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On May 24 2013 03:55 KwarK wrote:
Well the point is that all plex are out of thin air, it's a virtual good, the only thing that anchors them even slightly to something real is that they are purchased at a $ value. When CCP starts fucking around with that $ value and the only constraint upon supply is $ people are willing to spend then CCP is choosing to create more/less out of thin air.
You can bet that CCP has a method for accounting for the real-world dollar cost of providing the future service to players that each PLEX represents. It's an in-game item that represents a claim on future CCP services, which is certainly more abstract than a physical good like an apple or a cigarette, but less so than a purely in-game item like a ship.
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United States43957 Posts
Unless PLEX bought today are going to represent a meaningful drop in $ spent on subs tomorrow it has no real value beyond server use. Even with PLEX sales regular subscription plans are still a cheaper way of subscribing your account. The people who actually buy PLEX with real money are people who will pretty much always run subscriptions rather than use PLEX.
Furthermore every time you buy a PLEX for $20 you are creating a situation in which CCP have to provide a service they normally provide for $12 for you some time in the future. PLEX more than offset their own budgetary overhead.
Admittedly if PLEX represented a big obligations number on the spreadsheet it'd look bad to create them and throw them out in the community. Say the obligation is worth $8 to CCP (hypothetically), creating 10000 and seeding them to players would be an $80000 loss on the balance books. Now say they run a hypothetical 40% off sale on PLEX and sell 10000 PLEX for $120000 when normally the same 10000 PLEX would have earned them $200000. Same loss on the balance books.
Then we factor in why they care so much about PLEX prices, they're afraid if PLEX prices get too high people won't dualbox so much or won't have random trading/indy/whatever alts. The hypothetical cost of the obligation they're creating by producing PLEX out of thin air is offset by a hypothetical cost of a decreasing consumption of their service through active subscriptions. At this point it becomes rather arcane.
The core point remains that all PLEX everywhere are always created out of thin air and that there is no reasonable definition of direct intervention in the PLEX market that would include CCP giving themselves PLEX and right click selling and not include CCP giving other people who intend to right click sell their PLEX more PLEX for their $ than they usually would have.
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On May 24 2013 04:13 KwarK wrote:
Say the obligation is worth $8 to CCP (hypothetically), creating 10000 and seeding them to players would be an $80000 loss on the balance books. Now say they run a hypothetical 40% off sale on PLEX and sell 10000 PLEX for $120000 when normally the same 10000 PLEX would have earned them $200000. Same loss on the balance books.
First, accounting rules do generally require that if you sell future obligations to provide services, the cost of providing those services must be counted as a liability at the same time that the revenue is booked. And yes, given your numbers, those liabilities would be equivalent.
However, the business case for a PLEX sale is that players who would normally spend a certain dollar amount on PLEX will spend that dollar amount plus some extra because of the sale. If those extra sales are enough to increase total profit even with a decreased profit per PLEX, then CCP wins in a few possible ways.
First, they might be able to book the profit for those future sales now, depending on Icelandic accounting rules (and how this type of thing works is one major difference between accounting rules in different jurisdictions.) Second, even if they can't book the profit until the PLEX is redeemed for game time, they can lock in the sale of that game time (which helps protect them against future falling subscriber numbers.) And, usually even if they can't book the profit immediately, they would be required to hold the revenue in escrow, where it would earn interest.
None of these benefits accrue if they simply create PLEX and seed it into their economy. Essentially, doing that creates the liability but doesn't generate any revenue. Declining to hold a sale and doing that instead also fails to provide the inducement for people to spend more actual money than they otherwise would.
Edit: Also, yes, the profit per PLEX is higher than their other ways of paying for game time, which reflects that PLEX has value to the actual purchaser that's different than just adding time to their account.
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Lysenko, funny that you respond to my post mentioning creating plex out of thin air, as I had removed that part before I posted it.
Kwark hits the nail on its head in the post above me, you create plex out of thin air because you want everyone to be able to dualbox/have an alt for a reasonable amount of money.
A) If you don't intervene when plex spikes, it will mean less alts, and possibly (this is mostly player based, and in the case of EVE, totally unpredictable) less players, so less $ for CCP.
B) If you do intervene, you get a bit less plex sold (than in the ideal scenario where plex never spikes), so less $ for CCP, but keep those players that would have quit in scenario A (its quite arcane).
