Friday, 5 August 2011

Diablo 3: initial thoughts on how the economy will play out

Early adopter bonus

The Diablo 3 economy is, as Tobold explains, likely to be front-loaded. If you find the best bow in the game and are the first one you will be able to sell it for a lot of money. If you find it but you're the 1000th one you'll receive pennies or perhaps a few quid at most.

This translates into an early adopter bonus. If you get in on the headstart if there is one you'll make a lot of money. Beta keys are going to ilicitly trade hands for a lot of money as although the items won't survive you will have the opportunity to learn how to item farm. Power leveling of various types will be a sought after service.

If you work but are thinking you'd like to be a D3 financial magnate you might want to book a week or two of leave.

The regions are going to vary considerably.

The game will be divided into markets by its regionalisation.

When asked about the regional breakdown of the shop, Pardo said, "The primary reason why we're doing the Auction House per [real world] currency is for usability, and in some cases, with legality -- it's the easiest way to do it... There are going to be so many items in each auction house in every currency that there shouldn't even be need to shopping around in different currency houses."

So that sounds like for UK there will be a pound-based national server network. This may mean it's the first ever online game here to be national, it almost doesn't make sense or at least it hasn't before to be both national and online.

What I don't know is whether we'll be able to play in other countries' regions. Here's a list of countries by GDP, if you want to play abroad for a better market the highest GDP at the moment belongs to Qatar and the highest English-speaking country is the United States of America. Both have things to recommend them for the professional D3 player - Qatar's wealth is concentrated in the hands of the superrich so we may see extremely high prices paid, USA of course has both a cultural and a constitutional commitment to hedonism.

I have no idea whether we'll be able to choose our region. I think I'm inclined to play in my real region rather than roll on a more lucrative one but if I find myself making decent money I would be tempted to get extra copies of the game to expand the business multinationally.


Tax (for UK residents) is explained here if you receive a salary. It's "income from casual earnings, for example, tips or commission" If you're an employee or receive a company or personal pension you can receive up to £2,500 extra income in a year and still pay tax on it through your tax code. For amounts greater than £2,500 you'll have to complete a tax return and pay tax through Self Assessment. You receive a PAYE coding notice before the start of each tax year and let them know on that how much you expect to earn or you can contact them to let them know you earned over £2500 and need to pay through self assessment. It works just like income so if your work pays you £20,000 and Diablo 3 pays you £1500 you'll be taxed on an income of £21,500. (This is not professional tax advice and if you want to be completely sure contact HMRC).

It's entirely possible you may pay less tax if you register as a business because you will then be able to defray expenses (the cost of the box, a proportion of the cost of the computer equal to the extent to which the computer is used in pursuit of the business, banking costs, electricity etc). It's discussed here.(In the United States from a brief look I took it seems to be the other way around, it's better if they think your game items sales are proceeds from a hobby than from a business).

Most people will simply not report it anywhere and not pay any taxes. If you're seriously into item selling this could be a very bad idea if you're successful and they catch up with you. As it's all online and as this is the very game that's likely to make the Revenue wake up and start chasing trade in virtual items that's quite risky. In fact we're right in the middle of a special Inland Revenue campaign to detect online trading that doesn't match tax returns. With robots :-)

Item value

Value is going to concentrate on a few high end items and particular bonuses. The nature of Diablo is that you can only wear a finite amount of items while finding lots of them. Except for a rush at the start when any decent item will have a fair amount of value there are going to be just a few items that are worth significant money. In D2 people tended to value percentage-based damage reduction over almost anything so that is an example of a stat that would fetch a premium - if D3's mechanics play out the same way then the new equivalent of a Vampire Gaze will sell steadily. For a trader understanding the game is a key element in understanding the economy. And both play into each other, if you see a market spike in an item with an unusual bonus type there may be more to that bonus type than appears at first glance.

Value will be shaped by end game activity as follows:

- Magic find runs. Lots of people will do this with their high level characters and will see magic find and gold find as investments. It will certainly be worth spending a little to add a few percentage to either find percentage early on if the market is vibrant.

- Gold farming.

