How PokerStars Came To Dominate
Without a doubt, PokerStars is currently the largest and most dominant online poker room. According to most estimates, they are at least 5x larger than the next largest poker room Full Tilt Poker, which they also happen to own. Behind Full Tilt, there are a variety of sites such as Titan Poker, Party Poker, and 888 Poker, which are all of similar size and slightly smaller than FTP.
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It didn't use to be this way. In fact, until 2007, PokerStars was the perennial bridesmaid of online poker sites. It was always large, but always second. First, Paradise Poker was the largest poker room for awhile (Para-what I'm sure a lot of you newbies are thinking). After that, Party Poker was the top dog until the UIGEA.
While the passage of the UIGEA and PokerStars's gamble of still accepting US players was by far the largest reason for their eventual dominance, it was not the only reason. Let's trace what happened:
Pre-UIGEA: Focus on satellite tournaments
When Chris Moneymaker parlayed his $39 satellite seat at PokerStars into a $2.5 million WSOP payday, he instantly put online poker and PokerStars on the map. Moneymaker (what a great name for a poker player by the way) inspired millions of young men to give poker and satellite tournaments a chance. Naturally, the first place many looked at was PokerStars.
When Greg Raymer won a satellite tournament at PokerStars the next year and won the WSOP, it was almost too good for PokerStars. They had built a solid lead as the home for major poker tournaments and especially satellite events to the WSOP.
Nevertheless, PokerStars was still the #2 poker room at the time. What they had in terms of reputation for tournaments and good software was not enough to overpower Party Poker's marketing machine, especially its affiliate marketing.
Without a doubt, the singular event that catapulted PokerStars to becoming #1 was the passage of the UIGEA. When the bill unexpectedly passed, poker rooms had a decision to make. PokerStars was one of the few that decided to keep accepting US players. They were able to do this largely because they were still a private company and not publicly traded, like Party Poker and 888 Poker.
With Party Poker and others losing 80% of their player base overnight, PokerStars was able to instantly become the #1 poker room as well as poach all of the other poker room's former US customers. PokerStars used the US players to build its liquidity and increase its marketing machine at European and other non-US players. They were able to capitalize on being the largest poker room by constantly running the largest poker tournaments on the planet on Sundays.
Not only was PokerStars lucky that most other sites no longer accepted US players post-UIGEA, they were also extremely lucky it took the US government 5 years to do anything about enforcing the law. If Black Friday had happened in 2007 instead of 2011, the net benefits PokerStars had from the UIGEA would have been limited. In fact, their decision to accept US players may have backfired on them and led to a fate similar to Ultimate Bet or Full Tilt Poker pre-buyout.
Instead, the UIGEA was not really enforced at all until PokerStars reaped the full benefits from it. By the time things hit the fan in 2011, PokerStars had already cemented itself as the world leader and didn't really need the US traffic anymore. It also felt only limited wrath from the US government in terms of a fine that they could easily afford when they were pinched. The UIGEA was pretty much the best thing that happened for PokerStars no matter how you slice it.
Focus on software and professionalism
PokerStars has been able to maintain its leadership position by being the "best" in many ways. Their software has always been very smooth. Players have always praised the ability to multi-table easily on PokerStars (which has its drawbacks as well since it tends to sharkify the games).
Furthermore, PokerStars support has always been top notch. Poker players have felt like they are being treated by knowledgeable and competent people that know the poker world well, whereas other sites have sometimes gone cheap and used standard CS-type people.
PokerStars hammered at what they were good at: large tournaments and a professional feeling. They were able to differentiate themselves from the other poker sites in these regards, which is how they built their dominating position.
Rakeback was something that a lot of players enjoyed in 2004-2008, but it was generally a bad long-term decision for the poker room. The obvious proof of this is that rakeback is now all but dead in the poker sphere.
The problem with rakeback is that it tends to give good, winning players more money but not help the fish. Furthermore, rakeback just increases the marketing costs of poker rooms since they essentially pay for the same player twice (since he generally tries to figure out a way to get rakeback after he's signed up at the site). Rakeback also punishes 'good' affiliates and other providers of truly new players to the poker room and instead just helps out a middle man that doesn't really provide any new players to the site.
Instead, what PokerStars did was focus on an internal rewards system, their FPP program. It is one of the first out there and has generally been well received by players. It keeps players playing and provides reasonable, but significant rewards for active players.
In short, an internal rewards program is a great method for a poker room to retain its customer base. Having random, external affiliates give rakeback to people that are already players is not. PokerStars understood this from the get go, which helped them retain their stranglehold. Other sites, such as say InterPoker (who are they you may be thinking), did not.
No major blunders
To be quite frank, a lot of the other poker rooms have messed up big in one way or another over the years. The most obvious one is Full Tilt Poker. While they were eventually bailed out by PokerStars, they were exposed as being reckless with player funds.
It is one thing for a bank to use their customer funds to make loans to others, it is another for a poker room to basically just loan money to its degenerate friends and just throw around money on idiotic, non-profitable expenses. There was simply no reason Full Tilt could not have been been a stable, profitable poker room; its owners were just simply reckless. On Black Friday, they were exposes and went under.
In contrast, PokerStars has always been ran by professionals. They may have violated US law, but at least they were professional about it! When Black Friday hit, they had no issues paying back US players as well as processing cashouts for non-US players.
Other poker rooms mistakes helped PokerStars as well. While Party Poker likes to cast all of the blame on their slowdown due to the UIGEA, the truth is they lost a lot of their special touch as well. When they went public, they turned into your standard 'big, evil' company, and their decision to merge with Bwin didn't help in these regards either.
The one thing Party Poker had more than anyone was a robust affiliate program. However, they eventually started to try to bully around their affiliates and pay them smaller commissions. This has the effect of losing the most effective marketing wing they had. Again, PokerStars focused on building and retaining their strengths, whereas Party cannibalized the one major one they had.
The fact that Party continued to lose its player base whereas other poker rooms, such as iPoker and 888 Poker, gained is a testament that it wasn't just the UIGEA that hurt Party, it was Party as well. This all had the net effect of really helping PokerStars, since their main competitor not only got dealt a bad beat with the UIGEA, but continued to shoot itself in the foot thereafter.
PokerStars no longer accepts US players but is still by and far the #1 poker room. A combination of constant professionalism, extremely good luck in terms of the UIGEA, as well as focusing on their strengths has led to the dominant position they have today.