I guess CCP did the math and went with B. Other reasons why B over A is just pure guesswork and speculation. Some choices seem logical (like a larger playerbase), but you cannot be 100% sure of the reasons CCP had when making that decision. (I also cannot be 100% if that decision was (conciously) made, but lets assume it was).
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Stop bringing accounting into this, you're making it more complicated than necessary. Also you have 2x "First" in your post.
All that matters to CCP is that they remain fiscally healthy. If I were to work at CCP, I'd make sure that if all accounts used a sub ($12/month) I'd be fiscally healthy (I can pay for the company building, all dev salaries, the entire game running). Any PLEX ($20/month) would be a bonus of 8$. Now I only have to scrap some of that bonus to play with the market, but nothing that poses a threat to the company's existance.
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United States43957 Posts
Decling to hold a sale prevents the accounting loss of selling extra PLEX but insufficient extra PLEX to offset the lost income from the sale. Again, if you give people 20% off per PLEX and they spend the exact same amount on PLEX (and I've already argued at length about why that assumption is flawed because it ignores the fact that PLEX are bought as a means to an end and that predictable PLEX sales act to deflate total $ spent on PLEX) then you have put 25% more PLEX into the game for the same $. You can hide that increased liability in the numbers but it's no different than if you had created them.
Say PLEX have a normal price of $20 and a liability value of $10. You sell 1000 PLEX ($20,000 worth), your company has made $10,000. You then create 250 PLEX and give them out for free. Your company has just lost $2,500. Overall gain, $7,500.
You then run a PLEX sale offering PLEX for $16. You sell 1250 PLEX ($20,000 worth), your company has made $7,500.
The liability doesn't change anything, a sale promotes addition PLEX sales for a reduced profit margin per PLEX whereas not a sale promotes fewer PLEX sales for a higher profit margin per PLEX. Only if you can convince people to buy more than 25% more PLEX than they normally would is the sale plan any different to the just creating PLEX plan.
If this
However, the business case for a PLEX sale is that players who would normally spend a certain dollar amount on PLEX will spend that dollar amount plus some extra because of the sale. If those extra sales are enough to increase total profit even with a decreased profit per PLEX, then CCP wins in a few possible ways.
is the case then CCP benefit from it. But again the practice of running regular predictable sales actively interferes with the results of their sales.
Timmy is a hardcore eve player who likes to spend at least 5b/month welping ships in PvE incursions which he makes no money from. To subsidise this he right click sells about 10 PLEX per month. If CCP never ran any sales then he would give CCP $200 every month for his PLEX. However Timmy is a crafty consumer and he read the reddit post where amazon were offering 50% off (or something like that) on all virtual goods and PLEX were available on there for over a day and got massively stockpiled. He bought 120 PLEX for $1200 that one night and is slowly selling his 10 a month throughout the year.
According to CCP's logic their sale incentivised Timmy to buy 120 PLEX and then the fact that Timmy didn't buy any PLEX in the months after that proves that unless a sale is running Timmy won't buy PLEX. But we know better because Timmy is still flying nightmares with Chelm's heat sinks on them. What the sale has done is not increased the overall volume of sales but rather taken sales which would otherwise have been spread across a period of time and concentrated them in that moment. They've actually cost themselves $1200. Now it's possible that Timmy was so excited that he wanted to go up from 5b a month to 6b with the extra 1b funding his skirmish and siege link alts (I told you Timmy was hardcore, Timmy ain't no scrub). After all with this sale going on the extra 24 PLEX still only bring his overall cost up to $1440. However even with the additional sales CCP still have a $960 shortfall on what they could have made and the extra liability of 24 more PLEX.
So yeah, maybe some people spend the normal dollar amount and then some and then some more to cover the liability involved in the extra PLEX just to meet the normal dollar amount. But Timmy doesn't. And these sales happen like clockwork and are heavily promoted on the login screen, nobody who plays EVE doesn't know about them, Timmy isn't unusual.
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On May 24 2013 04:51 KwarK wrote:
Say PLEX have a normal price of $20 and a liability value of $10. You sell 1000 PLEX ($20,000 worth), your company has made $10,000. You then create 250 PLEX and give them out for free. Your company has just lost $2,500. Overall gain, $7,500.
You then run a PLEX sale offering PLEX for $16. You sell 1250 PLEX ($20,000 worth), your company has made $7,500.