- Leveling. It's possible D3 will be a lot easier to hit max level in than D2 but it's unlikely to be as easy as WoW. We do know the level cap is lower but that doesn't necessarily mean the last ten levels won't take ages.

- PvP. PvP in this sort of game is only really viable with the best gear. If you're serious about trading you should learn the pvp game just so that you can understand the market. Every serious pvper will obtain full best in slot if possible.

- Arena. A specialised type of pvp. Blizzard has the opportunity to make insane money if they can make this successful. You see, it's all very well having a game where people can sell each other stuff but if that game were also a Magic: The Gathering type game where people are passionate about tournament play to the point they will spend thousands the two elements synergise extremely well.

- Elite encounters. While many boss level encounters will be fairly random it's likely that players will farm certain bosses in preference to others. And if there's an advantage doing that boss with a certain item people will maximise that. So if most people like to run King Leoric, and say he does a lot of cold damage, people might place a premium on cold resist gear. Wyatt Cheng explains boss encounters here.

- Crafting. Crafting sounds like a huge resource sink and what's more produces variable loot. This makes it a kind of lottery - there might be thousands of people in your region crafting rare rings but you could still get THAT RING, the one with perfect bonuses and the right bonus types. Top end crafted stuff will always sell for a decent amount as long as the game stays popular. And some people will buy up cheap junk by the tons just to level their artisans and obtain crafting mats.

- Crafting mats. Some crafting mats apparently are rare drop.

- Gems and Runestones. These will always sell as they can be converted to higher types. There may even be arbitrage opportunities where you can buy 3 gems, cube them, and put the higher one back on the market for three times what you paid. It takes 19,600 of the lowest level gem to make one of the highest level.

- Achievements. People will want to complete their list of achievements so items may sell based on their usefulness to this. For example if there is some jump you have to do people might buy items with a stat that boosts jumping distance. This will be a short term market as most people will buy the item, do the achievement, then sell it.

- Followers. Your persistent followers can wear gear. In D2 there was a trick where you burned down a boss like Mephisto with your 500% magic find then let your merc with his 200% magic find get the final blow for a 700% magic find kill. People will want to buy decent stuff for their followers.

- Other end game pursuits. Blizzard have been muttering about awesome end game activities. The gear needed for these will certainly sell.

What won't factor

- Ladder resets. There will be none.

- Hardcore mode. May as well call it "I went through all this and I didn't even get paid" mode. I'm put off from hardcore mode although I loved it in D2. What if I find an item that would be worth £10,000 but I found it in hardcore mode? Too annoying. I think eventually Blizzard may cave in and allow real money trading in hardcore mode but for now it's the last haven of the amateur.

Playing the market

First this market won't be like any previous markets and will more ressemble real world markets. In WoW if you kept track of the market fluctuations and downloaded some useful addons you were playing a different game to most people and what's more you might be one out of only a handful of people on your server playing it. In D3 there will be tons of people playing the market, there's quite possibly going to be phone apps so people who can't log in to the game while at work or traveling will still be playing the market. Just as in real life it's quite hard to play the commodities market because people really do know where surplus value appears so too will it be hard to play the D3 market because so many very smart people will be competing against you.

That said experience of playing the market in games like WoW and Eve will certainly be useful. One of the most expert players of the WoW market is Marcko, owner of Just My Two Copper. He's already put up his D3 gold site. I think he'll make a lot of money just selling gold guides and from internet advertising revenue, never mind his actual in-game profits.

He's pretty good even if he has been outed for being somewhat unethical once or twice. He's worth a look imo although I wouldn't recommend buying his gold guide or anyone's. You can get just about all of the information for free from websites including Marcko's blog and forums. I guess think of the guide you pay for as being at best an executive summary. If you don't want to read around you can get a short version for money.

Regarding the market let me explain some broad MMO economic principles.

- buyers have an amount of interest in buying that peaks around their most intensive playtimes. Since most buyers will be people with jobs this means that peak buying interest will occur in the evenings, on weekends, on holidays and at times when people usually take annual leave. A buyer who plays a lot, say taking two weeks off at Christmas is very likely to buy during that period because he or she becomes so immersed in the game (and because of a cultural tradition of spoiling ourselves at Christmas).

