WoW for Profit

The Cost of Deregulation

2008-12-30T11:38:00.002-05:00

This link always cracks me up. I think it shows, better than anything I can think of, the high cost of deregulating financial markets. Plus British comedy is wonderful.

http://www.youtube.com/watch?v=mzJmTCYmo9g

I'm Back... for a WoW Recession?

2008-12-29T10:10:00.003-05:00

I'm Back.

Hey guys. To all 6 of you that will read this I hope you had a good holiday.

I'm going to start writing here at this blog again as well as The WoW Economist. I feel like this is a better forum to write stuff that would be less interesting to mainstream readers. I'm going to continue my other work, but my main focus is still using my ramblings for the basis of a paper on virtual economies.

I think most of the discussions about inflation and deflation are way off. What is especially strange is the discussion of recession in WoW. According to wikipedia, a recession is " a significant decline in economic activity spread across the economy lasting more than a few months, normally visible in real GDP growth, real personal income...(etc.)" That's of course an abbreviated definition, but it is the part that is germane to our discussion. It is my opinion that we don't have the tools to accurately measure economic activity so the term can't be used to describe our situation. Most economic activity doesn't take place in the market. In that respect, the wow economy is like a third world country. Familial ties and bartering are far more common than market activity. I provide my goat's milk to my cousin and he provides me with eggs. Or my neighbor trades me eggs from his chickens for cheese. Blizzard is able to monitor all of these transactions. They are the ultimate Big Brother. But we don't have the tools.

The Goblin disagrees, but it isn't the first time, and won't be the last. I think it may just be a difference of terminology rather than a difference in ideas.

Either way the deflation discussion is premature. Perhaps inflationary pressures won't be what I thought, but there will a higher price level than in the Burning Crusade. Prices were extremely high after launch which is normal but not sustainable for most goods. Now prices are plunging with buyers not around during the holidays and those willing to pay the premium already have what they need in many markets.

Overall equilibrium prices will be higher. Enchanting prices on my realm will be much higher, because I have the resources to make it so. It is a buyers market right now, and those of us with the resources should still be stocking up.

I'm Moving

2008-12-08T03:20:00.005-05:00

I have been offered an opportunity to blog on www.thewoweconomist.com and I'm going to take him up on it. John Murphy is the founder of the site and we hope to be able to work together closely to be able to offer complete and concise articles on the WoW economy and our adventures in the auction house. This week's business report will be up soon on the new site. Thanks for reading, and I hope you'll continue at my new home.

Why Having Too Much Gold is Bad… or at least inefficient

2008-12-04T23:37:00.003-05:00

Economists call it liquidity. To WoW players it is the sick amount of gold you have collecting dust. Maybe it makes you feel good to see that crazy high number. You have made some good decisions in the auction house or made a bunch of gold crafting, or you spent a lot of time farming. (ick.) The point is you amassed a WoW fortune. Congratulations. So what are you going to do with all of that gold? You could buy the cool mount with a passenger seat or other status items to show how rich you are, but that would have the unfortunate side effect of making you far less rich.

The problem is that you can’t swim in it like Scrooge McDuck. Looking at it makes you feel good I’m sure. You could do that. It would certainly be a better idea than the mammoth mount. Let’s make that option number one: Staring at your money.

What is even better than that is investing the gold. There are no stocks or bonds in WoW though, and the bank doesn’t pay interest. So you have to find out where to put your gold. The one thing we know for sure though is that gold sitting in your bag is doing nothing at all for you. (Above what you need for expenses of course) What you should want is to have your gold out working for you. There are tons of opportunities out there.

1. Pick up enchanting. (Just not on my server.) Disenchanting has made me more gold than everything else I’ve done in the game put together. Level 35 alts can disenchant just about everything in the game but Northrend epics.

2. Lower your profit requirements. Whatever markets you make your gold in, take a slimmer profit margin. This will increase the amount of capital you have invested in the market by giving you more opportunities.

3. Diversify. Tread into new territory. It is great to be an expert in a niche market, but opportunities can quickly dry up if your activities are limited to one segment of the economy.

4. Dig deeper. Look at your professions closer. Where can you make more profit? Read more blogs like this one. There are lots of people with different theories. Pick and choose what you think would work for you.

5. Don’t be afraid to lose. Everything might not work out with every investment. That doesn’t mean to stop investing. You learn from your bumps and bruises.

