Tuesday, October 6, 2009

The Wow Economy and You. . .

Personally, I'm tired of articles about how to make gold in Wow. There are plenty of people who have sites dedicated to it, and plenty of people who see the gold on their account as their own personal mini-game. I look at gold in Wow like this: it is a resource to acquire things that you would want. If you have more gold than you need, you've wasted time. Now, far be it for me to tell people how to waste time in the game. I'm trying for 12-16 level 60+ characters, that might seem like an utter waste of time to some. Anyways, the point of this post is not to instruct you how to make money in the game, there are many people around who can do that way better than me. It is more to look at the Wow economy in comparison to the real world economy.

Now, the Wow economy is EXTREMELY basic. There are no loans, there is only one centralized currency, so it mostly gets rid of any Arbitrage. Arbitrage is a more advanced economic concept I don't really want to deal with but basically it is profitting due to a difference in two related markets. Doesn't exist in Wow, not an issue. Wow has boiled it's economy down to the most basic level, you make money by producing goods, providing a service, or engaging in commerce. Making money in Wow is so basic, it can be boiled down into two variables: risk and time.

Producing goods:
Gathering and crafting are the two ways that you can produce goods in Wow. Picking flowers, mining for ore, prospecting ore into gems, making potions, etc, all are producing goods. Enchantment has switched from a service only to a profession that can produce goods with the introduction of scribe produced scrolls that can hold enchantments.

Gathering professions are going to be pure profit, but come as somewhat of a pain. Lets be honest, the resources that you are attempting to gather are finite. In some cases, it is impossible to predict exactly where the resources in question will spawn, and there is a high degree of competition (I'm looking at you Titanium). With gathering professions there is no risk (you can't lose money when something is free to you), but they can be quite time intensive.

Crafting is another means to producing goods. This can either be done in the form of crafting from gathered components, which is pure profit, but limits the crafter to that which they can gather themselves, or through purchasing components, in which the crafter assumes the risk that the crafted item will be less profitable than the sum of the parts. Crafting can be quite risky, and there is also a considerable amount of time in leveling and producing goods.

Providing a service:
When the old guy with the question mark over his head says "go kill 10 rats", and you accept, you are providing a service. When a lower level character says "I will pay you 10g to run me through the stockades", you are providing a service. Enchanters selling enchants are generally providing a service, unless they are putting the enchantments on scrolls, then it is a good. Services, as with gathering only present a time sink. However, unlike gathering, the rate at which one makes gold this way is fairly stable, unless blizzard makes changes.

Engaging in commerce:
Commerce is the act of buying low and selling high. There are a variety of tools useful for this in Wow, one of the most well known being Auctioneer. Now, engaging in commerce can be quite a time sink and involve a large amount of risk. I have a friend who does a fair amount of posting on the auction house and says it takes him hours to get everything properly listed. Obviously if things don't sell, you're out the auction house deposit (which is a concern with anything you're listing on the auction house, in general).

I'm not attempting to say which way is best for making gold. As I work in the financial services industry, I'm not particularly interested in playing the auction house. Gathering is a necessary evil and something I can do while questing. Leveling is my main way of both advancing my characters and generating income, which I supplement with some Jewelcrafting done by my pally. I'm also not rich by any means in game terms. Sure, it would be nice to have 40-50k to get epic flyers for some alts and be able to buy mats to craft whatever I want. However, to me, it just isnt worth the time expenditure to get there.


Darraxus said...

I enjoy the AH mini-game because it is something that I can do while not paying any attention and not having much time to play. I am at 192k, but that gold cap seems far off with inscription falling off thanks to MMOChampion. I do it just to do it. Once I hit the cap, I am going to redistribute much of it to my other toons and probably keep on truckin.

miked said...

several times you mentioned that gathering materials yourself leads to pure profit. however you seem to be neglecting the opportunity cost of doing something else during that time. since you ended on the note that having 40k-50k gold isn't worth the time expenditure, it seems this is a concept you are unfamiliar with (though you shouldn't be if you're in the financial services business). gathering is not pure profit; if anything it's a waste of precious time. you can have 50k in a few weeks with less than an hour a day of game-time... and you don't get there with "pure profit gathering".

Fish said...

In that context, I was meaning profit in terms of gold vs risk. If you are just gathering, although you are expending time, your risk of loss is minimal. Yes, you could theoretically severely overprice your good in the AH, but since gathering only costs you time to make gold, the element of risk isnt really present.

Any investment is an exercise in risk vs reward. Wow just uses a time investment as another form of currency. Gathering, by being relatively risk free, is pure profit but in general has a lower potential for return/time than other endeavors which involve a greater degree of risk.

Ruhtra said...

@ miked

So, I had a pretty good discussion with Fish today regarding his post (and we disagreed on some points). I can also confirm that Fish is in the financial industry and probably has much more knowledge than many folks who will talk "economy".

Fish was simply pointing to the way to make money in the game. As we all know there are many ways to achieve the goal. For Fish, these methods have proven to be successful. The key to remember is that he does not wish to spend time at the auction house. So that rules out much of the methods that many folks will use.

In regards to anyone saying that spending time grinding for gold (whether for gathering or simply questing) is a waste of time, I would argue that any time spent playing a fictional game is a waste of time.

This game does not pay bills. It does not earn you money, It does nothing but wastes your time from being a productive member of society. I mean if we are talking in productivity and what pays the most. My sitting here at work responding to this blog actually provides more rewards than most people at home reading the blog.

