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Scarcity and Value in Diablo 3
by Simon Ludgate on 08/09/11 01:00:00 am   Expert Blogs   Featured Blogs

The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.


So I've been debating the Diablo 3 RMT issue for the past week with a number of people, and a particular chain of emails got me thinking. In particular, when I argued that Blizzard is losing out on a lot of money by not selling items directly, the reply I got set me to thinking.

"Diablo's random item mechanic means that some items are literally one-in-a-million. Spawning and selling such items directly would undermine their scarcity and therefore their value, not to mention the very foundation of Diablo's roguelike legacy. It seems cleaner to keep all the loot commerce peer-to-peer."

Diablo's legacy? I remember playing Diablo 1 (on a LAN, mind you) and finding people to trade with at the local computer cafe. We all traded duplicated items using that bug where you pick up 1 gold off the item bar when grabbing the item. The fact that the items were duplicated did not undermine their value; someone else still had something we wanted. People hung out for hours there sometimes if they knew someone else had a great item they wanted. It was fun! And there was no scarcity at all!

Scarcity or Power: Where's the Value?

I think the problem is that an item's power and an items scarcity are directly related according to the game's core design. If the most powerful items in the game were incredibly abundant - if you could go to the merchant in town and buy the best of everything for 1g each - then all that one-in-a-million rare loot wouldn't be worth anything. In other words, people value powerful items, not scarce items. A sword of epic fail -10 might be just as scarce as a sword of epic win +10, but I doubt that the former would sell for much on the AH. The scarcity is incidental. Stressing the scarcity means missing the actual source of value; and missing the opportunity to monetize that value.

I'm not suggesting Blizzard floods the AH with stuff; that's just as bad as putting the most powerful item up for sale for 1g on the first merchant. But it seems perfectly sensible for Blizzard to seed the AH with some extra stuff, for the same reason that merchants in Diablo 2 sold rare goods when you didn't find what you wanted while adventuring. Blizzard could even use this to produce some truly unique items: create a one-of-a-kind item and put it on the AH; let the global market decide its worth.

Even that might be kind of tricky to do. How many items do you create for the AH? Which ones? Which types? How often are they refreshed? If nothing else, leaving loot commerce to users certainly is cleaner. And cleanliness is a big issue brought up by the people with whom I've discussed the issue.

Lessons from F2P.

Is there a way for Blizzard to make more money than just running an AH and charging fees? Although I was very tongue-in-cheek in my humorous article about Blizzard's "F2P MMORPG: Diablo Online!" I do think Blizzard should take some lessons from the virtual goods that have been very successful in F2P games.

Many F2P MMOs make a lot of their money by selling "treasure boxes" which have a small chance of having a valuable item. These items aren't valuable because they're scarce; they're valuable because they're powerful. Players buy lots and lots of boxes trying to get that item. Some players buy even more boxes to get extras of that item to sell on the in-game AH for gold.

That's a big, key point: that the items can be re-sold. It extends the economic reach beyond purchase-for-yourself. It's a topic I cover in detail in the forthcoming third part of my F-Words of MMORPGs, so I'll just brush over it for now and say "it's a good thing."

The F2P treasure boxes are basically the same mechanic as killing a Diablo boss monster: you've got some random chance of getting potentially good items. That's the one-in-a-million value: it's not that the item is scarce, it's that it's good. The only difference is that the F2P boxes cost money and the Diablo boss monsters cost time.

And that's just it, isn't it? That's the whole essence of RMT: finding a way to spend money instead of spending time. Everything about RMT boils down to that. Every time there's a game that makes you spend time, some people, somewhere, will try to spend less time by spending more money. Period.

If Blizzard is serious about countering RMT, they should simply look at everything you can get in Diablo 3 by spending time and offering that for cash: random loot and experience points, mainly. Note that Blizzard's RMT AH hasn't addressed the desire to buy power-leveling services. Oho! So maybe Blizzard should start selling potions that give you XP too!

Keeping it Clean!

