GTO Poker Theories: The Network Effect

Facebook is big for the same reason that everyone goes to Las Vegas to play poker or why the Sunday Million is so popular - The Network Effect.

social network
More people, better product, more power

One of the real gifts poker has given me is that it has been a great jumping off point to learn things from other disciplines like economics, AI, psychology and Game Theory. So here is a series of articles where I bring some of the most interesting things I have learned from other subjects outside of poker which are applicable in this game we know and love.

The Network Effect is a phenomena from economics to describe when an increase in participants improves the value of a good or service. The famous example is that the first telephone was not exactly useful because there was nobody to call on it, but with every extra person who bought one they became more valuable. In more recent times the same example can be applied to the Internet itself. 

A great number of the apps you use today are valuable to you precisely because of The Network Effect. If you use Uber, for example, the only reason that is so convenient is because so many other people use it that it has created a market of available drivers. Facebook is also a great example of The Network Effect, so many people use it that even if you are not a big fan of it, it's hard not to have an account because it is a way to stay in contact with friends and family. 

The Network Effect is a positive feedback loop that often leads to another economic phenomena known as 'lock in'. This is where the product is so useful to you that you become dependent on it, or at least it would be costly to switch products. If you have your entire music collection on iTunes or entire book collection on Kindle, it would be costly have a collection elsewhere. 

MTTs are better the more people in them

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People play poker in Vegas because that's where everyone else is

Poker ecosystems for the most part benefit from a Network Effect. Although some people prefer smaller events, most people agree that the more people in a poker tournament the better.

One of the reasons why the WSOP Main Event or the Sunday Million are so popular is simply because that's where everyone goes to play. They create bigger prize pools that are costly to ignore. 

More broadly speaking one of the reasons why PokerStars remains the market leader and why Vegas is the hub of live poker is because that's simply where everyone goes to play. You are guaranteed to get a game. If you want to play more esoteric games like Razz, realistically the only place you will have a choice of games is these larger poker destinations, they are the only places with enough numbers to guarantee specialist games. 

Why liquidity is viral for poker rooms

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The biggest hurdle for new rooms is liquidity

This highlights perhaps the biggest hurdle a new poker room faces, liquidity. It's hard to get people at your tables if nobody is at your tables. This is why live and online poker rooms have sometimes hired 'prop' players who get special VIP benefits for starting games. In the early days of online poker you would see small rooms offer outlandish benefits like 'million dollar sign up bonuses' which nobody realistically would be able to make anything from, because there were not enough games to generate rake. 

This is why small poker rooms need significant investment or at least a steady supply of traffic coming from a partnered casino or sports betting site. It's very hard to grow the numbers organically. 

The Network Effect should influence your game selection. If a massive sign up bonus or VIP deal looks enticing, ask yourself if the site has the liquidity to clear it. If a poker tournament doesn't offer a guarantee for their MTTs, ask yourself if they have the numbers to make it worthwhile? 

This is not to say that you should default to only playing at the market leaders and not give your support to new rooms trying something different. It's simply something to be aware of if your game selection relies on liquidity. 

What theories from outside of poker have helped your game? Let us know in the comments.

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Comments (2)

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  • MyFloXyBabY

    #1

    Still not having a facebook account nor playing MTT. Antisocial to the core lol.
  • Neudirjimi

    #3

    Create a new account there is a lot of interesting stuff on Facebook about poker)