Sunday, February 27, 2011

Specialize or Diversify?

This is my entry for the Just My Two Copper Blogging Carnival. The topic this month is whether it is better to focus on one market, controlling it completely, or to spread yourself over multiple markets, always ensuring you have your hand in something. The obvious and easy answer is, of course, "both!" But obvious and easy answers are rarely much fun. So instead, I'll try to break them down, and figure out which choice is best under what circumstances.

 For me, specializing in a market (your "niche" market) means complete and utter domination of that market. You not only control how many items are up and at what price, you also control the markets that supply your niche. Diversification, on the other hand, is a lot less about dominating and a lot more about ensuring you always have something profitable going on. You have so many options available to you, that if one market becomes unprofitable, you can simply ignore it and move on to the next. So at first glance, niche markets seem to be a lot more work, however, successful diversity does mean you need access to a lot of different professions, which in itself can be quite a investment in money and time.

First off, I'm a bit biased toward preferring diversification, only because I don't really dabble in niche markets. Though I might, depending on how you define a niche market. So what is a niche market? I believe they have a few defining qualities. Enough demand for the product has to exist so that it's actually profitable, the mats need to be somewhat scarce so you can easily control them, and competition needs to be minimal (which can be accomplished in part by controlling). One example that comes to mind is twink enchants. There's probably low competition, as twink recipes are not easily learned and most enchanters probably forget about them. And for some of them, mats are very hard to come by. One of my favorite twink enchants is the +15 Agility to weapons, Enchant Weapon - Agility. This requires four Essence of Air and four Large Brilliant Shard. The recipe is obtained once you are honored with Timbermaw Hold (not actually that difficult anymore), but the reason this is a great niche market is because of the Essence of Air. They drop almost exclusively from a few mobs in Silithus, and have a low drop rate at that. So it's very very easy to control the market on these: simply buy up any Essence of Air you find. If you are the only one making these scrolls, and if people can't simply buy / farm the mats and get someone else to do the enchant, they're forced to come to you. And you can charge a premium for it! I've been able to sell Scroll of Enchant Weapon - Agility for upwards of 1k multiple times because of this strategy.

I think the key in almost any niche market is to control the supply of mats. If you can prevent competitors from entering the market by simply making it impossible, you are free to charge almost anything for your goods. You also don't need to control all the mats, just one of the components, preferably the hardest to obtain. For example, I've recently got in to Leatherworking, and have made a decent amount off of the Mail PvP gear in a rather short amount of time. The Mail PvP set is a pretty good market to dominate too, as each piece requires 10 Blackened Dragonscales. The other components, 8 Heavy Savage Leather and 10 Volatiles, are nearly impossible to control, but Blackened Dragonscales are usually a lot harder to obtain. So it's a lot easier to buy out the supply, and dominate the market. A word of warning, keeping complete control of the supply of mats can be tricky, especially if you're buying more than you can easily use. In my leatherworking example, I only sell maybe one to two pieces of the Mail armor a day, but it's not uncommon for more than 20 Blackened Dragonscales to be posted each day, especially over the weekend when a lot of people play; see Alto's post on Weekend Clearance for more info! So if you're trying to do something like this, be sure you're not spending more to control the market than you're earning from it.

I mention that controlling supplies is key in almost any niche market, because for some this is impossible. I'm speaking about vendor items: pets, recipes, consumables, etc. Though you can't control supply simply because it's unlimited, this is still a great niche market because of relatively low competition. Aside from lack of knowledge, on reason people buy items the could get from a vendor off the AH at such a huge mark-up is because they're too lazy to go out and buy it themselves. Which is easier, flying to Outlands to get a 2g Enchanting formula, or running to the closest AH and spending 50g? You can capitalize on this by occasionally doing a lap of all the profitable vendor items/recipes and buying a stack of each. Slowly leak these out on to the market for some pretty good profits and excellent ROI! You're doing exactly what they would be, but since you're buying in bulk to flip, it's actually worth it.

That's my summary of niche markets, now on to diversification! If the niche market exemplifies the ruthless tycoon, diversification is the happy-go-lucky opportunist. On its surface, diversification is a lot less complicated than specialization. All you really need are a bunch of markets you have access too, sell when it's hot, avoid and move on to the next when it's not. Competition isn't as much of a problem here, because if one market is overrun and unprofitable, you have many others to turn too. When I think of diversity in the market place, I picture the semi-standard goblin selling flasks/potions, enchanting scrolls, gems, and glyphs. The common factor in these markets is their high desirability and high mobility, albeit with profit margins that are often low. Contrasted with a niche market, what you're aiming for here is volume of sales, not getting the most you possible can per sale. The reason being that ten sales for a 10g profit each is the same as one sale at 100g profit (I talk about this concept more in-depth in an earlier post about profit margins). Strategy in diversification is fairly simple: sell as much as you can while the market is profitable, then move on to the next one. The difficult part is actually having access to all these diverse markets! Each character can only have two primary professions (aka, the money-makers), so if you don't have a few high-level alts, diversifying is going to be a bit tricky.

The question still remains: specialize or diversify? Short answer, if you only have one toon with maxed professions and don't feel like leveling an alt, specialization is the way to go, but if you do have an army of alts, be sure to diversify. The time you're willing to put in is going to be key here. Specialization can require you to closely monitor a specific market to ensure it stays profitable, while diversification has you spreading your time over multiple professions, and you need to have leveled a lot of alts which is its own time commitment!

In the end, my vote has to be in favor of diversification. It's tough to beat the luxury of being able to move from market to market without worrying too much about dealing with competitors. With specialization and controlling a market, I feel that if you're not on top of it there's a good chance everything you've worked for may come undone. