Diablo 3 Auction Houses

Diablo 3 AH is a game changer in every sense. However I’ve not seen a lot of analysis and if possible, even less since the rates have been announced. Sure people have been gasping and saying “Two AHs?  What does it mean!?” for months now but that doesn’t really count.  So here’s a bit of analysis:

The Diablo 3 AH will be very different from current expectations now that the rate structure is out. It’s a fair bit more expensive than expected.

I predict that the Diablo 3 AH will be screwed up, or at the very least screwy. But the % fee isn’t what is going to screw this up. The AH will be screwed on all the other fronts… possibly on purpose.

Unlike Windsor, I’m a bit of an AH junky. I enjoy playing the AH in Warcraft and in every other game I’ve ever played, (including the single player ones). To me, playing a game’s economy is simple meaningless fun. But then again I consider everything in a game to be simple meaningless fun.

There are actually three (not two) AHs in each geographical region and currency:

  • normal/gold
  • normal/$
  • hardcore/gold

15% looks to be Blizzard’s cut and 15% looks to be Paypal’s. That’s high. That leaves the player with 72.25%. It’s sensible to start high because adjusting up (whatever the rate) would cause backlash but lowering it won’t. While high, it’s not unreasonable. I’ve been paying 15% sales tax most of my life. Compared to other real world fees:

  • eBay + paypal:          ~15%
  • auctioneers:              15-30%
  • consignment:            20-50%
  • Blizzard + paypal:    27.75%

27.75% = {15% of 85%}

Someone said (which inspired this post) that the high fees would result in people buying gold off 3rd party sites like they do in other games. A valid concern, but I don’t think so. There’s very little reason to buy gold off some shady website when the safe and approved method will be easier. The common thread between all gold buyers is they want it easy above all else. Buyers will be the ones dictating where the transaction takes place. I don’t see a lot of room for black market peddlers in D3. The grey market on the other hand…

The One Dollar Fee

There is a $1 fee per item when using the $AHs. $1 is insanely expensive. (As in nobody sane would use it).

I bought and sold 50+ items on the beta for gold. Had that been on the $AH then that would have been $50+ in transaction fees alone without considering the cost of the items themselves. Assuming the seller would have wanted a couple of bucks for themselves that would have meant a few hundred dollars with only 5 characters through the first act… Crazy!

Before the beta I thought fees would be a penny tops, and most likely a fraction of a penny per transaction. I was way off. At $1 real money, transactions will be reserved for the rarest of the rare BiS items where $1 is a negligible portion of the total cost. I won’t pretend to understand those top end transactions because I personally put zero real world value on virtual items. I’m sure they will still happen because they happened in D2, but not in the volume many expected.

The $1 fee will almost assure that real money will not be the common currency used in game. It will be gold or if gold devalues to the point people consider it worthless, (very possible) a defacto currency will crop up like the old SoJ from D2. Which (if it happens) likely it will be one of the ingame commodities since they can be bought and sold for real money with a 15% cut rather than the $1 base fee. But the big ticket items won’t use the in game AH much except as the final cash out.

The Awful AH Interface

The Diablo 3 AH interface is TERRIBLE. It’s hard to make something worse than the default WoW AH but Blizzard managed it. There’s plenty of interface ideas they could have used from WoW addons but instead they made it worse. Blizzard is taking a cut of everything which stunned me. The AH also has a limit of 10 simultaneous listings with no ability to cancel a listing. It appears to have been purposely designed to be awful. It fails in every conceivable way.

Given all the problems with the AH it will encourage people quickly to find other ways to trade. Since you can trade gold/items directly to other characters (exactly like in WoW) that “other way” is instantly obvious.  Enter the grey market.

I expect that a website will pop up to facilitate trades between individuals. Even a simple forum of WTS/WTB listings would be enough. It won’t take long for something more complex to pop up even if it’s just a Craig’s List clone… (Only if there is real money to be made.) Blizzard has no way to stop that short of banning trades all together which obviously will piss off a lot of people so Blizzard won’t do that. My personal guess is that all the discussion around the $AH and how it affects the industry will be moot.

Inflation in Games

Every economy has some sort of inflation even especially the virtual ones. You’ve certainly seen it if you’ve been playing WoW since vanilla where 1000g was a lot, but now is just a crafting tip. Virtual economies suffer from inflation in particular. It’s a case where millions of people are constantly injecting items and gold into the economy with a neglible amount being used up or removed from the economy. In D3 has it a bit worse. The number of people willing to sell virtual goods will be magnitudes larger than the buyers. That’s a recipe for hyperinflation.

Taking Blizzard at Face Value

However this all might be on purpose. It wasn’t hyperbole when I said the AH seems to be bad on purpose. Everyone (including myself) believes that Blizzard wants to make money on transactions like eBay. But there can be an ulterior motive…

Blizzard has stated officially that want to make enough money to pay for online infrastructure necessary to maintain the game. IE They don’t want to lose anything by maintaining servers indefinitely on a one time game sale. (A quote I dismissed at first as being corp fluff, but I wish I could find again).