Whether you decide to invest or just stare at your gold make sure to have a good time, and please don’t buy that silly mammoth mount. It doesn’t make people /gasp, it makes them /giggle.

Disenchanting lvl 80 epics???

2008-12-04T13:22:00.004-05:00

I saw an odd opportunity today. I've been reading a bunch of different blogs about flipping high level epics, but I am wary of entering into new markets without sufficient history or knowledge. I like sitting on a pile of useless gold even less than I like taking risks though. The way I see it my gold should be working for me instead of sitting in a big pile. So I checked out the high level items on my server today with eye at trying to flip them for a quick profit. I saw a couple of epic chest pieces posted at 250g or so which I thought was odd.

They were crafted, so my guess is that whoever made them powerleveled and forgot that other boneheads were doing the same thing as him. The question though, is whether I buy and repost higher or disenchant and post my first ever elusive abyss crystals.

The price of the armor to me seems ridiculously low, but I don't know for sure. The numbers also could be a little off, because I got them from my laptop that is only update a few times a week at work.

My decision eventually came down to the fact that the market for abyss crystals is and will be larger than the market for frost resist plate gear, and there is no deposit on the auction house for enchanting mats, so I can try and get the highest price I can without worrying about a failed auction.

Dream Shard Speculation

2008-12-03T02:09:00.005-05:00

Dream shard prices are crazy low. Demand is irrationally low. I use my usual strategy of selling a full stack and then individual shards as well, and I only sold one. The expansion is still very new, so the economy has a lot of stabilizing yet to do. But surely the enchanters on my realm needed more than one dream shard from me. Small shards aren’t much better. So everyone that took the strategy I’ve been preaching for the last week or so is sitting around with a crap load of shards they can’t sell at a decent price. I’ve bought 20,000g worth of armor/weapons to disenchant, with about half of that being Northrend gear. I am about back to even with tons and tons of inventory to still go through. My return on investment last week was over 100% and I expect the same for this week, but these dang shards are piling up.

I’m not worried about it at all though. In fact I think it is very good. I’ve been buying up other people’s dirt cheap dream shards for 10g a piece. I am going to be plowing as much gold as I can into them. There are so many uses for these shards. I can’t imagine these low prices being an equilibrium level.

As a side note, what the crap is up with the abyss shards? The droprate for high level wrath items is 1% according to enchantrix, but I haven’t gotten one yet. I know someone has because there were four of them on the auction house for 500g a pop.

How to Fight Northrend Inflation

2008-12-02T08:37:00.007-05:00

The WoW Economist has an interesting post about inflation in Northrend. In it they asked a question about whether the mechanisms in Wrath will be able to safeguard the buying power of that gold. They talked about the issue in terms of regulating the amount of currency in the game, which is essentially monetary policy. This is only half of the picture.

First off, I think it is important to note that while economists that deal with monetary policy have the twin tools of interest rate and money supply manipulation, those aren’t the only economists that deal with macroeconomic policy.

Blizzard’s control of the money supply in WoW has to do with droprates and spawnrates. It would be inaccurate to say that there is an unlimited amount of gold in the game, because you can only skin or mine or kill so fast. Blizzard knows on average the value in gold of one person logging in for one hour. Let’s say that value is 50g. They can reduce that amount or increase it by changing spawnrates and droprates.

Our Blizzard Overlords control fiscal policy as well in the WoW economy, which is the other half of the economic toolkit. In the real world this would be collecting taxes and spending money. It is here that I believe that gold sinks can enter the analysis.

Large gold sinks act as a luxury tax. The ridiculous 20,000g mount is a great example of this. It is a status item that would be really tough to justify as an expense, but it will be popular for reasons that fascinate me.

The smaller gold sinks act as a regressive income tax. Everyone pays the same rate for repairs, training, mail service and flightpoints.

These gold sinks are used to reduce aggregate demand, which is the fiscal policy tool used to maintain price levels. People have less gold than they would otherwise, which keeps prices ideally from rising at all, but realistically it will keep them from rising as much.

In the real world some people benefit from inflation. If I owe you $10,000 this year, and next year the purchasing power of $10k is half of what it is this year, in effect my debt is reduced by half. But there is no debt in wow. So there are no real winners when our currency is inflated. But some people lose a lot less than others.

