By Nathan Rigby, VP Sales and Marketing at One Click Retail
*All figures cited below reflect Amazon 1st-party sellers only

Amazon’s Video Games department has been busy. Last week, the company encouraged Prime members to link their Twitch accounts and become “Twitch Prime” members in exchange for a free loot package for Fortnite, today’s biggest online game. The company also offers Prime members are offered a 20% discount on all video game preorders, and has been producing video game accessories under the AmazonBasics brand, explicitly advertised as a lower-cost alternative to “official” accessories.

Amazon’s 2014 purchase of Twitch, a platform geared toward live streaming of video games, has positioned the company to capitalize on the evolution of gaming into a major, real-time entertainment industry. Twitch allows Amazon to control a highly-trafficked advertising channel and drives gamers to their marketplace. Investments like these are designed to establish Amazon as a major video game retailer and compete with brick-and-mortar chains like GameStop – and they seem to be working. Let’s take a look at Amazon’s 2017 Video Games category and where it might go from here.

Video Games: The Amazon Effect

 

Supply and Demand

Perhaps surprisingly, the Nintendo Switch Hardware & Accessories category (which includes the console) ranked below both PlayStation 4 and Xbox One, despite the fact that the Nintendo Switch was the #1 selling video game item of 2017 (Gray Joy-Con version was #1, Red/Blue Joy-Con was #3).

The Switch was released in March to rave reviews and enormous sales – and it promptly sold out almost everywhere. For most of 2017, the Switch was notorious for being out-of-stock for retailers across the country, with any new stock released getting purchased almost immediately. For most manufacturers, spending so much time out of stock would be the death of their product, but Nintendo is such a strong brand and the Switch was so well-received that the rarity of the console only served to drive up demand.

In certain circumstances, controlled scarcity can boost brand sentiment, but it’s a delicate and risky tactic. The product must be highly rated and extremely desirable and the scarcity must be justifiable in the consumer’s eyes (in Nintendo’s case, this was due to unexpectedly high sales volumes; for smaller brands, this could be justified by a perception of a product being “hand-crafted” or produced by a small team). Because being out of stock drives down a product’s organic search rank, a brand needs to be confident their audience is well-established before they can afford to let demand exceed supply.

Video Games: The Amazon Effect

 

The Console Lifecycle

When it comes to top items, in both Consoles and Games 2017 belonged to the Nintendo Switch. Being the only major console release in 2017, this comes as no surprise. Naturally, consoles are useless without games, so console sales drive game sales, and six of the top 10 games on Amazon in 2017 were for the Switch, including the three bestsellers.

Though the Switch dominated the top items, PlayStation 4 maintained its position as the overall sales leader. There are two reasons for this. First, the PS4 has been around a lot longer (released during the 2013 Christmas shopping season) and therefore has 4+ years worth of game releases, so even though the Switch games are selling faster, PS4 has many more games available for purchase. Second, hardware sales for the PS4 (and for the Xbox One) are dominated by Accessories, driven by the fact that few people are purchasing new consoles so long after release and are more likely to update or replace their controllers and other accessories.

It’s a matter of short-tail vs. long-tail sales. The console lifecycle begins with high volume sales of the console itself plus high sales for launch titles, which often belong to flagship series’ such as Mario and The Legend of Zelda. As time passes, console sales begin to fall but players invest in more niche games and accessories. PS4 is firmly in the latter stage, while the Switch is still very much in the former, but the huge success of the Switch console in 2017 means that there will be a very large market for long-tail sales of games and associated product in the coming years.

Video Games: The Amazon Effect

 

Digital Sales

One area where Nintendo is almost entirely absent is the emerging Virtual Currency space. Despite the powerful role of ecommerce in the Video Game space, Games are still primarily a physical product. Only a little over 10% of Amazon’s Games sales in 2017 were Game Downloads and the rest were physical, boxed games delivered to the customer, despite the fact that Video Games can easily be digitized (the PC gaming market has gone almost entirely digital already). Other forms of entertainment such as movies and music have for the most part made the switch already – and Amazon has followed suite with Amazon Music and Prime Video – so console gaming remains one of the few holdouts on Amazon.

The reason for this is that the both PlayStation and Nintendo are making efforts to maintain complete control of their digital sales. Instead of distributing digital games via Amazon, these brands sell Virtual Currency redeemable at their digital stores accessible via the consoles. Virtual Currency makes up almost 60% of the Digital Video Games category and of that, 70% are for PlayStation Virtual Currency.

It’s a sound strategy. Just as Amazon is using Twitch to drive traffic to their platform, the top brands are using Amazon to drive traffic to their virtual stores. In 2017, PlayStation maintained its leadership in both physical and digital sales via Amazon, but Nintendo’s success with the Switch is going to drive up their sales this year and in coming years, putting pressure on the PS4 and other competitors.

Video Games: The Amazon Effect

 

 

Consoles act as a loyalty program. When someone buys a gaming console, they’re committing to a multi-year investment in that brand and associated games and accessories. Similarly, Amazon Prime also acts as a loyalty program, encouraging members to choose Amazon over other retailers whenever possible. By layering these two levels of loyalty one on top of the other, Amazon’s investments in the Video Game space drive more traffic and sales for brands. As gaming evolves into one of the major entertainment industries, Amazon’s Prime, Twitch, and AmazonBasics make the company a powerful force in the Video Games market.

 

 

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