Thursday, December 9, 2010

Linden Lab's Last Hurrah ...

Seems the Linden Management is going to offer virtual gambing with an Israeli company 888 Well, about time they reversed this stupid decision from 2 years ago. This could actuallly save Linden's ass and the sooner they offer 3D poker and sports betting for punters - the better! Just look at how much these Brits rake in and and full article here;

“It was very clear to me that this was something pretty special”, reminisces Malcolm Graham, chief executive of PKR, when describing his first impressions of the concept behind one of Europe’s best poker brands. “When I met [PKR creator] Jez [San] and he showed me what he was building, it seemed to me that there was a real opportunity for that kind of approach to the online gaming space. I always felt the product quality offerings weren’t particularly high-end and clearly his ambition was to build something that was a much better product.”

Graham joined PKR in time for its launch in 2006 after meeting San, IT prodigy, creator of the 3D online poker room and the computer industry’s first ever recipient of an OBE, in late 2005. He had previously been running the Ritz Club’s online and land-based casinos and managed to perfectly time the leap from off- to online. “The Ritz was a great place to work but we were never going to make it into a material business. The online division was always going to be very modest in scale,” Graham reflects, admitting he was instantly “blown away” by the originality of San’s idea when they met. “I was intrigued but it took us three or four months to get to the right place on how best to work on it together.”

But it was not all plain sailing, as capital-raising in the early days proved “very tricky”, according to Graham. “We were trying to raise money in the middle of the whole Carruthers/Peter Dicks issues [high profile online gaming-related arrest cases in the US] and the summer of 2006 was a pretty painful time,” he recalls. “Investors were increasingly nervous about whether a standalone poker business could be built in Europe. I think many people kindly said we were optimistic but in private thought we were slightly bonkers.”

Little did Graham know, however, that the dramatic change to the regulatory landscape in the US was about to add fuel to the fire. “I remember we signed the shareholders’ agreement on the Friday afternoon of the same day as UIGEA was passed six hours later, so that was an interesting weekend.

“Fortunately they didn’t ask for their money back and a month later we started marketing the product and it became clear that we could acquire customers pretty cost effectively.” Following US legislation, PKR barred US customers and has “never attempted to get any American customers”, Graham emphasises.

Challenges and opportunities in Europe

PKR was initially launched in the UK and Scandinavia, however the UK remains its core market, accounting for 50% of its demographic. Along with Germany and Holland, France is now also a growing part of the business, following the launch of the French PKR site in September, but expansion in Europe has proved difficult in light of the patchwork of regulations across the continent, says Graham. “We’ve all found it a bit hard to navigate, it provides massive operational challenges for the business to manage different regulatory frameworks.” He admits that PKR had spent “a substantial sum of money” going live in France, which he describes as “a large six digit figure”, although he does not reveal an exact amount.

But Graham is focused on cutting his way through mounting red tape, acquiring licences wherever possible. “That’s the way the ministry is moving, so we have to work in that context,” he explained. “As each regime evolves, it provides another example of how you can regulate online gaming efficiently and with economic benefit. My sense is that it provides the impetus for other jurisdictions to follow a similar route, so one would hope that at some level it would have a knock on effect on North America.”

A self-professed sceptic on the possibility of the US opening up in the short term, Graham’s immediate strategy for PKR is aimed squarely at Europe. He says that the initial reaction to the recently launched French site “looks pretty positive” and that the business can “replicate it elsewhere in Europe as markets evolve”. An Italian site will be the next to launch and is expected to go live in the next 10 to 12 months.

Due to stringent ring-fenced online gambling regulation in France, the site is only open to French players, unlike the original site which has an international customer base. Although the French site has cut off French players from the global PKR community, Graham is not concerned about the effects. “The reality is that the vast majority of French customers are playing on sites that are licensed in France [thus only open to French players], so it levels the playing field, particularly against Poker Stars and Full Tilt, because they don’t have the massive liquidity benefit they get from their North American customers to leverage in the French market.

“So from my perspective, ring fencing in the market place, while conceptually and dispassionately does not seem to be a good thing, is actually a benefit as I’m not competing with people whose liquidity pools are unfairly advantaged,” he added.

Furthermore, Graham believes that despite the differences in regulatory frameworks we will begin to see agreements between regulated European markets. “We will see regulator-to-regulator partnerships where they will agree to pool their liquidity,” he predicts. “I would imagine that relationships will materialise in the next 24 months. Denmark is clearly looking to start that ball rolling given that as a standalone geography Denmark is a little sub scale.”

Maintaining growth

PKR has seen phenomenal growth since fruition with yearly sales growth of 356.44% for the period 2006/7 to 2009/10, according to the Sunday Times, which ranked it as the UK’s most successful technology company in its annual Tech Track 100 survey. Despite being a private business and Graham reluctant to disclose any top or bottom line figures, the newspaper reported that PKR had seen revenues increase from £347,000 to more than £33m in the last three years.

Graham attributes this success to two areas – a great core product, which he refers to as “absolutely the best graphical and visual experience you could imagine for playing poker,” and effective marketing. “The reality is that online gaming is a lot about marketing,” he explains. “We’ve got a nice product to sell, but there’s no doubt this business is about cost per acquisition (CPA), revenue per user (RPU) and churn [rate]. Anything else is window dressing. You’ve got to get those customers in, so marketing is important.”

Looking further ahead, Graham sees continuing to improve PKR’s core product as an integral part of maintaining the company’s impressive growth. He says the aim is to “evolve our game, making the gap between us and everyone else a little harder to breach… I’m hopeful that over the last four years we’ve developed the product so dramatically that it’s becoming harder for someone to come up and build something as comprehensive.”

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