Cesar Brea's Weblog

You’d have to live under a rock not to have noticed that poker fever
has swept the country in the last couple of years.  Last week I
got an interesting glimpse into the business end, and it prompted me to
think a little bit about where online marketing might be headed.

First, my friend Mike Contrada, co-founder and EVP of the Balanced Scorecard Collaborative (now part of Palladium Group), invited me to a conference last Thursday in Cambridge where I met Jonathan Halkyard, VP and Treasurer of Harrah’s Entertainment. 
Over drinks after his talk (he is a polished and articulate speaker) I
asked him about online gaming and its impact on the industry. Among
other interesting observations, Jonathan related that the PartyPoker.com business
is now clicking along at more than $400 million in annual profits on
~$600 million in revenue, based on a $4/pot “rake” from an average of
60,000 players online 24/7.  I nearly choked on my wine. 
(Jonathan explained that Harrah’s, which runs the World Series of Poker
tournaments, and its US-based peers cannot get into online gaming under
current laws.)

Coincidentally,  I was at my business school reunion this past weekend and had a chance to catch up with my classmate Audrey Kania, who is one of the founders and a senior executive at WPT Enterprises, producers of World Poker Tour. 
Audrey, who successfully extended the Winnie The Pooh brand at Disney
earlier in her career, has been leading a whirlwind existence these
past few years (and become a pretty fair — no, intimidating — poker
player in the process).  WPT started by developing television programming
based on poker tournaments (they invented the hole cards spycam) for
the Travel Channel.  They’ve certainly popularized the game, and
in the process have built a $15M business based on the programming, as
well as tournaments, books, and other extensions.  WPT went
public last year and sports a $330 million market cap, too, placing
Audrey in the current pantheon of our class’s heroes.  How can
that P/S multiple be?  Investors peeking at PartyGaming’s projected $6 billion
market cap are betting that WPT Online can also get at least a sliver of the same market as it continues to boom.

While I haven’t yet tried out PartyPoker, I did visit
http://games.yahoo.com and downloaded Poker Superstars, for research
purposes of course.  Interestingly, while it’s an extremely
popular download, I didn’t see any product “placements”, or ads in the
game (they are supposedly free of spyware).  I’m thinking this
won’t last.  My guess is that advertisers won’t miss the chances
for “this playing tip brought to you by GM”, or more subtly to have TJ
or Phil or Johnny sip a Coke, or bet with Harrah’s branded chips, or
“the Fedex river card” (it’s not clear though who might sponsor the
flop).

Just as Google and Yahoo have made major inroads into traditional
media’s share of ad dollars, it’s conceivable that with computer game
revenues now eclipsing those of the global movie business we will see
ads show up here as well, following the eyeballs/ share of mind now invested in this medium. 
What’s interesting is that ads in this medium have the potential to be
even more effective.  Rather than annoying me, anyone whose
sponsorship pays for tips that help me improve my game gets my
gratitude.  Hmmm.  E-commerce meets e-learning?  A sure
sign of the apocalypse!

This story also is a powerful reminder of the notion that ultimately
collaboration is the source of the Web’s greatest value.  Playing
poker online is just another highly structured form of collaboration, meeting
all of the requirements for its success (something valuable to
exchange, tight group affinity, ease of participation).  Compare
for proof the economics described above with Amazon’s recent results
(~$200M net income on ~$8B in revenue annually).

(Side note:  Jonathan described some very creative uses of RFID at
Harrah’s, including putting them into servers’ nametags to be able to
track, for example, turnaround times at drink stations.  Jonathan
also taught me new term:  “bevertainment”.  This is when
waiters and waitresses are also actors and singers who will
spontaneously break out into song or dance while serving the
patrons.  Rather than separating their jobs as food service
workers from their vocations as performers, bevertainment allows them
to earn tips while they audition for the passing producer or
agent.  Genius!  Who knew?)