What are the implications of a real-dollar auction house?

It was just revealed that Diablo 3 will feature a dual-currency auction house for in-game gold and for real currency, allowing players to spend real money for Diablo 3 items. Blizzard will not sell those items directly but rather will facilitate auctions between players. Players will receive real currency for their sales, and Blizzard will take a cut off the sales of real-currency items. Blizzard is entering some pretty crazy territory with the Diablo 3 auction house, and the implications may be even more huge for the massively multiplayer market than for the Diablo multiplayer experience.

One of WoW's biggest issues that currently plagues Blizzard (as well as the MMO genre in general) is the existence of a gray market in which companies sell in-game currency to willing buyers against the game's terms of service. Many free-to-play MMOs and online games combat this market by selling their own currencies for use in-game, making the currency non-tradeable, or selling items in a microtransaction marketplace. Blizzard has not yet made a free-to-play MMO where these concepts could come to any kind of fruition, and WoW's virtual goods store is very limited in scope and price point.

Diablo 3 is going to be a huge hit, no matter what. The game is destined for greatness, if only for the mere fact that it is the follow-up to one of the greatest games in the history of gaming, Diablo 2. Players have been part of a gray market for Diablo items through sales, hacking, duping, and a million other bugs that plagued the first and second games.

Diablo 3 will utilize an in-game gold currency -- and then, in a stroke of crazy genius, also have a counterpart auction house where real dollars can be spent on items that players list for real dollars. We do not know what the upper and lower limits on the system are and so on, but what we do know is that Blizzard will take a cut of the sales from real money transactions. Seems like a great way to generate money without subscriptions, no?

Why is this a big deal?

Opening up a real-currency auction house is huge news for at least two reasons. The first is that instead of selling some kind of in-game currency for use in the auction house, Blizzard is taking out the proverbial middleman. Why sell fake Blizzard Bucks when players can make the transactions right there on the AH with their saved credit card info and Battle.net wallets? Plus, Blizzard isn't actually selling the goods, just providing the means for auctions of virtual items within its world. You won't be buying that Greataxe of the Whale from Blizzard, but from another player in the game. You can (according to the pictures leaked) purchase gold for money on the auction house, seen as one of the categories on the side navigation bar.

Second, Blizzard wisely does not prescribe gold a value in dollars. There are two separate auction houses, with the two currencies never meeting in the middle. If someone lists something for gold, you pay gold. If someone lists something for dollars, you spend dollars. Gold does not get devalued in the system, until a player-based solution comes about to ascribe value. Real money can be spent on almost everything, even gold, but it's not Blizzard setting the price and it's not gold sellers making the transactions -- well, it is gold sellers, but we are all gold sellers under this model. Everyone becomes a gold seller in essence, and Blizzard always gets its cut. Win-win.

It's wacky to wrap your head around. Think of it more like the App Store for Diablo 3, and instead of buying apps, you are buying items you may need for your adventuring for small payments, based on whatever is up on the auction house.

The navigation bar clues us in

On the side of the auction house user interface are many different categories of what is available to purchase, as well as a Balance box with a dollar amount. The categories include equipment, characters, gems, crafting materials and dyes, tomes and pages, and gold. From the characters and gold categories, we can guess that players will be able to sell their characters and gold for real currency.

So here is an auction house that eschews the developer's selling items and power-ups in an in-game marketplace for a system in which players freely trade items, characters, currency, customization options, and more with each other, taking Blizzard out of the equation except for the auction house itself. This seems like the best of all worlds for players, who can do everything inside the game with gold and their own play experience. Other players who choose to spend money can purchase straight from other players who are selling their virtual goods. You can buy power -- but not from the game developer. Interesting.

There are strict auction rules out there that vary from state to state, as well as income reporting and other rudimentary documentation that has to go on. Is my Diablo 3 income taxed? If I sell enough Stones of Jordan, will I be bumped up to another tax bracket? Suffice to say, there are many implications that a Diablo 3 cash auction house could potentially bring, but as an evolution of the way players interact with their virtual goods, it's a milestone.

World of Warcraft could benefit greatly from this type of auction house, removing the need for players to spend money on gold from gray market outlets and instead allowing them to spend directly on items being sold by players themselves on the open market. It makes me sad that Rob Pardo said that WoW would probably never get this type of auction house, since it could benefit the game in many ways. Blizzard could remove the profitability of gold farming by making everyone a gold farmer and, much like what it did with the Diablo 3 auction house, linking the auction houses together region-wide.

The game changer - the Battle.net Wallet

Also of note is the Blizzard Battle.net "wallet," where you can put money to spend on the Diablo auction house. This money is Battle.net-universal, that means the potential to spend your Diablo 3 earnings on WoW game time, pets, mounts, and even other games from the Blizzard store. Blizzard still gets its cut from the auction house sales. This is it -- this is the game changer.

With Diablo III's cash auction house feeding your Battle.net wallet, more in-game purchases from pets and mounts to other Blizzard games open up to more people. Blizzard has the opportunity to let other games, including future and past releases, feed into the account's pool. Remember when I talked about how the Battle.net account has been changed to something that Blizzard wants you to keep into perpetuity, adding value to through all of its games and services? This is the huge beginning.

Any digital product. The system feeds itself. Blizzard makes money off the transactions that occur, and you get to either take your money and go elsewhere or stay in-store and in-brand and just spend your Battle.net balance right there on new stuff, fully available for you. It's genius.

You would never have the urge to purchase gold from a shady seller because there would be a market of in-game sellers ready and willing to sell the items or gold, with the added benefit of being able to rely on the Blizzard interface for safety. Imagine: Instead of spending cash on gold, then turning that gold into a Vial of the Sands, you just plop down $10 on a Vial being sold by a player. If this is all true, Blizzard has created a compelling new addition to the way players can expect to deal with their virtual goods.