Thursday, May 9, 2013

The International 3 Ticket Sale; Where did Valve go Wrong?


A buying frenzy erupted on Tuesday morning when tickets for The International Dota 2 Championships were released in the game’s online store. Players and fans of Valve Software’s popular online game overwhelmed the company’s servers in a scramble to purchase the approximately 2,500 tickets to attend the live event in Seattle on August 7-11, 2013. The massive spike in traffic was more than the Dota 2 online store servers could handle, resulting in delays, timeouts, and failed transactions. The $50 tickets sold out in short order, and almost immediately began appearing for sale in secondary markets for more than $200 each, indicating some portion of the initial purchasers were looking to turn a profit rather than attend the event.
While failed servers and profiteering ticket scalpers are not unusual when only a limited number of tickets are available for a popular event, many were frustrated that Valve did not foresee these issues and take measures to prevent them. The Dota 2 community on reddit, for example, was flooded with posts complaints about the sale. Did Valve underestimate the load on their servers? Should they have planned to hold the event in a larger venue? Could they have thwarted the plans of scalpers buy imposing buying limits and preventing purchasers from reselling tickets?

I would like to discuss these three main complaints in further detail.

Server Load


Server crashing buying frenzies are commonplace online. It is not because the technology to combat them does not exist. It is not because companies don’t know how to predict traffic volume and provision resources to accommodate it. It is because it is not always in the best interest of a company to pay the costs required to handle traffic spikes. As long as a supply limited item sells out, the company makes the same revenue, regardless of how terrible the website experience is for the customers. If enough people are willing to purchase the item despite the technical problems, why should the company eat in to their own profits paying for the resources to handle temporary traffic spikes? Valve maximized their profits by not having sufficient server capacity.

Insufficient Supply of Tickets


In the case of The International Dota 2 Championships, Valve has the luxury of monopolistic pricing. Nobody else can supply tickets, so valve can set the price at whatever they want it to be. Given this fact, there are two ways to address this issue, either increase ticket price to decrease demand, or hold the event at a larger venue. I think Valve probably had good reason to do neither. It would have been more expensive to rent a larger venue, and they would presumably have to charge less per ticket to fill it. It is certainly possible that the margin cost of a larger venue is greater than the marginal revenue from increased ticket sales at a lower price. In terms of pricing in the current venue, I think Valve could have charged more than $50 per ticket and still sold out while reducing the number of problems due to excessive demand. The problem is, they knew they could sell out at $50 per ticket because they did it last year. They did not however know they would sell out at $51 per ticket. I am 99% sure they would have, but raising the price any amount increases the risk of not selling out. And if they fail to sell out they miss out on a lot of revenue in other areas. Sold out events are more exciting for the teams competing, more exciting for the fans, more exciting for those at home buying compendiums at $10 each, etc. This hype translates into more people playing and spending money on the game in the future. A concerted effort to estimate the maximum price they could charge and still sell out would have cost money, and they may have made an appropriate profit maximizing decision to keep the price at $50.

Scalping


Eliminating secondary markets is a terrible idea. If people buy tickets and end up changing plans and not attending, if they cannot resell their tickets, it creates empty seats at the event which as I already discussed is undesirable. Scalpers also provide a service to people who are willing to pay excessive amounts to attend the event and did not manage to buy what appears now to be an underpriced $50 ticket directly from valve.