NYTimes today. I really am slowing down. I know, the bulls will see this as rosy news and another market amzn can dominate, while the bears and I will notice that lots of on line etailers in product lines that amzn was alleged to be entering, are already building critical mass in industries with few or no competitors. Whatever, keep dreaming. Oh and btw, when you want to shop for toys (unless of course you're waiting for amzn to start selling) you could do worse than to check out etoys!
LP
July 23, 1998
Net Sales Fill a Gap Left by Software Stores
By J.C. HERZ
ne argument against buying books on line: Shopping for books is a pleasant experience. There are lots on the shelves. You can
flip them open and browse. If you go to a small independent bookseller, you will find articulate salespeople. If you go to a
megastore, you will find comfy seats and cappuccino and young urban singles trolling for mates. It's not a bad way to kill an hour.
The same cannot be said for video games. Shopping for them falls somewhere between
tax returns and a Quake death match on the stress continuum. Selection is extremely
limited and blockbuster-heavy, particularly with regard to computer games. If you're not
looking for Lara Croft, Warcraft, hunting and fishing titles, or the latest offering from Id
software, you're generally out of luck. You can't open the boxes, and there aren't many
games on display. When the holidays roll around, the video game section of Toys "R" Us
turns into a hallucinatory nightmare for parents -- a disorienting maelstrom of sound and
light where everything is back-ordered.
Video games, it would seem, are begging for online commerce. And on the Internet, no
consumer itch goes unscratched for long.
Witness Gameserve.com, a site with more than 10,000 console, PC and Mac titles, a full line of game hardware and more than 1,000
joysticks, action pads, steering wheels and other play-enhancing accessories at up to 20 percent off their suggested retail prices
(money saved by not maintaining brick-and-mortar stores is ostensibly passed on to the customer).
A search engine pulls up product descriptions for curious browsers and wary parents. There are strategy guides, a game maker's
directory, a chat room and a forthcoming filtering feature to recommend games based on what you already like. Everything you decide
to buy goes into a virtual shopping basket to be taken to an online checkout counter, charged to your credit card and shipped within
48 hours. (For customers drooling in anticipation, Gameserve e-mails a package-tracking number so you can follow your order's every
turn -- or answer the question, "Mom, when will it get here?") Not surprisingly, there is an affiliate program that pays Web mavens a
commission for selling games off their own sites.
In other words, this is the Amazon. com of video games. And in fact, Gameserve. com's parent company, Speedserve, began as an
online bookseller.
"Our first storefront, Bookserve. com, came out around the same time Amazon did," said Michael Mason, 28, Speedserve's chief
executive. "We tracked really great with those guys for a while. And then we made some mistakes. Our technology was sort of
homespun technology, and we couldn't scale quick enough. So as more customers came into our store, we weren't able to serve
them."
Having stubbed its big toe on infrastructure, Speedserve underwent a complete back-office overhaul in 1997, replacing its own
technology with I.B.M. E-commerce software. But by the time Bookserve.com was ready to race, Amazon.com and
BarnesandNoble.com had already crossed the finish line. There wasn't room to compete as an electronic book retailer. So Speedserve
reinvented itself as an Internet movie merchant, Videoserve.com, and opened the world's largest online video game store,
Gameserve.com. After two months, 8,000 visitors a day were hitting the site to check out computer and video games and
paraphernalia..
It remains to be seen whether digital entertainment and bound books will follow the same trajectories on line. In a marketplace where
Amazon.com has yet to turn a profit, Gameserve.com may have the last laugh. Unlike the publishing business, the computer game
industry is growing prodigiously: according to the Interactive Digital Software Association, video games and computer games were a
$5.1 billion business in 1997, up 38 percent from the previous year. Forty percent of American homes have computers, and one out of
10 packaged software purchases is a game. Sony just announced the sale of its ten-millionth Playstation in North America. Every year
a new crop of video game customers surges up from the schoolyard to join millions of game fans in their teens, 20's, 30's and 40's.
Unfortunately, places to buy games are not multiplying as fast as the number of people who want to buy them. The checkout counter
remains a bottleneck for this industry because book retailing and software retailing are very different creatures. A bookseller can order
a thousand copies of a book, sell a hundred and return the rest to the publisher, who eats the cost. To a large extent, this return policy
defines the book-buying experience -- acres of space and endless variety -- because bookstores bear no risk for this embarrassment
of riches.
In the video game world, retailers bear all the risk. Inventory is bought and paid for, and it's extremely difficult to return. Hence the
small selection of sure-fire sellers. "Distributors often have copies of old games that they can't do anything with," Mason said. "Yet they
keep them because they've paid for it. So they have standing inventory. We can take advantage of that. And that's completely different
from the way we have to operate on the book and video side of things."
Under these circumstances, Gameserve is at a distinct advantage because the physical world is failing consumers and because
Gameserve carries no inventory whatsoever. Everything is shipped directly from the distributor to the customer, an expedient
arrangement for all concerned. In fact, Speedserve's major backer is Ingram Entertainment, the United States' largest distributor of
video games and home videos, which holds a majority interest in the startup.
There is a family legacy as well. Mason's father, who now works in the insurance industry, was once the president of Ingram Books, a
900-pound gorilla of distribution in the publishing world.
So what does the old man think of this electronic game-brokering business? "He likes it," said the second-generation media salesman.
"He came over and checked out our little fulfillment center and kind of chuckled and had a good time. He doesn't know anything about
games. But he likes it."
Game Theory is published on Thursdays. Click here for a list of links to other columns in the series.
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