BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION AND INTERNATIONAL MANAGEMENT
Zynga Poker: from play money to real money poker platform.
Forthcoming challenges analysis and suggestions for future development strategy.
Student: Anton Smirnov (exam nr. 288161)
Supervisor: Michael Lindberg
Aarhus University
Business and Social Sciences 2012-05-01
Abstract.
Zynga Poker is the most popular online poker application in the world. Every day more than 7
million players compete with each other for play money at Zynga poker tables. With such popularity
and rapidly growing market, Zynga now has an excellent opportunity to switch to real money
games, having a potential for high returns and remaining one of the best known companies in poker
business. This thesis aims to examine the possible transition of Zynga Poker into the real money
poker platform and identify the most important problem areas, which company has at the moment.
The primary goal of the research is to outline objectives and propose strategies that will help to
overcome the challenges and problems arising along the evolution. As the outcome of this work,
Zynga managers should receive the most relevant information regarding the online poker industry
and the basis for further development of more advanced strategies.
Key words: online poker industry, online gambling, Zynga, Zynga Poker, strategy development,
strategic analysis.
Number of characters (excl. blanks).
Text: 91380
Tables, graphs, figures: 7200
In total: 98580 (44 pages).
Table of contents.
1. Introduction. ........................................................................................................................................ 1
1.1 Problem Statement. ............................................................................................................................ 2
1.2 Methods. ........................................................................................................................................... 4
1.3 Assumptions and Delimitations. ............................................................................................................ 4
1.4 Structure. ........................................................................................................................................... 5
1.5 Definitions. ......................................................................................................................................... 6
1.6 Literature and Sources. ........................................................................................................................ 7
1.7 Background of the author. .................................................................................................................... 7
2. Brief history of Zynga. ........................................................................................................................... 8
2.1 Overview of Zynga Poker. ....................................................................................................................10
3. Online poker industry overview. ...........................................................................................................11
3.1 Description of contemporary online poker sites. ....................................................................................11
3.1.1 Revenue sources. .........................................................................................................................11
3.1.2 Offered services. ..........................................................................................................................12
3.1.3 Reward programs.........................................................................................................................13
3.1.4 Site security.................................................................................................................................14
3.1.5 Prevention of excessive gambling...................................................................................................14
3.2 Legal aspects. ....................................................................................................................................15
3.2.1 Regulation in Europe. ...................................................................................................................15
3.2.2 Regulation in USA. .......................................................................................................................16
3.3 Current trends in the industry. .............................................................................................................17
3.4 Major operators on the market. ...........................................................................................................18
4. Prescriptive approach. .........................................................................................................................20
5. External strategic analysis. ...................................................................................................................21
5.1 Environmental basic factors. ............................................................................................................21
5.2 The Degree of Turbulence................................................................................................................22
5.3 PEST..............................................................................................................................................24
5.3.1 Political factors.........................................................................................................................24
5.3.2 Economic factors. .....................................................................................................................25
5.3.3 Socio-cultural factors. ...............................................................................................................25
5.3.4 Technological factors. ...............................................................................................................26
5.3.5 PEST Conclusion. ......................................................................................................................27
5.4 Porter’s Five Forces. ........................................................................................................................27
5.4.1 The threat of potential new entrants. .........................................................................................27
5.4.2 The bargaining power of suppliers. .............................................................................................28
5.4.3 The bargaining power of buyers. ................................................................................................28
5.4.4 The threat of substitutes. ..........................................................................................................29
5.4.5 The extent of competitive rivalry. ...............................................................................................29
5.4.6 Conclusion on the Five Forces analysis. .......................................................................................30
6. Internal strategic analysis. ....................................................................................................................30
6.1 Tangible resources. .........................................................................................................................31
6.2 Intangible resources. .......................................................................................................................31
6.3 Organizational capabilities. ..............................................................................................................32
6.4 Evaluation of internal resources and capabilities. ...............................................................................33
7. SWOT analysis. ....................................................................................................................................35
7.1 Strengths. ......................................................................................................................................35
7.2 Weaknesses. ..................................................................................................................................36
7.3 Opportunities. ................................................................................................................................36
7.4 Threats. .........................................................................................................................................37
8. Mission and objectives of Zynga Poker. .................................................................................................37
8.1 Mission. ........................................................................................................................................37
8.2 Objectives. .....................................................................................................................................38
9. Strategy development..........................................................................................................................40
9.1 Strategic option #1..........................................................................................................................40
9.2 Strategic option #2..........................................................................................................................41
9.3 Strategic option #3..........................................................................................................................43
10. Conclusion. .......................................................................................................................................44
10.1 Possible criticism. .........................................................................................................................45
11. Bibliography. .....................................................................................................................................46
Appendix 1. ............................................................................................................................................51
Appendix 2. ............................................................................................................................................54
Appendix 3. ............................................................................................................................................55
Appendix 4. ............................................................................................................................................57
Appendix 5. ............................................................................................................................................57
1. Introduction.
"Your success in life isn't based on your
ability to simply change. It is based on
your ability to change faster than your
competition, customers and business."
— Mark Sanborn
The impressive development of the Internet in the beginning of the 21st century has had a
revolutionary impact on our everyday life. The prediction voiced by Bill Gates in his essay “Shaping
the Internet Age” published in December 2000, has entirely come true – “[w]e‟ve seen a lot of
amazing things so far, but there is much more to come. We are only at the dawn of the Internet Age”
(Gates, 2000). Nowadays, people are being more and more engaged in using the Internet
possibilities as a foundation to deal with their daily tasks and needs: “(…) from simple
communications, such as e-mail, chat or Twitter, to sophisticated real-time video and audio
communications; from access to the press in digital format and to authoritative information sources,
to blogging, (…) from accessing local government services to checking the balance of a bank
account.” (International Telecommunication Union, 2011 p.121). Moreover, during the first decade
of the present century, humanity has encountered with the massive transformation of communication
habits by transferring the social aspects of life into the Internet space.
The appearance of the social networks, specifically Facebook – the most popular networking site in
the world, has played an extensive role in developing of the above named trend. Launched in
February 2004, Facebook currently has more than 812 million users worldwide
(www.socialbakers.com) and appears to be the largest social networking platform ever known in
Internet history. As a result of this tremendous popularity of Facebook around the world, there is no
wonder that an increasing number of businesses are considering Facebook as an important
component of their comprehensive success on the market. Some companies are using the given
social network mostly as an additional territory for conducting advertising campaigns and promoting
their businesses, but other companies such as Zynga Inc., from now referred to as Zynga, are using
the Facebook platform as the primary space where they actually perform their services.
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Another substantial sphere of human‟s life, leisure time activities, was also somehow affected by the
growing number of new possibilities, which Internet has started to offer. Among other traditional
leisure time activities (e.g. shopping), remarkable modification concerns one of the oldest way of
entertainment, namely card games. There are plenty of card games‟ variations, but in the recent time
poker has become the most popular type. The well known television stations, such as ESPN or Fox
Sports, are often broadcasting poker tournaments and poker shows, which always receive high
television ratings (Croson, 2008).
Not long ago, if you had an intention to play poker for real money, you would go to the casino or
arrange home game with friends and/or co-workers, but in The Information Age a computer with an
internet connection and an account on an online poker site is more than enough to fulfill your desire
to play. Thus, the online poker has become very accessible and, as a consequence, extremely
attractive in the past 10 years. According to Carter (2011), the industry of online poker was worth
5.2$ billion in 2010 with expectation to future grow.
Putting all facts together, it is now that an excellent opportunity of making an innovative step exists:
joining the online poker industry with social networking sites and, thus, transferring it to the whole
new levels of growth. The gaming giant Zynga Inc, which is currently offering numerous variations
of popular online games (e.g. MafiaWars, FarmVille etc.) and play money poker1 games on the
Facebook platform, has a lot of potential in becoming a leading company in establishing new online
poker services on the basis of social networking sites.
1.1 Problem Statement.
This paper will make an effort to indicate the most important issues, which should be considered
carefully by Zynga managers during the grueling modification process of their play money poker
application into the real money poker platform. Although one may find that there is a lot of
similarities between two industries (real money and play money poker industries), it should be more
or less obvious that managing two abstract companies in these two industries will be considerably
different. The distinction in management will not only be expressed in another strategic planning,
1
The explanation of this and other poker terms can be found in the section of Definitions.
2
but also in such things as Customer Relationship Management (CRM), marketing policies, reward
programs etc.
There are two main goals, which will be attempted to be reached during the research procedure of
the given paper. The first goal is determined as to provide managers of Zynga with the complete
overview of the online poker industry and additionally to supplement with the necessary information
regarding the current legal aspects and trends in the industry. The second and much more significant
goal is to distinguish primary business objectives and come up with a suggestion for an efficient
strategy, according to which Zynga Poker application may be developed in the near future. Hence,
the research question of this paper becomes such:
How does the industry of online poker appear at the moment and which objectives and strategies
should Zynga poker develop in order to become a successful organization on this new market?
In order to simplify the research process, some supportive questions have been formulated in the
introduction section and will be further investigated during the work. These questions could be
separated into two main groups: online poker industry related questions and strategic analysis
related questions.
Online poker industry related questions:

Which companies are operating on the market of real money online poker?

Which legal issues should be considered and how they could affect the profitability of the
whole business?

What are the current trends in the industry?
Strategic analysis related questions:

Which strengths does Zynga Poker possess at the moment and how can they be used most
effectively by the company managers?

How should Zynga Poker handle its internal weaknesses?

Which external opportunities should be examined and how to benefit from them in the best
way?
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
Which external threats are the most serious for the company?

How could the environmental forces surrounding the organization be assessed?

How intensive is the competition among the platforms, offering to play poker online for real
money?

