John Carmack, a legendary game developer, has proposed a way to fight shortages of graphics cards and game consoles that are to some degree caused by miners and scalpers. The founder of id Software believes that manufacturer-led auctions could help gamers to get their hands on their desired hardware, but at a price.
"Given shortages and speculators on things like [the GeForce RTX] 3090 GPUs and new consoles, it seems like we really would be better off with a transparent auction system directly from the manufacturers and a more efficient market," Carmack wrote in a Twitter post. "The world of sales channels prevented that in the past, but we may be moving past that for a lot of products. There would be much indignation at reported prices out of the gate, but removing intermediaries should net out better for consumers in the end."
Scalping and Mining: The Gamer's Main Enemies?
High PC demand because of remote working and education have recently caused massive shortages across the whole PC supply chain. Since people now spend more time at home, they naturally buy more devices to entertain themselves, droving demand for gaming PCs, discrete graphics cards, and game consoles to levels that are impossible to meet quickly.
As usually happens when demand exceeds supply, there is a time factor involved (such as tickets to big shows or rare fashionable accessories), and GPU and console scalping quickly began to thrive last year. Scalpers buy products using automated software or by plotting a conspiracy with certain parties within a supply chain so they could lay their hands on items much faster than any normal buyer and then make a quick profit. In addition, rapidly growing prices of cryptocurrency revived interest in GPU mining, which increased demand even further, leaving gamers without their desired hardware.
Scalping is a relatively new (or rather an extremely rare?) phenomenon for the PC and console markets, as it only occurs in cases when demand vastly exceeds supply. Mining did cause GPU shortages several years ago, but this was a one-off event that nobody took seriously.
The PC, GPU, and console markets are typically rather predictable, so if demand rises quickly, the supply chain cannot react rapidly. Apparently, while the industry is tuned to churn out 385.9 million smartphones per quarter (i.e., produce 385.9 million SoCs, hundreds of millions of modems, DRAMs, NAND chips, FEMs, PMICs, etc. per quarter), it cannot swiftly increase the production of graphics processors, console SoCs, and other components for PCs by the mere 5 – 8 million units per quarter (at best) because production facilities are busy.
Fighting Fire with Fire?
John Carmack suggests GPU and game console suppliers should sell their products via 'a transparent auction system' directly to customers, eliminating middlemen like distributors and retailers. In this case, developers/manufacturers of hardware can take advantage of massive demand and earn some additional profits, whereas end-users will not feed scalpers as well as retailers that sell at prices that are higher than MSRPs. This method has its own logic, but it still resembles a 'fight fire with fire' approach.
For obvious reasons, auctions would eliminate any concept of an MSRP for graphics cards and consoles, bewildering many price-conscious buyers. It would also create a mess on the market as big vendors would auction their cards separately, and therefore will not have to compete head-to-head against each other, especially on price and performance.
Furthermore, the elimination of distributors, wholesalers, and retailers will have its own consequences. Without distributors, wholesalers, and retailers, manufacturers will have to build their own logistics chains, including warehouses (not every gamer is keen enough to deal with customs if a product is delivered from outside the USA or the EU), and retail/online stores auction platforms. These things would require major investments.
Meanwhile, if PC makers continued to get graphics boards at pre-arranged prices, this will give them a major competitive edge over DIY PC builds, including a graphics board bought at an auction. PC makers are more than inclined to keep the supply chain (including distributors, wholesalers, and retailers) alive and kicking, so they will compete against the suppliers.
Auctions might also anger big retailers, many of which are big enough to procure chips and assembly services to get their own-brand graphics boards to compete against traditional video card vendors. Financial prowess of PC suppliers and retailers like Amazon by far exceeds all graphics card makers combined, so over time, many of the latter would likely cease to exist.
From a graphics card supplier point of view, retailing has its own implications. Selling products directly to the end-user and limiting supply to a unit per household, something EVGA does with its premium products, could somewhat make the lives of scalpers harder. Still, the lack of any high-end graphics cards in stock at EVGA's website indicates that the company simply does not have boards to sell directly for whatever reason. Meanwhile, in addition to graphics cards, EVGA has a lot more products to sell via its retail outlet, and it will unlikely sacrifice this growth opportunity by eliminating them from its supply chain.
The electronics industry is clearly struggling to meet demand for products and selling them at their MSRPs due to various production and supply chain-related constraints as well as because of various kinds of speculators, which includes both retailers and scalpers.
Apple faces the same manufacturing and logistics challenges as its industry peers. Still, for some reason, its retail partners tend to sell its products at sticker prices in the vast majority of cases. In many cases, the reason is plain and simple: the company has its own retail stores in many countries, and these stores sell at MSRP. Furthermore, the company somehow makes its close partners sell at recommended prices, which is probably not an easy task for a PC vendor when sales grow at a 22.5% rate year over year and its smartphone shipments rise at a 7.9% rate per annum. This does not eliminate overpriced Macs or iPhones completely, but at least it's possible to get them at sticker prices.
