Tobold's Blog
Thursday, February 23, 2012
Diablo 3's 83% regressive tax system

Blizzard is still fiddling with their Diablo 3 real-money auction house, and recently introduced some major changes. And as Azuriel remarks on his blog, these changes amount to Blizzard taking an 83% cut from any auction posted a minimum price. The minimum amount you can sell anything for is $1.50, and while you don't pay anything if that sell fails, you'll pay $1.25 if the sale succeeds.

For me that is just further proof that the only one that will get rich from the real-money auction house in Diablo 3 is Blizzard. If you want to "flip" something, buying low and selling high, your sales price needs to be at least $2.75 for an item you bought at minimum price. Selling your average loot drop for real money will either fail because nobody wants to pay $1.50 for a minor item, or end you with just 25 cents. As people can only have 10 simultaneous auctions, they will rather sell only expensive stuff and not even bother with the cheap things. And the buyers will ask themselves why it is called a "micro-transaction" if most things on the AH cost $10 or more.

This is a stupid regressive tax system, where cheap stuff is taxed at 83%, and expensive stuff is taxed at a much lower rate. The real-money AH will resemble Tiffany's more than Walmart, with relative low numbers of items posted at relatively high prices. For once Blizzard should have copied CCP and hire an economist before making changes like this.
No, Blizzard is doing right. The point is exactly for the system to NOT work as a normal economy, or the "casual players" will end up broke, while those who can add 1 + 1 get rich, at least in game items.

The point is that the RMAH is a premium service where Arthasdklol can buy himself something "├╝berl33t" for high price, while the minor items will be farmed by everyone, guaranteeing that Arthasdklol won't be behind just because he can't find his skillbook and just autoattack.

The tradeskill materials and such will simply not be available on the RMAH and only in limited supply on the gold AH, making it very hard to make money/gold without actually farming it yourself.
I've been saying that Blizzard's cut was going to be so large that these fantasies people had of making actual money off the system were nonsense.

I think that's perfectly intentional. Blizzard is co-opting the gold farmers. They are giving normal players the ability to easily make a bit of change when they get lucky and something actually valuable drops, while making sure that Gevlon or gold farmers can't actually extract any real money from the system.

The value of any of even the rarest item will quickly collapse when the 1000 versions of it that dropped today will go straight to the cash AH. It will drop until the price is barely enough to make any money off of. They are making sure there is no money to be made in farming the item, since the time put into to acquire an item of any value will make it a losing proposition even to Chinese gold farmers (and the plethora of common items will be worthless on the cash AH), and no money to be made as a middleman, since the cash AH performs that function and also lets players know immediately what the item is selling for, thereby reducing the chances of successful arbitrage.

If you view it as a direct attack on the RMT trade, the move makes a ton of sense. The previously required deposit of non-refundable cash would scare regular players away and allow RMT pros to manipulate the market. Changing that and upping the fees simultaneously encourages regular players to sell on the AH by eliminating the downside of potentially losing money, and substantially reducing the profit margin for those who are looking to make a living off the system.
Basically look at this as an experiment in drug legalization.

Blizzard knows the RMT trade will happen. They can't stop it unless they strip the player of any freedom to transfer items or money between them. Instead of trying to police it, they co-opt the RMT trade and make sure you can get secure, convenient RMT through them.

I don't think they are looking to make a mint off of this, at least not by Blizzard standards. They are looking to put Pablo Escobar out of business by eliminating his niche in the economy.
How does the RMAH actually work?

Would it work as follows: when the buyer pays with credit card then Blizzard ensures with their system that the seller gets his 17% cut of the sale price deposited on their bank account (or worse on a their Blizzard credit account so they can only buy stuff from RMAH ..whahha)?

Anyways, offering such services cost money. Could it be that such a transaction flow from buyer to seller costs something around $1.25 you mention (with margin)?