- sellers have a different schedule, it's more or less constant. Sure some sellers will be at school or at college but even there people will sell from their phone because sellers tend to see themselves as players of the market.

- information about the market has tended to be poor which means people have no clue what to sell things for. This will remain true for a lot of players in D3. They generally will look at the auction house to see what to price stuff for. This means if an item spikes low most suppliers will continue to undercut by a small margin.

- value will degrade very quickly early on. However a lot of people won't know this and will think their Windforce is worth £2,000 just because the first one sold for that.

- casual players will not cross-reference the gold AH with the real money AH creating opportunities for arbitrage both ways. You may be able to buy something for £5, sell it for £10 worth of gold, use the gold to buy an item on the gold auction house that sells for £15.

- learning the auction house and keeping detailed records will be extremely useful. It's possible third party apps may emerge to help track ah details but be very careful about downloading anything that isn't official. One of the best ways for other people to make gold is to steal yours.

- new opportunities emerge every time the game is changed. If the devs says the next patch will improve fire damage then buy up fire damage items to sell on patch day.

- people will manipulate the markets, possibly to the extent of spending thousands of pounds. The basic example of this is the monopoly. Say I buy all the Lemon Fist Axes available then list one or two at a very high price. Ideally I supplement it with a post on the forums about my amazing Lemon Barb. As demand grows I release my stock, ideally at the high point of demand and the low point of supply. A word of caution - this is not a beginner tactic. I've tried it a few times in Eve without any real success, you need to really know the market. What tended to happen to me is I would buy something that didn't have many sell orders and people would just replace it at the same price. In a market like this there will be a lot of stockpiling, a monopolist's day can easily be ruined by someone spotting the price rising and having a big stockpile of the commodity.

- undercutting. The 1p undercut (1 cent, 0.01 isk, 1 copper) is the default method of selling for most players. Max revenue for least amount of thought. You can manipulate this by listing low then buying out the people who undercut you. I suspect though that in D3 if you try that you will just see your item sell immediately. Deep undercutting, a strategy Gevlon popularised for WoW, is unlikely to work well. He used it to intimidate other crafters out of the glyph market. He was dealing with one or two suppliers. In a game with thousands of suppliers, many of them very sophisticated you won't be able to do this so easily.

- information is power. Revealing specifics, or even a general post like this one, reduces profit.

For all that if anyone makes a fortune in Diablo 3 it will be those playing the market. The game is effectively creating a new unregulated stock market, it is going to be a financial Wild West.


  1. I really like your economy posts :)

    What do you think the impact will be of how darn large this AH is going to be? It could be a scale of magnitude larger than EVE's for example.

  2. I think it will be far far larger than anything ever seen in video gaming with the possible exception of Magic The Gathering.

    It will be to Eve as WoW's subscriber numbers were to EQ's subscriber numbers.

    We very invested people may argue here and there about gaming purity but imagine Joe Normal sitting at home with Mrs Normal, he's playing Diablo 3 and she's watching Big Brother. Suddenly he says "booya, just got a bow worth £300, want to go to Florida rather than Margate?"

    How long do you think Mrs Normal is going to sit watching TV while her husband plays D3?

    The key to it all is how fun the rest of the game is. If say D3 Arena goes all Korea with screaming teenage girls cheering on their heroes in tournaments that feeds the value. And at some point I think it's very likely hardcore will go to real money AH and we'll see arena deathmatches between two players in £1000 outfits (one certain to be permanently lost).

    Having said all that most people won't make much money. It's like buying £1 scratchcards though it's fun to think you could win something.

  3. Edit: I've realised Magic wasn't a video game, I guess the term I wanted was some polite way of saying geek games ie games that aren't poker and football but are in the video game/D&D tradition.

  4. Good summary. I hope Blizzard allows selling items for $ in hardcore mode, but disallows buying them. That should be possible and makes sense, I think.

  5. Do you mean an item found in hardcore mode could be listed on the softcore AH?

    That's a good idea and an ingenious solution.

  6. Then add in a slightly higher chance for item drop in hardcore mode and you have a recipe for enticing people to try their luck.