But in the real world, that's not what happens. The PLEX sale sells more than 1250 PLEX because people see "sale" and spend enough more money to overwhelm the difference in price.
This is why sales and discounts are so common in marketing, because they have an effect on revenue that's out of proportion to the price reduction.
This stuff works even when people are fully aware of them, understand the underlying marketing principle, and know it's going on. There's a ton of research on the effect of discounting listed prices on buying behavior.
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A few points.
[1] There is significant existing motivation to buy the more expensive PLEX rather than sub for X months. Practically every huge entity in the game has a GTC-buying service which directly benefits their infrastructure. For example, GSF has and advertises a "buy GTC from X provider to help keep our services paid". Lots of their members contribute to this, basically donating their money to these services by purchasing GTC from a specific provider through a specific link.
[2] I don't believe that CCP creates PLEX independent of a USD transaction. This creates too many conceptual problems and is potentially a route full of economic hazards.
+ Show Spoiler [Conspiracies Abound] +
The explanation of "we got PLEX from banned accounts" definitely doesn't make any sense, though. I suspect they are using ISK-value from "recovered" accounts to put up PLEX buy orders, but then there would be a verifiable record of that (if you sell order PLEX all the time, you'd notice it going into the same character occasionally).
If I were to do it, I would dump recovered assets into buy orders and only use the ISK generated that way to put up buy orders for PLEX to some collection of anonymous (randomly named) CCP alt characters. Sounds elaborate but I think it's reasonable.
Many botters and RMTers tend to generate large amounts of low-level goods (e.g. minerals, (formerly) valuable salvage). These are goods injected into the gamespace by CCP servers. Instead of using recovered ISK directly (which, in many cases would be a harmful contribution to inflation), converting recovered goods to ISK lowers the price rise rate of those goods and related goods. This could be interpreted as combating inflation, particularly if the goods are minerals (pretty much every good is affected by the price of minerals).
The ISK gained from conversion of these goods is "legitimate" in that it comes directly from the market (whereas in the case of a ratting botter, ISK would be injected into the game at a high rate, contributing to inflation). Routinely putting up small buy orders for PLEX (e.g. 10 a week) would have no or little long-term effect on the price and provide more than enough PLEX to affect a rate drop when needed. If you remove the ISK profit motive and replace it with USD profit motive, this little scheme makes sense.
[3] I may be missing something simple, but I don't see the practical or legal need for all this complicated accounting talk. When someone buys GTC, the service has been completely rendered. A one-way conversion of USD to in-game items has been carried out. There's no such concept as liability beyond that. I mean, imagine someone undocking from Jita with 400 PLEX in their cargo and they crash. They can't sue CCP for the USD value of those PLEX. Even if they could, PLEX have 0 USD value. And the player doesn't own them - CCP owns them. From a legal or accounting perspective, CCP gets paid money to affect a change in their game world (this is the service) and once they do that, they have made profit.
CCP could create 100,000 PLEX per day out of thin air without the need for complicated accounting. Would it ruin their business? Yes. Would it have a literal cost of X amount of money per PLEX? Nope - it just devalues GTC and subscription time so that the demand curve for those items is significantly different.
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On May 24 2013 04:58 Lysenko wrote:Show nested quote +On May 24 2013 04:51 KwarK wrote:
Say PLEX have a normal price of $20 and a liability value of $10. You sell 1000 PLEX ($20,000 worth), your company has made $10,000. You then create 250 PLEX and give them out for free. Your company has just lost $2,500. Overall gain, $7,500.
You then run a PLEX sale offering PLEX for $16. You sell 1250 PLEX ($20,000 worth), your company has made $7,500. But in the real world, that's not what happens. The PLEX sale sells more than 1250 PLEX because people see "sale" and spend enough more money to overwhelm the difference in price. This is why sales and discounts are so common in marketing, because they have an effect on revenue that's out of proportion to the price reduction.
I'd like to take this one step further.
Everyone knows that buying in bulk means cheaper prices per item, right? Even though the package costs more, when looking at the cost per item, you're getting a better deal, right? It's been ingrained in our society for a long time now.
But that is not always the case.
A lot of stores here in Canada have actually started selling some "bulk" or "family pack" labeled products at higher prices per item than the exact same item packaged in smaller amounts. No, I'm not joking. And yes, it is working. $7.29 for 6 cans of tuna which are 99 cents each, or $8.99 for 24 granola bars when a 16 pack is $4.99. 24 case of bottled water (while on sale) for $4.99 when a 12 pack (while not on sale) is $1.99. Etc.
