| Posted on November 17th, 2008 at 8:40 am by francesco |
Following a short stint into the world of gamers and operating an internet business involving video game rentals, my partner and I quickly realized it was not an appetizingbusiness opportunity after all!
Initially, we envisioned we could swipe some market share from the eight hundred pound gorilla, Gamefly , and have a profitablemembership operation to run. This all turned quickly went sour when we burned through a ton of money and could not get our heads above water and stay afloat! The main aspects with this business model that make it hard to survive are as follows:
1) Rapid Inventory an important area of this business, but other factors like game popularity and new updates 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 companies and claim the games get misplaced in the mail or use fraudulent credit cards, etc. The shrinkagefrom $50-$60, the losses ad up rapidly.
3) Missing Games & Damage – The post office’s automated sorting machines have the nasty effect of bending mail at right angles in the sorting process. While the video discs are quite, many of them end up cracking en route to or from the client. In Furthermore, it is virtually impossible to determine actual loss within the postal service and employee theft. The discs are packaged in obvious reinforced envelopes with business logos printed overtly, so any unscrupulous worker would know what the item is and likely its value. Lost and damaged goods accounted for another 2-3% expense.
4) Expense Of Mailing Climbs Regularly – In the short time we operated the service over 6 months we were facing a radical change from the post office that would have cut ten percentoff profits.
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 businesses that had multiple distribution centers created a difficult competitive wedge.
6) Duration Of Membership – normally six to twelve months – but we never sustained it that long because of the first 5 problems! Hardly long enough to capture any meaningful profit from this derelict crowd.
7) Competitors – Customers who utilize these services are very impatient by nature and desire to receive new games as soon as possible. This equates that companies that don’t have a geographic location on both sides of the country and in other locations will have slower delivery turn-arounds for their renters. This usually necessitates more capital and employees to operate and compete with the better funded businesses or just stay focused on the local geographic market and serve a smaller customer base.
So, if you are contemplating starting a new gamers service you should think about the ramifications of the business model. Unless you have a genius video game programmer that can specifically project new game demand, and perfect distribution system with multiple locations for quick delivery, and a pile of cash, then this service is probably not the best option for your money.
