Dealings With Diablo

Diablo 3 may have brought the Game industry closer to legalizing the sale of virtual items for real money. However, there is a lot that needs to be done and we can look at auction companies for inspiration.

I've been talking about Diablo 3 now for several posts and there is one part of it that I want to focus on today: the real money auction house system. Diablo 3 as many of you know, is one of the few online games where the developer has given their blessing over the use of selling in game items for money.

Now, let's talk turkey for a second. The sale of virtual items for real money has been going on for years without the developer's consent. I even knew someone who made a decent amount of money selling his Diablo 2 items back in the day. What Blizzard is doing is trying to legitimize the sale while making some extra money free of cost.

It's safe to say that other developers are looking at the RMAH to see how well it succeeds to add to their perspective titles. But even if we look past the design issues with Diablo 3 as a whole. There are problems with the auction house that comes from Blizzard treating it as a system for a game,instead of as a legitimate business service. There is money to be made from both sides, but the best way to examine the system is to look at actual auction companies and where Blizzard needs to improve.

The Purpose of the Auction House:

Auction companies around the world exist as a centralized source for auctioning off items. They allow prospective sellers to have access to crowds of interested buyers while performing the task of marketing the items and getting the word out.

Many auction companies work with the sellers to provide them with a good idea of what the item is worth, to make sure that neither the buyer nor the seller is getting skimped. Many auction companies have catalogues sent out to repeat buyers, and people can view upcoming auctions online. For high end clients, the auction company can get in touch with them to let them know about rare items coming up to get them to the auction.

What happens is that all three parties: the company, the sellers, and the buyers walk away happy. The sellers will hopefully make more money than they could have by selling it on their own. The buyers get access to rare items that they wouldn't have been able to otherwise. And the auction company receives a commission on each item sold, this could be anywhere from 10% to 30% or more.

Looking at Blizzard's system, while they provide an outlet for people to buy and sell, they're doing a horrible job of providing the other benefits of an auction company. As the system stands, Blizzard does not do anything to market perspective items to interested buyers. It could be as simple as having the system do a check and showing someone items that are pure upgrades to them on load. Another way would be setting up the system to send messages to people to let them know of a good item that has gone up on the market.

As it stands, besides the suggested items page, a buyer will have to use the convoluted search bar to try and find items that work. Blizzard also doesn't provide easy ways of checking relative pricing for items so that sellers have a good idea of what to price an item for.

Servicing the Buyers:

Another important function of an auction company is to protect the buyers from fraudulent or broken items. Objects that are brought to auction are usually inspected by the company to make sure of both their value and their condition.

Depending on the type of object, condition could be less important than rarity, but that will affect the price. Since we're talking about virtual goods, this role is less important as code doesn't decay. On the flip side, it does make things harder to sell as the more items that flood the market, the less rare they are. However, that has more to do with design and can vary between games and is not a part of the topic of this post.

Another function of the auction company is to provide accessibility for their auctions as they want everyone who can bid, to bid. Most auctions have phone bids available with high end auctions also provide internet bids. The point is that there should be nothing stopping someone who has money to bid on an item.

This is another major problem with Blizzard's system. As you can only buy or sell items through the game itself. There is no way for someone to access the system from just a computer or mobile phone. Considering all of the apps and protection systems Blizzard has set up for online and mobile phone access, not providing this for the auction house is a major oversight.

Protecting the Sellers:

While making sure that the buyers are getting good products is important, making sure that the sellers are also treated fairly is vital. Without sellers there are no buyers and vice-versa. As mentioned above, it's the job of the auction company to get the word out about upcoming auctions and to make the necessary connections. In real life, sellers also have to get the object to the auction, which for larger objects can cost a lot of money. This further raises the risk of taking an object to auction as it increases the cost for it.

If a seller walks away from an auction without selling their item, they are worse off for it because of shipping costs and the time of going to and from the auction. But there is another part of bad luck: if the item sells for less then what is expected.

If someone spent 30k on restoring a car and the car only brings 15k in auction, that's a 15k+ lost for the person. Of course the auction company wants every item to be sold, as that's how they make their money, but pissing off their sellers for short term profit, will hurt them down the road.

To protect their sellers, there is the option of putting a reserve on an item, which is usually done for rare or high valued items. What that means is that the auction company by contract, must meet the reserve on the item to sell it. If the item doesn't meet the reserve, the auction company must either cancel the auction, or pay the seller the remainder of the reserve out of pocket. There are plenty of cases where the seller can take the reserve off, to renew interest in the auction, but the use of the reserve in the first place is an important tool.

One of the problems with Diablo 3's auction system is how it's set up for the seller. What happens is that once the item goes up for sale, it remains up for 24 hours. During that time (unless the person has a buy-out amount set,) people can bid whatever they want on the item. Whoever has the top bid is the one that is listed at the price. What that has led to is people waiting for as long as they can to bid anything on the item, in hope that they can grab it in the last few minutes for next to nothing.

As it stands, all the advantages of the Diablo 3 auction system is for people who want to buy items and not for those that want to sell. If Blizzard wants to turn the auction house into a viable source of income for all three parties, they need to do more to help those who are selling items. If an item doesn't have any bids after X amount of time, then the item should just be sent back to the seller.

That way, people who are interested in bidding will bid sooner rather than later. Also the in game stash system is not conductive for people who are trying to use the auction system effectively. There is no way to sort items, or easily see if there are similar items on the market.

Currency Concerns:

Lastly, I want to touch on one area where I think Blizzard screwed up the most on with the auction house: the dual currency system. As it stands, you can either buy or sell items from two different auctions: either a gold auction or a real money auction. However, there are several problems with this set up.

First is that it splits up the buyers and sellers into two groups. Someone who is only interested in gold prices won't touch the RMAH and vice versa. The other problem is that it has caused an inflation of gold prices, due to the limits on the real money system. It's not uncommon for people to price good items in the tens of thousands for the gold system. While someone may price a great item on the RMAH for a starting bid of $3 and not get anything.

The problem is that by creating this inflation, it renders the original purpose of the auction system moot: to provide ways of players helping other players out with items while being compensated. This is where I'm going to suggest something controversial: remove the gold auction house and only have one currency.

Allow players to buy gold for cash, or cash out gold for money thus making the system only have one currency. By only having one system it will make it easier to sell items as the seller can see easily what their item is worth. It should also stabilize gold values as now: gold = money and vice versa. The problem with this system and one that I bet Blizzard thought of is that it means that they'll have to pay people money for gold. To that I have to say "too bad," if you want something to flourish and grow, you have to provide seed money.

Regardless of your opinion on the selling of virtual goods, we are moving from a traditional retail market to a digital one. The question of the ownership and selling of virtual items is only to get bigger. If developers want this to grow into another form of income, then they must treat it like a business and not like a system in a game. Or they'll have to return to the old days: making it illegal and having it still happen on the black market thanks to farm bots and gold farmers.

The point of argument with virtual items lies in the concept of ownership: who owns the virtual items in a game- the player or the company? Perhaps if the RMAH grows, the game industry will someday have an online version of the Gooding and Company Classic Car auction.

Josh Bycer

Reprinted from my blog: Mind's Eye