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Comment by vibrunazo | Hacker News Reader

I think the real money auction house in Diablo 3 will work tremendously well. So well that it will change MMOs. Blizzard will make most of Diablo's revenue from it, and competitors will follow. Blizzard will embrace this idea and will apply it to future games, maybe Titan will be free to play with a similar auction house. Which will also move a bit further away from the desktop.

The player auctions are extremely scalable. It puts two huge revenue streams together. It's the sum of consumable virtual items + selling rare exclusive items. I'm not sure Blizzard realizes this, but this will be huge. And I'm already betting my money on it.

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I'm highly sceptical.

Ignoring the auction house for a second, Blizzard makes money once though a large up front sale, and then has no monthly fee. The game is played entirely on online servers with no single player however.

That means Blizzard makes the most money from a customer who plays though the game once (or not at all) and then doesn't play again.

This philosophy seems to be present throughout the games design which, as far as I can tell, is tailored for minimum re-playability and maximising the fun you get on your first play through. Even the auction house itself helps this design goal when matched against their other design decisions.

This kind of design isn't conducive to long term success with the auction house.

I believe that the auction house is primarily designed to kill 3rd party item sales, which it absolutely does, albeit in a way I find personally distasteful. While I'm sure it will be a non-trivial revenue stream, I don't think it will be anything like what WoW subscriptions were.

Disclosure: I work for a company making a competing action RPG.

I am very interested in how this will all play out.

Personally, I think the auction house real money economy is going to be huge. If the trading that went on in Diablo 2 is any indicator:

- people in low wage countries will easily be able to live of the auction house without necessarily having to work for a gold farm.

- hardcore gamers are likely to be dissatisfied with high level content so easily available, but then again, they may take to turning a profit on hard to get stuff.

- casual gamers with jobs will get the maximum amount of fun out of their hour of gaming a day. For a small price at least.

These are incentives for 3 different demographics, 2 of which are highly desirable for Blizzard.

The key difference between the subscription and the freemium model is the scalability with flexibility. A subscription is a fixed value the costumer pays for. If you set it to low, you're missing the opportunity to make more money from users willing to pay more. If you set it to high, you run the risk of users who would still be profitable not buy it at all.

Then you could try different tiers of subscriptions. But that only bandages the problems. Then came consumable virtual items, which automatically gives you infinite tiers of pay users. You can play the game for $15 a month, you can play it for free, or you can pay $3000 a month if you're willing to. And according to Zynga's report, many does, and that's where they get most of their money from.

That flexible scalability is why freemium is replacing subscriptions. And that's why I think the auction house will take over subscription. Because not only it's a freemium model, but it's a genius freemium model. It takes the best of the two main types of freemium (consumable and permanent virtual items) and put them together. It doesn't put a limit on how much a user can pay you. And it's also very attractive to users.

I'm not saying that auction houses can't work in general, I'm saying that it will not work in Diablo 3 due to it's design.

I'm well aware of the benefits of free-to-play, as I am a founder of a company making a free-to-play game!

knock knock

"Hello, it's the IRS."

What is this supposed to mean? Are you suggesting selling virtual items is illegal in some way? Perhaps you should tell Zynga and Valve about this.

I believe he means if you manage to make enough money with the auction house, the IRS will be curious if you're reporting this as income and paying taxes etc.

No he means that if you sell them, you have to pay the due taxes. Zynga and Valve supposedly pay their taxes. The difference is that in this case it's the individuals who make a profit and the IRS (or other tax agencies) would make such a "virtual goods for real money public marketplace" more complicated.

This is going to be interesting.

Anybody selling "virtual items" will have a cost basis of "0" if self created, so everything is "profit" in the IRS' eyes.

If Blizzard is collecting the payments they are obligated to track those transactions and report anybody that hits the minimum 1099 threshold.

If you're in CA and sell to somebody in CA will you have to pay the state board of equalization too for sales tax?

Very curious to see how this is all addressed.

Hardly '0'.

The game. The hardware to run the game. ISP cost. The fees.

It all adds up. Not to mention Blizzard will be implementing their own restrictions (AH and $ limits) to choke and put up barriers for those that really want to make this a full time job.

Is it too much different from how ebay deals with it?

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