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Why Amazon.com bought its way into casual gaming

October 22nd, 2008 · Comments

Silicon Alley Insider reported that Amazon (AMZN) makes a push into the world of casual gaming with the acquisition of Reflexive Entertainment.

The article mentioned that "Not clear what Amazon’s thinking is here."

I think I have some ideas about the rationale behind this acquisition. :-)

In the retail world, business is managed by categories (e.g. book category, consumer electronic category, etc.) Video Game is a category on Amazon.com site. I don’t know the exact sales number, but I think it’s a small category with better-than-average margins and growth rate.

The economic of the video game category is good. It’s a good margin business. And it’s growing.

For me, this acquisition is driven by

1) the need to continue to grow the video game category, which potentially could be a huge category for amazon. And it has healthy margins (i.e. the margin for video games is much better than selling books and consumer electronics, the two largest categories on amazon.com.)

2) the need to acquire a customer base of casual gamers. This is invaluable to amazon as it wants to grow it video game category and the casual game market is growing rapidly.

3) the "synergy" with other digital initiatives within amazon, such as Kindle, digital music distribution, video distribution, etc. They’ve been working hard to build the digital distribution infrastructure. But, they need content to sell. This acquisition simply adds another content piece to the puzzle. I don’t know if they plan to use Kindle to distribute casual games. But, it’s conceivable that Amazon will integrate casual games distribution with music, videos, and other digital content distribution. It’d be a single digital distribution channel for all digital contents (books, videos, music, games, etc.)

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Tags: Company Analysis

 
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