The issue of cleanliness deserves some special treatment though. I think there's some deep-rooted feeling that buying something with real money from another player who "earned" that item by "properly" playing the game is more honest than buying it from the maker of the game who just spawned it and put it in the store. But, either way, the maker of the game just spawned it. It's just that, in one case, the maker gave it away to that other guy for free and, in the other, put it in a store. Is it really any different for Blizzard to spawn an item and put it in the real-money AH than it is for Blizzard to spawn an item and put it on an in-game vendor?

Maybe there's this sense that if Blizzard sold items on the RMAH the game would become flooded with over-powered items and people with tons of cash will pwn you with their uber gear. Of course, even without Blizzard spawning items, people with tons of cash will pwn you with their uber gear. That's just inevitable. But then again, Blizzard has assured players that they can safely play this online-only game single player without disruption from rich pwners.

I think, though, that Blizzard has already recognized that there's a significant group of people who don't want their experience of the game to be tainted by real-money transactions. There's people who think that the game should be "pure" from monetary influence. That's why Blizzard said that the Hardcore mode won't have the RMAH, just the in-game-gold AH.

So if the purists have hardcore mode, who's the regular server for? The people who DO want their game riddled with monetary influence, obviously. And there's only two categories of those kinds of people: the people who want to buy stuff and the people who want to sell stuff. And herein lies the real kink in the whole cleanliness argument: the hardcore mode already "cleans up" the RMT aspect of the AH. Which means the softcore mode can get as dirty (and monetized) as you want.

Cater to Your Clients (Hint: They're the People Spending Money!)

I think, ultimately, the solution to this problem lies in the very motivation that spawned it: the desire to eliminate "illegal" RMT. By "legalizing" RMT, Blizzard is acknowledging that people want loot and they want to pay cash for it. But by refusing to sell the loot themselves and insisting on user-to-user transactions, Blizzard is trying to humanize the sellers. It's almost like they're trying to make these supposedly "scarce" items more valuable by emphasising that some real person out there is giving it up.

They're totally missing the point. Do anyone really think that the people who buy gold from chinese gold farmers feel bad that the poor chinese gold farmer had to give up all this wonderful gold? Is anyone under the illusion that the main clients of Blizzard's RMAH care whether those items came from an honest, hard-working American player or a dingy Asian slaving away in a computer-gaming sweatshop? Would they even hesitate before clicking "buy" if that item was spawned by Blizzard instead of posted by a player?

The only people who seem to be riled up at the idea of Blizzard spawning and selling loot are either the people who don't want rich people spoiling the game by buying tons of crap (and there's the hardcore mode for that) and the "honest" loot sellers (and, frankly, I don't think Blizzard has any reason to care). In other words, there's no good reason for Blizzard not to sell spawned gear on the RMAH.

WTB: Virtual Economy, PST

Since the main topic of my expertise is Virtual Economic Theory, I feel it necessary to end on this last note. There's two closely related topics here: VET deals with closed in-game economies, such as (ostensibly) WoW's gold-based economy. VET is primarily a game-design topic, which asks how games should be designed to stimulate economic activity among players as a fun aspect of playing the game.

Virtual Goods Economics is another issue entirely. VGE is primarily a business topic, which asks how best to monetize users by selling them value-added content. Unlike VET, VGE is an open economy; that is, it crosses the boundaries between in-game and real-life.

Technically, Diablo 3 with no RMAH could be a topic for VET, though arguably an uninteresting one. There's no real meaningful economic activity going on: players are just trading loot and using money to grease the transaction.

Diablo 3 with an RMAH suddenly becomes a VGE issue, however, because the RMAH is a value-added service provided by Blizzard. From a VGE perspective, the question is clear: how can Blizzard make the most money with value-added products and services in Diablo 3?

The answer to that question I leave unto you. Do you think Blizzard would make more money directly spawning items and selling them than they will with a strictly user-supplied RMAH?

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Misha Icaev
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Simon, do you think that life-span of Diablo would be the same in both cases?

Simon Ludgate
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Does lifespan matter? In fact, doesn't a SHORTER lifespan benefit Blizzard more, because it means they can release another sequel sooner?

