Why is rake so high, and why isn't competition driving it down?

[RunDownHouse]

The biggest barrier to entry is the network that must be established, which is also the reason Party is still on top even though it is an inferior product to others on the market.

[dfscott]

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I imagine you could profitably run a site with 1/4 the rake or less, especially if you get massive volume like Party.

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How do you think they got that massive volume? Gobs and gobs of marketing, all paid for by that "excessive" rake.

It really boils down to the fact that they will charge what the market will bear. The 2+2 community is a drop in the Party bucket (and that's a good thing). As long as the fish will pay the rake, so will we.

Look at it this way, you are paying extra to have the privilege to play against such bad players. As long as the extra rake is less than the extra money you take from the fish, it's all good.

[Voltron87]

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The biggest barrier to entry is the network that must be established, which is also the reason Party is still on top even though it is an inferior product to others on the market.

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dingding dingding

setting up software, a financial structure and that stuff isn't very hard today, but getting people to play on your site and establishing yourself is very hard.

[kiddj]

We're forgetting the billions they must be spending to pay the genius programmers to keep the site unproveably "rigged". [img]/images/graemlins/tongue.gif[/img]

[teamdonkey]

the OP's original question is very simple, and noone has really addressed it:

Poker sites have a huge profit margin, why hasn't competition driven down our cost to play?

-Partygaming posted net profit of $350.1 million in 2004 and revenues of $601.6 million.
-In the first quarter of 2005 net profit was $117.4 million and revenues were $222.6 million.

i don't know how the other medium/big sites are doing financially, but you can bet your ass that big companies in other industries (General Moters, Dell etc) don't have profit margins like this. Why? Because competition doesn't allow it. That leads us back to the same question, why hasn't this happened in the online gaming industry yet?

[Ulysses]

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That leads us back to the same question, why hasn't this happened in the online gaming industry yet?

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Because a critical mass of players is required to be able to offer a wide variety of games available anytime you want to play.

It is not quite the same, but it is related to the network effect that keeps margins high at eBay.

There are many other factors. A key one is that players are relatively price-insensitive when it comes to gambling. Rather than lower rakes, sites will instead spend the money on promotions and other marketing. Look at Las Vegas. Casinos do not win by offering better gaming odds (ie: less rake). They win by offering WORSE gaming odds, but providing the nicest gaming experience, best comps, etc.

As for the market overall, it is still growing. Only when things start slowing down will price wars become a serious possibility. For the reason I mention above, though, things like giveaways and promotions are more likely to happen imo than major rake reductions. In the end, most people just don't really care about rake.

[kiddj]

[ QUOTE ]
the OP's original question is very simple, and noone has really addressed it:

Poker sites have a huge profit margin, why hasn't competition driven down our cost to play?

-Partygaming posted net profit of $350.1 million in 2004 and revenues of $601.6 million.
-In the first quarter of 2005 net profit was $117.4 million and revenues were $222.6 million.

i don't know how the other medium/big sites are doing financially, but you can bet your ass that big companies in other industries (General Moters, Dell etc) don't have profit margins like this. Why? Because competition doesn't allow it. That leads us back to the same question, why hasn't this happened in the online gaming industry yet?

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Is it possible that the massive influx of people playing online poker don't see/aren't concerned with the rake? Blockbuster got away with charging their late fees for almost 20 years before they ran into any problems.

This may seem like a simplistic answer, but they charge it because they can. Perhaps there will be a point where there are so many players and good, competing sites, that the competition will drive the fees down. But I think the sites are of the same mind set that we (winning players) are: as long as the boom is going, try to squeeze as much profit as possible.

[Tony Corbett]

I don't think competition will drive down the cost of playing until market growth slows down. At the moment the sites are competing for new players not existing players at other sites. By defintion new players know nothing about rake and are more interested in free money, cheap chances at a big score and cute graphics.

When a sites growth depends more on increasing it's share of the existing player base than attracting new players then we may have competition and all the benefits that brings. That day is a fair way off.

[og5]

A bunch of [censored] thieves Party is. I paid 3 times what I made last month in rake (1/2 6 max is raked at almost 5 bb/100) With rakeback and bonuses I make back a reasonable amount of it back, but since they're cracking down on rakeback there's more money for that billionare bastard to line his pockets with [img]/images/graemlins/mad.gif[/img]

[randomstumbl]

Um, just in case anyone's actually interested in barriers to entry...

Money is never a barrier to entry, ever. It can always be raised somehow.

I'll agree with whoever mentioned it, that Party is actually worth more because they have more players. Any poker room is worth as much as its players are worth (from a winner's viewpoint). From a loser's standpoint, I assume the bonuses and marketing are a big deciding factor.