John Carmack Proposes a Way to Fight GPU & Console Shortages

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.

Another Way?

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.