The big losers are the casual players who vendor a lot of white and green drops that they get while questing. These players will have far less purchasing power in wrath than they did in BC.

The smaller losers are people that read blogs like this one. If you have large reserves of gold you should be cringing a little bit, because your purchasing power is being reduced as well, but at least you have the power to fight it. You need to invest in mats that will only increase in relative value rather than keeping vast sums of gold.

The trick is that who knows what investments are good and what investments are bad. What we do know for sure though is that the value of gold will continue to decrease.

Disenchanting Primer

2008-12-01T15:36:00.011-05:00

A few people have asked me to analyze exactly what disenchanting I do and how I go about it. I am hesitant to give explicit numbers since no two servers are exactly the same. I have a friend who I may be going into business with and because of that and my desire to turn this experience into some sort of academic project I have an excel sheet of disenchanting guidelines I use. The prices below are in gold. This is all the juicy stuff:

Item Level	Max Price	Expected Value	Minimum Profit


36-40 Armor	2	4	2
36-40 Weapon	4	6	2
41-45 Armor	2	4	2
41-45 Weapon	5	10	5
46-50 Armor	2	3	1
46-50 Weapon	5	8	3
51-56 Armor	4	14	10
51-56 Weapon	10	17	7
64-70 Armor	4	6	2
64-70 Weapon	7	11	4
71-75 Armor	11	16	5
71-75 Weapon	11	16	5
76-80 Armor	20	40	20
76-80 Weapon	20	40	20

As a general rule the value of the materials your piece of armor or weapon will disenchant to changes every 5 levels or so. There are significant caveats to this analysis, but for now lets just look at the chart. I don't fiddle with anything below level 36, because in most cases the profit is less than 1g. The max price is obviously the most I will pay for the item. The expected value is approximately how much the piece is worth after it has been disenchanted. I always round downward to be safe, and because there are more items than I have time to buy. Minimum profit is the least I expect to make from the item. These values are on my server based on the enchantrix price from scanning the auction house regularly.

To access the different items what I do is go to the browse window in the auctioneer advanced and specify the level range I want to work with and change the rarity to uncommon. You also want to arrange the listings by bid price. I bid on all items that meet my requirements too. Just because the buyout price it out of my range doesn't mean the bid price is. I have plenty of time. I don't mind waiting for it.

As you can see from the chart the new wrath items are the most profitable. However those numbers represent aggregate expected value for the level range. Sometimes you get better stuff when you disenchant than others. I assure you, it balances out.

Some general advice though, stay away from non-wrath blues. Strangely enough they are usually worth less than the greens and cost more.

This gets even more complicated however. In addition to level requirements, armor/weaons have ilvls. Where the ilvl changes sometimes can be very valuable in wrath. When you search for items from 64-70 you'll see some items with ilvl 130 and up. Those are wrath items which are worth considerably more than BC items. There is another switch at ilvl 151. Items at that ilvl are worth around 40g a piece and can sell for as little as 5g.

The problem is that disenchanting takes time. For me it is no big deal. I buy all the items with one character, send them to another and read a book while I disenchant. I can also do it on my laptop at work. Since it only gets 10fps when I move, it's the perfect activity.

I will be adding screenshots and more information to this post later. Feel free to ask further specific questions in the comments and I'll try to update this post to address them. I'd like to make this post as complete and as valuable as possible.

Update 12/8

Prices for Northrend mats have cooled down a bit in the auction house. Remember to always use your data. My data is only useful to me and other players on my server. Hopefully, none of those people are reading this. What follows is a screenshot of me using auctioneer advanced and the information that is posted there. I know some people are still having trouble with the new version. If you would get used to the newfangled layout, I promise you'd like it better. You need to click to enlarge it to get any detail.

Hand Over Fist

2008-12-01T09:09:00.005-05:00

This week went much better than I had expected. I am still floundering with the eternal and crystallized juggling, and to this day I can't give away the glyphs I made to level up inscription. I might be close to doing the unthinkable... putting them in the guild bank. If any goblins are reading I'm sure they are cringing.

The disenchanting business beat expectations though. I spent 10,000g on mats last week and brought in a whopping 23,300g in revenue. Not a bad week at all. I don't know if these kind of profits will continue, but I transferred another 10k for mat purchases again this week.