And they still get bought often, I see people picking them up and will tell people when it's a bad idea. I've actually had arguments with some people while trying to educate them about this, they simply don't understand how it would be more expensive when sold in bulk, because it's always been cheaper to buy in bulk..... Most have appreciated the lesson on it, but yea, there have been some that adamantly refused to believe that it was actually worse to buy in bulk, and are too stupid to understand the basic maths needed to show it.....
People, on average, are stupid.
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That's because people have a tendency not to even look at prices. Even if they look at prices, they don't keep a running tab (crippling inability to use mathematical concepts). They just pick things they want off the shelf and assume they will be given a fair price. The shiny "sale" signs just make it more likely for people to purchase a specific item because that will, presumably, be an even more fair price. This explains both your post and some of Lysenko's points.
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United States43957 Posts
On May 24 2013 04:58 Lysenko wrote:Show nested quote +On May 24 2013 04:51 KwarK wrote:
Say PLEX have a normal price of $20 and a liability value of $10. You sell 1000 PLEX ($20,000 worth), your company has made $10,000. You then create 250 PLEX and give them out for free. Your company has just lost $2,500. Overall gain, $7,500.
You then run a PLEX sale offering PLEX for $16. You sell 1250 PLEX ($20,000 worth), your company has made $7,500. But in the real world, that's not what happens. The PLEX sale sells more than 1250 PLEX because people see "sale" and spend enough more money to overwhelm the difference in price. This is why sales and discounts are so common in marketing, because they have an effect on revenue that's out of proportion to the price reduction.
In the example listed they need to sell more than a quarter extra to be better than just giving away another quarter of their stock for free, to actually make the $10,000 profit that the normal price would have produced if you didn't try and lower the PLEX price by right click selling another 250 you'd need your sale to make people buy another 2/3 more than they normally would. You need to sell 1666 PLEX at $16 price, $10 liability to make $10000.
To break even with your 20% discount sale you need to sell >2/3 more which means you need the customers who would previously have given you $20,000 to now give you $26,656, that's your break even point. What this represents to them is an oversupply of their usual needs (as represented by the base purchase during a non sale of $10000) by 2/3. The oversupply will have three impacts.
A) Rewarding people who only want their usual number by charging them less. This represents a big loss for CCP. The 10 PLEX Timmy would have bought for $200 ($100 pure profit for CCP) are now being bought for $160 ($60 pure profit for CCP).
B) Encouraging people to spend their usual money and get more for it. This represents a smaller loss for CCP. Instead of buying 10 PLEX for $200 ($100 pure profit for CCP) Timmy now buys 13 PLEX for $208 ($78 pure profit for CCP).
C) Encouraging hoarding against future non sales. This represents a loss of $4 per plex on however many PLEX he buys. As a virtual good that is completely secure, takes up no space, will not expire and is being offered at an unusually low price buying to hoard for later use is completely rational.
The discount depends upon a large increase in the use of PLEX to be economically rational which in turn would need either a large increase in the number of subscriptions or people stopping subscribing with real money and starting subscribing with PLEX. Given that these PLEX sales are used to drop the price from 540 to about 520 I just don't believe that they are having any meaningful impact on the number of PLEX consumed.
Having ruled out the economic argument for PLEX sales as a means to increase overall profit (based on these arbitrary numbers at least) that leaves the argument for PLEX sales as a means to oversupply PLEX as a price control, even though it is being done at a loss compared to not holding the sale. And that brings me back to my original point, that a sale is in no meaningful way any different to simply giving a proportion of the PLEX sold on a given day to a CCP alt to right click sell.
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On May 24 2013 05:07 DefMatrixUltra wrote:
[3] I may be missing something simple, but I don't see the practical or legal need for all this complicated accounting talk. When someone buys GTC, the service has been completely rendered. A one-way conversion of USD to in-game items has been carried out. There's no such concept as liability beyond that. I mean, imagine someone undocking from Jita with 400 PLEX in their cargo and they crash. They can't sue CCP for the USD value of those PLEX. Even if they could, PLEX have 0 USD value. And the player doesn't own them - CCP owns them. From a legal or accounting perspective, CCP gets paid money to affect a change in their game world (this is the service) and once they do that, they have made profit.