I'm playing Devil's Advocate here, I'm trying to get people to look at things from a financial / publisher point of view. Remember that Blizzard is run by a person who has fiercely stated that his goal isn't to make fun games, but to make money. It's a curious catch-22, but it might just be the case that LESS fun games are MORE profitable, especially if it means making more money on microtransactions and selling more frequent sequels due to short game lifespan.

It's a scary thought, but it's an important one to think about.

v c
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The actual quote from Kotick was, "The goal that I had in bringing a lot of the packaged goods folks into Activision about 10 years ago was to take all the fun out of making video games."

He's not talking about taking the fun out of games. He was joking about adding adult supervision to the process of game making. CPG (consumer packaged goods) people are known for being focused on efficiency and ROI.

It's a funny joke, if you understand the stereotype of undisciplined game devs in their flip-flops and beards and the stereotype of starched shirt CPG culture. Given his audience (institutional investors), it was a fair joke to make. The problem occurred when that joke was misinterpreted by the fan press.

Bobby later explained:

"It was a line that I used for investors," he said. "It was mainly because I wanted [to explain to our shareholders that] we were responsible in the way that we made our games and that it wasn't some Wild West, lack-of-process exercise and that we really did give some thought to the capital being used to provide a return to shareholders."

Misha Icaev
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1st consider all those D2 and WoW clones.

2nd consider how Blizzard attacked f2p market with WoW to remove any threat.

Monopoly (long-term-domination) is obviously much better plan in terms of profit. So Blizzard either invest in MORE fun game that will be their cash-cow for next 5-6 years or uses some off-line methods (kidnapping, sabotage, blackmail) against their rivals directly.

v c
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Nice points!

Some ideas in response ...

You're totally right that item power is a determinant of value. In some systems, it's the primary determinant. But it's rarely (perhaps never?) the only determinant. In all economies and across all types of goods -- with few exceptions -- purchasers are generally willing to spend more for the last units of something than they are to pay for the first units. Gas prices increase as oil reserves dwindle. Gold isn't inherently valuable -- it's gold's scarcity that makes it so. Broadband spectrum licenses increase in value when there's relatively little left to go around. And in the realm of consumer goods it's brand and the necessary artificial scarcity that comes with it that juices Prada, Gucci, Fendi, and Ferragamo profits. There's prestige in owning the only Ferrari California on the block, despite the fact that there are plenty of other, less expensive cars that outperform it. And there's only one Mona Lisa.

Closer to games -- Everquest players will remember the value attached to the fungi tunic, to the moss covered twig, and to countless other items that were incredibly scarce (and yes, also powerful). Some of the items assigned high value by the trade community were purely cosmetic and were the virtual economy equivalent of the Fendi bag.

Spectral Tigers are a very rare WoW mount. There are plenty of WoW mounts available for nearly free that are just as fast as the Spectral Tiger. And yet Spectral Tigers still sell for hundreds of dollars on eBay* and have previously sold for as high as $2,500.

So while power is often a direct driver of value, scarcity can't be ignored.

Cleanliness is often a matter of superstition or tradition in some cultures. It's why shellfish and pork are verboten foods -- they started out as difficult foods that could make you sick. Today these foods are simply taboo for some cultures, despite logical arguments about the relative safety of wild lobster vs. farmed chicken.

Similarly, games have traditionally made RMT a taboo and so it'll take some time before the logic of your position is able to overcome the cultural baggage around real money trading. It's just something that companies and players are going to have to warm up to, generation by generation and step by step. Like elected officials, game companies have to consider their stakeholders and can't be so progressive that they fail to win the repeat support of their loyal customer base.

This doesn't change the business question that you pose (i.e., how does a company make profit?) but it does pivot it on an interesting dimension. A company that undermines fan support through overly progressive (some would say "skeevy") policies is undermining its long-term business potential. That's why Johnson & Johnson famously yanked all Tylenol off the shelves when a single tampered package was discovered. It wasn't the profit maximizing decision to do that (in fact, it cost the company a ton of money, initially), but the decision won it support and trust that paid off many times over in subsequent years.

But now we've veered into matters of brand value and how that has an effect on game economies. It's an important area for consideration, especially because some of the decisions that seem logical from a purely economic standpoint might start to impinge on brand equity and/or consumer trust.


