Remember the first arcade game you ever played? Perhaps it was “Pac-Man,” “Frogger” or “Space Invaders.”
“The first game I ever played was Missile Command, and even now, when I put my hand on that oversized track ball, I’m 10 years old again, just for a minute,” said Seth Peterson, a former stock broker, now co-founder and CEO of All You Can Arcade, based in the San Francisco Bay area. “There’s just something magical about playing games when you were a kid.”
That nostalgia is the premise of his business — All You Can Arcade — which he founded with his brother, Timothy Peterson, just over four years ago on his birthday. To celebrate, all he wanted was an arcade game, and after looking on Craigslist for awhile, he was able to score one for dirt cheap.
“The guy was so desperate to get rid of it, he was selling it for $60 and for an extra $70 he drove it all the way to my house,” said Peterson. “Turned it on and for about three or four days I was thrilled, and right then, I knew I had the fever. I wanted to get more of them.”
The Peterson brothers realized that the arcade game industry was going through an economic slump, and all joysticks and reasoning pointed to the cell phone industry. While there were — and perhaps are — a small number of arcades where your nickel or quarter might produce enjoyment with some tickets to cash in for trinkets, the venue likely is ending in the negative. Quarters might go in, but it’s not a reliable stream of income to operators, which means the assets are just getting crushed.
“As soon as the smartphone games came out, all of these arcade games went from earning $100 per month in quarters to earning nothing,” said Peterson. “We realized that we could buy these assets for really cheap, turn them around all refurbished and then lease them out to tech offices, bars and other places that wanted to use them.”
That’s right. Tech offices and bars wanted them but also mechanic shops, grocery stores and party rentals. The Peterson brothers started with one game, which they say turned into 10, which turned into 20 and so forth.
“We just started buying more of them by the truckload from people who were trying to get rid of them,” said Peterson.
Soon after it launched, All You Can Arcade began offering a subscription service for $75 per month. The lease included the choosing of the game, the drop-off and, at the end of the month, the ability to swap, keep the game or end the service. Peterson said the subscription model alone has become a win-win for all parties involved.
“We’ll buy a game for $50 but rent it out for $900 per year. That’s free money that can be substantial dollars,” said Peterson. “As our membership base has grown, it’s allowed us to buy a new arcade game every two or three days, and every time we add a new arcade game, we add a new customer.”
All You Can Arcade, which has always been bootstrapped, now has 500 games. At any given time, 70–85 percent of those games are in rotation at a variety of locations. The business has three main employees: the Peterson brothers and a repair tech who worked at Chuck E. Cheese’s for 30 years. The tech is dedicated to fixing microchips, capacitors and whatever else will refurbish the old games and getting them added to the rotation. While based in San Francisco, the business’ radius goes as far south as Salinas, as far north as Santa Rosa, as far east as Sacramento and as far west as the water. Peterson said they add about 20 miles to that radius each year and are eyeing Los Angeles as a soon-to-happen market.
Interestingly, the games are played for free. Meaning, patrons at bars or techie employees at work are not popping in quarters to play games. The machines are typically set up to play on free play, over and over again, all month long. The subscription is less focused on the quarters and more so on the overall business subscribing to the plan.
“It’s easier to convince one person to put $75 in to play the game than it is to ask 100 people to put in $0.25,” said Peterson.
And that’s why operators of arcade games have been almost giving them away to All You Can Arcade.
“It’s like if you look at a bond. If you have a company that says, ‘We’re no longer going to pay interest, and we’re not going to pay you back,’ the value of the bond goes to pennies on the dollar,” said Peterson. “With arcade games, because there’s a cost to carry it, it almost goes negative.”
But with All You Can Arcade’s subscription model, other businesses are benefiting. Big time.
“If you put the game on ‘quarter play,’ you’re lucky to get $20 in a month. But we can put it on free play, and bars can increase your revenue by almost 20 or 30 percent,” said Peterson. “More people show up, and people drink more beer. We have a lot of bars that go from making $1 million in revenue to $1.5 million after they do the subscription model. They didn’t have to hire anyone. Plus, they can change the games when they want.”
As a startup, there have been unforeseen hurdles, however. Peterson said, as they’ve grown and acquired games, storage has been an issue that they’ve had to overcome.
“You can’t just put them in your house or leave them on your front lawn,” he said. “Now, we have the infrastructure, and we’ve learned to attend to customer service better.”
But the adventure of it all, he said, is where they find these games and where they end up.
“One time, we went out to pick up a game, and it was a man, woman, kid and an arcade game in a trailer. The game is where the table is supposed to be,” said Peterson. “The family was very happy to get rid of it because they needed the space.”
Once refurbished, the ultimate thrill is the stories that come from businesses that benefit from the subscription model. There’s a complementary economy that develops, particularly on a business-to-business basis. And it’s not just bars selling more beer.
“We’ll put one in an auto shop, and it’s not that the mom wants to play the game, but she’s glad because it’s the kids occupied by the game,” said Peterson. “So, when you’re getting your oil changed or having work done on your car, there are choices to where to do that, but if you know your kids will be distracted while you wait, price becomes less of a worry and convenience becomes more important.”
While the model may seem simple, Peterson’s big takeaway is the concept of being a “micro-prenuer.” The extreme profit margins are big, and the quirky fulfillment is greater.
“Just look at a gumball machine. Each gumball costs $0.02. So, if you put in $10 worth of gumballs in a machine and you sell them all, you can buy 400 gumballs, and so on it goes,” said Peterson.
While this model may not make a million dollars overnight, Peterson said, the need for this type of business clearly is something worthwhile to complementary businesses in the long run.