Lloyd Melnick, PokerStars director of social gaming, on rebuilding the operator's social division

Late in November, PokerStars announced it was moving to “fill a void in the games market” with the launch of a new free-to-play app that combines elements of poker, casino and slots.

Casino Rush, in the company’s own words, is an attempt to reinvent poker for a generation of “Clash of Clans and Candy Crush players”.

It features games with the core elements of poker – looking for a full house for example – while also adding in elements of memory, luck and casino games.

It marks a new avenue for PokerStars’ social division, which hitherto has focused on free-to-play poker in the form of its Jackpot Poker app, and mirrors the wider company’s diversification away from the core poker product.

However, according to Lloyd Melnick, PokerStars director of social gaming, it is still the poker product which moves the needle, with apps like Casino Rush designated as “innovation projects”.

As such, Melnick has spent the year-and-a-half since joining PokerStars from Zynga improving the poker product to get it on par with giant rivals like Playtika’s WSOP game.

Melnick admits it has been a “frustrating” process, but believes the foundation is now in place for the social arm of PokerStars to become a “very profitable” part of the business.

In this exclusive interview he tells EGR North America about that transition and why he believes in a ‘Blue Ocean strategy’ of targeting male customers and the untapped Asian markets.

EGR North America (EGR NA): Why is PokerStars involved with the social gaming space given its relative inexperience in the space and dominance in the real-money sector?

Lloyd Melnick (LM): PokerStars and the Scheinbergs always had the goal of being the biggest poker company in the world and that was more about users to them than revenue. When Zynga came out of nowhere and suddenly had tens of millions daily unique players, the top brass saw these untapped poker players and they felt they had to get into the market.

Of course there was an underlying goal to move them onto the real-money platform, but they weren’t even charging for virtual chips at first, so there really was no monetisation plan.

But that changed completely with the Amaya acquisition. When David Baazov was talking with investors about how to increase the value of the company after a purchase, they identified three verticals where PokerStars had strength but hadn’t yet tapped into the market properly, which was sportsbook, casino and social.

After that deal went through, Rafi Ashkenazi, who was COO at the time, hired me to come on board and build the social team with the goal of competing with the Playtikas and Zyngas of the world and becoming a profitable part of the business.

EGR NA: Recent Amaya earnings calls have focused heavily on sportsbook and casino with few mentions of the social arm. Is social still getting the same amount of investment as those two?

LM: It is getting internal focus and investment but the priority in the company is currently sportsbook and casino. We were further behind on social than people realised, so a lot of what I spent the last year-and-a-half doing is putting us in a position to grow the business. Internally we get a lot of resources but we’re not on the same level as casino and sports. We’re not generating the same revenue they are because we’re seeing the growth from a much smaller base.

EGR NA: Is it fair to say that the pressure to deliver numbers every quarter that comes from being a public company has moved the focus away from the social arm?

LM: I don’t think so, because sportsbook is not necessarily delivering a return in the short-term either. The reality is that we have three really good opportunities in those verticals, and while we’re a big company we’re not Google, so the focus for now is on sports and casino where they’ve seen the traction.

EGR NA: So what have been your top priorities in your year-and-a-half on the job?

LM: The first strategy was to create a competitive social poker product that could go toe-to-toe with Zynga and WSOP (Playtika) which dominate the market. Frankly our product was not competitive and was basically a clone of the real-money product, so we had to create something with a comparable look and feel to the market leaders and could generate the metrics to justify more investment in the product.

We also looked at how we were going to compete long term. I’m a proponent of Blue Ocean strategy rather than trying to compete with what Playtika or Zynga is doing. We took a step back and tried to identify new areas where the competition is less fierce, which is why we came up with Casino Rush.

We think there was a market for a male-facing social casino, with quicker action than you typically see. That’s what the modern player wants – a lot of winning moments in a short period. That’s a big driver for us and throughout the whole company.

EGR NA: How are you going after the male demographic then?

LM: It’s mainly the look and feel of the games, but it’s also the gameplay mechanics themselves since poker appeals traditionally more to men than women. As we add content, we’ll look toward games like blackjack rather than video slots for example.

