The Problems Of Operating An Internet Video Game Rental Service.
After a brief 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 thought we could steal some market share from the eight hundred lb gorilla, Gamefly , and have a lucrativemembership 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 tricky to survive are as follows:
1) Rapid Inventory a key area of this business, but other factors like game popularity and new updates increase the obsolesence 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 get games from multiple services and claim the games get misplaced in the mail or use fraudulent credit cards, etc. The shrinkagefive percent in this industry and with the average cost of games being about fifty to sixty dollars, the losses ad up quickly.
3) Missing Games & Destruction – The post office’s automated sorting machines have the nasty effect of bending mail at ninety degrees in the sorting process. While the video games are pretty, many of them end up snapping en route to or from the customer. In Also, it is virtually impossible to determine actual loss within the postal service and employee theft. The discs are packaged in noticeable reinforced envelopes with business names printed clearly, so any criminally minded would know what the item is and likely its value. Lost and damaged product accounted for another 2-3% cost.
4) Expense Of Mail Increases Regularly – In the small we operated the business over 6 months we were facing a drastic change from the post office that would have cut ten percentoff earnings.
5) Speed Of Delivery – Being dependent on the postal service to deliver games on time would ultimately lead to annoyed customers and terminations. Competing against other companies that had multiple distribution warehouses created a tough competitive edge.
6) Average Length Of Membership – normally six to twelve months – but we never made it that long because of the first five issues! Hardly long enough to capture any meaningful profit from this derelict crowd.
7) Competitors – Customers who use these services are very impatient by nature and need to get new games as soon as possible. This means that companies 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 necessitates more capital and employees to operate and compete with the larger funded companies or just stay focused on the local geographic market and serve a limited customer base.
In closing, if you are contemplating starting a new game service you should think about the scenerios of the business model. Unless you have a brilliant video game programmer that can accurately project new game demand, and perfect distribution set up with multiple locations for speedy delivery, and a pile of cash, then this company is probably not the best choice for your investment.