What are the mission and objectives of Zynga Poker as a separate business entity of Zynga?
1.2 Methods.
This thesis includes a number of methods and analysis as the primary tools for answering the
research questions announced in the problem statement section. For the reason that the given paper
is mostly concerned about strategic issues, the methods used throughout the work are almost entirely
from the area of strategic management. Moreover, the prescriptive approach to strategy development
is prevailing in this work.
The strategic analysis starts out with an external analysis, more specifically, with an attempt to
determine the current degree of turbulence in the industry of online poker. By dint of aforesaid
investigation as well as the PEST analysis, the general level of environmental scanning is done. The
further description of industry has been done with the help of The Porter‟s 5 Forces model. The
main focus of internal strategic analysis has been put on the identification of Zynga Poker‟s
resources and capabilities and their further evaluation against the VRIO framework. The SWOT
analysis is used in this work with the purpose to combine findings from internal (strengths and
weaknesses) and external (opportunities and threats) analysis, and, therefore, to evaluate Zynga‟s
current strategic position. As soon as the work with whole above named analysis will be
accomplished, the new mission and objectives of Zynga Poker are to be established and, on this
basis, the ideas for future development strategies will be determined and presented.
1.3 Assumptions and Delimitations.
The section of delimitations and assumptions has been created with an aim of putting a reasonable
limit to the analysis and preventing unconstitutional generalizations, which may occur in the work.
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The whole paper is based on the principal assumption that Zynga will finally make an actual
transformation to real money online poker. To the date of writing the given thesis, Zynga has not
made any official press releases, which would be stating an intention to make a switch to the real
money games. Despite this fact, the author will b uild up a discussion in a way as if the previously
mentioned transformation has already been announced by the company and now it is making the
very first steps in the whole process of modification and strategy development.
Furthermore, any debates concerning whether Zynga Poker should be modified or not will be
entirely abolished in this work, and this fact implies that such topic as attractiveness of the new
market will not be discussed.
The author assumes that transformation process will be executed on the basis of current software
being possessed by Zynga Poker, meaning that joint ventures with leading operators, as an example,
might still be considered as the part of future development strategy. Moreover, all resources and
capabilities of Zynga will be considered in strategic analysis as potential resources and capabilities
of Zynga Poker.
One part of strategic analysis, the development of organization‟s vision for the future, will be
excluded from the given thesis, because the author assumes that short-term needs are prevailing for
the company at the moment.
The main focus of this research paper will be concentrated on the analysis of online poker services
exclusively, and not on any other gambling activities such as video poker, which might mistakenly
be assumed to mean the same thing. Thus, the situation where players compete against operators
(casinos) and not against each other will be disregarded in this work.
Lastly, some methods, which are used in the given thesis, are not discussed by the author in detail,
since a certain degree of beforehand knowledge is assumed.
1.4 Structure.
The following section will briefly introduce the overall structure of the given thesis.
The paper starts with the introduction of the research problem and definition of the research
questions. After this, it is divided into two major parts, where the first part aims to present an insight
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into the history of Zynga followed by a short description of how Zynga Poker operates. Moreover, it
provides information regarding the online poker industry (legal aspects, current trends, major
operators) and briefly illustrates the revenue sources, offered services, reward programs, security
and responsible gambling policies of contemporary poker sites.
The second part of the report is entirely devoted to the strategic analysis and development of
mission, objectives and strategic options for Zynga Poker. At the beginning of the section, the
readers can get acquainted with the prescriptive approach to strategic management and also find out
which parts of the strategic process will be explored in this thesis. The findings of the whole
strategic analysis are summed up in the SWOT analysis, which should be regarded as the base point
in the formulation of strategic options available to the Zynga Poker. After available strategic options
are developed and presented, a short conclusion followed by critique section is presented.
1.5 Definitions.
Since the topic of this paper is strongly correlated with the game of poker, the author finds it
necessary to provide subject related terminology in the section of definitions. Thus, an attempt to
remove all the associated ambiguity from the given work is made. The below definitions are given
without any reference, because they represent common knowledge amongst the poker players.
Play money poker – the variation of poker, where players can win/loose solely virtual money.
Rake – compensation received by the poker site for providing poker game services.
Hand – the best combination of cards constructed by the player. O ften used with another meaning:
one round of play, which is starting with dealing the cards to players and ends when the winner(s) is
(are) determined.
Cash games (ring games) – poker games where players are competing for real money in each
particular hand. Players are able to leave and enter the game at any moment.
Poker tournament – a variation of poker game, where players bring in fixed amount of money
before the event begins and receive equal number of tournament chips in exchange. During the
competition, participants are trying to eliminate each other by winning his/her chips. At the end of
the tournament, prize pool is divided amongst all players, in accordance with their place.
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Sit and Go tournament - type of poker tournament with no predetermined starting time. When a
necessary number of players have registered, the game begins.
Shootout – a special type of poker tournament, which consists of few rounds. In order to continue
the competition, player should eliminate all other players on his table. The winners of the first round
form new tables again and tournament continues in this way until eventually the final table is made
and the final winner is determined.
Rush Poker and Zoom Poker – new format of poker games, which was developed with a goal to
speed up traditional poker games. The given format implies that player is immediately transferred to
another table (same game, same stake) to participate in new hand, as soon as previous hand is
folded.
Affiliate - person or organization engaged in attracting new players to the poker sites for a portion of
future profits coming from that particular player.
1.6 Literature and Sources.
The information used in this report has been obtained from the scientific books and articles,
trustworthy internet sources and reliable databases. Additionally, the substantial part of the data
concerning Zynga has been taken from the prospectus, which was issued by the company few weeks
before its initial public offering in December 2011. Due to the lack of academic researches and
articles in the field of online poker industry, appreciable amount of information has been taken from
news and articles appearing on the websites related to the poker world. Nevertheless, the writer did
everything in his power to prevent unverified information from appearing in this paper.
1.7 Background of the author.
The author of this thesis is a professional online poker player, having three years of experience
behind his back in the given field. The desire to write the thesis on this unconventional topic was
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mainly dictated by the important events 2 , which have recently taken place and had a negative impact
on the online poker industry. Therefore, in addition to analyzing and solving the problem within the
business administration, the author has a huge vested interest in evaluating the consequences of the
arrival of new giant company to the industry.
Part 1: Zynga, Zynga Poker and Insight into
the Online Poker Industry.
2. Brief history of Zynga.
On April 19th 2007 Mark Pincus, a four-time entrepreneur, starts a company called Presidio Media,
which later will be renamed to Zynga. The underlying idea at the moment of company foundation
was that “… play- like search, share and shop – would become the core activities on the Internet.”
(Zynga Registration Statement, 2011 p.1). The bet was absolutely right and now the company has
become the world‟s leading social game developer with $1.5 billion in cumulative revenue and more
than $2.0 billion in cumulative bookings since the launch of the organization. The most obvious way
to evaluate the tremendous success of Zynga is to compare the number of their daily active users
(DAU) and monthly active users (MAU) with the same parameters related to the competing
companies in the industry. On the basis of the statistics gathered by AppData, as of September 30,
2011, Zynga has as much MAUs as eight competing social game developers combined. Moreover,
games produced by Zynga have attracted more DAUs than the games developed by 14 biggest
competitors all together (Zynga Registration Statement, 2011). Hence, all these numbers suggest
that to date Zynga has an overwhelming domination on the social game market, which has been
achieved due to the excellent vision and direction of its CEO.
At the beginning, the company was developing ad-based social games on MySpace and its early
revenue came from there. Later on, when Facebook has opened its applications programming
2
The two important events are “Black Friday” and the license suspension of the Full Tilt Poker. These events will be
inspected in detail later in the work.
8
interface for external developers, Pincus has decided to move his company there, making a bet on
the Facebook win in the future.
The very first game on the new platform was Texas Hold „Em Poker, later called Zynga Poker,
which was released in September 2007. This game was chosen to be a “firstborn”, since “… it was
simple and it was a universal game that enabled friends to plan a “poker night” with each other no
matter if they were far apart or not.” (Takahashi, 2011). Zynga Poker became extremely popular and
was making a profit, using the well established way in the industry – in-game advertisements.
However, the real breakthrough happened in the March 2008, when Zynga has announced additional
method to increase its revenue, namely in- game sale of virtual goods. From that moment, players
could increase the number of poker chips in their account simply by paying few dollars to the game
developer. From the foundation until the present time, Zynga has a “free-to-play” business model,
which allows users to engage in games first, and then pay for additional in- game feature (virtual
goods). The given business model was applied to every popular game, which Zynga has ever made,
without any exceptions.
The constant improvements in all kind of areas do not give any chance for competitors to catch up
Zynga in the near future. A very few examples could be heavy investments in its own infrastructure
(e.g. data centers, servers), game establishment on the basis of mobile platforms and other social
networks (e.g. Google+) and massive acquisitions of smaller companies in the industry to support
continuing growth of Zynga (ibid.). Moreover, the company has recently launched a website that
exclusively hosts Zynga games and, therefore, has made one of the first steps to reduce the risks
associated with being highly dependent on Facebook (zyngablog.typepad.com, 2012).
Rumors about Zynga‟s initial public offering (IPO) started to appear in June 2009 (Eldon, 2009), but
the first registration statement has been issued only by the 1st of July 2011. The 4- year-old company
went public on 16th of December, offering 100 million shares priced at $10 per share. Zynga was
seeking to raise $1 billion from IPO and was worth a total of $7 billion (Rushe, 2011). The IPO of
Zynga was the largest since 2004, when Google Inc. has raised as much as $1.9 billion
(www.cnbc.com, 2011).
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2.1 Overview of Zynga Poker.
The data from www.appdata.com for April 2012 suggests that there are more than 7 million DAUs
and approximately 36 million MAUs play on Zynga Poker. As it was mentioned earlier in the text,