The liability associated with PLEX is the cost to CCP of providing a month of service to a current or future player who redeems that PLEX. Paying in advance for services that are not yet rendered creates an accounting liability on the balance sheet (as well as an offsetting asset in the form of cash taken in.)
The reason they have to account for it this way is that as long as the PLEX exists, some customer, at some future point, will ultimately redeem that PLEX for services that cost CCP money. They're just not allowed to pretend that those services will cost them nothing to provide. Or, the PLEX can be destroyed in game, in which case they can just deduct that portion of the liability on their balance sheet and be done, since it can never be redeemed.
The reason I brought all this up is because actions that create a balance sheet liability without offsetting revenue usually cause business people and their accountants to act as though money is being spent. So, making PLEX out of nothing, with no initial transaction, and selling it into the market isn't going to fly for real-world business reasons (because it's committing to a future cost of providing services with no revenue to balance it out.)
Kwark's argument that you can pair up such transactions with normal PLEX sales doesn't fly because doing that doesn't have the marketing impact of a discount, which is why they offer the discounts in the first place.
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United States43957 Posts
I don't believe that CCP creates PLEX independent of a USD transaction. This creates too many conceptual problems and is potentially a route full of economic hazards.
Is there a meaningful difference between offering people 1.25 PLEX per $20 and offering people 1 PLEX per $20 and independently creating .25 PLEX for themselves every time someone buys one? If there is I'm not seeing one. If the price of PLEX is created by them arbitrarily and the supply is unlimited and expands to match the $ used then adjusting the price is the same thing as creating extra PLEX. It's an equation.
A = Consumer money spent ($)
B = Price per PLEX ($)
C = Number of PLEX arbitrarily added to the game by CCP for :reasons:
D = Number of PLEX added to the game overall
(A/B) + C = D
CCP can do whatever the fuck they like with B, they don't need C to make D say whatever they want. B and C do the exact same thing.
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On May 24 2013 05:07 DefMatrixUltra wrote:
CCP could create 100,000 PLEX per day out of thin air without the need for complicated accounting.
No. In most countries, creating tokens for future services out of thin air without creating a balance sheet liability would be a violation of accounting rules and probably treated as fraudulent if done intentionally (i.e. not because of a mistake or misunderstanding.)
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On May 24 2013 05:26 KwarK wrote:
Is there a meaningful difference between offering people 1.25 PLEX per $20 and offering people 1 PLEX per $20 and independently creating .25 PLEX for themselves every time someone buys one?
Of course there is, because it allows them to say to customers "Hey, PLEX now cost you less money!" The customers then spend more money (note that I'm NOT saying they "buy more PLEX" though they do that too) than they would have otherwise.
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Hyrule19207 Posts
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United States43957 Posts
On May 24 2013 05:29 Lysenko wrote:Show nested quote +On May 24 2013 05:26 KwarK wrote:
Is there a meaningful difference between offering people 1.25 PLEX per $20 and offering people 1 PLEX per $20 and independently creating .25 PLEX for themselves every time someone buys one? Of course there is, because it allows them to say to customers "Hey, PLEX now cost you less money!" The customers then spend more money (note that I'm NOT saying they "buy more PLEX" though they do that too) than they would have otherwise.
I meant in terms of $ per PLEX and number of PLEX entering the game. Obviously customers like it because rather than ending up with a CCP market alt with more money than God they get that money divided between them.
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On May 24 2013 05:18 KwarK wrote:
Having ruled out the economic argument for PLEX sales as a means to increase overall profit (based on these arbitrary numbers at least)
What? If PLEX sales didn't increase their absolute real-money profit, as analyzed by their real numbers, they wouldn't offer them over and over again.
There's exactly zero chance that they offer sales on PLEX to have an impact on the in-game market. They're doing it because PLEX are one of their ways of getting paid (real world) money by their player community.
Stabilizing the in-game market is a secondary player experience concern that's a lot lower on their priority list than taking in money from customers who wish to pay them for things.
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On May 24 2013 05:32 KwarK wrote:
I meant in terms of $ per PLEX and number of PLEX entering the game. Obviously customers like it because rather than ending up with a CCP market alt with more money than God they get that money divided between them.
In terms of only the in-game economy, you're absolutely right, those two hypothetical cases are equivalent. It requires looking outside that sphere to CCP's real-world money concerns to understand why they don't treat them equivalently in practice.
Edit: Holy crap, 50k skill points, what will I do with all those points???
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EPT
