Thursday, August 2, 2012

how i made money off the diablo iii auction house (and you could have, too)

I started playing Diablo III the day of release at around 4:20AM. A month later, I transferred $1000 I had made from the game to my bank account. This wasn’t something I had planned out from the start: I played for a couple weeks with no intention of making any money, but hitting Act II of Inferno made a few things clear: the game just wasn’t much fun at that late stage; the only way to progress effectively was playing the Auction House rather than the game; and those high-end items I needed were much better when they were converted into actual real money for me to spend on something with more long-term value, like alcohol.

Reading various forums after the game came out, lots of people were lamenting how they couldn’t progress very easily playing the game to get better equipment. This is because, if better equipment is the only objective (and for Diablo games, it really is), it’s way faster and easier to get it from other people via the Auction House. This is just applied probability, really: only a few rare items would drop for any players playing the game the normal way, and only a fraction of those would be any good; however, there are so many people playing the game, that a lot of them are going to post anything they can’t use directly to the Auction House. This shifted the primary objective of Diablo from acquiring items to acquiring gold, since gold could be used to buy anything. What, then, is the best way to get a lot of gold? By playing amateur financier on the Auction House. Not many people become rich doing manual labor; instead, the big money is in paying people to do that, or even better, investing in those companies and doing absolutely nothing else. That is, using money to make money. So that’s what I did.

The first thing to understand about the Auction House is that it’s just not very well-designed. This makes profiting from it fairly simple. Decent items in the game could have six or more relevant attributes, yet searches on the AH are restricted to three. Some of those attributes are entirely irrelevant, and some attributes that can’t be searched for matter a lot. This is important, because it’s the key to exploiting knowledge asymmetry: ie, people selling the items don’t know their value, because it’s so incredibly difficult to price-check, but people browsing the AH do. The easiest way to make money is to buy these incredibly underpriced items and immediately sell them for more. For example, in the early days of the game, people didn’t realize how important the All Resistance stat was to armor. When word started getting out that it was absolutely required to progress through Inferno, the price started spiking… but not everyone knew. People would still sell good armor with AR for 10% of its true value. Within a few days, the opportunity to make money on lower-end AR gear dried up, as people upgraded from it into better gear, selling their old stuff, and less people posted it for a fraction of its worth.

I made my first significant money in the ring market. Rings in D3 are extremely valuable, because they have a huge combination of stats that can roll (leading to lots of rings that are bad, and a few that have synergistic stats that make them exponentially better), and because the demand is naturally twice as high, since everyone needs two of them. Not everyone realized this, though, so people that hadn’t done their research posted rings at prices that would be reasonable if they were similar stats on non-rings. I set my search to high-level rings, sorted by cheapest, and looked at anything with a timestamp indicating it was newly-posted. If it wasn’t complete crap, I bought it and immediately relisted. Once I had enough bankroll, I moved on to only searching for max-level rings. This led to buying a few below 100k, and selling for multiple millions. That was enough money to let me move into whatever market looked good.

Adaptation was key. I kept up with the Something Awful thread for discussing the AH and the economy, filled with like-minded people with good information about what markets were open (though people mostly avoided tipping their hands like this), and more usefully, what markets weren’t. For example, if people bemoaned the falling prices on 100/100/100 gear (meaning 100 main stat, 100 Vitality, 100 AR), I stayed away from that market. As the game economy progressed, players constantly needed new and better gear, and they were willing to pay for it: a good rule of thumb was that getting an item 10% better would cost about twice as much. Prices on everything consistently fell, but that just meant that a new even-more-high-end market was constantly emerging. One way I consistently made money was buying things that were priced as if they were slightly worse; if they were actually sellable to better-geared players, I could easily flip them for a lot of money. This is how I eventually progressed from buying items at 10-50k and selling them at 100-250k, toward buying things at 500k-5 million and selling them for tens of millions. My biggest flip was a set of bracers I bought on the official forums at auction for 18m. They were by far the best bracers I had seen anywhere, and it seemed that no one else had the capital onhand to buy them at anything close to their true value. When the Real Money Auction House launched, I sold them for $239.