Zynga is following a free-to-play business model, which implies that its application, Zynga Poker, is
earning profit only by selling additional in- game features, such as poker chips and casino gold.
Basically, there are two options of how player can spend one‟s chips or gold in this application: the
person can participate in the offered games at Zynga Poker or buy different items in the gift shop.
The possibility to convert virtual goods back in the real money is not available at Zynga Poker. The
price list for poker chips and casino gold, as well as some examples of items in the Gift Shop can be
found in the Appendix 1.
Currently Zynga Poker provides an opportunity to play only one type of poker game, which is called
Texas Hold‟em, more commonly, Hold‟em. Hold‟em is presented in few variations: individuals can
choose between participating in cash games, where they compete for virtual money, or registering in
Sit and Go and Shootout tournaments. While playing hands on the cash tables or competing in the
tournaments with other people, players are earning experience points and increase their total ingame experience level. Along with the level increase, more sophisticated gifts are becoming
available in the Gift Shop. To boost users‟ motivation to play poker, there is a rating list located at
the bottom of the lobby, where a list of player‟s friends is formed in accordance with the amount of
poker chips owned by them at the moment. Temptation to have more chips than any of your friends
at Facebook is the main driving force here, which is dictating the players‟ competitive behavior and
their wish to stay longer at the game.
Terms and conditions of Zynga Poker do not require individuals to be at least 18-years-old in order
to participate in poker activity. Moreover, players are not obliged to register any other additional
accounts, apart from their Facebook account, to enter into the poker games.
Last important point in relation to existing software of Zynga Poker is that it does not allow playing
more than on one table simultaneously, so the players are forced to choose between two disciplines
– tournament and ring game, and game format – up to 5 or 9 persons seating at a table.
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3. Online poker industry overview.
Not without a reason an online poker has become the most attractive gambling activity nowadays.
The unique factor making the game of poker so popular amongst other gambling products (i.e.
roulette, slots machine and blackjack) is the involvement of skill – the better you play, the more
money you will win in the long run. At the beginning of your poker career, it is really hard to
believe that anything but luck is responsible for defining the winner of the hand. However, as a
game of skill, poker has inspired many well known and influential academics, such as John Nash,
Von Neumann and Oskar Morgenstern, to create their famous works and researches (Croson, 2008).
It is worth noting that Sklansky and Schoonmaker (2007) are also taking up the position that poker
develops a lot of skills and personal qualities, such as logical thinking, math skills, discipline,
patience etc.
The recent success of poker can be credited to two boundless technologies, namely TV and Internet.
Through the aid of these technologies, “…the game has assumed its rightful place as a seriously fun,
intellectually challenging, and fundamentally social activity.” (McDonald, 2004)
3.1 Description of contemporary online poker sites.
To clarify how poker sites are earning their revenue, and, accordingly, supply the reader with
information about how Zynga Poker should look like in the future as a real money site, it is
necessary to describe a business model of contemporary poker sites. Many operators have more or
less similar system of conducting the poker business and gaining their profits, therefore it is not
essential to choose and examine any specific company in the industry. In the next sections there will
be taken a closer look into integral components of online poker business, such as the revenue
sources of poker rooms, services offered, reward programs and site security.
3.1.1 Revenue sources.
As it was mentioned earlier in the work, poker players are not competing against poker sites. The
main purpose of the game is represented in winning money from opponents. In this case, a rather
obvious question comes to mind: how are poker rooms earning their profits? The answer to this
question is fairly simple – companies receive compensation for hosting the games. Usually, in the
cash games the rake is 1-5 percent of the total pot, depending on the stakes and number of players in
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the hand. The maximum amount taken by house from the pot never exceeds 5 dollars. Since all
poker sites have different rake policies, players are also charged differently across major rooms.
Table 1 represents the calculation of average amount of rake to be paid when playing 100 hands at
any given stake and at 8 given poker sites. For instance, a random player on Party Poker 3 will on
average pay 6.62 dollars for playing 100 hands with other 8-9 players at stake 100NL4
Table 1: Rake analysis, No limit Hold’em (http://www.pokertableratings.com, 2012).
Individuals participating in poker tournaments are usually obligated to pay an entry fee in addition
to the tournament buy- in. This fee is another form of rake, which the house charges for providing
the possibility to gamble in the tournament. Typically, a poker room charges up to 10 percent of the
buy- in for the rake purposes, but this value may vary due to buy- in amount and tournament type.
3.1.2 Offered services.
Contemporary poker rooms are able to offer a possibility to play those poker game varieties, which
exist in the gambling world and are of interest amongst wide range of people. At the moment, apart
3
The name of popular poker room.
The number 100 means the maximum amount of dollars, which person can take to the table. NL relates to the betting
structure of the game. In this case it is No Limit Hold’em (player can put all his money at the table to the pot at any
betting round).
4
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from popular game variety Texas Hold‟em, the gamblers have an access to huge range of poker
games such as Omaha, Omaha Hi/Lo, 7 Card Stud, Razz, Badugi etc. In addition, the operators are
putting a lot of effort to improve traditional poker disciplines and, thus, make the playing experience
even more fascinating and enjoyable. As a consequence, many new types of poker tournaments have
lately appeared in the lobby of poker sites.
Special attention should be given to the invention of completely new format of poker, which has
been announced at the beginning of 2010, when Full Tilt Poker has introduced its great innovation –
Rush Poker (Full Tilt Poker, 2010). Later on, in March 2012 PokerStars has also launched a similar
format of poker called Zoom Poker (Wills, 2012).
Another valuable feature of online poker rooms nowadays is the capability to play a number of
games simultaneously, which in poker world is known by term “multi-tabling”. Customers may
decide how many ring game tables or tournaments and at which stake they feel comfortable to play.
In addition to the extensive game selection, customers have a possibility to choose between heads up
tables (maximum 2 persons), and tables for up to 6 and 9 persons (full ring tables).
3.1.3 Reward programs.
Like many other companies in the service sector, poker rooms are offering their customers various
reward programs. The most common types of customer loyalty amongst operators are miscellaneous
bonuses and partial return of paid rake, also known as rakeback.
Players can receive rewards for numerous reasons, but one of the most widespread bonuses is
collected by the players when they fund their poker accounts for the very first time. The amount
given for bonus for the first deposit is usually the highest. From time to time, poker sites also
introduce smaller bonuses as part of their promotional campaigns.
Rakeback, another customer reward method in online poker industry, exists in two types : direct and
indirect. The direct rakeback implies person will get some percentage of the paid rake returned by
means of money transfer to his account from the poker room or third party, known as affiliate. In the
case where a person receives an indirect rakeback, the partial compensation of paid rake comes to
the player from in-house loyalty programs. These programs generally work in the way that
individuals collect reward points for the paid rake and entry fees (e.g. 1 dollar of rake generates X
reward points). Later on, players may exchange their collected points for the cash or spend them for
different items in the online poker room store.
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3.1.4 Site security.
Due to the fact that companies in online poker industry provide their services only for individuals,
who are of 18 years or older (different jurisdictions require different minimum legal age), the
procedure of verifying the accounts of customers is a principal issue for security departments of
poker rooms. The given procedure normally requires player to send his/her scanned ID and also a
document (e.g. phone bill, bank statement) which proves that one‟s address is stated right. When the
verification of documents is completed by the staff of the card room, person may use all services
presented on the site (williamhill- lang.custhelp.com, 2011), (secure.partyaccount.com, 2011).
The industry of online poker is attractive not only for fans of card games, but, unfortunately, also for
people involved in the criminal activities on the Internet (McMullan & Rege, 2010). For this reason,
in order to protect users‟ accounts, some operators offer security keys/tokens as an additional
security measure. Even though this intention does not eliminate all the risks, it still can significantly
reduce the likelihood of cracking user‟s account. (www.pokerstars.dk, 2012)
(www.fulltiltpoker.com, 2012).
Amongst the poker room customers, fairness of the games is becoming the most discussed and
exhilarating problem. A large number of studies confirm this trend and, therefore, force companies
to become as transparent as possible in relation to the given issue (McMullan & Rege, 2010). Each
poker room is trying to position itself as a company representing honest and trustworthy services, so
the section where one can find necessary information regarding personal data security and integrity
of games is an essential part for the web sites of all companies on the market.
3.1.5 Prevention of excessive gambling.
The obligatory requirement of online poker regulators is formulated in such way that companies
should offer help for those players, who may not have enough control over their behavior and
emotional state while playing online poker games (http://www.gamblingcontrol.org, 2012). The
assistance is expressed by different means: customer has a possibility to use a self- exclusion feature,
which will not allow him/her playing any games for the chosen period of time; or one can restrict his
own deposit limits. In addition to that, poker rooms provide information concerning the gambling
14
problems and also links to the web sites of specialized organizations, where customers can receive
more detailed consultation on the matter.
3.2 Legal aspects.
One of the most acute problems for the online poker industry is the partial or complete absence of
regulation. So far many countries have not yet decided on the legal status of online poker and other
gambling activities within their borders. This uncertainty imposes additional complexity in the
management of a poker company. The next part of the paper provides a brief review of the existing
laws on the major markets - Europe and the United States, as well as sheds the light on two
important, law-related events – Black Friday and the license suspension of the Full Tilt Poker.
3.2.1 Regulation in Europe.
In order not to destroy the integrity of the work, Table 2 with a list of the countries in which the
regulation has occurred or is in the process of development, has been removed to the Appendix 3.
Thus, European countries, which are not specified in the Table 2, have not made an attempt to
regulate the industry. To supplement the information in the table, it is necessary to designate some
important aspects of regulation.
First of all, “[e]ach [regulated] market has its own … player protection requirements, security and
data protection policies and game restriction peculiarities.” (Jones, 2012). For example, according to
a new regulation of online poker in Denmark, every Danish resident, who uses the services of online
poker rooms, is obligated to use additional identification service called NemID (www.pokerstars.dk,
2012a).
Secondly, the difference in regulation amongst the European countries is expressed in the market
availability for foreign players. At the present moment, regulated markets of online poker in the
Europe exist in two types: isolations (domestic sites only, no international players) and open markets
(licensed companies, shared player pool and liquidity). Back in 2009, Italy was the first country to
