business perspective, regardless how sleek the software is, or how well-run the site.
While it’s unclear how far RIO will go with this, it appears it will be closer to LuckyChewy than PokerStars. As Galfond noted when he announced RIO Poker, he believes a poker site should do the following:
“It should value the casual player for the money he’s willing to put on the line to play a game he loves. For choosing poker over other hobbies, and for choosing their site over other sites.
It should value the enthusiast and semi-professional for the liquidity they provide and for growing the game. For spreading the word, across different mediums, about their favorite site.
It should value the professional for embodying the dream that brings so many people to poker. For proving that poker is a game of skill. For promoting the game of poker to their fans, students, followers or subscribers.”
However, in a more recent post (after several months of working on the site) he expressed a can’t-please-everyone sentiment, and intimated that half the community might be displeased with the direction he’s taking the site.
Let’s start with the simple fact that PokerStars and other sites are working with tried and tested software that has been upgraded and tinkered with for 10-15 years. These sites have already gone through the trials, and chances are RIO Poker will have several technical problems when it launches.
PokerStars and other sites also have 15 years of proprietary products that the upstart rooms won’t be able to offer.
And it’s a foregone conclusion that if Galfond’s site does manage to overcome these structural deficits, PokerStars, 888, and the other online poker operators will ramp up marketing and promotions to drown out the upstart room.
I’m not sure how an online poker room that’s business model yields razor-thin margins on a daily basis will be able to compete against an established and better developed product, with a bigger marketing budget, and a larger team of customer support and tech personnel.
But if anyone can do it, it’s probably Phil Galfond.