GameFly’s Trade-In Program Threatens to Crash Gamestop’s Party

If you are a GameFly customer you may have received an email recently informing you of the rental company’s new trade-in program, currently in its Beta stage. This system allows you to mail games you have finished playing back to GameFly in order to gain credit toward the purchase of any future games in their store. With this simple act, GameFly is attempting to tap into a vast revenue stream, and has taken the battle right the consumers’ front door.

It is no secret that Gamestop stumbled onto a gold mine with the idea of giving gamers cash or trade-in credit for the dusty old titles that were taking up valuable shelf space. The program has been a smashing success, and Gamestop reported that pre-owned sales accounted for 43% of their entire income in 2007. In fact, pre-owned sales were the single biggest revenue stream for the retail giant last year, and things don’t appear to be slowing down anytime soon. Almost any gamer can attest that anytime you try to pick up a new title at the store, the clerk will gladly ask you if you’d rather save a few bucks and pick up a used copy, providing they have any in stock. On the surface, it’s a win-win situation, unless you happen to be a game developer or publisher who doesn’t get a cut of that re-sale pie.

Putting industry qualms aside, the program in and of itself seems inherently useful, but it has come under fire from consumers in recent years. Many gamers are now crying foul on Gamestop, frustrated by what they believe is the undervaluing of titles. Indeed, it is the main objective of the chain to buy your games back at the lowest possible price, and then mark them up as high as possible in order to maximize revenue. Many customers grumble about getting $10-$15 for a game like Gears of War, just to see it go on the resale shelf for $55. The problem is, for many folks Gamestop is the only place in town that takes trade-ins, so those who don’t want to deal with the hassle of eBay or the frustration of trying to trade with friends end up losing a fair value for the sake of convenience. However, that may not be the case anymore.

GameFly has quietly rolled out a new trade-in program, in which owners can mail in games they no longer want (assuming the disc is playable, and it is in the original case with a manual) in return for credit. The only catch is that individuals are responsible for paying their own packing and shipping costs.

So then, will this program cut into Gamestop’s monopoly on the trade-in market? It very well may. In my own experience, GameFly is offering significantly more money for a used game than their brick-and-mortar competitor. For example, I took my review copy of Dark Sector into Gamestop on launch day in order to get the maximum trade-in value. When you included my 10% bonus card, I was given $22 for the game. Today, several weeks after launch, GameFly is offering $31.62 for the exact same game. Even if you subtract an anticipated $2.50 for packing and shipping, those who go with the mail-in trade will still receive an additional $7.12 per trade. Assuming that the difference in price between the two companies averages $7-$8 per game, then someone who trades in only one game per month stands to earn an extra $84-$96 per year at minimum. Also, considering that GameFly offers long-term members $5 off for every 3 months you are there and 10% off any purchase, suddenly, it looks like that’s the place to get more bang for your buck.

It is obvious that GameFly’s program poses little immediate threat to Gamestop, due to the fact that most communities have several stores and that the GameFly membership, while fairly large and growing, is still not significant enough to really dent Gamestop’s clientele. Furthermore, there will always be those who do not wish to pack up their games, pay for shipping, and then wait for the item to arrive before they get credit. Also, potential customers must remember that GameFly deals in software only, so you can’t use the trade-in credit to buy peripherals or new consoles, only games. So obviously, while the GameFly program offers more from a pure financial standpoint, there are other intangibles which may cause potential users to shy away from the system.

While GameFly’s system isn’t perfect, it is an important step in giving gamers a choice when they trade in games and creating competition in an arena which until now has been essentially a monopoly. If the program does manage to catch on, then it is my hope that Gamestop takes note and revises their trade-in values upward in an effort to retain clients. Also, if GameFly were to offer to pay shipping, or at least include that price in the calculations of trade-in values, then they would likely see a faster consumer adoption rate and greater reception for the program as a whole. The good news however, is that those consumers who are active in the used games market now have a choice, and choice is a buyer’s greatest leverage.

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