If instead Blizzard’s goal was to destroy the black market then purposely designing hyperinflation into the system will accomplish that rather elegantly. Under hyperinflation, in game virtual items will still be valuable in comparison to other virtual items and gold. But in comparison to real dollars, gold suddenly becomes worthless or really close to worthless. But worthless has a huge upside to Blizzard. If it’s worthless then shady black marketeers have no reason to sell it, and all that account hacking and other crap Blizzard spends millions on each year disappears. If it’s worthless, Blizzard manages to sidestep all the significant legal, tax and criminal (money laundering) issues this raises across a large number of jurisdictions.

On one hand the entire AH system appears designed to be bad. On the other, I can’t imagine Blizzard leaving money on the table.  This is a head scratcher for me. I really don’t know which way it will go. Either way there won’t be large quantities of transactions. $1 is a stupid price point for quantity and max listing of 10 isn’t much better. Blizzard won’t make a lot at $1 a piece without quantity which they seemed to have gone out of their way to reduce.

I guess how it all goes depends on drop rates. Blizzard fully controls drop rates so they control the economy. Hyperinflation or no, Blizzard has positioned themselves to either make millions with a new source of revenue or save millions by reducing what they spend on dealing with hacked accounts.
Note: Do NOT run a balance on your Battle.net account or have $AH sales go there unless you know exactly what you are doing. You will regret it otherwise.
A lot of people will assume =wrongly= you could use the $AH to add WoW time via your Battle.net account. You can’t and it will upset many, many people when they cash out into Battle.net and have nothing to spend it on. To buy WoW time you have to Paypal it out of D3 then Paypal it back into WoW. And if you are going to do that you might as well skip the steps and pay for it via your credit card or however you used too instead. (BTW Cashing out Paypal to a bank account is free.)

7 thoughts on “Diablo 3 Auction Houses

  1. You -severely- underestimate the propensity for people to pay stupid amounts of money on pixels. The $1 cut will not stop RMAH sales much at all, there will be a ton of items sold for the minimum of $1.25 simply because they are free to list and plenty of idiots out there willing to buy. The restriction of having only 10 items listed at once however will be a pretty hefty barrier. Much much more then the $1 cut.

    • That could well be. I’ll fully admit that I don’t understand people paying real money for pixels. But if they do, they won’t buy items directly. They will pay $ for gold which then will become items. The in game AH is simply too expensive and not good enough.

      Then the question becomes how much gold will you get for a dollar? Ultimately only time will tell. However there’s a lot of evidence to suggest that Blizzard has a vested interest in making one dollar buy a lot of pixels.

      • Gold will be a big seller, for sure. But odds are buying an item with real money will be -cheaper- then buying the same item for gold bought with real money. By this I mean a nice sword might cost $2 or 20k gold, the same item is up on both AHs. 20k gold will probably cost $3 or $2.50, so people would just use the RMAH instead to save money. (Can players sell gold for $$? I didn’t think they could. That might throw things off if they can).

        Another good example about how loose people are with their real bucks would be the $25 sparkle pony in WoW. TONS of people bought that thing, something nearly 100% cosmetic that served nearly no practical use (not to mention $10 mini-pets, several hundred dollar spectral tigers..). Now imagine what $25 can buy you on the RMAH for your D3 character… I’d wager $25 can buy you some pretty good gear that actually has a practical and significant impact on your game play. That kind of purchase makes sense for a surprisingly large number of people playing these games. I’m pretty sure the RMAH is going to be very busy indeed.

        • Yes, people will be directly buy/sell gold. No, items will not be more economical to purchase directly.* I can say that with absolute certainty because that’s how markets work. If at any point there items become cheaper than gold then that becomes an opportunity for arbitrage. Which basically means the item will be purchased and relisted at a higher price.

          *Excluding the best of the best, and those will be a tiny fraction of total volume the same way that spectral tigers are the weird outliers in the WoW economy.

  2. I was surprised to see that we couldn’t transfer funds from the AH to pay for WoW… that was my only reason for being interested in the D3 AH.

    I’m not surprised to see how messy Blizz made the AH in terms of making money. If it was too profitable it would attract all sorts of nastiness. It’s just attractive enough if you’re desperate for a drop and have some free cash or really lucked out on a great piece that you don’t need but it’s not so attractive that many people are going to want to take the time and effort to work the system.

    Completely agree about the interface being terrible. I didn’t log in to the beta for the past build or three, but it was atrocious when I was playing. Not being accessible in the game was a real pain since I couldn’t compare stats to what I had equipped or in my bag. Search features were limited (if they functioned at all, but forgiving that since it was beta) and finding crafting items was nearly impossible unless you knew exactly what you wanted. Browsing was not an option.

    Regardless of the AH experience, I plan to enjoy my free download from my Annual Pass and gleefully smash some zombies.

  3. BTW The $AH won’t open until 1 week after D3 goes live. So that will likely be May 22. I say “likely” because Blizzard likes to redefine what a week is.

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