A recent announcement in the poker-biz world has your faithful blogger thinking about, of all things, Pringle's Potato Chips.
Or rather, "Prin-gles New-Fang-Led Po-Ta-To Chipsss!!" --- as the old jingle used to go. Pringles shocked the potato-chip market when they were introduced in the late '60s, and they did it the old way, slashing their introductory prices and undercutting all the competition to capture a large market share. When Pringles first came out, they were generally available for around 19 cents a can, and this was the full-sized can, not the little minis you see in convenience stores nowadays.
Well, guess what happened when Pringles captured a good chunk of the market? You got it: the price went up, up, up.
This trip down memory lane was sponsored by the folks over at the World Poker Exchange, who recently fired a cannonball over the heads of all the other online poker sites on the web. World Poker Exchange has announced the introduction of "no-rake poker" --- yep, you read that right --- as a way of seizing market share. As with Pringles, as with Wal-Mart a decade later, it's the tried-and-true method of making a quick grab for customers. Just hook 'em in cheap.
World Poker Exchange has done quite a few things, that if not necessarily "right," are at least totally predictable. They've signed a big name poker star (Max Pescatori), they've gotten their message out to media outlets, both inside and outside of the poker mainstream, and they've even found a good angle from which to spin their game.
WPX, as we'll abbreviate it, believes that because of its broad base of sports-betting operations, it can use the no-rake gimmick as a loss-leader to attract players to the site. These players who will then naturally use WPX's other services, such as their large sports-betting operation.
This approach, of course, ignores the reality of how "loss-leaders" work; loss-leaders are only cost-effective when the majority of the people who use or purchase or to subscribe to an item are likely to buy or join into the parts of the operation where the profit margins are produced. Here's how WPX puts it: "We’re confident that no-rake poker will deliver major new traffic to our other businesses, including sports wagering, in-running betting, horse racing and casino wagering."
Good luck with it, kiddies.
What WPX will find out is that portability will not naturally occur: the highest-volume poker players are there to play poker, not to bet on the other stuff. And at some point, the overhead in maintaining and managing the poker operations will force WPX to re-think this offer. In the meantime, price wars are always good for consumers.
We recommend treading carefully if you wish to gamble at WPX. Obviously, with no rake, there aren't any rakebacks or affiliate programs, so we can't bring you any special, juicy Kick Ass deals. But our caution comes from the knowledge that WPX's market equation is out of balance, and their offers and programs can change or disappear at any time.
Remember that any deal that seems to be too good to be true... probably is. So here's something you need to consider: WPX is not technically a rake-free site; they're taking the rake, as normal, then refunding it to their players at the end of the week. This ensures that they actually have an increase in rake revenue over the short term (because of the surge in new business from customers looking for the freebie). That in turn looks good on the quarterly spreadsheets, and is always pitchable to non-savvy investors. And about customer retention... well, that's an issue for a later fiscal period.
Viewed in this light, the no-rake program can then be seen as the type of move that a company makes when it's looking for a quick fix to a balance-sheet or market-share issue. Moves like these have significant downside risks. We hope Max Pescatori doesn't become the next Dutch Boyd; after all, it seems that Dutch entered into the PokerSpot thing in all innocence.
Step cautiously, players. Remember above all that you still have to put money into a system to use it, and if a firm is making moves that indicate unsteadiness, it's your money that's at risk.
Pringles? Now there's some chips that have had staying power. We'll see about these other guys.
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