Simon Ludgate
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"In all economies and across all types of goods -- with few exceptions -- purchasers are generally willing to spend more for the last units of something than they are to pay for the first units."

That's only true after the the good can no longer be produced. As it happens, virtual goods have infinite production capacity, so they can never be scarce: there will never be a time when a player kills a boss in Diablo 3 and nothing drops and a pop-up says "sorry, we ran out of loot."

The Spectral Tiger argument is a strong argument on my side of this, because Blizzard IS selling the Spectral Tiger through the sale of WoW TCG booster packs. In this case, the Spectral Tiger mount is EXACTLY like the F2P treasure box mounts: difficult to obtain because you have to buy a lot of packs/boxes, but not scarce because there is an infinite number of packs/boxes that will be produced to meet demand. (I'm assuming here that an infinite number of TCG booster packs would be printed if demand were infinitely high.)

But they're not doing the same with Diablo 3. Diablo 3 is the equivalent of giving away TCG booster packs for free through some sort of sadistic skinner-box method that rewards players a pack for an hour of pushing a bar. I'd argue that Blizzard would be better of selling TCG booster packs... and likewise selling Diablo 3 loot.

Issues of superstition and culture might be relevant, but if Blizzard actually cared about undermining its position by through skeevy business policies they wouldn't have made Diablo 3 online-only. Blizzard has already slaughtered fan support, so they may as well grab as much cash as possible now.

v c
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"That's only true after the the good can no longer be produced."

It's also true when the good in question can still be produced and there's credibility behind the producer's desire to limit the good. OPEC effectively controls oil prices by simply agreeing to produce less oil. They've got massive reserves, but slowly release a drip of those reserves in order to keep prices high.

Similarly, motor vehicle manufacturers regularly do limited production runs. Stamps are done in limited production runs (because in stamp collecting, it's the rarity of a stamp that determines its value). Artists do limited production prints.

By allowing the randomness of the D3 loot system to govern production, Blizzard is -- similar to OPEC or the US Post Office -- credibly signaling that players' observations of scarcity can be trusted. There will be no augmented or on-demand production of any Diablo items. This allows item value to be a matter of power *and* scarcity, right?

Luke Shorts
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"If Blizzard actually cared about undermining its position by through skeevy business policies they wouldn't have made Diablo 3 online-only. Blizzard has already slaughtered fan support, so they may as well grab as much cash as possible now."

You can also argue the opposite: since they made - and they knew it - a wildly unpopular move with online only, they have all the interest in gathering positive feedback from the players that DO end up buying the game. Making stupid mistakes with the most highlighted feature, the auction house, is the last thing they should do (in fact, looking at a sample of reactions on various forums, the always online feature is condemned by pretty much everybody, while the reactions to the auction house are much more nuanced).

There is one further consideration that occurred to me while mulling over your idea of selling F2P-like "treasure boxes" in the Diablo 3 setting, which relates to gambling. I have played a number of F2P games (or more precisely, F2P games with item malls) so I have seen my share of treasure boxes/raffles/promos and I recall distinctly that a couple of times I have seen players asking whether such practices were compliant with the laws related to gambling and/or raffles in (insert your favourite US state here). While the legal expertise of the random forum dweller and of the average community representative tasked to answer him is surely not to be trusted, the usual defense hinged on the fact that the points used to participate in the promo could not be converted back into money. However, since D3 offers an "official" venue to convert virtual goods back into real currency, there's a chance that Blizzard thought it'd be safer under a legal point of view not to meddle directly with the auction house economy. Just a thought.

Luke Shorts
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"the hardcore mode already "cleans up" the RMT aspect of the AH. Which means the softcore mode can get as dirty (and monetized) as you want"

I think Blizzard is trying to "keep it clean" in a more fundamental sense: by entering in the market with their unrestricted item spawning power, they can potentially create huge distortions. This means they will be blamed for pretty much anything "bad" (or perceived as that) that happens. As a consequence of that, they'll need extra PR resources and/or allocate extra time for the sales guys to sift through usage metrics in order to place their products in a sensible way. A purely player driven auction house avoids these costs and is nevertheless profitable due to the cut they get on transactions. The move could also be seen from the users' perspective as "keeping fair" the "game within the game" represented by the auction house.

