Microsoft Subnet An independent Microsoft community View more

Can GameStop survive competition from Microsoft and Walmart?

Some heavy hitters are entering GameStop's market.

Second-hand games are a $2 billion market, and most of that goes to the GameStop chain. But now Walmart wants a piece of that action, the second bit of bad news for GameStop in as many months. It came as no surprise, then, that GameStop's stock tanked for a few days.

Starting next week, Walmart customers can trade in video games for store credit at both Walmart and Sam's Club stores, the Walmart chain's warehouse competitor to Costco. The value will vary based on the title's popularity, from a few dollars for older games to $35 or more for newer ones.

RELATED: Microsoft, Sony team up to kill GameStop

The big difference between Walmart and its competitors –including Best Buy, which buys used games – is that the store credit can be used store-wide, so it can be used to buy groceries, clothes, DVDs, whatever.

"Gaming continues to be an important business for us and we’re actively taking aim at the $2 billion pre-owned video game opportunity," Duncan Mac Naughton, chief merchandising and marketing officer for Walmart U.S., said in a statement announcing the trade-in program. "When we disrupt markets and compete, our customer wins. They’ll save money on video games and have the flexibility to spend it however they want."

GameStop gets roughly half of its profits from buying and selling used video games. It's been knocked for buying at ridiculously low prices, like $9 for a new game, and then selling used prices at close to new.

GameStop was already under pressure from Microsoft, which is making a push to compete with the firm on new titles by selling them directly to consumers at a lower cost than if they bought them in the store. How effective such a move can be is debatable. After all, the hottest title on Xbox One, "Titanfall," is 48GB in size. You'd be downloading that for days.

Also, this is no guarantee of success. Walmart tried a video trade-in program from 2009 to 2010 that was similar to the game trade-in program, but it wasn’t successful. And other companies have their own trade-in programs, including Best Buy.

Trade-ins are a tricky business and require some degree of expertise on the part of the retailer. GameStop does games, period. Talk to anyone working there, and you will find a gaming enthusiast behind the counter. They know hot games from duds and how to not get stuck with a ton of useless inventory. Well, for the most part. A general retail chain like Walmart probably won't have that.

Still, competition is good, and this will keep GameStop from becoming lazy.

To comment on this article and other Network World content, visit our Facebook page or our Twitter stream.
Must read: Hidden Cause of Slow Internet and how to fix it
Notice to our Readers
We're now using social media to take your comments and feedback. Learn more about this here.