adopt regulations, which required a separated Italian-only player pool (Jones, 2011). Later on,
France has also decided to implement an isolated regime to regulate its market. In the near future,
15
Spain may also moderate its market in the same way as Italy and France, with an only exception that
foreign players will be able to register on Spanish poker sites (Guill, 2011). Other European
countries have maintained an open market regime.
Last important issue concerning regulation in the Europe relates solely to the European Union (EU)
area. Several Member States of the EU, namely Greece, Belgium and Germany, have developed
regulations which are not completely consistent with the EU law. For example, Belgium has adopted
a law which requires poker sites to be backed by land-based casino in Belgium. Many operators
believe that the given law contradicts to the Article 49 EC (European Community law) – freedom to
provide cross-border services and, therefore, they expect the European Commission to take some
actions regarding the harmonization of the gambling law in the EU (http://ec.europa.eu, 2008).
3.2.2 Regulation in USA.
Prior to the moment of the first attempts to regulate market in the United States, the industry of
online poker, along with other kinds of online gambling, was in "free floating" mode. The main
reason for this was the old legislation, namely the 45-year-old federal Wire Act, according to which
all interstate gambling was illegal. Due to the fact that the law “… was written with telephone, not
Internet, lines in mind” (Miller & Washington, 2011, p.228), offshore poker companies were not
afraid to provide their services on U.S. territory. The situation was constant up to September 2006,
when the U.S. Congress has approved The Unlawful Internet Gambling and Enforcement Act
(UIGEA) as an addition to the Safe Ports Act. The new law required banks to fully suspend the
processing of any payments between online gambling operators and their customers. Despite the
UIGEA, some companies continued to operate on the U.S. poker market. Among these companies
were Poker Stars, Full Tilt Poker and Absolute Poker, which subsequently on 15th of April 2011
were charged by the U.S. Attorney‟s office with bank fraud and illegal gambling. In the online
gambling world, the given event is also known by the name Black Friday. As a result of the
Department of Justice‟s actions, the American players were not allowed to play poker at above
named sites anymore, and their funds were frozen. Subsequent agreement between government and
three charged companies allowed players to withdraw their money from accounts, but unfortunately,
Full Tilt Poker, the second largest poker room on the market at that time, had some serious troubles
with financial liquidity, which became even more significant after the Black Friday (PwC, 2011).
After a subsequent series of events, on 29th of June, two and half months since the Black Friday,
16
Full Tilt Poker‟s gaming license has been suspended by Alderney Gambling Control Commission
(AGCC). From that point, poker room was not able to register a new customer, receive any new
deposits or process the withdrawal of money, and host any poker game (Katz, 2011). At the end of
March 2012, the player funds are still frozen and the future payback is a big open question for
accidental “creditors” of Full Tilt Poker.
According to data provided by The Poker Players Alliance, approximately 10 million American are
engaged in online poker for real money. Moreover, if online poker will be finally regulated in U.S.,
it is estimated that around $3.3 billion might be added to federal revenues and $1 billion in state tax
revenue. (Miller & Washington, 2011). Combining all the facts together, the poker is undoubtedly
attractive for both the government and poker rooms as a legal and taxable adult entertainment. In its
latest report “Global Gaming Outlook” (2011), PwC has distinguished 3 main obstacles on the way
to legalization: contradictions on the state level, the existence of opposition to which online
gambling is a social evil, and problem to put regulation onto the federal level. Nevertheless, a lot of
expectations are associated with year 2012, which should bring a significant progress in
development of online poker regulations.
3.3 Current trends in the industry.
It is necessary to highlight three current trends in the online poker industry. First trend could be
easily retrieved by the reader from the previous section – online poker is becoming more and more
regulated all over the world. Even though, the transition to the regulated markets imposes
additional compliance costs and gaming taxes, companies in the industry should consider this trend
rather positive than negative for two reasons. Firstly, the regulation of online poker eventually leads
to the positioning of it as a normal and legitimate form of public entertainment. Second ly, customers
will feel much safer while playing poker when the legal status of this game is defined in their
country.
The emergence of the second trend is dictated by a massive distribution and evolution of the
smartphones in the world. As shown by recent data, approximately 1.08 billion people have a
smartphone (http://www.go-gulf.com, 2012). Hence, mobile poker is a new outstanding opportunity
for poker rooms to enlarge their customer base by attracting individuals, who are looking for short
term amusement. This segment includes very large numbers of people and they have the potential to
17
replace their usual activities, such as reading in the public transport or killing time in the queue, by
playing poker games. Another consequence of the introduction of mobile poker is that current
customers of poker sites will most likely increase their average spent time at the poker tables, which
will ultimately lead to increased profits for the game providers. Many operators in the industry,
namely PokerStars, Ongame Network and 888poker, have already developed and introduced mobile
poker applications for both Android and Apple devices (Jones, 2012a) (www.ongame.com, 2011)
(Wills, 2012a).
The consolidation of social networking sites with online poker has been named another trend in
the industry by PwC (2011). The poker room connected to the social networking platforms is not an
extraordinary phenomenon anymore; this is already an existing concept. With the help of new
features, players may share their results and performance, connect with other players, create cont ests
with their friends and much more. The given idea was first realized by the Chilipoker‟s development
team in 2011 and is likely to be implemented by other operators in the nearest time.
3.4 Major operators on the market.
In order to describe main competitors of Zynga Poker on the online poker market, the author has
made a decision to choose top three companies from the ranking made by pokerscout.com – a portal
which tracks poker site traffic in the real time (cash games only). At the moment of writing (March
28th 2012), such companies as Poker Stars, Party Poker(bwin.party) and iPoker network took the top
three positions in the corresponding table (see Appendix 2). It is worth mentioning that amongst
these companies the accurate financial data can be retrieved exclusively for Party Poker, since it is
the only public company amongst three above named.
Currently, the undisputed leader on the market is the company registered under the name “Rational
Entertainment Enterprises Limited” on the Isle of Man in the British Isles with a trade mark “Poker
Stars”. According to Vardi (2010), the estimated annual revenue of PokerStars was $1.4 billion and
around $500 million in profits. Besides its international site, which is PokerStars.com, the company
has special domestic rooms for all regulated markets such as PokerStars.ee (Estonia) or
PokerStars.dk (Denmark). In addition to the typical characteristics peculiar to the leaders of the
market (e.g. best customer support, excellent promotions), there is one unique aspect about Poker
Stars. This company has obtained the licenses in the greatest number of jurisdictions, compared with
18
the other companies in the industry (Hollreiser, 2012). According to the data retrieved from August
2011, the estimated market share size of PokerStars is 54% (http://www.pokerscout.com, 2011).
Party Poker was launched in August 2001 and was one of the pioneers in the online poker industry.
At the time when the United States have passed UIGEA in 2006, Party Poker has withdrawn from
the online poker market in that country, and started to concentrate heavily on European market. The
merger of bwin interactive Entertainment AG and PartyGaming Plc in March 2011 has lead to the
formation of new gambling giant - bwin.party Digital Entertainment Plc. The latest financial
statements suggest that during the 2011 year the company has earned €209.7 million in revenue
from online poker (www.bwinparty.com, 2012).
The iPoker network is a group of poker rooms, consisting of 33 different companies (i.e. Titan
Poker, bet365, William Hill etc). All these companies are using the software created by Playtech
Ltd. – the world‟s largest publicly- traded supplier of online gaming software. Due to the fact that
iPoker network has almost the same market share as bwin.party, the estimated revenue of this
network is supposedly close to the revenue of bwin.party. The platform provided by Playtech Ltd.
allows each particular company in the network to make an individual design and look of the poker
room lobby, but other emerging technical issues are solved solely by software developers. Hence,
the companies are concentrating solely on the marketing and management of poker rooms. The
members of this poker network are sharing players as well as tables and, therefore, increasing
overall game selection for their customers. Apart from poker games, many companies of this
network are offering opportunity to play wide selection of casino games (http://www.playtech.com,
2011).
19
Part 2: Strategic analysis and strategy
development.
4. Prescriptive approach.
Since the reader has briefly acquainted with Zynga, and received the necessary basic knowledge
about online poker industry, the discussion can focus on further details associated with the related
strategic issues.
As mentioned in Assumptions and Delimitations section, the prescriptive approach to the strategic
management development (presented in Figure 1) will be used in this paper. The discourse
concerning the last two steps of the strategic process, namely choice of strategic option(s) and
strategy implementation, will be excluded from this work, leaving the variety of proposed strategies
a final point of this analysis. The primary reason for this choice is the fact that Zynga Poker
management has more opportunities for a thorough evaluation of each offered strategic option,
rather than the author of the report.
Figure 1: The prescriptive approach (Lynch, 2009 p.19)
20
5. External strategic analysis.
The next part of the paper will examine and evaluate the environment of Zynga Poker. The external
analysis will start with the environmental basics – market definition and size, market growth and
market share. To find out how the environment is changing around the Zynga Poker, the Degree of
Turbulence (DOT) model will be applied on the following pages. The analysis of the general
environment will be conducted with the help of PEST model. And finally, Porter‟s Five Forces
analysis will be used to determine the competitive environment in the online poker industry.
5.1 Environmental basic factors.
The market at which Zynga Poker will be operating could be defined as the market for real money
online poker in all countries where such gambling activity is not forbidden. The data from 20092010 suggests that the size of the given market was estimated to be around 6 million active players
worldwide. If we exclude currently isolated market of United States, then the market size will be
approximately 4.5 million people (Fiedler & Wilcke, 2011). The research of Fiedler and Wilcke
includes data only about ring game players, so the number of people participating exclusively in the
tournaments is not calculated. Thus, given the rising trend in the number of players in the market, as
well as the immense popularity of online poker tournaments, we can conclude that the real size of
the current market is much greater than 4.5 million people. The estimated market growth for the
period between 2010 and 2015 is presented in Graph 1 by H2 Gambling capital in February 2011.
The forecasted compound annual growth rate (CAGR) for the market is 10.4% in the given period
and the total gross gaming yield (amount waged by customers minus the total amount paid out to
customers as winnings) is expected to be $6.1 billion (http://www.bwinparty.com, 2012a). Lastly,
the market share of Zynga Poker in the given industry is equal to zero, since the company has just
entered the market.
21
Graph 1: Non-US Projected poker Market Growth (http://www.bwinparty.com, 2012a)
5.2 The Degree of Turbulence.
The essential part of the external strategic analysis is to figure out the present level of turbulence in