As a side note, I do not understand the discussion about scarcity in the beginning; "scarcity" is a concept that can be used to understand price dynamics in a world where resources are limited, such as the real world, and I guess it can be used to understand the price dynamics of a virtual economy insofar as there are some artificial constraints on virtual resources posed by the developers; but when you are discussing the design of those very constraints, saying that scarcity does not determine value is a bit of a circular argument. Furthermore, scarcity is a relative concept: in your "one in a million drop bad sword, epic sword for 1g at each town merchant" example, I am pretty sure that as long as there are at least two people in the world that want the bad sword (maybe they like the design? who knows), it will sell for more than 1g, thereby having a value higher than the most powerful item.

edit: I see v c above has already made some arguments roughly in the same direction while I was writing... well, the more the merrier :P

Ilya Belyy
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Another one of your insightful articles.

Yet there is one thing missing - the AH is anonymized. So Blizzard has no obstacle silently selling items directly, while keeping the pretense of cleanliness.

Guy Costantini
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The whole idea that you need to "earn your gear" loses meaning with public achievement tracking. Game content can be made difficult enough where regardless of gear your achievements will help you stand out. As more gamers age and lose time while gaining money, being able to buy in game items necessary for a "premium experience" will be the norm across the industry. Kind of pointless to fight it.

John Bates
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I really agree with Guy that this is the wave of the future. It's already well underway.

Clearly people love to trade. (If the Rational Optimist is right it could be a truly defining characteristic). And, while there is a purity argument, lots of gamers these days have more time than money, as Guy points out.

I work with a number of companies, but Entropia Universe stands out in this context. 1) There is a deep economy, Entropia sell only the very most basic items. The more powerful, rare and desirable items are either looted or crafted. That means there is a market for all the basic materials and blueprints and people are very involved in trade. It allows for a lot of niches people can fill. 2) The market sets the prices, based on looks, power, rarity and a combination of all of them. Because players can participate it is way more fun! And, if you make a smart choice and get an item that appreciates you can directly benefit. Entropia takes a fee for using the auction, but player to player trades are completely free and are a lot of goods move this way. 3) In Entropia Universe you have hundreds of attributes that level up as you do things. You can buy 'skill chips', which works, but lots of people believe that the proportion of skills is also important, so 'chipping' your skills is potentially not as solid as actually earning them, but, there is always the actual experience the 'driver' of the avatar has, which definitely plays a part in the participant's success 4) MindArk (creators of Entropia Unverse) have a team of economists and a lot of rules about when they put land into the auction and how the overall economy runs. They hold several Guinness World Records for the most valuable virtual items ever sold, like the Crystal Palace Space Station. They ambitiously run it like a small country and they want the playing field to be essentially dependable and level. Not static, but overall fair. There is a lot to learn from their years of experience and I'm thrilled that Diablo III is doing this. I really hope it succeeds, I think it will, pretty wildly. Subscriptions definitely keep an artificial floor and ceiling on what is possible from a business perspective, too.

Clearly the other aspect of bringing the auction house in-house is that you can actually provide customer support and make sure your players are not being ripped off. I applaud Blizzard for recognizing that people love to trade and for giving it an outlet instead of fighting against it.

Chris Zehr
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I think that scarcity can actually add value to an item. The social aspect of the game adds value to prestige and player ego. If there are two swords with identical stats, but one has a 1% drop rate while the other has a .001% drop rate, the latter will be valued more than the former even if scarcity is their only difference.

There are examples of virtual items that have no practical value in the game, but they are extremely scarce, so their price skyrockets.

The problem players have with the VGE version of the game, is that if Blizzard starts directly selling items through the AH, the scarcity of an item no longer affects its value. I agree with you because in the VGE, items in the game are linked to real world economic power, so adding value to an item through scarcity doesn't make a lot of sense (unless Blizzard wants to run Diablo3 like a cartel).