EGR NA: How do you compare in size to the big players in the market?

LM: Playtika has more people than PokerStars’ total, with something like 2,500, and we’re probably about a tenth of the size of the Zynga poker teams in terms of headcount. But one of the reasons I left Zynga is it’s incredibly bureaucratic and hierarchical and we try to give our team much more autonomy. Revenue-wise we’re in the top 20 of social games companies, partly because of our play-money option where you can play for virtual chips on the real PokerStars client. It’s tough to be exact because most of that doesn’t go thorough Apple or Google but we estimate we’re 19^th or 20^th depending on who’s hot at the time.

EGR NA: And what’s your take on the Playtika deal? Do you think the new owners will be able to extract any more growth?

LM: I think their products have peaked and now are not as combative as some others. It’s a very stable business with good cash flow and it’s VIP-driven, so I don’t think they risk facing the same challenges as king.com but it’s very difficult to grow overall because there’s so many good companies who are all trying to do the exact same thing. Many of those firms are propping up the real-money parts of their respective businesses but still struggling to grow.

EGR NA: Rafi Ashkenazi said recently that Amaya was working on a strategy for Asia and the general assumption was that this would be the launch of a social product of some sort. Is this the plan?

LM: We are part of the strategy and I’m talking almost daily with our regional manager in China but we are not the bulk of the strategy. I can’t elaborate until Rafi shares his vision but they have a lot of things planned beyond just social. It’s a huge market and it’s much more of a Blue Ocean than Europe.

EGR NA: Where are the bulk of your revenues coming from?

LM: The US is about 50% of our revenue and the rest largely comes from Europe. We have lot of users in Latin America but they don’t generate much revenue.

EGR NA: Given the recent consolidation in the sector, would you consider a purchase in order to start from a higher base?

LM: We’ve looked at it and are still looking. Overall Amaya had to pull out of the M&A business for a while but all the verticals are looking at this. Valuations are very high in the social space right now and as someone who likes to shop at Walmart, we don’t want to overpay right now.

EGR NA: What’s the cross selling strategy for your division – are you expected to push customers towards the real-money platform?

LM: There is some cross-selling, because of the higher lifetime value of real-money, but it’s obviously limited by territories and regulations. That said, our goals are entirely P&L focused. As a unit our goal is to double EBITDA and revenue in the next 12 months and that goal has nothing to do with our real-money conversions.

EGR NA: Is Jackpot Poker still the priority in the social division given the launch of Casino Rush?

LM: Jackpot Poker is still going to receive the bulk of investment. Casino Rush and another app we’re working on called Solitaire Poker are things I’d call innovation products. We release them, we do some promotion and then it depends on the metrics we see as to their future. If it’s ROI positive, we’ll continue to spend and grow it and if not, we’ll simply leave it in the market as part of the family and move onto the next one.

On the other hand, we’ve been increasing the ad spend for Jackpot Poker all year and we will continue to do so. It’s all about performance marketing – if the acquisitions costs are less than the lifetime value for a given product, then we will continue to spend. That’s one of the reasons I came to Amaya – they have the resources. If all our games are showing positive expected value then we will literally pump millions of dollars into them, they’re not at all mutually exclusive. If it’s ROI positive Rafi will give us ad budget.

EGR NA: Will you be acting more like a social games company now with more frequent releases?

LM: We probably put 10% of time into the innovative products. Solitaire Poker, for example, is an external team and we have two people working part time on it. Around 90% of our time goes into Jackpot Poker, our play-money poker product and another major social casino product we hope to bring out within a year.

EGR NA: So you think Jackpot Poker is now ready to compete with big rivals?

LM: We’ve been pleased with the progress, but it’s taken longer than we hoped. We were hoping to be where we are now about nine months into it rather than a year and a half. We’re going to keep improving the product now.

We have the foundation and we can add on features to improve the player experience and monetization rate and we have a big VIP program coming out in December. We’ve just added slots and that’s had a huge impact on the profitability of the game. One of the differences between social and real-money is that every three weeks we come out with a new version of the game and we look to add new things all the time.