Anyways better "tax" systems can be thought up. However as Gevlon suggest this would largely be driven by what Blizzard wants to achieve with it.. $$PROFITS$$, Arthasdkol can by his uberl33t, extended gamefeatures, big experiment for new earningsmodel... etc.
Daeity over at Digital Castration talked about this last week I think. He laid out a logical explanation as to why Blizzard is doing it and how they plan to make money off of it.

The one point I agree with is that whatever Blizzard decides on how to do it, they are doing it because they think it will maximism profits for them. They don't care about M&S or anything other than profits. And we shouldn't expect them to care about anything other than profits.
It's a somewhat alarmist post title since it's only 83% if you're silly enough to sell inexpensive stuff.

Don't forget that there's a gold ah too. Cheap stuff will be traded for gold which can be sold for cash.
I would've thought they'd use a proprietary currency for the ah that you could cash out for real dollars at a different scale.

This method would allow Blizzard more exacting control without being such obvious money grabbers :)
So... play the AH using gold and then sell your gold on the RMAH to turn it into cash... Or use your gold to buy an underprice uber item on the gold AH and relist it on the RMAH.

Because of the blizzard cut low worth items will only be on the gold AH, but that doesn't change the fact that X amount of gold = Y amount of real money.
I agree with Gevlon for once.
They don't care about M&S or anything other than profits. And we shouldn't expect them to care about anything other than profits.

That's an interesting point of view Goodmongo. When I visit a restaurant I expect the waitress to pretend that she doesn't just want my money. And I expect the same thing from any company that wants me to buy their products.
As Nils pointed out, when you're dealing with customers, it helps you make more money if you don't constantly press the idea that it's about the money. Keep the accounting sheet out when you're selling steel by the ton, but put it away if you're offering services to individuals who aren't also in it for the money.
I suspect the RMAH will also end up seriously undercutting the trade in gold or w/e in the in game currency is.

As I understand diablo (which isn't really at all), the only thing the money is worth is to buy items. Unlike WoW, you won't be expected to grind cash to buy pots or enchants or whatever. The only use for gold is to buy items.

So what do you think will make more sense? Pay someone $5 for the item you want, or pay someone $10 bucks to grind the gold needed to buy the $5 item in gold? There's a reason you have to go to China to find someone willing to work at grinding gold, and even with all their bots and multi-boxing the poor bastards doing it make jack shit. In game gold is pretty damn worthless (I make 20000 gold a day playing the AH--- congratulations, you just made $12!!!), and it will be more so in a game where players don't need to buy it so they can enjoy the actual fun parts of the game. D3 seems to be an all-fun-all-the-time game.

Really, I think this RMAH is a brilliant way to just demolish the RMT trade. Every which way you look it is harnessing the labor of the people who are actually playing the game for fun to remove the ability to profitably run an RMT business. With a low ROI, there will be less incentive to hack accounts, and since the additional labor necessary to run a black market will mean it will be virtually impossible to compete on price against people who are happy to get $5 for 15 hours of labor, any stolen property will just end up at Blizzard's pawnshop, where they can easily track what is going on, and they have access to where the money is going!


I think they do have an economist on staff...
I must confess I was a little surprised by both how high the minimum price was, and by the flat Blizzard cut.

The 10 auction limit surprises me not at all, because I think the usefulness of the RMAH will be seriously undermined if it is flooded by every crappy blue that anyone finds.

But given the 10 auction limit, I wouldn't have thought it necessary to have the minimum sale price as high as $1.50.

The cost to Blizzard for each auction is going to be effectively zero. Obviously the genuine financial transactions of people adding money to their Balance or cashing out will have a cost, but moving money from one player's Balance to another is just another database transaction in a game full of them.

Really thought they'd try to capture the true "impulse buy" market, which I'm not sure exists at $1.50 the way it would at 10c or 20c.