the industry. There are two main reasons why the DOT model should be used as the starting point in
any external analysis. Firstly, the scope of analytical techniques which could be used in the external
analysis is becoming relatively narrow if the DOT model concludes that the forces in the
environment are exceptionally turbulent. Secondly, the given analysis helps to adjust the structure of
the organisation in the way that it will better cope with the changes in the environment. The level of
turbulence is measured on the scale from 1 to 5, where 5 corresponds to the extremely turbulent
environment and 1 to the least turbulent (Table 3). The two principal measures of surrounding
external forces are changeability and predictability (Ansoff, 1990) (Lynch, 2009).
22
Table 3: Assessing the dynamics of environment (Lynch, 2009 p.19)
Changeability is defined as the extent to which the environment is expected to change. The key
components in measuring the changeability are complexity and novelty (familiarity of events). The
first measure, complexity, includes the influence of such factors as technological, social and
political complications (Lynch, 2009). In terms of complexity, Zynga Poker environment is affected
by global economic (number 5 on scale) factors, because the company will be presented all over the
world and strongly dependent on the development of internet technologies as well as political
decisions. The number of completely new situations for the organization is expressed by the second
measure – novelty. As functioning poker room, Zynga Poker will rarely meet with incomprehensible
situations, so it should be familiar with the events (1). Some radical changes in the technology may
still affect the organization, but the conditions of the industry require each company to have an
ability to follow all the latest technological improvements.
The second measure of the external forces is predictability – the degree with which the changes in
the environment can be forecasted. It can be further decomposed into two elements: the rapidity of
change of the environment (from slow to fast) and visibility of the future, which implies how
accessible and beneficial the information regarding the future is (ibid). The rapidy of change in
Zynga Poker‟s environment is estimated to be between slower than response and comparable to
response (2). For example, the adjustments in one of the core drivers of poker prevalence, GDP per
capita, will probably have an effect on total number of people playing poker in the relatively long
run (slower than response). On the other hand, regulatory sanctions which ban the online poker on
any territory, will lead to immidiate effect of losing whole customer base in that particular region
(comparable to response). If we disregard such extreme events as Black Friday, which will mo st
23
likely not happen ever again, the overall picture of the future in the industry is forecastble (2). For
instance, it is not complicated for poker room management to track the regulatory developments
regarding online poker across the world, and, thus, readjust the company‟s strategy.
To find out the result of the DOT analysis, it is necessary to calculate the mean value. In our case,
the mean is equal to 2.5 5 and, therefore, the environment has a medium level of turbulence. That
implies environment can be characterized as something between Expanding and Changing. Thus,
Zynga Poker must take such strategic position, where it can make necessary corrections in the
strategy very smoothly, but at the same time it could also carefully monitor the changes in the
environment.
5.3 PEST.
The purpose of the given analysis is to identify the macro environmental factors, which Zynga Poker
should take into consideration, when developing its strategies. The PEST analysis consists of
Political-, Economical-, Socio-cultural- and Technological factors. Since the prescriptive approach
is used in strategic process in this work, it is possible to implement PEST checklist for forecasting
the future in the industry. The given predictions could be further used in strategic process with some
certainty, because the level of turbulence in the industry is relatively low (Lynch, 2009).
5.3.1 Political factors.
The regulation of online poker was the main concern for politicians in the past, still is in the present
days, and with high probability will continue to be in the near future. The trend towards legalization
was presented and described previously in the paper, but this part of the text will be focused on
motivation behind the regulatory process.
The most obvious reason for regulating and licensing the online poker is possibility to use it as
supplementary source of tax revenues for governments. The important point in establishing tax
regimes is to balance tax receipts and market growth. Good example of disappointing market
regulation could be taken from France. Due to the lack of previous experience in this field, French
government has imposed taxes both on operators and individual poker players. This resulted in
5
Mean value: ( 5+1+2+2)/4 =2.5
24
market stagnation and low levels of profitability for operators. It is expected that in the future
governments will tend to adopt more liberal regulations, which imply the taxation only o n operators.
However there is also a possibility that some countries will implement French taxation scheme, but
with the goal to lower the attractiveness of the whole industry of online gambling, since it may
contradict the cultural and social norms in the given country (PwC, 2011).
5.3.2 Economic factors.
As it was noted earlier in the work, the research made by Fiedler and Wilcke (2011) has proved that
prevalence of online poker in particular region is correlated with the levels of economical indicators,
such as GDP per capita, in that area. Thus, we can conclude that the growth of the online poker
industry is directly interconnected with the growth of world GDP. However, during the recession
period in 2008, when world GDP has declined by 2.6%, the industry of online gambling was not
seriously affected and it has continued to grow steadily (see Figure 2 in Appendix 4) (IMF, 2009).
The main reason for this may be that online poker was just gaining popularity at that moment and
people‟s interest in this game was enormous. All in all, we can assume that when the popularity will
start to play less important role in the development of online poker, the future growth of the industry
will be more or less correlated with the world GDP growth, which is expected to be 2.6% in 2012
and 3.2% in 2013 (UN, 2011).
5.3.3 Socio-cultural factors.
It is quite obvious that in the beginning of the development of online poker, it, as another form of
gambling entertainment, has earned a negative attitude amongst conservative people all over the
world. If for Americans this game was a part of their culture since 19th century, then for people in
other countries this intellectual game has became popular not long ago and, thereby, there were
many wrong stereotypes regarding it (McDonald, 2004). Poker rooms have also contributed to
spreading incorrect perceptions about poker, by attracting new player with notorious advertising
slogans, such as “deposit $XXX and have a chance to win $XXXXXX”. Nevertheless, in the recent
time a lot of poker sites have started to organize special poker schools, where beginners can learn
the basics of strategy and improve their understanding of the game with the help of educational
videos and articles. Thus, it is possible that in the near future there will be a positive shift in the
25
perception of online poker amongst the masses, since poker will be positioned first and foremost as
the game of skill.
At all times, communication between people at the poker table has been an important part of the
game, because a good atmosphere at the table is the reason why some people return to the tables
again and again. Unfortunately, the online poker in the form in which it now exists is not able to
provide proper communication between poker players. Communication by means of the chat is not
very convenient for the players, so it is expected that in the future customers will demand better
solutions to problems associated with exchange of information between players at the poker tables.
Most likely, social networks (e.g. Facebook, Google+) will also play an important role in improving
the atmosphere at the tables by implanting special features and applications into the poker software.
5.3.4 Technological factors.
Technological factors affect the online poker industry in few different ways. First of all, the growing
spread of the internet around the world is influencing the industry in positive way – an increasing
number of people will be able to put online poker in the list of their hobbies, or use it as a new
source of personal income. According to the book “Internet User Forecast by Country” (2010), in
the period between years 2010 and 2015 the number of Internet users worldwide is expected to grow
by less than 8% in each year. However, in numerical values this corresponds to growth from 2
billion Internet users in 2010 to 2.89 billion users in 2015. Thus, the base of potential customers of
the industry will increase by nearly one-third.
Another technological factor that tremendously influences industry and forcing the companies to be
in tension is a wide penetration of smartphones and tablets across the globe. From the one side, the
given situation should be pleasant for the companies within industry, because the consumption of
the services should increase significantly. But from the other side, the poker rooms should put a lot
of effort to cope with explosive development of technologies and, at the same, deliver high quality
service through the mobile channels. The emergence of new types of Internet networks, which will
be five times faster than current 3G networks, as well as the increasing prevalence of public Wi-Fi
hotspots will collectively contribute to the better environment for mobile gambling
(www.bwinparty.com, 2012b p.8).
26
5.3.5 PEST Conclusion.
Overall, the PEST analysis has shown external factors that influencing the online poker industry are
mostly of positive nature and can potentially lead to the growth of the market in the future.
However, above listed factors also demand from the companies to develop and further implement a
lot of innovative ideas. Therefore, the future success of Zynga Poker will largely depend on its
capability to cope with technological evolution within the industry.
The author personally believes that in the future when the regulation process all over the world will
be concluded and the social networking sites will merge with online poker platforms, the industry
growth will start to slowdown and correspond to the growth of other gambling activities (both online
and offline).
It is important to note that a lot of relatively small issues were not covered in the analysis, because
the goal was to present factors that have the greatest impact on the company environment and, thus,
the further development of the company.
5.4 Porter’s Five Forces.
Porter‟s Five Forces analysis will be applied in the following section with the goa l to define the
attractiveness of the online poker industry. Generally, the given model examines five basic forces
that have an influence on the organization within the industry and, therefore, consists of five
individual parts: the threat of potential new entrants, the bargaining power of suppliers, the
bargaining power of buyers, the threat of substitutes and the extent of competitive rivalry. This
model will help Zynga Poker to develop strategies that will match the external opportunities and, at
the same time, protect the organization against the competition and other threats (Porter, 2008)
(Lynch, 2009).
5.4.1 The threat of potential new entrants.
The entry barriers to online poker industry are relatively low and this is facilitated by one
considerable factor. The poker networks, such as iPoker and Ongame, provide an opportunity for
new companies to use their platforms (software) in order to operate on the market as independent
brands. In other words, when the new companies are joining the existing poker networks, they
27
bypass the grueling and expensive procedure of development and further licensing of poker room
software. In addition to all, these companies also resolve the problem of insufficient liquidity of the
players at the beginning of the functioning of poker room. As a result of the foregoing, the capital
requirement for starting up the company in the online poker industry notably decreases and, as a
consequence, it becomes much easier for the new companies to appear on the market.
5.4.2 The bargaining power of suppliers.
The suppliers of online poker market are “… online gambling software providers, credit card and
debit card companies, financial institutions and countries acting as jurisdictions” (Datamonitor,
2011, p.16). Companies with the big market share, namely Poker Stars and Party Poker (also Full
Tilt Poker in the past) are in the full independence from software providers, because they deal with
software development and support by their selves. However, those companies, which have not made