The big movers were the new dusts and essences. I always post in both full stacks and individually with both kinds of cosmic essences and infinite dust. The shards still aren't moving all that well, but I'm not too worried. Enchanters are going to need them to get some of the more advanced recipes and demand will continue to rise as more and more people hit 80 and start raiding.

Arcane dust and greater planar essences are also very popular. I'm kicking myself because Saturday I undercut someone who had about 30 individual greater planars up for 9g a piece. I usually keep fixed prices for my enchanting mats (11g for greater planar) since there is no deposit in the AH for them, but I really wanted them to move. When I checked Sunday everything we both posted was gone. What really irks me is that I inadvertently posted my full stacks of greater planar at the same low price.

Another one of the things I do with pricing when I post the same item both individually and in full stacks is that there is a price differential. Usually with a pretty competitive high price items like shards, individual items are a little cheaper than full stacks. Most people don't have enough shards to post full stacks of them, and there is a market for them, so they fetch a bit more as a full stack. On the other hand with a less competitive market like greater cosmic essences I will charge more for individual items than a full stack. There is not much price pressure so I can get away with higher prices and still give an incentive to people who buy in bulk.

This next coming week is all about leveling for me. I think I'll still at least double my 10k investment in the DE mats, but that will be all I'll work on for the most part this week.

A Businessman's Toolkit

2008-11-28T17:47:00.003-05:00

There are tons of guides to essential addons on the web, but many of those don’t address the needs of the business people. I don’t need bar mods or threat meters. I need to get my mail faster and keep track of all my dough. I wanted to put together a list of what I use, because maybe there are one or two gems in there that you guys aren’t using.

First off, I use wowmatrix to download and update all of my mods. Back when you had to install them and update them yourself, I didn’t use mods that often because it was a pain, but now it doesn’t have to be.

Obviously auctioneer suite. I was pretty bitter about having to move to auctioneer advance because there is no more real support for igor’s mass auction that I know of. I’m sure that there are people smarter than me out there that know of a quicker way to put up a lot of different auctions up other than appraiser, and maybe you’ll comment here and let me know. Appraiser is great when you are putting up a lot of the same auctions, but when I have 50 different pieces of armor, I’d rather have good old Igor. I would spend more time buying and selling armor, which has been pretty lucrative in the past, but it takes too long for me to post them all.

Next you need a good mail mod. I use postal because it seems to get the mail the quickest for me and you have a contact list. You have to remember to change the speed in the options to make it grab the items quicker though.

I also use Fubar money fu. It keeps track of all of your gold by character, by session, by the day and the week. It screws up when I use different computers for wow since the information it gathers is saved to the computer. I get around this limitation by using different toons for different tasks. I have a toon that receives money simply to buy things to disenchant, so I can keep track of disenchanting costs. Then I have a toon that only sells DE mats to keep track of revenue. All my other buying and selling goes on with a third toon.

Another really useful mod to keep track of items you routinely search for in the AH is AHsearch and AHsearchnext. The menu system for saving searches is a little complicated, but once you figure it out you can save a lot of time typing searches. I look up all the eternals and crystallized elements everyday for example. Instead of having to type everything in, once it is set up you can just click on it from a dropdown menu. It also makes sure I don’t overlook an item I usually check prices for.

I also used to use wowecon. I upgraded a few weeks ago to the premium version and I haven’t had a good experience with it. It very well could be user error, but I find that for whatever reason it only tracks a very small number of my sales, which was the entire reason I upgraded. The module uses a good deal of memory as well, which is fine for my desktop, but it prohibitively expensive in terms of performance with my laptop.

Finally, if you are in a guild with your AH toon, you might want to use a chat mod like prat to filter all of your AH activity so you can keep track of whispers and guild chat. A few people have felt snubbed by me because I didn’t respond because I never saw what they typed. With a chat mod you can keep track of everything easier.

Opportunity Costs

2008-11-28T01:35:00.002-05:00

There is poor Cuthbert, sitting at the bar at level 72. For a guy that attended a midnight launch I sure haven't leveled very fast. There are just too many underpriced pieces of Northrend armor/weapons. What a lot of people don't realize is that not all level 68 armor is created equal. On my server green 68 outland armor is worth about 8g or so for disenchanting purposes. Level 68 Northrend armor is worth nearly twice that. You can easily check where the armor comes from by it's ilvl, since anything ilvl130 and up is from Northrend.

