22 Sep 2004

Eve Guardian

 

Another BPC is rushed from the lab facility and placed in your hangar; it makes the gentle sound of isk as it settles.

 

A short while ago I wrote a piece on lab slot pricing and as promised I return to the theme now.

 

Here is a glimpse of a possible future, which contains a number of simplifications and assumptions, so do not take this as tablets of stone, just one possible future of many.

 

For months now people with the correct skills and, more importantly, access to the facilities have been making a living shuffling these pieces of paper.

Many ex-manufacturers have moved into this market and it has attracted a new breed of individual, professional types that have never even seen the inside of a factory facility.

 

But the winds of change are blowing through the markets and while some laugh at these changes as ineffective, others look slightly more concerned about the actual impact. The idea of increasing the prices was brought to a suspicious community on the basis it would dislodge the current owners of the lab slots and allow a new sector of the community the opportunity to use these much sought after facilities.

 

The premise is that a lot of lab slots are basically lying idle for long periods of time, just researching items up to ludicrously high levels of efficiency.  This is in part true and the recent rash of lab slot sales for millions of isk, is likely to be people taking the opportunity to sell off such idle lab slots.

 

It is also a fair assumption that someone that has just bought a lab slot for twenty (20) million is not going to worry too much about the rent rises in the
short to mid term. The market reformers are looking to free up this idle capacity and hoping that this will reduce the demands for more radical measures to reform this area of the economy.

 

Most people waiting their turn to use the lab facilities are complaining these market reforms will work too slowly, clamoring as they are, to get cranking the isk handle for themselves. But many current owners of those lab slots may be living on borrowed time and here is why.

 

Laboratory facilities started at 1000isk per rental period, rising 5% per day, which has a snowball effect.

 

In 30 days time it will cost 4321isk.
In 90 days time it will cost 80730isk

 

From this point things begin to escalate quickly.

On day 123 you go past the 250,000isk rental agreement.
On day 137 you have gone past the 500,000isk rental
On day 151 you are at the 1,000,000isk rental.

 

Will it reach this point?  Time will tell.  But like many things a journey can be more important than its destination.

 

It should be fairly clear the major players in the lab industry have nothing to fear in the short to medium term.  There are still clearly huge quantities of isk to be made in producing Battleship Blue Print Copies (BPC) but this is the very pinnacle of the industry.  It is unlikely these individuals will ever have anything to fear from price increases, because the prices are never going to increase that high.

 

But what is going to determine the price ceiling and what will it mean for the community?

 

Given the enormous cost of a Battleship Blue Print Original and the fact owning one of these is the only way you can produce a BPC, the demand of lab slots for the purpose of just producing Battleship BPC is small, they cannot occupy all the lab slots in the universe.

 

As lab slots have become scarce because of the demand created by these professional BPC sellers this is what we have to concentrate on.  The rise in demand for lab slot ownership is partly a consequence of the escrow market being opened up.  Before then BPC trade was clumsy and only practiced by a few that kept the fact quiet.  Escrow reforms are unlikely, unless corporations actually made it illegal to trade in these items it is going to continue.

 

A lab slot is profitable when, the number of BPC*Price of the BPC is greater than the Rental cost.

 

Say for the sake of argument there are 1000 lab slots in the universe (the numbers are made up and created to retain sanity). If there are 100 Battleship BPO out there, then clearly they cannot occupy all the slots. The fact BS BPO cost between 700,000,000 - 1,000,000,000 on the market restricts the number of people capable of buying them.

 

So lets move down the scale to Cruiser BPO, these cost between 40,000,000 -
70,000,000 and clearly more are in the system. Say these two groups can occupy 500 lab slots. Frigate BPOs cost up to 5mill isk. And for the sake of wrapping it up, these 3 groups can occupy all the lab slots in universe.

 

Keeping it simple again (ie making the figures up to illustrate, but I think you can see how they can be applied).

The frigates are the weakest profit of the 3 groups, but Battleship, Cruiser and Frigates represent the top 3 BPC isk earners (they might do, they might not, this is just to illustrate, the actual BPO which make the most profit is immaterial).

 

Imagine you can create 10 frigate BPC in a rental period and each BPC can be sold at a maximum price of 100,000isk (again, clearly made up figures). We get the maximum selling price of a BPC by the difference between the selling price of the finished item, less the cost of producing it (here the manufacturer makes 0 isk, its not correct but it helps the assumptions and does not alter the basic issues involved)

 

So there is 1million isk to be earnt in that rental period.

 

Lab slots will rise to 1 million isk (this time the lab slot professionals, that only hold frigate BPOs, are not earning anything but you get the idea.)

 

But look what has happened.

The only BPC on the market are, Battleships, Cruisers, Frigates. It is not profitable to churn anything else out. No more BPC for small ammo on the escrow market and with all those lab slots filled up, who is going to be able to research the BPO’s that are bought. The only way it can happen are for prices to increase on the finished items, so that it becomes profitable to produce the BPC once more.

 

Then there are going to be the marginal BPO’s, there will not be enough profit in them to just keep churning out BPCs but there could well be a high enough demand to research the ME level and sell the BPO, as it is capable of infinite production runs, it will command a much higher price on the escrow market as manufacturers clearly prefer these.

 

Exactly what the new price levels will be and what items it will relate to I have not examined (and if I have, you bet I am keeping that to myself, there is isk in this sort of thinking you know). I have made a number of assumptions and simplifications within this article, it is used to illustrate what may well happen, it is not a road map of what will happen. 

 

For example I have assumed the demand for Battleships,  Cruisers and Frigates will be such that it can actually supply the constant churning out of BPC from every lab slot, this is clearly incorrect, but it does illustrate the basic point.  I have also held the selling price of the BPC at maximum (the manufacturer makes 0 isk) again clearly unrealistic and the price would fall if the lab slot owners got into competition with one another.

 

But the basic truth is, lab slot owners will release lab slots once they cannot make a profit out of them, when that happens the new owners are going to have to find a way of making a profit out of them.  If that is not actually possible, lab slots will fall in price but only a short way when once more they become profitable.

Current owners of lab slots if you do not keep ahead of the rising cost of labs, you will have to relinquish your grasp on them eventually, you have a head start on your competition, use it wisely.

 

So to conclude:

 

The current pricing policy may well mean less BPC choice, how much less is difficult to judge, while not actually addressing the fundamental problem raising the lab slot rental was meant to address.

 

The short term is just going to see ever rising lab slot prices with no real change in occupancy levels.  Those smaller researchers will be churning out the BPCs as fast as the lab slot can make them and hurling them onto the escrow market, with consequences to the prices of these BPCs, which have been on a long term downward trend anyway.

 

The medium term is going to see the smaller researchers leaving the market but the larger researchers will replace them and lab prices will continue to climb.  Lab slot turnover will increase with people being able to rent a lab slot for the first time, it is likely to be a shorter term rental than has been seen in the past, when they research BPOs for their own use and not BPC for resale.  There will be structural changes in the BPC market, there is likely to lead to less choice available.  Well researched BPOs will come onto the escrow market.

 

The long term, lab slots will fluctuate in a narrow band of activity until more profitable BPO’s are released onto the market which will have the effect of starting price inflation once more once those BPO’s are in the hands of enough people..

 

Lab slot ownership used to be based on first come first served, in future it will be most isk, most served.  What people should also understand, the ownership of lab slots is not a fundamental right, some people seem to imagine it is.