At first, speed was everything, especially in instantly identifying low-priced things that were worth much more, because my competitors would buy them within seconds if I didn’t. At lower price ranges, anything flippable would sell within seconds of being posted, and if it didn’t sell in two hours, it wasn’t ever going to sell. This was less true, though, at higher price ranges: when considering whether to buy something potentially underpriced at 2m, I could pause, consider it, check the AH for similar items, and then decide without much risk having it bought from under me. There were other people flipping items at those high prices, but not as many, and the bots were mostly targeting severely underpriced legendary items. (There were a ton of bots operating on the AH, and despite ethical concerns, I’m still kicking myself for not doing that. I did use AHK to make scripts just so I could use “hotkeys” for refresh and buying the top listing, which technically could have gotten me banned, but I slept soundly doing so.)

I ended up flipping in lots of different item markets, but the key to all of them was this: items that had obscure or often-overlooked stats that made them extremely valuable. For example, +X% Movement Speed sounds like a crap stat on a pair of boots, but if it’s maxed out and paired with +200 Dexterity, it was worth hundreds of times its value if it didn’t have +movement speed. People would assume that stats such as that, or critical hit chance, or life on hit, were as worthless as increased gold radius, and price them accordingly. The method: learn something not everyone knows, and put it to use.

After I had a huge bankroll, I couldn’t make as much as a percentage of my wealth as I could starting out; that is, having 50m didn’t do much for me that having 5m couldn’t. It was time to move toward crafting. In D3, crafting plans were for sale on the Auction House at fairly high prices, and once a person acquired a plan, they could make a new random item in that category for a little less than 200k. After some tips from the Something Awful thread, I saw that the glove plan would, over time, make a consistent profit. However, because people could only post ten auctions at a time, I needed other people to price and sell things for me. Paying them in gloves, I ended up with three “employees” posting auctions and sending me the profits. At my peak, I was making over 200 gloves a day. Half of them were worthless salvage material, about 40% could be sold for between 50k and 500k, and 10% were worth enough to make the rest of them worth it. I believe my highest sale, in gold, was for 25m; some other pairs sold for real money at $50-$100. It was incredibly tedious, and basically a minimum-wage job I could do while listening to music, chatting with people, and petting my cat.

Eventually, I ended up with a couple hundred million worth of gear I was using, and some other leftovers in my stash. How was I going to convert it to actual currency? With the benefit of hindsight, it’s obvious that I should have been selling gold on the grey market (eg or Craigslist) the whole time, since gold started off at some absurd price like $25/million. Instead, I waited until the Real Money Auction House launched, then spent my gold on easily-sellable items on the gold AH, then selling those on the RMAH. I moved fast, and I’m glad I did: gold at that time was about $8/million, but fell in price to half that in less than a week. It’s about $1/million now.

Like any robber baron, once I was rich, I tried to do some good for The People. I wrote a fairly comprehensive guide to choosing gearbased on economic principles, and I humbly suggest that anyone still playing D3 who wants to get the farthest for the least amount of gold use it.

For anyone who hopes to duplicate this in future games, some summarized advice:
  • The game needs to have a high-speed Auction House equivalent…
  • …but the worse it is, the better it can be used to make money.
  • Learn everything you can about a market: what items people are buying, at what prices, for what reasons.
  • Then, find the items in that category that people are selling at lower prices, due to not knowing as much about it as you.
  • Don’t count on things staying the same forever. Know when things are changing, and switch markets appropriately.
  • Don’t wait for a future point to start cashing out, because in-game currency is almost certainly falling in price constantly.


Harkius said...

That kind of sounds like a good primer for the stock market.

I'm impressed.

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