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#1
08-25-2005, 08:08 AM
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The Rake
<font color="pink"> </font> Since my first poker account I have always been shocked by the astronomically high rake that players have to play on the Internet. At the Bricks and Mortal cardrooms a rake in the 5% range is understandable but on the Internet this is absurd. With pokertracker I counted that I last months paid a rake in excess of $1200. It is time that all poker players wake up and start putting pressure on the gaming vendors. I rather buy an extra small car every year than donate it to Party Poker.
Fortunately things will change. I work as a portfolio manager for a mutual fund company in Europe. I watched the competitive dynamics change in many industries and a basic porter model will point to a conclusion that the competition is going to catch up even with the Internet poker world. Second and third tier sites are likely the first to cut rake as sign up bonuses are becoming a commodity and unlikely to bring on enough new users. So how much low could the rake get? At work when we make complex trades at Nasdaq through a third party we pay 0.15% (or 15 bpts.) I would not be surprised to see us talking about these kinds of commission levels over time. The level of complexity of running a poker site is not really rocket science. Is it more complex than running servers for “counterstrike” or “command & conquer”. For the gaming service we pay a one time upfront license fee of maybe $50. Well the idea with this post was to start a discussion. I am fed up with paying $1200 a month for the service of Party Poker and others, truly they are not that good… 
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#2
08-25-2005, 08:19 AM
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Re: Running Costs
[ QUOTE ]
Is it more complex than running servers for "counterstrike" or "command & conquer" [/ QUOTE ] Yes, massively so. I have worked in the gaming industry, where running servers was part of the job. That is massively, enormously simpler than running a poker site (where I now work). Security, support, advertising, marketing, accounting, blahblahblah. I should think that most top poker sites have security departments on a par with small banks. Party Poker have a hundred-person marketing team for Europe, and have several hundred support employees. What do you need to run a servce like, say, Steam (Counter-Strike) or Battle.net (Starcraft, World of Warcraft)? No marketing department, one or two coders, perhaps a small support department, and a couple of hardware admins. I would be surprised if the bandwidth for enough servers to support 10,000 Counter-Strike players was anything less than a thousand times what you'd need for 10,000 poker players, but that's the major cost of a gaming site. It's a minor cost for a poker site, and one that all easily cover.
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#3
08-25-2005, 08:23 AM
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Re: The Rake
Asides from the above point regarding cost levels, I agree that rake is likely to decrease in the future. However, I don't think it'll happen by a great amount.
Most beginners and intermediates don't even know how much rake they're paying. Many players are hardly even aware that there is a rake. We're talking a few percent of players who know what rake is, and know how much it hurts them. If you can attract the new players, you do not need a low rake - look at Party. On the subject of Party, their rake tends to be higher than some other sites. That's hardly mentioned anywhere. Once growth in the industry isn't so massive, we will start seeing sites buying up other sites. We will see sites content to make some profit rather than lose market share to other "super sites" thus formed, by lowering their rake. We will see economies of scale kick in allowing lower rakes. I sincerely doubt that the rake will drop to, say, less than 50% of what we're paying right now, but I do suspect this is where we'll end up. I should note, I do not work in an accounts department of a poker site, these are not figures speaking from hard fact. They're figures based on observation and educated guesses. That's how I see things turning out.
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#5
08-25-2005, 10:30 AM
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Re: The Rake
The huge difference between providing security trading and providing poker games is that in the first case, the price will be close to the marginal cost or someone else will provide the service cheaper.
That is not true for poker sites. Do you see why? (Just kidding. I'll spell it out.) In poker, what counts is your bottom line. One way of improving your bottom line is paying less rake. Another way is playing against worse players. And guess what, the second factor is *much* more important! So you will want to pay on the sites with the crappiest players. Will crappy players be sensitive to the rake? Not likely, in the short to medium term, as I see it. And if they are not, there is no competetive pressure to drive the rake down. This can be demonstrated by pointing out that the rake level is pretty much completely unchanged after five years of massive growth. If the worst fish leave the game, rake will be a more significant part of profits than opponent quality, and we will then see a drive to lower rakes. I don't see that happening in the near future, but I could be wrong. But remember that you are warned! If the rake in x years is half of what it is today, it will be because players are more aware and better, and your overall profits will decrease! Not something I look forward to.
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#7
08-25-2005, 10:46 AM
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Re: The Rake
most B&M cardrooms don't rake in the 5%, 3$ cap range. they almost always rake in the 10% range, with a cap anywhere from 3 to 5$, often 5$. when you get higher up in game stakes, the rake turns to seat fees. internet rake is tons better. B&M also doesn't have RB or reload bonuses.
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#8
08-25-2005, 11:20 AM
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Re: The Rake
this comes up a lot. the problem is, the loose passive players who play solely for entertainment aren't aware of rake. they will go where the popular sites are, which is driven in part by legacy, in part by marketing. bonuses are nice too, but I'm not sure of the exact effects.
I want to play with these players, not a site full of tightwads attracted by lower rakes(though I think I could beat such a game, or learn to do so, it's not worth the opportunity cost of playing with looseies). So I think of the extra rake at party poker, for example, as an opportunity to play with these loose players. zerorake failed for a reason
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#9
08-25-2005, 11:34 AM
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Re: The Rake
Those that have pointed out that most players (and most players you want to play against) don't care about the rake are correct. For that reason I agree that the rake will not decline near to the marginal cost.
They will care about bonuses. And they like freerolls. So I expect that competition will drive these offers higher. More targeted offers are the best route. If a site targets tailored, well timed deposit bonuses and freerolls to losing customers, but offers more complicated rakeback schemes to the sophisticated players, they will have effecively reduced rake but more effectively fed both sides of the food chain. I do expect competition to reduce our effective rake, though. The margins must be awfully high at the current rake level in a space with low barriers to entry and low marginal costs.
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#10
08-25-2005, 12:32 PM
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Re: The Rake
[ QUOTE ]
space with low barriers to entry and low marginal costs. [/ QUOTE ] The online auction industry shares both of these traits, and nobody can effectivelly challenge Ebay. Rake will come down eventually, but for all the reasons stateed by other posters, not by much, soon anyway.
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