Whenever we talk about true ownership in video games and enabling gamers to freely trade items on a marketplace, we inevitably get asked about Diablo III’s Auction House — infamous for its short lifespan and near-unanimous concession by gamers of its failure.

Responses to Blizzard’s announcement that it will shut down the Diablo III Auction Houses.

These Auction Houses were a feature that was released in Diablo III in response to the trading of in-game items on third-party marketplaces and in informal transactions between players.

According to former director of Diablo III, Jay Wilson:

“The auction house came out of the desire to legitimize third party trading so that players would stay in the game to do their trading rather than go to third party sites, and as a result reduce fraud, scams, spamming, and the profit in hacking the game, making dupes, etc.”

What were the Auction Houses?

A screenshot of a player’s dashboard in Diablo’s Real Money Auction House

The Auction Houses were in-game marketplaces that enabled players to trade loot. There were two types: One that used only the in-game currency (gold) and one that allowed real money transactions.

Both were responsible for the issues that arose in Diablo because they created a shortcut in the game’s reward loop that diminished gamers’ incentives to play the game.

What went wrong?

There was nothing wrong with the ideas behind Blizzard’s motivation to introduce the Auction Houses, namely:

Enabling gamers to truly benefit from the time and effort that they have put into gameplay by being able to exchange, for real world value, the items they have attained using this effort. Observe what gamers are doing (or trying to do) with the game world that you’ve created and provide them with as much autonomy and control as possible.

However, to understand why free trade between gamers was such a failure in Diablo, you must understand the incentive structure of the game.

Battling monsters

Getting loot drop

Diablo’s gameplay is fairly simple:

Kill enemies Earn loot drops Find the weapons and armor that you need in these drops Repeat

A key thing to note about this process is the infrequency of finding the items that you need within these loot drops, requiring you spend more time finding and killing enemies before you eventually get rewarded with the items that you want.

Further, most Diablo players will tell you that the point of this game is to get the best loot. There is a direct correlation between good loot and winning battles.

How the Auction Houses ruined the game…

However, with the Auction Houses, the structure of gameplay shifted to the following:

Kill enemies Get loot drops Sell items in loot drop on the Auction Houses (real money or gold) Accumulate gold to buy items that you need from the Auction Houses Repeat, OR… Find ways to arbitrage in the Auction Houses and earn more gold/money this way

As you can see in the above scenario, the mere existence of the Auction Houses shifts gamers’ incentive to spend more time trading within it than playing the game. Further, by being able to use cash to buy items or gold, It became entirely possible to spend all of your time in the Auction House to enhance your loot stash without actually battling monsters.

If gamers did decide to battle, it was to acquire more loot that they could use to trade with. Previously, there was a substantial amount of loot that you received in loot drops that was useless to you. With the Auction Houses, there was always other gamers at different stages of the game willing to purchase your unwanted loot for gold, which you could exchange for items that you actually wanted. As a result, you managed to very efficiently derive value from every action that you took in the game.

Trading action on the Real Money Auction House

This meant that gamers could spend less time killing monsters to get the loot that they wanted. The game became more about the trading in the Auction House than actually playing.

It wasn’t long before gamers started realizing that the game was no longer fun. Force, a former Diablo gamer who used to stream his matches on YouTube, put it this way:

“I didn’t purchase an auction house simulator, I purchased a hack and slash dungeon crawler.

All I wanted to do was play this game but it wasn’t worth it. People say, ‘Force, just play the game,’ but I can’t explain it. I just wasn’t having fun anymore. [The Auction House] made it feel like it was necessary to be trading items to progress. That killed my desire to play the game.”

On a Blizzard gamer forum discussing why the Auction Houses were taken down, one poster explains:

“The first thing you have to understand is why open trading didn’t work and still wouldn’t work in Diablo III. And that reason is because 99% of a player’s progress and power comes from the clothes their hero wears. [The player’s ‘armor’] This single reason makes trading super OP [‘overpowering’ in gaming lingo — means an action that misaligns incentives and overrides all others] because it allows people to trade instantly for the best gear in the game without having to put hardly anytime in the game at all. All you have to do is level to 70 and you can slap on anything you want. Pretty pathetic requirements to be honest. So this made trading a huge problem because it short-circuited the “grind” or “reason for playing the game” and left players with nothing to do afterwards.”

Wait — does this mean that true ownership (and full control and free trade) of game items will kill video games?!

This is why good game design is so important.

