MMO MBA

As many of you know, I’ve been Star Wars The Old Republic for a few months now.  I’ve previously written articles on obtaining crafting schematics  (which to this day still gets more views than any other post on this blog) and tips for making credits in the game.  So I thought I’d comment on some common misconceptions and mistakes as they pertain to crafting for profit in MMOs.

If you’re making stuff in the game (i.e. crafting) and selling it on the auction house to make credits (i.e. profit), then you are for all intents and purposes a business person, or at least playing one.  It stands that concepts that benefit real-world business can also be of some use in running a virtual business in an online game (though much of what I’m going to talk about applies to real life, as well).

1) Time has value:  The #1 most common misconception I see in MMO’s is the idea that time has no value, particularly with regard to gathering resources.  Many players think that because they personally gathered the resources used to craft their goods (rather than buying the resources on the auction house), that those resources were ‘free.’  Nothing could be further from the truth.  Your time has value!  In fact, in an MMO, time is the true currency of the game, not gold or credits.  The time you spent gathering those resources was time you could have spent doing something else, possibly something that would have netted you more money, or that you would have found more enjoyable.  Therefore, you need to place a value on those resources you gathered, which will be factored into your bottom line (more on this below); at the very least you should value those resources at the going rate on the auction house, what you would have to pay to purchase those resources.

This ties in to the economic concept of opportunity cost, which is just another way of saying when you make a decision you’re weighing options between multiple choices.  Do you spend your time gathering resources or do you buy the resources and then spend your time crafting or doing quests or other things that you value.  Of course, this applies to life as well.  Every single decision we make in life has an associated opportunity cost.

Now, some players counter that they enjoy spending hours gathering resources and then making things cheap to help out other players.  And that’s fine.  It’s a game, play it the way that is fun for you.  But don’t be surprised if someone buys out all your cheap goods and resells them for twice the price (and don’t complain about it either…you asked for it).  Honestly, if you just want to help out other players, don’t bother selling stuff on the auction house at all.  Just hand them out.  That way you make sure it gets to someone who can really use and appreciate them.

2) Calculate your break even point:  A lot of crafters in MMO’s make things first, then sell later.  And they usually end up in a pricing death spiral.  Few of them take the time to actually figure out how many credits it’s costing them to make something.  Often this is because they fail to take into account opportunity cost; i.e. what they could sell the raw resources for vs. what they could sell the finished good for.  Many times you’re better off selling the resources rather than making the item (from a financial perspective, at least).

After you figure out what it costs you make the good (using the going market rate of the resources used to make it) then check the auction house to see what that item actually sells for.  If it sells for at least your break-even cost, then you can consider trying to sell that item for a profit.

Related to this, don’t try to be the low price leader.  In an MMO economy there is no such thing as a low price leader.  You’ll only be working harder for less money (crafter burnout from this was very common in Star Wars Galaxies).  Walmart can get away with being the ‘low price leader’ because they’re able to achieve amazing economies of scale due to their size and by leveraging technology.  There are no economies of scale in an MMO!  Whatever economies of scale exist in an MMO only exist if the developers build them into the game…and most developers don’t.  Another reason MMO’s don’t have economies of scale is because their economies simply aren’t large enough to accomodate them.  The USA has about 300 million consumers; most MMO servers have, at most, around 10,000 consumers (EVE Online is a rare exception with about 100,000 players–but still relatively small compared to real world economies).

3) Know your market:  Meaning, focus on one area or category instead of trying to do everything at once.  Once you get a handle on your ‘area of expertise’ you can then expand to other niches.  This also helps you recognize opportunities, such as when a new comer sells their goods far to cheaply…you can snatch them up and resell them at the going rate for a tidy profit.  It also helps you recognize when it’s time to start looking for new opportunities.  If some portion of the market is hot, you can bet that it will attract competition.  Without a corresponding increase in demand then prices will inevitably drop.  Don’t get trapped in a pricing circular firing squad!

When you know your market, you’ll also develop an idea of the market’s sustainable demand at a profitable price point.  Meaning, just because you can make 100 blaster pistols doesn’t mean the market will buy them all, at least not anytime soon.  I’ve seen this in SWTOR with the high-end implant market on my server.  People jump in, make a dozen of the same implant, but only a few of them sell.  Then the sellers panic and start dropping their prices, which leads to a deathspiral to the point where implants sell for less than the cost of the resources used to make them.  Now the same thing is starting to happen to Grade 6 starship components (and it’s being casued by some of the same players).

Knowing your market also means knowing the market for the resources you depend upon.  Check the auction house for resources at least once a day (and don’t forget to check out your competition, while you’re at it).  If you find resources going for less than the average price, buy them if you can afford to do so, even if you don’t need them right away (storage cost in most MMOs is very cheap).  Lower resource costs means more profit, and you never know when those resources will come in handy.

4) Identify Unserved/Underserved Markets:  There’s a saying, if you want to get rich, find a need and fill it.  And the MMO analog to this is, don’t do what everyone else is doing.  If everyone is making Grade 6 starship components on your server, it’s probably not a good idea to get into that market (though it may be a good idea to gather and sell the resources they need 😉 ).  Look to see what goods are not being offered.  It may be they aren’t being offered because there isn’t any demand for them, but it may also be an overlooked niche.  If you read the trade/craft forums, you’ll see ‘common wisdom’ freely dispensed…only this sells, that never sells, you can only make money doing X.  In my experience, the common wisdom is usually wrong, so don’t be afraid to experiment and test new markets (and this applies to ‘sub-markets’ as well — there may be excessive competition in high-end implants, but the market for low-level implants may have been overlooked).

It’s not always easy to recognize an opportunity, but the best tool in your arsenal is the auction house (in SWTOR it’s called the Galactic Trade Network, or GTN).  The auction house provides an instant snapshot of the state of virtually every aspect of an MMO’s economy.  It’s a powerful tool, and something that doesn’t have any real world analogs (the closest would be something like E-Bay or NASDAQ).  At a glance you can identify overlooked opportunities, saturated markets and you’ll come to recognize your competitors and determine their modus operandi (for instance, maybe they are trying to be the low price leader).  Also, pay attention to trade chat and trade forums.  If you notice a lot of requests for something that isn’t being offered on the auction house, that may be an opportunity for you.

Another time to be on the lookout is when a new major content patch is imminent.  Major updates usually introduce new crafting schematics, change game systems and sometimes render existing items unobtainable (creating ‘legacy’ items which may be in demand by collectors).

I’ll end this post with a piece of ‘common wisdom’ that I believe is true.  If you’re looking to make a lot of money in an MMO, but don’t like the business or crafting aspects of the game, then you’re probably best off just selling resources.  In my experience, you can make more money through crafting and playing the market, but you’ll still make plenty just selling resources and it’s a lot easier to do.

Cheers, and good luck to you.  May you become wealthy, in-game at least, if not in real life. 🙂

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