May 28, 2022

Why stopping scalpers is in Sony & Microsoft’s best interest

Scalpers are a pox on the gaming community but we argue that it is the platform holders that have the most to lose…

Inside a GameStop store Sony PS5 gaming consoles are pictured in the Manhattan borough of New York City, New York, U.S., November 12, 2020. REUTERS/Carlo Allegri

Scalpers are a plague on the industry but stopping scalpers is in Sony & Microsoft’s best interest. If you were one of those people in queues for online stores to get your console, only to be kicked repeatedly in the nether regions by timeouts or sold out signs, there is a good chance you were beaten by a scalper. Statistical evidence is hard to come by but judging by Ebay and Marketplace postings, some scalpers managed to get multiple copies. Indeed, a UK based scalper group has literally boasted about its strategy. Often this can mean scalpers relying on automated ‘bots’ to register and reserve multiple copies at a speed that the average website user cannot match.

It can mean that in the time you have gone to a site, accessed it, tried to process an order, someone has automated that process quicker than you ever could. Even if bots aren’t used, it is clear scalpers are joining multiple queues in an attempt to get consoles they only want to sell on.

Scalpers… scalpers, everywhere!

There has been an outcry this year with the number of scalpers and the prices that are appearing online for ‘flipped’ consoles. Social media is awash with images of listings for the £450 consoles being sold for over £1000. Put simply, if you want one this side of 2021, you’ll need to trade with a scalper. The issue is, who should take responsibility?

You could argue that reseller sites should hold some responsibility – after all, Ebay etc. are allowing people to flip consoles at extortionate prices. Reseller sites, would argue that there is no criminality in what these people are doing. They were bought legitimately, sold at a price the buyer was willing to pay and to deny that would be to deny the reseller sites revenue.

Maybe it should be retailers? Do they have a responsibility to ‘genuine’ customers? Morally, perhaps, but from a business perspective, a retailer wants to sell their alloted units as quickly as possible. No difference to them if it goes to a scalper.

Time to step up platform holders

This leads us to the platform holders themselves. Should Sony and Microsoft be keen to prevent them selling? Some argue that platform holders, like retailers, are only interested in shifting units. We’d disagree and would suggest that Sony and Microsoft SHOULD be leading the charge against unit scalping because it is hitting them in the pockets.

It has often been the case (with the possible exception of Nintendo), that launch consoles are sold with little to no profit. We’d even suggest that the PS5 and Series X/S units are being sold at a loss. The hardware is a necessity to open a consumer to the real money maker – software and subscriptions. Each game sold, be it digital or physical, gives Sony or Microsoft a cut. If sold digitally, more goes straight to the platform holder. Then we have subscription services.

The money is not in hardware

Both Sony and Microsoft require a subscription service to access many online features. You have the game library subscription services, PS Now and Xbox Gamepass. These low cost monthly services give even more guaranteed revenue to the platform holders. Arguably the Xbox Series S only exists as a gateway device to support Gamepass.

Imagine yourself as the proud owner of a brand new Xbox Series X. Lucky you. You currently have no previous subscription services. On day one, you are going to want to buy some games for that beautiful black brick. Great – Microsoft just got a bit of extra cash. Then you realise that you really need to pay for the Gold subscription to get the online features you want. Great again – Microsoft just locked you into a subscription model. Then wow, it is 11th December and Cyberpunk 2077 actually releases – you’ve got to get that. You order digitally and Microsoft get a nice healthy percentage of that sale.

On day one, Microsoft are making money on you and at a far higher profit percentage than they do with the hardware. Imagine how much you’ll spend in 3 months? Six months? A year?

The life of a scalped console

Now let’s follow the life of a scalped console. On day one, you sit in someone’s garage. Your price is put high, perhaps £1000. You may get sold or you may, stay on the shelf a few weeks. As supply starts to dribble in and hype quietens down, your scalpy owner slowly reduces the price until someone decides the price point is affordable and you are sold. There is no guaranteed date that this unit will be sold or even used. Often, scalpers buy multiple units, sell some for a crazy price but have to cut costs until the point that they sell their stock OR availability catches up with demand.

All the time that console is sat with a scalper, it is making no money for Sony or Microsoft. It will only make that money once it is in the hands of a genuine user. To make matters worse, if that user paid over the RRP for the unit, they may not have the disposable cash to actually spend on software.

C’mon guys…

A lack of units does create hype and a thirst for your product. That’s fair. Yet it is also damaging for your brand if your stock is not in the hand of the intended audience. The pre-ordering of both console lines was badly managed but Sony and Microsoft both need to realise that they have a part to play in trying to make sure their consoles go to customers and not scalpers. After all, it’s in their best interests.

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