And why not have a percentage cut? You know the first perfect Windforce or what-have-you will sell for an absolute fortune, why not shave off a percentage of that fortune?
By the way, one thing I forgot to add is that I agree completely with what "4c22cb52-3723-11e0-95c0-000bcdcb2996" said about the attack on the RMT industry. The "zero risk" RMAH model - no listing fee, nothing to pay unless you get a sale, so only outcomes possible are "nothing happens" or "you make $$$" - is crucial to this. There is no reason at all for average players not to try their hand at selling, and even if none of their stuff sells (and most of it won't), it will contribute to setting the prices at a level that really brutalizes the RMT industry, even with its current low overheads.
Well, let's not get ahead of ourselves patting Blizzard on the back.

As I point out in the linked post, the $1.25 transaction fee + $1.50 minimum prices a lot of items out of the market. Just because Blizzard wants to keep people from posting pages of junk, does not mean those level 18 blue items (or whatever) hold zero value. If someone brokers a "10 items for $10" deal, the buyer saves $5 and the seller makes $7.50 more. It seems Blizzard is making the gamble that the regressive nature of the system will discourage the gray markets on the lower end, but be safer for the bigger $100 Stones of Jordan-esque purchases on the upper end.

The real question mark, I suppose, is whether the $1.25 transaction fee applies to ALL auctions, or whether that is the fee Blizzard is planning on levying to those "cashing out" via Paypal. If you get 100% by keeping everything in the Bnet Wallet, well... maybe they are more clever than I thought.

With a low ROI, there will be less incentive to hack accounts, [...]

There will ALWAYS be an incentive to hack accounts. The "cost" of disseminating keyloggers is practically zero, even if they only get $0.25 an auction. Even worse, since nothing is BoP, a hacked account could be stripped bare of legendaries (or whatever), posted in the AH, bought by other hacked accounts, and essentially shipped around and sold for $50 and cashed out in hours. Nevermind whatever personal credit card info they can grab from the Bnet account itself.


I think they do have an economist on staff...

If they did, why is it Feburary 2012 when this is getting rolled out?
I'm not saying it will stop all RMT. Probably not. But it will keep it under control.
It's possible the pricing structure is being driven by financial transaction fees. Most credit card and debit card companies charge a minimum flat fee per transaction.

So Blizzard would need to charge the same minimum fee to avoid losing money on transactions. And since they were already charging a minimum fee, maybe they decided to charge a flat fee and push the market towards fewer, more expensive items, rather than many small transactions.
@Nils and Klepsacovic, don't get me wrong. the salesman, waitress and contact person will be all smiles and very friendly. heck a hooker makes you think you are the only person she cares about. That part of the sales job.

But the behind the scenes decisions are all about maximising profits and money. They won't make a decision that hurts their bottom line. Now it just so happens that many decisions that increase profits are very well received by customers. That's common sense. But if there has to be a choice companies will pick the profit one first.
This conversation is silly. It is quite obvious why this is being done. Look at what this encourages...

It makes it much more cost effective to salvage poorly modded magical items and sell the mats (or use them to craft quality rares, legendaries, sets, etc) than to sell them on the AH. This will eliminate the incentive to post anything to the AH that will not be either High-Quality items or Crafting mats.

Any exceptions to this are dealt with via the finite number of free Auctions that are given to you periodically.

This effectively reduces the number of auctions on the AH but increases the quality per auction. From a buyer's standpoint this is excellent. You dont have to sift through endless pages of items with crap mods to find something that will work for you.

In the end, you get an auction house with:

-High quality goods
-Crafting mats
-Minimal number of crap items you don't want anyway.

This is good for the seller as well, because it takes the buyers less time to find and buy their goods. Everyone wins.

If it was a flat tax or a progressive tax, you would be encouraging people to flood the market with garbage items and stifle, if not extinguish, incentives to develop and buy/sell high quality goods. Which just so happens to be the very goal of the market in a Diablo game.
I don't get why people think flooding the AH is a bad thing or something to be avoided.

WoW has floods and floods of items on their AHs, including crap white/grey items that have absolutely no use to them. But it doesn't even matter, because the search/filter system for its AH is done well enough so that floods of items isn't an issue at all.
Paypal charges 30-cents per transaction plus 3%, so the relatively high cost for low-value transactions is not based on costs.
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