Why has PKR Poker become the fastest growing gaming operator in a difficult year for the gaming industry post UIGEA?

PKR Poker – a giant in the making?

October 2006 was a bleak month for the online gaming  industry. With the passing of the Unlawful Internet Gambling Enforcement Act (UIGEA), online gaming in the US became illegal with immediate effect. Leading publicly listed gaming companies saw their customer base and share price crash overnight. The industry was struck a lethal blow, and one year on,
the industry is still licking its wounds.

Reasons for success - PKR Poker video footage  

The facts speak for themselves. 12 months ago Party Gaming, at the time a FTSE 100 company had a share price of 109p. Overnight they lost 78% of their US based player base and on 1 October 2007, their share price was 29p. Party Gaming under the directorship of Mitch Garber
have learnt their lesson and have attempted to reduce the future risk faced by legal legislation by diversify their player base by recruiting players from a large number of countries. However, despite this being a smart move, their revenue has been hit dramatically (First 6 months 2007 $221m compared to for the same period in 2006 $661). Other leading industry firms have suffered a similar fate.

Despite this industry wide recession, to the surprise of many one firm has continued to prosper. The firm in question, PKR poker, are a new start up and have recently surpassed their 1 millionth player sign up. That’s not bad for a company that has been operational for a little more than 12 months. They are now the fastest growing online poker rooms in the world. That’s some achievement in anyone’s opinion.

The growth that PKR poker have experienced raises an interesting question. Why has one start up bucked the industry trend and experienced phenomenal growth in a year where the industry as a whole has perished?

We asked Dan C, a leading industry analyst for his thoughts.

Dan outlines 5 key areas where PKR have excelled.

1. Product differentiation

Product differentiation lies at the heart of PKR’s success. They have produced a poker platform that is completely different to anything else on the market. PKR have designed a 3D environment for its players while all other online poker sites are still using traditional 2D platforms.

It’s a little like comparing a Playstation 3 game to Solitaire on your PC. In terms of graphics and the poker experience, there really is no comparison. PKR poker have been visionary in this area, and have produced a platform that is so far superior to anything else currently on the market and this in turn has resulted in players flocking to the site in droves.

2. PKR’s Management

PKR knew what they were doing from the start and had a clear plan of what they were attempting to achieve. Jez San the co-founder of PKR has a proven track record as an entrepreneur, as well as being an expert in his field.

This is reinforced by the fact that he was the first person to receive an OBE for services to the computer games industry. Jez and his co-founder Leon Walters knew that their area of expertise lay in the software side and they quickly began to build a proven management team, recruiting a blend of industry hardened veterans and bright young things. Ultimately, like all good entrepreneurs, they believed in their product and were able to use that vision to recruit and then retain highly talented individuals.

3. Marketing

The marketing of the PKR product was cleverly undertaken on what initially appeared to be a rather small budget.

PKR started marketing their product well before its official launch, and in doing so not only managed to build up a level of expectation within the online poker community, but it also provided them with an active player base that was able to beta test their product, thereby ensuring that the vast majority of technical issues were identified and eradicated.

After the launch, PKR proceeded to invest heavily in marketing, with deals being agreed with a range of firms including MSN. The team at PKR realized that the initial investment up front would make the most of the fact that they were the first to the market with a viable 3D product.

4. Affiliate scheme

Affiliate arrangements with third party web sites are central to any online gaming company. On average a reputed 30% of revenue comes in from affiliate deals. Gaming companies, especially start-ups find the whole affiliate concept a difficult one to grasp, often to their financial detriment.

PKR poker made no such mistake, and their scheme is one of the best available in the industry. The banners used to promote the PKR site are slick and professional. Real time statistics are offered to affiliates which not only breeds confidence and trust, but also enables the affiliate to tailor their own marketing campaigns more effectively.

5. Continuous improvement

It would have been easy for the team at PKR poker to have sat on their laurels. However, they have continued to improve their product on an ongoing basis. While the core engine remains the same, the PKR software has just got better and better, and with every upgrade makes traditional 2D poker sites look obsolete.

In summary, PKR poker have done what all new start ups need to do to succeed. They have they been innovative with their product, have recruited well, have invested heavily in marketing and affiliate campaigns, and have continued to make solid improvements to the 3D software.

However, they face some interesting challenges in the coming 12 months. Pokerwize, a rival 3D poker software manufacturer has recently gone into partnership with the industry giant Ladbrokes. Whilst Pokerwize’s product is itself far inferior, Ladbrokes brings not only an element of financial clout but also proven industry experience to the table.

In addition the major software manufacturer’s such as Cryptologic and Microgaming must have taken notice of what PKR poker have achieved. It’s only a matter of time before these firms produce a rival 3D gaming product.

Where this leaves PKR poker is open to question. They have come out of no where and in 12 months have become a major industry player, a benchmark for all other online poker sites out there.

Key to the future of the company will be managements exit strategy. Many analysts predict the firm will float on AIM within the next 18 months. However, Dan disagrees, believing that the route to a public listing is still blocked by the UIGEA legislation. More likely he believes, it’s only a matter of time before one of the giants in the industry makes an attempt to buy the company from its founders.

Exactly who is open to question, but when pushed Dan ignores obvious suggestions such as Party Gaming and suggest a gaming software manufacturer.

When pushed Dan goes onto say:

“My gut feel is that PKR poker is just the start of the 3D revolution in online gaming. The future of online gaming lies in the realism and player experience that a 3D platform provides. Whilst a
flotation on AIM would be a suitable exit route for most, having seen at first hand what can be achieved, I believe the management team behind PKR have bigger ambitions. The most appropriate strategic fit for PKR would be a joint venture or potential merger with a major industry software firm. This would provide them with the platform to take the gaming world by storm with a 3D platform across a range of gaming products.”

I raise the point that PKR have recently signed a software agreement with Playtech, to provide an online casino for PKR poker. Dan is quick to comment:

“Yes, if I was a betting man that’s where my money would be. Then again they could just be trying to cash in on cross selling a casino product to their existing player base. Only the founders of PKR really know where they are heading, but I suppose a good indicator lies with the development team at PKR. I’d be interested to hear if they are developing a proprietary 3D casino platform at the moment.”

Whatever the outcome, PKR poker is here to stay. I raise the point that they recently went unrewarded at the E-Gaming awards in London. Dan raises his eyebrows, mumbles something along the lines that it’s a disgrace and finishes by saying “what comes around goes around.”

Based on our experience and his thoughts, that coming around may be sooner than we all envisaged.