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01/02/2006: "there's so much less to this than you think"

in response to Otis' post on UpForPoker: i enjoyed the post and thoughts. recently i too have been thinking about the poker industry in much the same way - wondering if it is a bubble, a trend, or fad. some comparisions that i drew from personal experience and thoughts after the jump!

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in the early 90s i got my first mountain bike. prior to buying this "new" two-wheeled wonder, i had been a road weenie. when a few of my roadie friends got into mountain bikes, i climb aboard too. by 1992 i was racing, having gone from an entry level $400 bike to a tricked-out, hand-built $3K+ racing machine. i had some success (3rd in the state of TX for my age group) and considered racing for some teams (sponsorship, travel, etc.) around the mid-90s mountain bike racing had come to the fore - a national organization was formed (NORBA), major sponsors jumped in, a national and international circuit was up and running, magazines were coming out of the woodwork - sound familar? eventually i burned out on racing; while the lifestyle was healthy, the necessary training (400+ miles a week, plus weights, etc) was a grind on having a real life.

back up a some years to the mid-80s. i'm your typical thirteen year-old, spending most of my days outside, riding my bike hanging with my friends. i don't quite remember the impetus, but a trip to the local Surf House found me begging my mom for a $100 Tony Alva signature model skateboard. soon i had a couple of boards, skated the local ditches and ramps and wore bangs that went past my chin. yeah, i was a skate rat. around the same time, Tony Hawk was asecending to his throne, which later would start the revolution for the "Xtreme" generation and Xtreme marketing. while skate parks and contests have come and gone, the "sport" is still around. just yesterday i saw two kids in their early teens scouring our neighborhood for any and everything skateable. both of them looked like miniature Bam Margeras.

these two examples remind me of the Growth-Strategy Matrix made popular by the Boston Consulting Group (and created in the 70s.) if you force an analogy, each one of these "products" - poker, mountain bikes, skate boarding - can be analyzed in the Matrix. you remember the Matrix, where sections of an investment portfolio can be ranked as "rising stars", "cash cows", "dogs", or "question marks" (my b-school coursework renamed them "problem childs".) here's a breakdown on each that i cribbed from another site:

  *Stars: a star is a product in a high growth market that controls a sizeable share of that market. Stars tend to generate strong revenues. over time, as growth slows, stars become Cash Cows if they hold their market share and Dogs if they don't.


  *Cash cows: a Cash Cow commands a large share of a slow growth market. the more the company invests in cash cows, the greater the return. Cash Cows tend to pay the dividends, the interest on debt and cover the corporate overhead.


  *Dogs: a dog has a low share of a slow growth market. Dogs often report a profit even though they are net cash users. they are essentially cash traps.


  *Question marks: a Question Mark is a product with a low share of a high growth market. their cash needs are great because of their growth, but generate little in return because their market share is low. Question Marks are difficult to turn into stars because the cost of acquiring market share compounds the cash needs. they may be big winners if backed to the limit, but most often, they fail to develop a leading market position before growth slows and become dogs.

i think it would apt to say that the mountain biking industry and the skateboarding industry have run the gamut, from Stars to Cash Cows (and now maybe to Dogs), and yet they still are around and they still survive as viable industries. sure, each is not dragging in the money or press that they did in their heyday, but each still has a market. what iteration is Tony Hawk's game on now?

poker has been around for years and has recently come to the public's attention via ESPN/WSOP and The Travel Channel/WPT. i would say it is still very much in the Star stage. eventually it will fade, but if i had to guess, it will stay a Cash Cow and avoid being a Dog. why? one, the longevity it has already shown - it has a history, vast and deep and one only need look at the books that have come out recently on poker's historical figures and match-ups (One Of A Kind is a personal fav.) secondly, a great amount of money has flowed into the poker industry; casinos have a stake in its success, online sites have a stake in its success, investors have a stake in its success, and at least two TV networks have a stake in its success. that's a lot of players who would be happier to keep it around. breaking a new "trend" is expensive, requiring a ton of investment. just read Steven Lipscomb's post on 2+2 - the WPT has yet to turn a profit; they are investing for the long run. i would hope many businesses are.

as mentioned in Otis' post, there is one thing that could crush all this: the U.S. government. IMHO, we have entered a real era of "morality police". our government is being prodded and pushed by interests to legislate any and all things, but particularly how we live and play. to many, gambling is a sin and the progress of internet gambling, which has grown like a weed - fast, unfettered, and unregulated - is corrupting our youth and our morals. i think internet poker is fortunate to have had events such as Enron, WorldCom, Adelphia, etc happen. it makes people focus on the real sins and hopefully keeps our elected officials and regulators busy.

so - bubble, trend, fad? i vote trend and i think as our world becomes flatter and more connected, it is a trend that will grow and prosper. at least i hope as much.

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