backward integration and did not make software development, are closely linked to the software
manufacturers and, in this case, suppliers‟ power is relatively strong. Besides payment for the use of
software (total cost between $100,000 and $300,000), poker companies should also pay royalties
which ranges from 15% to 45% (ibid.). Since the number of payment service suppliers is sufficiently
large and consists of 167 organizations, the supplier power in terms of payment is quiet low.
Though, the existence of widespread conglomerates such as Visa and MasterCard slightly increases
overall supplier power. There are 70 jurisdictions around the world in total which allow to
physically setting up an Internet gambling business. Taking this into account, as well as the fact that
each jurisdiction has its own taxation policies and telecommunication infrastructure, there are not
many places for successful business location. Thus, the supplier power is moderate and expected to
decrease even more in case of favorable legalization of online poker on the globe (ibid.). Summing
up all the factors, the supplier power in the industry is moderate.
5.4.3 The bargaining power of buyers.
As a consequence of global Internet penetration, there are many customers willing to play poker
around the world, so this fact considerably reduces buyer power. The switching costs are generally
low, but sometimes they also depend on the location of the clients. In the cases when any kind of
offline gambling is prohibited on the territory close to the individual, than switching to offline poker
is not possible and buyer power is extremely low. However, this is quite rare case and customers can
28
usually easily find the poker games in their local casinos. Due to the fact that buyers are able to
make a backward integration by organizing their own private poker tournaments and cash games
(home games), the buyer power is increasing. Another factor which increases the buyer power is
similarity of services offered on the online poker market. Of course, the quality of the software as
well as proposed variation of games is different from site to site, but the main aspect for the
players remains the profitability of the game. Therefore, customers will often change the poker room
to another, which offers better reward program, bonus, softer games etc. Overall the buyer power is
moderate in the industry (ibid.).
5.4.4 The threat of substitutes.
The existing substitute for online poker is obviously offline poker offered on the land-based poker
rooms and casinos. The given alternative is unlikely possessing any threats to the industry and, even
more, the situation might be the opposite, because online poker is much more convenient and
accessible. If we take a more global perspective and consider games of skill (i.e. chess, draughts,
bridge etc.) as a potential substitute for online poker, then the threat of substitution is slightly
increasing, because there are online sites that offer to play chess and bridge for real money (e.g.
http://www.playe4.com, http://bridgebig.com). Nevertheless, the online variations of these games
are not very popular and potential threat posed by them is minimal. All in all, the threat of
substitutes in the industry is low.
5.4.5 The extent of competitive rivalry.
To figure out the rivalry among the existing competitors in the industry, it is necessary to examine
certain aspects which were offered by Porter (2008). First of all, the absence of companies of
roughly equal size and power significantly decreases the overall competition in the industry. The
approximate distribution of the market shares between companies was described in the section
“Major operators on the market”.
The next factor which should be considered in order to determine the extent of rivalry is the growth
of the industry. In our case, the market is constantly growing and this trend is forecasted to continue
for at least three following years. The given fact implies that poker companies are not forced to
desperately fight for the market shares and, therefore, the degree of competition falls. However, it
29
should be noted that the closure of the U.S. market had a negative effect and led to the increased
competition in other markets.
For the reason that the only highly specialized asset in the online poker industry, software platforms,
can be rented from the poker network, the exit barriers are relatively low. This is again greatly
reduces the extent of competitive rivalry in the industry.
The rivalry in terms of prices is another factor, which indicates the overall degree of competition
within the industry. It is not typical for the organizations on online poker market to compete with
each other in the price setting, so the value of the maximum rake taken from the pot and entry fees
to the tournaments are more or less similar across the industry. However, small-scale indirect price
competition exists and it is expressed in different rakeback policies amongst the poker rooms.
Lastly, the low degree of differentiation amongst the services in the online poker and also the
absolute absence of switching costs for the customers are the factors, which make rivalry in the
industry very intense.
All in all, the level of the competitive rivalry in the industry is medium.
5.4.6 Conclusion on the Five Forces analysis.
The executed analysis gives the possibility to assert that the industry is very attractive at the
moment, since the entry barriers are relatively low and the bargaining power of suppliers and buyers
is moderate. In addition to that, the threat of substitutes in the industry is sufficiently low and
competitive rivalry is on the medium level, which also contributes to the higher attractiveness of the
market. One more important conclusion which could be drawn from the given analysis is that
companies entering to the market with their own software have more independence from suppliers
and, thus, much more options for strategic planning in the long-run.
6. Internal strategic analysis.
Since it is not possible to predict the exact allocation of Zynga resources into the new separate
strategic entity (Zynga Poker), the internal analysis will be quite superficial and limited, so it will
make a small contribution to the overall strategic analysis. To present the resources of Zynga Poker,
30
they will be divided in three different groups: tangible resources, intangible resources and
organizational capabilities. After the resources and capabilities are identified and presented, they
will be also tested through the aid of VRIO framework in order to determine whether they can
contribute to the competitive advantage of Zynga Poker.
6.1 Tangible resources.
Even though the online poker industry is highly digitalized and there is no need to have a lot of
tangible resources, at the disposal of the Zynga Poker are a huge number of offices around the
world. In total, there are 463 000 square feet of general office space in different countries, namely
USA, Canada, India, China, Germany, Ireland, United Kingdom, Luxembourg and Japan (Zynga
Registration Statement, 2011). None of these countries is considered to be a perfect place for
locating the poker company, because favorable environment is missing. In other words, previously
named countries have not completely decided on the legal status of online poker and their tax
policies are not optimal for the poker company. From this perspective, the current location of Zynga
Poker should be recognized as strategic disadvantage for the company. On the other hand, the
location of offices around the world can also produce some dividends in the future, since it will be
much easier for the company to demonstrate itself on the different markets.
The possession of its own cloud computing infrastructure and data centers provides for Zynga Poker
a great technical independence in comparison with other companies in the online poker market.
Moreover, it eliminates any risks associated with sudden influx of a large number of players to the
poker tables (Leinwand, 2011).
6.2 Intangible resources.
The two intangible resources have the most crucial importance in the online poker industry,
specifically software of poker room and the company‟s brand awareness. With respect to the brand
awareness, Zynga Poker‟s brand is really popular around the world and not only amongst
recreational poker players, who enjoy play money poker, but also amongst people, who are not
connected with the poker world at all. The reason for that is fairly simple - the company is a part of
social gaming giant Zynga.
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Zynga Poker software, the second crucial resource of any poker company, is in rather deplorable
condition. In order to determine the given fact, it is not necessary to be an expert in the software of
online poker rooms. Any person, who will play for a while on the poker platforms of the leading
companies after playing on Zynga Poker, will definitely conclude that the software of other
companies is more convenient for the players and has much more functions. However, it should be
noted that in addition to the regular software, in October 2011 the company has also introduced a
mobile version of Zynga Poker. In comparison with other mobile applications for play money poker,
this product has a very pleasant design, easy to use and has sufficient amount of required functions
(blog.zyngapoker.com, 2011).
Other intangible resources of Zynga Poker are exceptionally skilled employees, who are working in
the research and development departments and who have proved their ability to deliver high quality
products and designs to the gaming world. Even tough, the major part of the given workers was not
directly interacting with the development of poker related software in the past; these people are still
able to find innovative solutions for a Zynga Poker. Amongst the acquisitions of other companies by
Zynga, it is especially important to highlight the acquisition of MarketZero team from Austin,
Texas. This team is well known in online poker industry for developing popular online portals,
software programs and social poker databases. The most successful and popular project of this team
is web site PokerTableRatings.com, which tracks 95% of the cash game hands played on all the
major online poker rooms (zyngablog.typepad.com, 2011) (www.pokertableratings.com, 2012).
Therefore, the possession of such resource could significantly improve the research and
development processes inside Zynga Poker.
Lastly, it is important to mention a five-year strategic relationship between Zynga and Facebook,
which was announced on 18th of May 2010. None of the poker companies has such a solid
foundation to work with social networking sites apart from Zynga Poker. Hence, the given
partnership is very important and valuable resource, which may greatly contribute to the success of
the company (company.zynga.com, 2010).
6.3 Organizational capabilities.
The experience in integrating its business into the social networks is one of the most important
organizational capabilities of Zynga and, therefore, of Zynga Poker. On the background of
32
forecasted connection of social networking sites with online poker industry in the near future, the
given ability may significantly enhance the current position of Zynga Poker on the market.
The exceptional skills in managing the company could be also seen as another organizational
capability of Zynga Poker. During the initial period of formation of the Zynga company, its founder
and CEO, Mark Pincus, has many times demonstrated his strong leadership position and excellent
entrepreneur skills (Takahashi, 2011). The presence of such a leader, who is not afraid to make
unexpected decisions, greatly increases the chances of becoming one of the most successful
companies in the industry.
Another organizational capability which should be noted is possibility to promote real money games
on Zynga Poker in other products (games) of Zynga. The use of such unique promotional channel
may considerably reduce expenses in one of the most costly areas for any poker room – marketing.
6.4 Evaluation of internal resources and capabilities.
The VRIO Framework, a sequential decision- making approach, is providing a route to evaluate the
resources of the organization, which were identified throughout the internal analysis. The given
method starts by questioning each resource or capability and asking if it is valuable for the company.
If the answer to the stated question is positive, the further evaluation goes on to examine another
properties of the given resource, specifically its rarity, possibility of imitation by the competitors
and organizational capability to exploit it. At the end of the process of evaluation, resource or
capability is categorized in one of four groups, in accordance with its competitive implications for
the company: disadvantage, parity, temporary advantage and sustained advantage (Barney, 2002).
The VRIO framework is illustrated in Table 4.
33
Table 4: The VRIO Framework (Lynch, 2009 p.151)
The results of evaluation and subsequent separation of resources and capabilities into the groups are
listed below.
Competitive disadvantages:

The regular software of Zynga Poker.
Competitive parities:

Own infrastructure and data centers.

Worldwide location of offices.
Temporary competitive advantages:

Partnership with the Facebook.

Exceptionally skilled employees in R&D department.

Capability to integrate business into social networks.

The mobile version of software for Zynga Poker.
Sustained competitive advantages:

Strong brand.

Unique promotional channels.

Excellent leader and experienced top management.
34
It should be noted that due to the previously mentioned reasons, the location of offices may also be
seen as the competitive disadvantage for Zynga Poker.
All in all, the future success of Zynga Poker in the new industry will happen as a consequence of
possession, usage and support of three fundamental resources: strong brand, unique promotional
channels and highly skilled management. Amongst temporary competitive advantages, it is
necessary to highlight two the most important ones: partnership with the Facebook and capability to
integrate business into social networks. If these advantages are handled properly, they may give a
real push for a business on its starting phase.
7. SWOT analysis.
The SWOT analysis is a strategic tool, which connects the findings from internal analysis (strengths
and weaknesses) and external analysis (opportunities and threats) in one integral part. This tool
provides a great opportunity to obtain an overall strategic situation around the investigated company
and, is also a great starting point for the further development of strategic options. Depending on the
part of the given analysis, bold phrases represent strengths, weaknesses, opportunities and threats of
Zynga Poker.
7.1 Strengths.
Even tough, Zynga Poker is separate strategic entity of Zynga; it still has inherited some strengths of
its parent company. First of all, Zynga‟s high brand awareness is obviously projected on Zynga
Poker too. The most important point in relation to the brand of the company lies in the fact that it is
well-known not only for poker players, but also for many other people who are extensively using the
Facebook and other social networks in their daily lives. The next two strengths of the company are
associated with development of business in social networking sites, and they include a five-year
partners hip with the Facebook and tremendous experience in integrating business into different
social networks. Perhaps also worth noting the enormous financial resources which company has,
since their presence greatly increases customer confidence in the company and virtually eliminates
35
the possibility of recurrence of the same situation as with the Full Tilt Poker. Absolute
independence in terms of infrastructure (own data centers) is another forte of the company. This
makes it possible for the Zynga Poker to try and implement a wide range of technical innovations in
the near future. The great design and functionality of the mobile version of Zynga Poker is a good
example of overall innovation capability of Zynga‟s employees. The ownership of large custome r
base in play money poker should be also considered as strong side of the company, because
eventually some players may decide to try real money games on Zynga Poker. The last thing worth
mentioning regarding the company's strengths is the presence of a strong leader, Mark Pincus, who
has managed to transform Zynga from the scratch into true giant of the gaming industry.
7.2 Weaknesses.
Currently, the most serious disadvantage of Zynga Poker is its software for PCs, which does not
allow playing more than one table and, in general, has quite limited functionality compared to other
poker rooms‟ software. The next important weakness of Zynga Poker is rather narrow range of
games and gaming formats, which in turn may greatly reduce the number of potential customers.
Given the fact that the company is making its very first steps towards market of online poker for real
money, it probably lacks experienced employees in the fields of poker room’s security and
customer support. Moreover, it also implies that prope r reward programs and responsible
gaming policies are not yet developed for Zynga Poker customers. Last, but not least important
weakness of the company is complete absence of any licenses for the provision of services in the
online gambling industry. The process of obtaining the licenses is not really complicated, but it is
still very time consuming.
7.3 Opportunities.
The legalization of online poker in the United States should be considered as the greatest
opportunity for any company in the industry and Zynga Poker is not an exception. Prior to the
closing of the US market for the operators in 2011, it accounted for 27% of the total market, which
is certainly a very large part (Appendix 5). As noted earlier in the text, one of the trends in the
industry at the moment is the emergence of mobile online poker. The company that will
provide customers with the best software solution for the mobile poker has an outstanding
36
opportunity to significantly strengthen its position on the market of online poker. Another possibility
for Zynga Poker is to connect online poker with social networking sites and make real money
games more social and entertaining for their participants.
7.4 Threats.
Apart from the fact that there exists the possibility of opening new legitimate markets for online
poker, there is also a great threat that some countries will apply the law which either creates
unfavorable environme nt for doing online poker business, or even completely ban online poker
in the given jurisdiction. The likelihood of these outcomes of market regulation largely depends on
the poker companies, since it is their responsibility to position online poker as intellectual game and
not as another form of traditional gambling, which is in some countries treated as social evil. One of
the threats coming from the external environment is financial instability in some euro zone
countries and other regions as a consequence of global economical crisis. This instability may force
customer to considerably decrease their spending on online poker, which in turn will lead to a
decrease in revenue of poker rooms, including Zynga Poker. Once the Zynga Poker begins to offer
the opportunity to play real money poker, there is a chance that the whole brand of Zynga may lose
its friendly image amongst people who do not accept gambling for real money.
8. Mission and objectives of Zynga Poker.
The next step in the process of strategic analysis is the development of mission and objectives of the
company. Based on these two components in connection with previously performed external and
internal analysis, it is possible to create appropriate strategic options for the organization.
8.1 Mission.
According to Lynch (2009 p.236), “[t]he mission of an organization outlines the broad directions
that it should and will follow and briefly summarises the reasoning and values that lie behind it”. In
the case with Zynga Poker, the broad direction which organization might stick to is to provide
opportunity to play online poker that will involve more communication between the players by the
37
means of social networking sites. The fundamental values that should always be mentioned in the
mission statement of any poker company are related with the integrity of the games, security on the
poker site and responsible gaming (www.bwinparty.com, 2012c), (www.pokerstars.dk, 2012b).
Therefore, one of the options how the company‟s mission might look like is:
We are an online poker room, which strives to make an online poker more social phenomenon by
the means of social networking sites and, at the same time, to maintain such important aspects of the
given business as integrity of the games, security on the poker site and responsible gambling.
8.2 Objectives.
The development of objectives is the process of transformation generalizations from the mission
statement into more explicit obligations of the company. The objectives are usually divided into
types: financial and strategic (Lynch, 2009). Since the aim of this paper is mostly concerns strategic
related issues, the financial objectives, such as earning per share, return to shareholders‟ funds and
cash flow, will not be developed.
Being in its infancy as a poker company, which offers real money games, it is really important for
Zynga Poker to determine the market share that should be eventually achieved. There is no doubt
that having such background and potential, company is likely to set itself relatively high goals.
Therefore, the position of one of the market leaders as the ultimate goal is not something
unexpected. In order to define the exact market share, which might be gained by Zynga Poker, it is
necessary to consider the situation in the industry before the Black Friday, when Full Tilt Poker was
seriously competing with PokerStars. As can be seen from the Table 5, Full Tilt Poker, second
largest poker room at that time, managed to achieve almost 22% of market share. This figure, as
objective for market share in the long run, is a good reference point Zynga Poker, because market
leader, PokerStars, continues to strengthen its market position and, thus, will complicate the task of
achieving higher figures.
38
Table 5: Market shares in the online poker industry in 2008, 2009, and 2010 (Fiedler & Wilcke,
2011 p.4)
The second objective for Zynga Poker is to reach an appropriate level of software quality within
one-year period after launching real money games. The achievement of decent quality of software
should be reflected in the fact that the questionnaires, which have statistically valid sample of poker
players, will demonstrate that Zynga Poker‟s software is placed near to the software of PokerStars
and Full Tilt Poker (if it is eventually will open again) in terms of quality.
Keeping in mind the industry trend towards social gaming, a nother objective should concern the
innovative solutions in the area of integrating poker room‟s software into the social networking
sites. During the first year of operations on the new market, Zynga Poker should provide for its
customers a possibility to share the game related information (e.g. well-played hands, win of the big
pot etc.) in the social networks and, thus, posses itself as “social” poker room.
In order not to lose a significant portion of the market, it is important to follow the trend of the
industry and develop the software for mobile devices. Bearing in mind the fact that PokerStars,
Ongame network and 888poker have already introduced their mobile applications for online poker,
the mobile version of Zynga Poker software should be refined for real money games as quickly as
39
possible. The mobile application have to be introduced no later than the end of 2012, otherwise the
large segment of the market might be lost.
The company should obtain licenses in all available jurisdictions and also closely monitor
developments in the countries, where online poker will probably be regulated very soon. Special
attention must be given to the U.S. market, which is the biggest potential market for Zynga Poker.
The last objective for Zynga Poker is to set and maintain one of the best levels of customer
satisfaction in the industry. This objective must be achieved through the improvement of poker
room‟s software, reward program and customer support. The level of customer satisfaction should
be monitored using the appropriate questionnaires, which compare the performance of Zynga Poker
with other poker rooms.
9. Strategy development.
The subsequent step in the strategic process is the provision of acceptable and executable strategies
for successful development of Zynga Poker. The strategic options, which author considers
appropriate for the given situation, are presented in the following section.
9.1 Strategic option #1.
In order to establish one of the strategic options, it is necessary to refer to the market options matrix,
which is illustrated in Figure 3. As one can see, the company has eight different ways of
development in terms of market and product options. Due to the nature of the given work, five
options (withdrawal, demerger, privatisation and diversification to related and unrelated markets)
are immediately discarded. The option “market developme nt” should not be considered as well,
because the global character of the internet implies that company will anyway cover all possible
markets in the world. Therefore, Zynga Poker has left with two market options, namely market
penetration and product development. One of the earlier developed objectives suggests that Zynga
Poker seeks to make an innovative step and integrate poker room‟s software into the social
networks. Moreover, another objective of the company is to improve the mobile version of Zynga
Poker and prepare it for real money games. To accomplish two objectives mentioned before, the
company should consider the product development route amongst other market options as the most
40
suitable solution for the company in this particular situation. It is important to highlight that the
market penetration option is not appropriate for the present situation in the company, because the
current product of Zynga Poker (poker room software) obviously does not fulfill the needs of the
customers.
Figure 3: Market options matrix (Lynch 2009, p.314)
9.2 Strategic option #2.
As noted earlier in the text, one of the immediate objectives of the company is development of the
new product – poker room with various social features. According to Lynch (2009 p.318), “…
launching a new product could be done using an existing company or an acquisition, merger or joint
venture with another firm”. Therefore, o ne of the alternatives of further successful development of
the company is its expansion. The expansion methods, which company may consider in the strategic
process, are structuralized and presented in Figure 4. In the case of Zynga Poker, the option of