However, what we need to remember is that this is a game. A "G A M E". As it is a game it should be played however one enjoys it. It should also be noted that if you like playing the auction house great, go out there and list your heart out. If you like to sit around and grind, then you go grind that ore. If you like to craft, then craft that motocycle. In the end, it is a game. Try to remember this when you sling any sort of insult around.

miked said...

My point regarding 'wasted time' was in the context of the WoW economy... if you want to throw the entire discussion aside and pull out the "it's just a game" argument that's not really interesting or constructive. (Additionally there's no need to get defensive or feel accused or insulted... this isn't the PvP forums or something ;-P)

If someone enjoys grinding/farming then I'm certainly not going to stop them. Financially speaking, one person's casual farming is only slightly more contributive to the economy than ERPing in Silvermoon. Personally I don't understand how mindless grinding could be fun in any way, but I accept the fact that some people enjoy it. However, I think it is generally a means to an end, not an end unto itself. Farm things, sell them for gold, buy something more useful. I think most people would happily substitute the first step with something else if they could still get to the next.

Maybe this is just me, but my time is worth much more than my WoW gold. WoW gold can be used to buy things in-game, sure. But my time can be used for things both in-game and out. To put it in terms of risk/reward, farming is a guaranteed time-sink, a 100% risk of a certain amount of time. With the other methods mentioned I know it won't take as long. If I need 5000g for a flyer for my next alt going through northrend, I'm not going to spend 20 hours farming herbs or ore. I'll be trading and crafting for less than half that time. With the time saved I can catch a movie with some friends, get some extra work done at the office, or catch up on some much-needed sleep. In my experience mitigating the risk (of gold) for those activities is much easier than mitigating the risk (of time) required by farming.

Anyone can do what I do, and Fish's final note was about the time required to amass a small fortune. I'm just saying that those who don't have time to spare shouldn't even give a farming a second glance; everything else mentioned has a higher return for less effort.

Ruhtra said...

@ miked

I am not trying to play a card or be defensive, but rather point you at what he is trying to get across in the game. Read the first paragraph of his article, specifically the last two sentences:

"Anyways, the point of this post is not to instruct you how to make money in the game, there are many people around who can do that way better than me. It is more to look at the Wow economy in comparison to the real world economy."

He is not trying to give you the methods by which to go out and earn your fortune, he is giving a broad overview of the WoW economy. Or at least doing the best job he can.

The rest of the article is being based on that paragraph. A description of the methods available to earn your gold.

So then let's look at the situation he is in. He states that he does not want to spend x amount of time at the auction house. Anyone who plays the auction house first off knows that you will spend time at the auction house first listing and then adjusting prices. After all, if this is about profit then we all know that you do not simply list and let it go. Secondly, he stated he is leveling something like a dozen characters. So applying the knowledge that he does not like to spend time at the auction house and he is leveling two accounts then for him, gathering items as he levels is going to be pure profit. Meaning that his goal is to level his characters with earning gold as a side effect.

Ruhtra said...


So now take the information provided in the first paragraph and with the understanding of how he is leveling and apply to the rest of his article and what he is saying is very true.

Now let's look at what you say:

"To put it in terms of risk/reward, farming is a guaranteed time-sink, a 100% risk of a certain amount of time."

You can look at it in terms of that. If you play on a PVP server then there is a huge risk in farming for items. However, you could also view it as a 100% reward because you know that you will end up receiving something for your time spent. You will more than likely be able to acquire a few resources. You will more than likely kill a trash mob or two and thus have something from those kills which you could then vendor or sell on the auction house depending on the quality of the item. So we know there is going to be something you will receive from the time spent.

However, if you list on the auction house there is risk involved as you could be undercut and your item not sell, thus losing your fees and time spent listing. So the potential is there to lose gold with no guarantee of earning any and thus losing your intitial investment.

I am not saying who is right and who is wrong. I understand what you are saying, but I think you should understand what Fish is saying as well. Fish also comes from working in the financial industry, specifically dealing with the stock market. When you know the background of what he does, as well as I, then you have to realize that he is not just providing an overview of the WoW economy but is taking it one step farther and actually applying proven real life economics to the WoW economy.

When we speak of risk/reward, we are not afforded the luxary of making an assumption that if we buy "A" at a low price and then relist it at a higher price that "A" will sell and thus we will make a profit. In fact "A" could tank in value and thus we could lose our principle amount and receive nothing. Thus this creates a high risk with no guaranteed reward.

However, if we spend time working (grinding/gathering), then we know that the reward will be a paycheck. Thus there is only potential for reward and no risk in what we are doing, just time spent, or simply put a guaranteed reward.

Now if you wanted to get even more tricky, then we could talk about hedging, but that does not guarantee any sort of profit either. Hedging just simply protects against a downturn, but cannot guarantee a profit but rather try to stop the potential of complete loss.

I know that Fish tries hard to avoid economic discussions of WoW because of his training and knowledge. It is hard to set aside real world principles in a game that at times resembles ones job.

I do not believe his intentions were to say that if you do not do as I say then you will not earn any funds. His final sentence is simply supporting his opening paragraph:

"Sure, it would be nice to have 40-50k to get epic flyers for some alts and be able to buy mats to craft whatever I want. However, to me, it just isnt worth the time expenditure to get there."

He specifically states that to him it just is not worth the time. It is an opinion. The same as you have. I think we just have to look at the background of where both sides are coming from and that allows us to see both points. I personally do not fully agree with what he says as the principles of real world economics rarely ever works in video games, but I will at least be willing to listen to his views, as well as yours. In the end of this long response, I hope you see where he is coming from and that may help you understand his viewpoint a little better, regardless of if he right or wrong.