D3: Real Money Auction House Compiled

Post 1:

Well. Alright. Regarding the D3 "Cash Auction House" (CAH) I just sort of figured I can explain this in a short and concise manner, unlike my usual long winded explanations. There are two points I want to discuss: the player's conceptions, and Blizzard's lies.

Now, as much as I like Athene and his Together To The Top (TTTT) movement, I am really disappointed he hasn't caught onto Blizzard's ruse with their CAH. Now, people are going to swarm into this game trying to get cash off this game, this is pretty much undeniable at this point, a cash incentive for playing is a great marketing strategy. This works in the favor of more hardcore players, who have the ability and patience to grind out dozens of boss runs farming for gear... at least initially. The problem with the CAH is that it's going to attract the attention of entrepreneurs who will try and use the system for mass financial gain. Most people refer to those people as "Chinese Gold Sellers". The CAH will be flooded with items after not too long. A huge player base trying to cash in, on top of the competitive slashing of prices will inevitably result in everything save for the rarest of items to be dirt cheap. Incidentally, this works in Blizzard's favor, since it can be used as a marketing tool for more casual players who would rather buy than grind. Even if D3 sucks as a game, you can bet that it'll do well simply because of everyone trying to get their hand in the cookie jar. The thing is, Blizzard knows this.

Blizzard has gone on the record as saying that the CAH concept was "simply a feature to help players", and "they'd be surprised to break even on the CAH alone". Frankly, that's bullshit. The way Blizzard is taking a cut from the CAH is by a small flat rate with each transaction. What this means is that they'll only make money off of the quantity of transactions, rather than taking a percentage of the total cash moved. Anyone with a basic knowledge of player behavior in MMOs will understand that that system, on top of the inevitable devaluing of gear, that this is the best model for Blizzard to get behind for profitability. The only way a percentage of sale model would work is if Blizzard made items so prohibitively rare, that their price could never drop to an unsatisfactory amount. That model, however, would drive would-be auctioneers away.

A plethora of slightly sub-optimal items for the endgame at a rare-ish drop rate, coupled with a set of ultra rare "best" items, will make for the most addicting and profitable recipe.

As a note that supports my case, keep in mind that Blizzard removed skill points in favor of skill-altering items. That means every time there's a new flavor of the month build (or shit, even a classic example of Blizzard being bad at balancing), guess what gets sold en masse, and guess who profits directly. This is, of course, only pointing out a new feature, if you look at their main website you can see a plethora of items that will most likely end up cheap and be sold in large quantities (Players will have many ways to customize and build each of the five character classes, including charms, traits, enhancements, gems, armor, weapons, dyes, skills...) (http://us.blizzard.com/diablo3/world/systems/runestones.xml) I will forever contend that Blizzard's handling of Diablo 3 is just another example that they will go at great lengths to squeeze every last cent out of their customers.

As a final disclaimer, I make no claims regarding the quality of Diablo 3 as a game. I have no opinion about the potential enjoyability of its gameplay. I do, however, refuse to buy the game because of Blizzard's business practices, and that's the only message I want to spread.

Post 2:

This is going to be a supplementary post to augment the position laid out in the last blog post about this subject. Last post, I detailed how Blizzard's game design D3 was optimized to profit from the Cash Auction House (CAH). Now, those are only the short term effects. By understanding player behavior, and using just a bit of economic knowledge, we can analyze the long term effects of these design choices.

The first of the two major points I'd like to bring up is that Blizzard taking a flat rate from all transactions puts a downward force on the market. Let's say, for example, Blizzard takes only $0.10 from every transaction. Now, let's say the current market price for "Theoretical Item (TI)" is $1.00.Now, the seller is making $0.90 profit off of every transaction that happens at that price point, but what happens when the inevitable undercutting happens? Another seller decides to sell TI for $0.95, making a $0.85 profit. Anyone who is selling for $1.00 can't buy up the lower priced item and re-list it under a higher price, or they'll be selling at a $0.05 loss (they'd be paying $0.95 for the item, but making only $0.90 at a sale), due to the flat rate take from Blizzard. Certainly, you could sell at a five cent lost every once and a while to keep your higher price point, but MMO players have demonstrated in the past that they are willing to sacrifice profit in the name of guaranteeing sales due to the lower price. This means that, as long as someone is willing to make a sale for less, the price will keep dropping. There are lots of factors at play here, and that isn't even the most important one. Another example is that Diablo item's simply aren't soulbound, and thus, aren't "consumed" when a character equips them. Everyone will jump on the chance to sell their old leveling gear. Items are never "lost".

The second point is that this plays exactly into supporting mass transactions (which nets them more money, because again, they only profit on # of transactions rather than value). This self-deflating economy also is extremely appealing to more casual players, who would rather spend $5 than to grind out top-end gear. Diablo 3's economy, as it stands, is an extremely powerful and effective marketing strategy that will draw in tons of new players, and any claims by Blizzard stating that they don't know exactly what they're doing is a blatant lie.

Post 3:

Cranking these out late at night, I, unfortunately, overlooked some of the more minor nuances of the Cash Auction House.

Something I neglected to mention is that there are ways to combat undercutting. For example, if one were to invest a large sum of money, a person (or persons) could buy up all available copies of a single item and re-list them at a much higher price. These sort of things happen, but they tend to be rather unstable (since new items will inevitably be found and put up on the auction house), and the sheer force of the flat rate tax system that is said to be in place will inevitably drive the prices down, it's only a matter of time.

Another important note is to realize that, even in the case of this sort of monopolizing move, Blizzard still profits from the flat tax for every transaction. In the case of a re-listing, Blizzard earns twice what they would have for a flat sale.

The last thing I believe I missed is what makes such low prices possible. There is no cost to obtain items. People are paying to play the game already for various reasons, and any items they find are simply a product of them doing what they would have done normally. Because the items are fake and produced for free, the floor for making a profit is literally whatever the flat tax is plus one cent. My personal guess for the tax is somewhere around twenty cents (and keep in mind, a larger flat tax, the harder it is for a mass re-listing to take place), considering the steps Blizzard has to take in processing each transaction.