After a brief stint into the world of gamers and operating 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 steal some market share from the eight hundred lb gorilla, Gamefly , and have a solidmembership company 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 concerns with this business model that make it hard to survive are as follows:
1) Dramatic Video Game Devaluation area of this business, but other factors like game popularity and new year releases accelerate the depreciation factor. Most games decline in value 25% out of the gate and are worth 30 to 50 cents on the dollar within one year!
2) Theft – The demographics of this market attracts a lot of “undesirables” and petty thieves who rent from multiple companies and claim the games get lost in the mail or use fraudulent credit cards, etc. The attrition approaches 5% in this industry and with the average cost of games being about $50-$60, the losses ad up quickly.
3) Missing Games & Damage – The post office’s automated sorting machines have the nasty effect of bending mail at right angles in the sorting procedure. While the video games are quite, many of them end up snapping en route to or from the customer. In Furthermore, it is almost impossible to assess loss within the postal service and employee theft. The discs are packed in noticeable reinforced envelopes with business names 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) Cost Of Mail Increases Regularly – In the small we operated the service over 6 months we were confronted with a drastic change from the post office that would have cut 10%off earnings.
5) Speed Of Delivery – Dependence on the US Post Office to deliver games on time would inevitably lead to disappointed customers and cancellations. Competing against other companies that had many distribution warehouses created a difficult competitive wedge.
6) Duration Of Membership – typically 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 group.
7) Competitors – Customers who use these services are very impatient by habit and desire to get new games as soon as possible. This insures that businesses that don’t have a geographic presence on both sides of the country and in other locations will have slower delivery turn-arounds for their clients. This typically needs more capital and employees to run and compete with the bigger funded businesses or just stay focused on the local geographic area and serve a limited customer base.
So, if you are contemplating starting a new game service you should think about the scenerios of the business model. Unless you have a genius video game programmer that can clearly estimate new game demand, and ideal distribution system with many locations for quick delivery, and a pile of cash, then this service is probably not the best option for your money.
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