Since there are so many underpriced items for sale, I haven't had time to do anything other than buy them and send them to the disenchanting queue. I always leave a substantial differential between the price that I'll buy an item and what enchantrix says it is worth, both to keep my profit margins high and to insulate myself against a big decrease in the price I can move my now significant inventory. The items I am buying now to disenchant may not be put on the market for over a week or two, which can be an eternity in wow.

The good news for the disenchanting business is that once the auctions are posted, your work is done for a couple days. Do you guys remember when auctions only lasted 24 hours? I didn't realize how brutal that was until I didn't have to worry about what part of the day I posted auctions anymore.

I am still keeping track of revenue and cost on the different parts of my business for what hopefully turns out to be at least a term paper. I'll have weekly summaries posted on Mondays if anyone is interested in checking them out.

The northrend shards aren't selling well, but I still think that is because people aren't using many high level enchants yet. The dusts and essences are flying off the shelf though. Sales on the rest of my inventory is pretty constant, although arcane dust and greater planar essence prices are spiking a bit, 22g a stack and 11g a piece respectively.

Hopefully during this holiday weekend I'll be able to take care of the business, actually level my character, and avoid girlfriend aggro all at once.

Wish me luck and happy Thanksgiving!

A Little History

2008-11-25T12:52:00.002-05:00

I am a WoW player and also an economics student. There is a good chance that I'll be able to use the WoW economic data that I am collecting in a future academic project. Since I have to do all of that work, I figured I would post some of my findings on a blog.

I don't farm or mine or actually produce much of anything. I take advantage of what the Greedy Goblin calls "dumb people," and what economists call information asymmetry. All that means is that one party in a transaction knows more than another. There are two basic things that I do in the game to make gold. It still hurts me a little bit to share these things, even if nearly no one ever actually reads this blog. Since if even one other business man on my server starts taking the advice I give, it could have a big effect on profits. But alas, here it goes.

While not exactly revolutionary, disenchanting is my primary source for gold in the game. I am a big fan of the Greedy Goblin. He has some wonderful tips and some real insight into the WoW economy and economics in general, but I thought he missed the boat a little bit on his post about tradeskills. This is what he has to say about enchanting:

"Enchanting: The only moneymaking is disenchanting your soulbound stuff. Quest rewards and obsolate items. More than nothing but only a little. Otherwise you are just one in the million, every other enchanter knows what you know."

That would be right if you didn't take into account the auction house. I made my first 20k in WoW from simple arbitrage, which is another way of saying buy low and sell high in the auction house. I used auctioneer to find the best deals on items and then repost them at the market price. I spent most of that while leveling on all of those epics that would end up being worthless in 5 or 6 levels anyway. After a while a got a bunch of spirit gear that wouldn't sell, because at the time I was a noob and I didn't know that spirit was worthless to most classes in the game. So I disenchanted them and sold them as mats, which ended up being worth more than the armor itself.

Fast forward a year or so to the launch of Wrath of the Lich King. There is new dust and new shards now, and new items to disenchant. The value of these ilvl 130 green armor and weapons after disenchanting them is from 13g to 19g a piece on my server and I can sometimes pick them up for 3 to 5g a piece. Right now the shards aren't selling all that well, but I think that has to do with people still leveling enchanting. I think that maybe they just aren't high enough yet to use the shards all that much, although those that do sell are going for 50g for the dream shards and 18 to 20g for the small dream shards. The infinite dust though is going from 140 to 160g a stack.

Another one of the advantages of going into the enchanting mats business is that there aren't any deposit costs in the auction house, which can add up. I post around 400 auctions a day, so not having to pay deposits saves a good amount of gold. A failed auction with the mats doesn't have any real penalty like when I dealt with armor primarily. Every time an armor auction fails you lose money so there wasn't a lot of room for price experimentation. With these mats I can try to squeeze every copper of consumer surplus out of the poor saps with the only consequence being that I might have to post the auction again in a couple days.

All of that was a longwinded way to say that there is a good deal of money to be made from disenchanting. So far I have spent nearly 10k on ilvl 130 weapons and armor from the new starting zones in Wrath. I expect around a 50% return on my investment, and I really think that is a low ball estimate. I'll have specific numbers in my next post.