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May 7, 2008
Legalization
I've been thinking about the future of online poker a decent amount lately. There's a pretty big push for making it legal, and there's even a bill in the house that would work toward that. I don't know if it will pass or not, but the poker sites finally have the lobbying arm they should have years ago. I even suggested that to Party Poker on one of their cruises long, long ago and Vikrant Barghava said they didn't need to because the US would "just ignore online poker forever." Their share price tells me he was wrong.
Between the PPA, the World Trade Organization, where the Europeans may soon follow Antigua's lead in claiming that our policies are unfair and a violation of the treaty (which has been deemed true), and the lack of banking regulations which were called for by the UIGEA and should have been in place months ago, it seems like there's a good chance that it will become regulated.
So what will it mean for poker if it does? Quite a bit actually.
It's sort of an axiom in the startup world that every hoop you make a user jump through in order to use your site reduces the amount of people who actually do so by some percentage. This should be pretty obvious. The exact percentage depends on the hurdle. Sites like Digg have millions of readers, tens of thousands of commenters, and thousands of submitters, because each step requires more effort than the previous (with just signing up an account being the largest). I vaguely remember reading that in the early days of PayPal they discovered that each new step they introduced caused 30% of people to give up. That's enormous. To put that another way, eliminating one step would grow their signup rate by nearly 50%.
Online poker, almost since its inception, has been besieged with hurdles preventing a new player from playing. To play at a site you have to do the following things:
- Go to the website and download the software. (There are web based versions, but not many, and they suck.)
- Install.
- Create your account. Input user name, password, email address.
- Verify your email address.
- Input all necessary information for a real money account. Address, phone number, etc., some of which may have to be verified by a phone call or a code in the mail.
- Input checking account and routing number.
- Wait a few days for the site to EFT a small deposit into your account.
- Check your bank statement to see what the deposits were.
- Input them into the poker site.
- Fund poker account.
- Wait a few days for the e-check to clear.
And that's all assuming you knew right away that they wouldn't accept your credit card. Step number 6 for most people is to try the credit card functionality in the cashier and get rejected.
It's been that way for a very long time. Back in 2000, when I first started playing online, the high chargeback rate had already caused almost every credit card issuer to stop accepting online gaming transactions. There's been a cat and mouse game over that for the last 8 years, with payment processors tricking the banks, who found out and cut them off, at which point they closed down and opened a new corporation and did it again. It goes on and on, but the banks have always had the upper hand and 95% of the time your credit card was getting rejected.
Also, that was just the procedure for one site. Most people added an extra step in and went with Neteller so they could then play at any site. Back when I started playing PayPal was the method of choice, but that changed around the time of the eBay acquisition.
There's also the legal hurdle. A lot of people think playing online poker is illegal, even though in most states it is not. I've met a number of people who were deterred by that. That should almost be a step in the above chain.
So if the UIGEA becomes legal, and steps 6-11 (plus the two pseudo-steps) get replaced by one credit card or PayPal transaction, I think we're going to see an order of magnitude more players than ever before.
Over my next few posts, I'm going to examine how I think this will affect the poker economy. I'll talk about the following groups:
- Sites (current and future)
- Players
- Ancillary Services Providers (like myself)
- Live poker and events
Stay tuned.
Posted by themaroon at May 7, 2008 12:42 AM