GameFly

GameFly is an online subscription based video game rental service. Uses are mailed video games through the USPS, can play them, and then return them for another game.

Firm Information

GameFly was born when avid gamers Sean Spector and Jung Suh (founders) felt that renting a game at a video store provided a very limited library and not enough time to judge the game without spending too much on fees.  To solve this problem they created their own videogame rental company following the business model set forth by Netflix.  This business now dominates the online video game rental industry.  They have easily succeeded in their goals to recreate the videogame rental service.

GameFly, just like Netflix, sends games to subscribers via the postal service with pre-paid return shipping.  The gamers can keep the game rentals for as long as they please as long as they keep paying the monthly fee.  It has subscription plans similar to Netflix which limit consumers on how many games they can rent at the same time. 

Competitive Advantage and Strengths 

The large selection of titles, close to 5500, is the biggest competitive advantage of GameFly.  In addition, borrowers have the option to buy the game they have rented for a discounted used price if they so please, a service which Netflix does not offer.  Although it is not publicly traded, GameFly is dominant in a very profitable business.  In fact, according to recent polls, 95% of the users would recommend GameFly to a friend.  Males ranging from 18-35 year-old make up the majority of the subscriber base, out of which 2/3 purchase 5 or more games a year.

GameFly also offers customers many plan options.  They can choose between $15.95/month for one game at a time, $22.95/month for two games at a time, $29.95/month for three games at a time, and $36.95/month for four games at a time.  In addition to this, they also will have access to the GameQ, which allows customers to list the games they are interested in renting, and Gamefly will automatically ship the next game on the list free of charge.  If the customer likes the game, he or she can purchase it through the Keep It feature for a discounted price. 

GameFly also has another innovation called the FastReturn service which is a joint venture with the USPS.  Post offices are able to scan the game when someone is returning the game and let GameFly know that the game has shipped.  GameFly will then send the next game on the customer’s GameQ immediately, rather than waiting for the rented game to arrive back to the distribution center.  In addition to this, GameFly has a symbiotic relationship with its customers.  GameFly has a huge revenue stream from a growing collection of old games which users give to GameFly in return for credit and rewards towards their game rentals; customers therefore receive incentives to help the library grow. 
The strength in brand brings competitive advantage to GameFly.  But what really allows GameFly to spread its wings is the partnerships and joint ventures it has setup with Gamespot, Gamespy and IGN (leaders of the gaming industry) to spread its services. 

Future Opportunities

GameFly is a very young company and growth is the only option if it ever wants to be the size of Netflix.  Currently, the brand name is big, but not as big as Netflix, which has become a commonplace name.  Another challenge to GameFly is only a specific demographic is even interested in GameFly since age causes people to stop playing video games.

GameFly is also not a public company, and if it grows big enough, the initial IPO will generate a huge amount of revenue from the public enabling them to build more distribution centers so games can be delivered within a day instead of the waiting period some customers experience now. 

Threats and Weaknesses

Even though GameFly is the number one company in its sector when it comes to video games, many companies are springing up to compete.  This includes, Gamerang, GottapLay, and RentZero.  However, GameFly has had the advantage of time on its hand to build its brand name and scale.  This scale and brand can be used to drive the competitors out of business.  Growth is their number one objective, and with their current growth rate, competitors will have to pull something miraculous.

GameFly lacks a feature that will create switching costs for users unlike NetFlix’s Cinematch.  Customers can easily switch companies, and make a new list of games they want to order without worrying about transferring their whole profile.  This could be bad for GameFly because a price war could be entered, and since switching costs are not an issue, revenues could be drained substantially in the long run. 

The biggest threat is Netflix.  If Netflix enters the market, GameFly will struggle and maybe even end its operations.  Netflix has a bigger scale, more resources and more money than GameFly, which will be very disastrous.  Sean Spector responds that Netflix is focusing on movies and GameFly on games.  However, if Netflix enters the market, it is doubtful that GameFly will be able to compete with a superpower like Netflix.

Opinion

GameFly is a baby company that does have a lot of potential to grow, but will probably never experience a dominance like Netflix.  If Netflix enters the online video game market at this moment in time, GameFly will tank almost overnight.  Also, it seems that GameFly has such a small demographic that even though success within will be substantial, it is very limited.  Releasing an IPO would be a challenge because of so many major weaknesses and vulnerabilities in their business model.  If GameFly goes international or something similar, GameFly may be a great investment.