Amazon: Noobs at Gaming

Everyone knows the used game market has huge margins. And in this economy, the video game business still manages to float above the other dying media. Top industry retailer GameStop takes the lion's share of used game sales -- they gave out $800 million in trade-in credit last year, bringing customers back for more new and used games. Amazon just announced their Video Games Trade-In beta, with trade-in prices slightly higher than GameStop -- at least at first glance.

GameStop's loyalty program members receive a 10% bonus trade-in credit as well as a 10% discount on all used game purchases. Amazon tried to match with a 10% bonus good until March 19th -- still falling short of GameStop's current (and frequent) trade-in bonus programs which give up to 40% bonus credit on used game trade-ins.

The key differences between the programs are Amazon's NetFlix-like free mailer simplicity, its broader customer base, and its vastly larger store inventory. GameStop credits are good for GameStop games. Amazon dollars are good for Amazon games, or books, or lawn mowers, or diet pills -- all sent to you with usually free shipping. Unlike Amazon, GameStop doesn't offer free shipping, but it does offer cash in hand for old games -- though at 20% less than the store credit amount.

With online distribution services like Steam, gamers have already started moving away from brick and mortar stores for new games. Now it's time for used games. GameStop recently started accepting their EDGE card credits for website purchases, though they still process all trades at their retail stores. If GameStop sees Amazon's new program as a threat, expanding into a similar free-mailer program like Amazon would naturally follow.

Ultimately making or breaking Amazon's beta won't involve the actual credit amount. GameStop and Amazon do not have large overlapping audiences. Blockbuster has taken game trades for years, though their presence is insignificant. Why? Gamers just don't go to Blockbuster to buy games, so they won't be at a Blockbuster trading in their old games. Best Buy and Circuit City tried used games and failed. Until a significant amount of gamers start going to Amazon, GameStop has little to worry about.

Now if Walmart moved into the used game market, it would be a different story entirely.