expansion is especially beneficial, because it may contribute to overcome problems not only in the
field of product development, but also in other important areas of the given business such as
customer support, poker room security, licensing etc.
41
Figure 4: Expansion method matrix (Lynch 2009, p.319)
The expansion methods that may be of interest to the company are located in the lower right square
of the matrix, specifically acquisition, merger and joint venture. Each of the named options must be
carefully investigated by the management.
The possibility of expanding the company through the acquisition of other organizations can be
achieved in two different ways. First of all, Zynga Poker may consider acquiring an organization
that has a large experience in support and development of poker rooms‟ software. The successful
combination of newly acquired company with the current resources of organization in the same field
(e.g. MarketZero team) may produce excellent results in the process of new software development.
However, the application of such strategic option has one serious disadvantage – relatively long
duration of the whole process. The management of the company should consider this point, since it
could lead to the loss of potential position of the “social” poker giant. Another strategic option for
the company is acquisition of currently operating poker room. In this case, Zynga Poker has
possibility to quickly upgrade the purchased software by adding the additional features and,
therefore, launch new product in fairly short period of time. Keeping in mind the large financial
resources of Zynga, it might be also possible to combine two previously named acquisition options
and accelerate even more the whole process of new product development.
The merge r with other poker room as another option of future development strategy is also suitable
for Zynga Poker. However, in reality such business agreement would be viewed as an acquisition
performed by Zynga Poker rather than merger because of the following reasons: the companies
42
involved in the merger will not be of the same size (current market share of Zynga Poker is 0%) and
one of the parties (other poker room) will probably be less interested in unification of two
companies. In other words, the merger option in the given situation must be equated with previously
named expansion option – the acquisition of currently operating poker room.
The last expansion option, joint venture, implies that two companies are entering into agreement
under which they intend to develop a new business entity by mutual sharing of the strengths of each
party. The given partnership will allow Zynga Poker to minimize risks associated with the operating
on the new market for the company, as well as to increase overall competitive advantages (The Gale
Group, 2008). The joint venture might be interesting for Zynga Poker‟s partners due to the following
reasons:
1) A five-year partnership of Zynga with the Facebook.
2) Well-known brand of Zynga Poker amongst recreational players.
3) Huge customer base in play money poker games.
4) Ability to integrate business into the social networks.
5) Exclusive channels for delivering the promotional messages for the customers (other Zynga‟s
applications).
6) Perfect infrastructure.
Consecutively, the partners can offer for Zynga Poker the most essential parts of online poker
business (e.g. the software of poker room, customer support etc.) which will create the basis for
future development of new poker platform.
Since overwhelming dominance of PokerStars makes it virtually impossible for any poker room in
the industry to significantly increase its market share, the given cooperation might be very attractive
for many companies in the industry.
9.3 Strategic option #3.
One short-term strategic option concerns pricing policy of Zynga Poker or, in other words, its
reward program. Before proceeding directly to the proposal of strategic option, it is important to
43
determine the notion of price in the online poker industry. As it was earlier described in the paper,
customers are obligated to pay some amount of rake to the house for hosting their games and,
subsequently, they get back some portion paid rake in the direct or indirect way. Thus, the total price
that customers are paying for the service is the difference between rake paid and rake received back
through the reward program of poker room.
The strategic option which might be considered by Zynga Poker at the initial phase of the business is
to set very low, close to the breakeven point price levels. The given strategy will help organization
to steadily increase its market share and, therefore, achieve stable liquidity of the players at the site.
One cannot exclude the fact that pricing strategy might be easily imitated by other companies, but
probability of this scenario is extremely small in the case of online poker industry, because major
poker rooms will unlikely be reducing prices to as low as Zynga Poker, and smaller poker rooms are
limited in their financial resources.
In conclusion, due to the fact that Zynga has tremendous financial and own promotional channels,
which could significantly reduce marketing costs for Zynga Poker, new poker room may try to apply
low price strategy in order to aggressively attack market shares of competing poker companies.
10. Conclusion.
The main effort of this paper was to indicate the significant aspects, which are to arise along the
transformation process of Zynga Poker to the real money platform and which should be carefully
considered by Zynga managers. During the course of the research, it was revealed that company has
the following problem areas: the overall quality of software is low; poker room has narrow range of
games and gaming formats; complete absence of reward programs, responsible gaming policies and
gambling licenses; lack of employees, who have experience in the online poker industry, and, as a
consequence, insufficient level of poker room security and customer support.
In addition, two main goals, specified in the beginning of this paper, have been reached throughout
the research procedure.
The first goal has dealt exclusively with online poker industry and consisted of three central tasks:
the description of the industry, presentation of current legal aspects and identification of trends in
the industry. The description of the industry was carried out by using different analysis types
44
(Degree of turbulence, PEST analysis, Porter‟s five forces analysis), and by presenting three major
poker companies (Poker Stars, bwin.party and iPoker network) and business model of a
contemporary poker room. The absence of regulation concerning online poker in the U.S. market
and juridical status of online poker in Europe are the two most important legal aspects that were
presented in this thesis. Lastly, three major trends in the industry have been identified : development
of mobile poker, consolidation of social networks with online poker rooms and intensified
regulation of the market.
The second goal was to determine the objectives for Zynga Poker and recommend appropriate
strategic options that will lead the company to the successful development in the future. On the basis
of strategic analysis, the following objectives were defined: the desirable market share of Zynga
Poker should be around 22% in the long run, adequate improvement of the software quality,
reasonable attention on obtaining all possible licenses and careful monitoring of regulation process
in the world, the development and introduction of mobile version of Zynga Poker no later the 2012
and positioning the organization as a “social” poker room. Eventually, three strategic options were
presented for consideration of company management. The first strategic option implies that
organization may follow the path of development through the creation of a new product (“social”
poker room). The expansion of the company, another strategy available for Zynga Poker, consists of
several alternatives, where one is acquisition and another is joint venture. In case of acquisition, the
company has two different targets to focus on – currently operating poker rooms and software
development organizations. Nevertheless, in case of having their choice leaning towards joint
venture, the best solution for business expansion would be having a partnership with one of the
poker rooms. The last strategic option affects the pricing policy and suggests Zynga Poker to use
very low price levels at the initial phase of the business.
All in all, at present the company does not possess all the necessary resources for successful
transition into the real money games, but Zynga managers have various strategic options to
overcome the problems, which are to arise during the modification.
10.1 Possible criticism.
One of the reasons for criticism of this work may be unsatisfactory representation of information
regarding online poker and online poker industry. This could happen due to the fact that some
45
aspects of the given information may seem extremely obvious for the author, who is deeply involved
into the online poker world. The second critical aspect is that the paper is quite superficial, so it
could be better to concentrate on more specific problems in the process of transformation the
company rather than trying to capture all trouble spots but in the brief way.
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
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Table 3 Strategic Management – Richard Lynch. Pearson Prentice Hall 5. ed., 2009. p. 81
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50
Graph 1 http://www.bwinparty.com/AboutUs/OurMarkets/OnlinePoker.aspx [Accessed 23
April 2012]
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Figure 3: Market options matrix (Lynch 2009, p.314)
Figure 4: Expansion method matrix (Lynch 2009, p.319)
Appendix 1.
Price list for poker chips. Source: Zynga Poker Application.
51
Price list for casino gold. Source: Zynga Poker Application.
52
Gift Shop. Source: Zynga Poker Application.
53
Appendix 2.
Source: www.pokerscout.com (Accessed 2 March 2012)
54
Appendix 3.
Country
Belgium
Bulgaria
Status of
Regulation
Regulated, but
changes
currently being
discussed.
State Taxes on
Operators
11% Gross
Gaming Revenue
Rake charged
by operators
Same as for
international
players
In progress
15% of Turnover
Unknown
Regulated
20% Gross
Gaming Revenue
None
Regulated
Online gambling:
5% of net
revenues
Games of chance
and tournaments:
5% of entry fee
None
Same as for
international
players
Same as for
international
players
None
Regulation is enforced by
blocking the domains of
unlicensed operators.
This has proven to be
very inefficient.
Same as for
international
players
Poker
winnings
outside EEA
are taxable
and players
are required
to pay normal
income tax
from their
winnings.
None
Monopoly by local
operator. The law is
contrary to fundamental
European laws, and poker
rooms operate as if there
is no law.
Denmark
Estonia
Regulated, but
changes
currently being
discussed.
Finland
France
Regulated
34% of net profit
In progress
State of
SchleswigHolstein: 20% on
Gross Profit
Other States: N/A
Regulated
Offshore
Germany
Gibraltar
About 7% in the
cash games
Not available
Same as for
international
players
55
Player Tax
Additional comments
Proposed:
either tax-free
or 33% on
recreational
players
None
Law is contrary to EU law.
The verdict of the
European Commission is
needed.
Some may
apply
None
Restrictions on
advertising apply
None
Changes are being
discussed
One state is regulated out
of 16 states - SchleswigHolstein. The rest voted a
new gambling law. The
law proposed by the rest
of the 15 states is likely
contrary to EU law.
There are different types
of license operators can
apply for and the tax can
vary.
Regulated
30% Gross profit
Same as for
international
players
10%
In progress
20% Gross profit
Unknown
None
Regulated
3% Tournament
tax, 20% Net tax
on cash games
About 6% in
cash games.
Some may
apply
Regulated
Offshore
Same as for
international
players
Regulated
No licensed
operators
In progress
Unknown, Gross
Gaming Revenue
or Turnover
Same as for
international
players
Unknown
Yes, depends
on total
income (035%)
Approximately
30%
Regulated(in
progress)
20/25% + % to
the region where
they're
established (still
unknown)
Greece
Hungary
Italy
Malta
Norway
Romania
Unknown
Spain
Regulated since 2011, but
has not introduced a
license scheme yet (which
is planned for Q1 2012).
The European
Commission is expected
to act, since the law is
omitting competition.
Regulation commences in
January 2012
To play on .it you have to
have a "codice fiscale" - a
tax number.
There are different types
of license operators can
apply for and the tax can
vary.
Online poker is a grey
zone in Norway
25% on any
State tax will be 1,5% but
winnings when not less than 400.000
more than 600 RON
RON
The old IRPF Regulated as of
law (taxation) December 2011. Spanish
players will only be
states that
allowed to play in .es
users will
rooms, however users
have to pay
per winnings from the rest of the world
will be allowed to play at
and not per
benefit. They .es
consider
poker as a
lottery.
In progress
Local operators
pay 36% company
tax on the profit.
International
operators do not
pay anything.
Regulated
15% Gross Profit
Sweden
United
Kingdom
2.5% on cash
games, 10% on
tournaments
(local operator).
International
operators: same
as for
international
players.
Same as for
international
players
56
No tax on sites
within EU,
30% on gross
winnings
outside EU.
There is a ring-fenced
monopoly site that
operates in Sweden.
However users play on
.com rooms mostly.
None
Expected Changes in
2012.
Table 2: Poker regulation in Europe. Source: PokerStrategy.com, 2011
Appendix 4.
Figure 2, (http://www.h2gc.com, 2012).
Appendix 5.
Market share and market size per country. Source: (Fiedler & Wilcke, 2011 p.8)
57