Game designers know that every decision that they make about a game — every action enabled, every rule imposed, every feature introduced — has an impact on how it is enjoyed by gamers.

This is why we are not ignorant of the fact that enabling true ownership in a video game, as the Hoard platform aims to facilitate, can have a substantial effect on gameplay.

True ownership can highlight issues with a game, as Diablo’s Auction Houses did. However, it can also provide new opportunities for unique game design and create a more rewarding experience for both gamers and game developers.

What will true ownership mean for video games?

If true ownership of game items becomes the standard, then gameplay mechanisms will have to adapt for the following inevitabilities:

Free trade of game items between players.

There will be alternatives for ‘grinding’ in order to gain loot and advance a character.

Less control over the channels where players can trade items (ie. they can now trade in many different ways — on different exchanges, within the in-game exchanges, informally between them, etc.)

Item values become more user-dictated as greater user control means that the market is setting demand and, hence, price levels.

What opportunities does this present for game developers?

Free trade of game items between players

Game developers have to be prepared for a new economy to emerge when gamers can freely trade their assets. Gamers who create value will be rewarded by those who are looking to consume that value.

The spaceship galaxy that is Eve Online

An example of this can be seen in the MMORPG game, Eve Online, which is a largely player-driven persistent-world with an ‘open economy’ — which means very little interference from game developers. This philosophy is upheld even to the point where, when an alliance of gamers plotted the ‘killing’ of one of the characters and the destruction of her assets to the value of £10,600 (at the time the largest theft of virtual assets in any video game), CCP, the company behind Eve Online stated, “We looked at what had happened and could see no rules that had been broken. Only trust had been broken. It’s not our job to guarantee trust.”

Recent Eve Online battle with approximately $1,000,000 worth of spaceships on the line

Within the Eve Online’s robust in-game economy, gamers take on professions and activities, including mining, piracy, manufacturing, trading, exploration and combat. This is game that is largely dictated by the players, not a collective of scriptwriters. According to a 2015 Guardian article:

“This is not a game that accommodates undergraduate stoner idling or StarCraft’s caffeine-fuelled competitiveness. Its victories come slowly. They require long-view investment, even leadership skills. It is a game about social interaction and self-made goals. This gives the game its distinctive power.”

As of 2013, the population in Eve Online surpassed 500,000 and, at nearly 15 years old, it is one of the few virtual worlds that has survived longer than a decade.

Alternatives to grinding for loot

Many games have some aspect of allowing gamers to pay for advantages, whether it is to avoid hours of ‘grinding’ by allowing them to purchase currency, weapons or skins upfront, or by enabling them to play on a ‘powered up’ mode where they can level up at a faster pace.

However, the games that have successfully done this without alienating their non-paying users have made sure that there are other ways of succeeding in the game that rely on skills and characteristics other than those that can be acquired with payments or cash.

Clash Royale

For example, in Clash Royale, a PvP mobile strategy game, players can pay to acquire cards and level them up, which gets them more powerful weapons and troops. However, gamers still have to rely on skills like teamwork, strategy, experience and knowledge of tips and tactics.

In addition to just playing in order to increase skills and abilities within the game, Clash Royale gamers can enhance their chances of winning in the following ways:

Clash Royale rewards players who spend a lot of time playing by providing a lot of timed free material, including a daily login rewards system. Players can pick up tactics and strategies to improve their gameplay by watching ‘TV Royale’, which has an in-game mechanism for watching other people play. Learning from other players by watching YouTube videos.

When enabling true ownership, game developers need to ensure that success is not dependent solely on having better ‘gear’ but should also having skills and strategies acquired via gameplay.

Less control over trading channels

Having true ownership means that players can choose different marketplaces on which they trade their items. They can do so on numerous online exchanges, but they can also do it in-person, in physical marketplaces, or they can choose to gift items to people.

Whilst game developers have to give up a portion of control when this occurs, they are more likely to benefit from this as game items are exposed on a variety of different markets and could potentially invite a new demographic of players to the game.

Market-dictated prices of items

Whilst developers might be tempted to control all aspects of their in-game economy in order to be able to predict revenues, CS:GO skins markets have demonstrated that allowing for game items to be traded on secondary markets and for these markets to set the prices actually results in higher prices of these items.

There is a reason why Steam have to introduce price caps in its marketplace because there was the potential for these to escalate due to overwhelming demand for particular, rare items. If developers of blockchain games, however, are encoding % fees per transaction every time a game item is traded, then the higher the price that an item sells, the greater the revenue they receive from that item.