The Pitfalls Of Operating An Online Video Game Rental Service.
After a short stint into the world of gamers and running an website business involving video game rentals, my partner and I quickly realized it was not an appetizingbusiness opportunity after all!
Initially, we envisioned we could take some market share from the 800 pound gorilla, Gamefly , and have a solidmembership business to run. This all turned quickly went sour when we burned through a copious amounts of money and could not get our heads above water and stay afloat! The main problems with this business model that make it hard to survive are as follows:
1) Rapid Inventory Devaluation aspect of this business, but other factors like game popularity and new year releases augment the depreciation factor. Most games decrease in value 25% out of the gate and are worth 30 to 50 cents on the dollar within one year!
2) Stealing – The demographics of this market attracts a lot of “punks” and petty thieves who rent from multiple services and claim the games get misplaced in the mail or use fraudulent credit cards, etc. The stealing approaches five percent in this industry and with the average cost of games being about fifty to sixty dollars, the losses ad up quickly.
3) Loss Games & Destruction – The post office’s automated sorting machines have the nasty effect of bending mail at 90 degrees in the sorting procedure. While the video games are bendable, many of them end up snapping en route to or from the client. In addition, it is virtually impossible to real loss within the postal service and employee theft. The games are packaged in noticeable reinforced envelopes with company logos printed clearly, so any unscrupulous worker would know what the item is and likely its value. Lost and damaged product accounted for another two to three percent cost.
4) Expense Of Mail Increases Regularly – In the timeframe we operated the business over 6 months we were facing a radical change from the post office that would have cut ten percentoff profits.
5) Speed Of Delivery – Being dependent on the US Post Office to deliver games on time would inevitably lead to annoyed clients and terminations. Competing against other services that had multiple distribution warehouses created a tough competitive wedge.
6) Average Length Of Membership – usually six to twelve months – but we never sustained it that long because of the first 5 issues! Hardly long enough to capture any meaningful profit from this derelict crowd.
7) Competitors – Customers who use these services are very impatient by habit and want to get new games as soon as possible. This insures that companies that don’t have a geographic presence on both coasts and in other locations will have slower delivery turn-arounds for their clients. This typically needs more investment and management to run and compete with the larger funded businesses or just stay focused on the regional geographic market and serve a smaller customer base.
In closing, if you are considering starting a new game service you should think about the ramifications of the business model. Unless you have a brilliant video game programmer that can specifically project new game demand, and an optimal distribution system with multiple locations for rapid delivery, and a pile of cash, then this business is probably not the best option for your investment.
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