Wednesday, November 13, 2013

How to Make ISK from Highsec POCOs

Gevlon has a business idea for making money using highsec POCOs after Rubicon drops.  Since I did a lot of thinking about it to criticize him, I figured I would amalgamate my comments into a post.  For background, go read (or review) my Highsec POCO Predictions for Rubicon.  I'll wait.

Gevlon's Idea Will Fail

OK.  Gevlon's idea is to form an alliance specifically to raise wardec costs.
The alliance is just a price cartel agreement. Anyone can join... By joining you have to set the tax rate the same as everyone. ... You can't wardec a player owned corp if it's in an alliance, just the alliance itself. Such act has high cost if the alliance is huge, protecting the alliance from wardecs for their customs offices. 
But not for mutual defense:
What about PvP-ers, who wardec the alliance not because they want POCOs, but to get fights? Well, they won't get any. The in-alliance corps never fight.  ... So for their max-cost wardec they get nothing but the opportunity to shoot customs offices. How can you defend your customs offices? If anyone wardecs the alliance, it makes the war available for mercenaries, so you can just join with your shooter corp and defend your POCO.
This, as I told him, is a bad idea.  You must defend your POCOs or there is very little reason for the alliance.  This is because of the relatively high value of POCOs relative to the cost of wardec.  I pointed this out two weeks ago in my Predictions:
I have seen people say the wardec cost would have a big effect, and initially I agreed with them.  It seems plausible that a 10x cost difference for war would matter a lot.  But after thinking about it, I feel it will affect only small corporations.  
Consider a medium sized corp with 25 pilots.   In a battleship, each pilot can do about 1000 DPS.  POCOs have 10m shields and reinforce at 25% shields.  Thus this corp can hammer one into reinforced in just five minutes.  Killing a POCO after reinforcement is easier.  They have 250k armor and 200k structure.  So it would be very fast.  In a week of war, and unopposed, a corp could reinforce or destroy 20 POCOs a day.  Since POCOs cost about 100m ISK, the cost of the wardec is a small percentage of the capital at stake.  The cost of the fleet is much more than the POCOs it destroys.
And note that Gevlon's alliance actually make things easier for an aggressor.  It's a one-stop shop for targets.  Say that Gevlon has gotten 50 corps to join, each with 20 POCOs.  Now you go to all of them and demand they hand over their POCOs to you for half their value, or war.  Each one individually cannot afford to hire Noir.  Collectively they could, but they have no organization.  Perhaps they all stand firm and hope that the aggressor attacks someone else.  So he wardecs anyway, and attacks all of them.  After they each lose a POCO or two, they'll sell the others.

How to Do It Right

Gevlon's idea of an alliance is a good one.  But it cannot be passive as he wants.  A passive alliance is easy to beat.

The alliance should offer substantial services to its members.  It should have its own fighting fleet (more on that in a bit), and make a standing offer to members to buy their POCOs at 80% of par.  It also insures their POCOs at 50% of par: if a member loses a POCO, you pay out half the value.  This gives the incentive to the alliance to defend, and some insurance to the members that you will, while not giving too much of a free ride.

Of course, getting a decent fleet able to fight and win will take a substantial amount of time.  There is no such time before November 19.  Yet the first-mover advantage will be huge.  How do you deal with that?  You retain the mercs necessary to defend all the members' POCOs. Find the best mercs you can -- Noir? multiple groups? -- and get a long term contract with them, six months at least, saying (1) that they won't wardec your alliance for any client, and (2) that they will be available to fight for you on call (other obligations permitting). Perhaps this is a billion per month. Who knows: ask them. It might be quite reasonable.

How do you pay for hired guns?  You charge a fee per POCO, perhaps 10 million ISK per month. (This is about 10% of its build cost; I should think that is cheap for decent protection.)  Charge more for rarer planet types (i.e. storm), or those in better locations (i.e. near Jita).  (What exactly to charge is a hard problem, but that's why you need a leader with spreadsheet chops.  I am sure Gevlon can figure out a good price structure.)  If 10m a month sustainable?  I think so; recall the analysis Mabrick did.  A single user of a POCO can generate that much in taxes.  If the POCO has more than a handful of users, the owner still makes good money.

With my guess of the merc's retainer fee of 1b per month, once you get 100 POCOs, you make money. If you cannot get 100 POCOs, you lose money. If the mercs you hire cannot beat some larger group and it kills your POCOs, you lose a lot of money. If you welp fleets, you lose a lot of money.  It will take a very deep pocket investor.  It will have substantial risk.

Note that hiring mercs as the primary defenders is only really applicable during the bootstrapping phase of the existence of the alliance cartel.  As soon as possible, you will want to start insourcing your protection, with mercs hired only in exceptional hard situations.  Find a good fleet commander, and hire him to organize a navy for you.  Men will flock to fight under a good FC.  Remember the lesson of nullsec: players in a game don't care about money so much as they care about "content".  If you offer them fun they'll pay you for it.  Fighting in massive battleship fleets should be fun.  I would join.

Why do you need your own fleet?  In part the reason is that relying on mercenaries is bad idea -- they may be working for the other side; they may turn on you; or they may just not be available due to other obligations.  But it is also because insourcing should be cheaper.  Noir has elite pilots that can fight anywhere in all types of situations; you need only be concerned with ships and tactics that are allowed in highsec.  Also, Noir's pilots have no reason to care about the POCO business.  And you should be under almost constant wardec as the biggest, fattest target around, and you will need a very substantial fleet to defend yourself.  (My guess is hundreds of pilots.)  If it takes raising POCO fees to support your fleet, so be it.  Any owner who does not like the fees is perfectly free to leave the alliance and defend his assets on his own.

A fleet can also aggress.  Most of the time it will probably be busily defending, but what if you get a slack week?  The alliance should be the aggressor, demanding that lesser corps join or lose their POCOs.  Forming a monopoly where there is no natural monopoly is not like normal market competition: it takes force.

3 comments:

  1. The POCO tax is corp income. The mercs are paid by the alliance. How does the money gets to the alliance?

    ReplyDelete
  2. There is an executor corp for the alliance. The charges per POCO that the alliance collects from it member corps are paid to it.

    ReplyDelete
  3. @gevlon: how does the income get to the alliance in any other alliance wide operation? most income sources are at the corporate level - alliances either collect into a wallet corp or require corps to pay bills in arrears for their contribution. Failure to do so would mean eviction and possible punitive action (another reason why you might want a fighting force of your own)

    The more controlling alternative which might not go down so well is to require that all POCOs be signed over to a central account keeping corp. That way you can levy the taxes centrally and collect the money into a single wallet... corps don't pay for POCOs, they pay for "POCO shares", the money from which goes directly into buying more POCOs. Calculate total monthly income from the entire POCO network, divide by number of shares in play to get a share value, multiply by shareholder's contribution and pay out, less whatever you are skimming from the top for administrative costs and your own profit.

    Some may not like the approach as it could be seen as an investment scam, especially if you use your brain and refuse to use the built in corporate share system (this should never ever be used..there is never a valid reason to do it - company shares should be tracked out of game via a system which has no influence on game mechanics). The advantage is a huge influx of cash up front that you can use on the short term market (you can't put down all the pocos quickly enough) to supplement alliance income and absolute control over cartel pricing.

    ReplyDelete