The Pitfalls Of Running An Online Video Game Rental Service.
After a brief stint into the world of gamers and running an internet business involving video game rentals, my partner and I quickly understood it was not an attractivebusiness opportunity after all!
Initially, we thought we could steal some market share from the 800 pound gorilla, Gamefly , and have a solidmembership business to run. This all turned quickly went south when we burned through a ton of money and could not get our heads above water and stay afloat! The main problems with this business model that make it difficult to survive are as follows:
1) Dramatic Inventory Depreciation– The value of new games drops precipitously as soon as it is opened and rented. Resale of used games is 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) Theft – The demographics of this market attracts a lot of “undesirables” and petty thieves who get games from multiple companies and claim the games get lost 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 write-offs ad up quickly.
3) Loss Games & Destruction – 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 bendable, many of them end up breaking en route to or from the client. In addition, it is virtually impossible to assess loss within the postal service and employee theft. The discs are packaged in noticeable reinforced envelopes with company logos printed clearly, so any thief would know what the item is and likely its value. Lost and damaged goods accounted for another two to three percent cost.
4) Expense Of Mailing Climbs Regularly – In the short time we operated the business over six we were confronted with a radical change from the post office that would have cut ten percentoff profits.
5) Speed Of Delivery – Dependence on the postal service to deliver games timely would inevitably lead to disappointed clients and cancellations. Competing against other companies that had many distribution centers created a difficult competitive wedge.
6) Duration Of Membership – normally 6 – 12 – but we never made it that long because of the first 5 issues! Hardly long enough to capture any meaningful profit from this derelict demographic.
7) Competitors – Customers who use these services are very impatient by nature and need to receive new games as soon as possible. This equates that companies that don’t have a geographic location on both coasts and in other locations will have slower delivery turn-arounds for their customers. This usually necessitates more investment and employees to operate and compete with the larger funded services or just stay focused on the local geographic area and serve a smaller 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 genius video game programmer that can clearly project new game demand, and perfect distribution set up with many locations for speedy delivery, and a load of cash, then this service is probably not the best option for your investment.