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I know a whole lot of people have been talking about the threat from Amazon and Best Buy. But I caution you from going straight to doom & gloom without considering the following...

Amazon: Amazon's trade-in model seems cumbersome. I would need to ship my game to DVD, wait (snail mail because it’s shipped via US Postal and Amazon’s own processing/quality control), then upon approval, I get a credit to my account to buy other games. I think hardcore gamers want a more immediate payback...go to the store, trade in (or trade-up), then buy right on the spot. Casual gamers might be different, but chance are, they aren't trading in games.

I have to check some more, but initial reviews suggest that Amazon is following Gamestop's trade-in prices. So there's no benefit on using Amazon.

Btw - Amazon was thinking of competing with Netflix (Wal-Mart was also thinking of competing too). . NFLX's stock suffered greatly. Both companies opted out (actually, I don't think Amazon started, but just thought about it). Among the two, Amazon had the better database of determining which DVDs to rent (neither had the data to determine how long to rent, though). Now, NFLX owns this space.

BestBuy/Toys R Us – I think it takes expertise in working a trade-in business model…from pricing, to demand, to inventory management. These are not BestBuy’s and Toys’ expertise in used video games. So I really don’t think they are a reasonable competitor…but it serves for good hype/fear (we all have seen this before). I could see Amazon being a more adequate competitor because it’s got the database of used video games (on the Amazon store), but I don’t think it that reasonable for the reasons above.

Both – The typical customer of GME is a hardcore gamer (GME calls them “electronic game enthusiasts”), whereas the typical video game customer at AMZN, BBY and Toys is a casual gamer. So I believe that the customer retention will not change considerably.

Having said all this, my hope is that GameStop’s management is not arrogant enough to think that competitors and, more so, new distribution channels don’t pose a significant risk to the company. They have to explore these in depth and come up with real “Plan Bs”.

An example would be, why wouldn’t GameStop explore electronic distribution? I’d rather see them cannibalize brick stores sales and grow this new distribution line (with a net overall company growth) than to let someone else do it to them.

I wrote a blog about potential competition from on-demand video games outfits like OnLive. See it here.
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