Apple is one of the largest companies globally, and all of its business practices can be applied to suppliers of CPUs, graphics cards, game consoles, and other hardware that tends to be in high demand these days. Meanwhile, the gaming industry must learn how to be more flexible in terms of supply and demand as well as more rigorous when it comes to ensuring that already-expensive hardware is sold at advertised prices.
For consoles, just going through Ebay should work just fine, so no need to create an auction site from the ground up. Ebay has the capability to create sub-stores to separate a specific seller from the millions of others who might seek to create deceptive auctions for products they cannot deliver. Amazon had its own auction system in the past and still operates an auction operation for liquidation of bulk items. If those two channels are kept happy, it's strikes me as very unlikely the likes of Walmart and Best Buy would seek retribution. If anything, removing the console sales from their stores is doing them a favor, as these are bulky items with almost no margin after all is said and done. These retailers care a lot more about selling the software and accessories. (Apple has cut out retailers entirely from software sales but still keep them onboard with accessories at strong margins. The day when consoles do the same is looming as the current generation is making models without any support for physical media widely accepted and likely the norm in the generation to follow.)
Consumers will ultimately benefit from letting affluent early adopter outbid each other in a way that directly benefits the console makers rather than scalpers. The platforms represent an immense sunk cost on the day of launch and need to move a significant amount of software before that investment is paid off and the companies can begin to schedule price cuts. (Yes, a flailing company with an unwanted product might also reduce prices but that is usually accompanied by poor software support as third parties avoid or flee the platform.) If there are a million people in the world willing and able to pay $1,000 for a PS5 or Series X, I say let them. Pay off those development costs that much sooner and advance the date when the toy is made more affordable to the rest of us.
That sets an expectation the consumer doesn't want. This launch is an exception and making a hasty move like that is going to corrupt the market moving forward when there isn't an outlier.
-a famous multimillionaire who expenses all his personal computers to Facebook
"It's already expensive because we've always been overpriced"
-Apple, Trillion dollar company
Well, I can't argue against the economics...
I'm sure customers would love to pay the kind of markup that Nvidia and Intel enjoy when they auction their server chips off to big businesses. We definitely have that kind of money.
It will not prevent scalping, but it will ensure that each card was sold at MSRP value initially, even if it was to a scalper.
If they then go a step further and form an alliance with all major retail outlets like Amazon, Ebay, Best Buy, Newegg etc... to prevent the listing of products like computer hardware above MSRP value, scalpers will have a hard time selling their goods in the market place.
What should be proposed is a maximum price cap, enforced by retailers and producers, to prevent excessive prices on products and lower the ability of scalpers to offer products at retail outlets.
no, auctions are sales where the highest bidder wins. in essence, prices would only go up across the board as game companies would now have a financial motivation to scale back supply in order to inflate price. want $5000 rtx GPUs? this is how you get them in less then a year. if you think the prices now are inflated wait till you give the manufacturers an auction system to game. If you are operating under the illusion that prices would come down across the board for hardware you're deluding yourself, the manufacturers could endlessly manipulate how many units are on sale to artificially keep the prices high, or atleast to prevent a price crash. there would never be another "sale" on gpus, even older generation units would sell for around "presumed" msrp forever.
The current market is designed around supply out stripping demand (slightly) so that manufacturers can make $$ on margin through volume, it's consumer friendly. change the fundamentals of the market by cutting out the distribution chain and store fronts and allow manufacturers to auction their products and the market will change from a volume sales model to a rarity model.
Imagine every new tech release being sold in a Barrett Jackson style auction, and that's what would happen to the tech industry. high end products will never be affordable again.
Nvidia, AMD, and partners have all the tools they need to fix this problem. Sell the cards through GeForce experience. Sell the cards via Steam or Epic. Sell the cards on storefronts that can 100% separate gamers from miners AND limit quantities per account. If you want products to reach gamers, then sell the products on the platforms gamers use and have libraries, game time, friends, and all sorts of other data. These same platforms can already limit digital item and DLC purchases per account too -- sell the graphics cards using the right storefronts if you want to reach gamers.
The same goes for Sony and Microsoft. Sell hardware via the digital platforms. Prioritize consumers with the longest account history or the broadest library. Limit 1 console hardware purchase per account. Stop relying on Amazon, Walmart, Target, Best Buy, and other resellers to screw things up.
An auction would just make things worse and would only inflate the industry.
Honestly, I see this all getting a lot worse over the next year. Everyone thinks this is going to go away. Its not, not as long as the Elon Musks of the world keep dumping millions of dollars into cryptocurrency.
I am getting up in age and gaming is no longer a priority for me. This PC I have will get me through until I quit gaming entirely and I wont have to worry about this mess :)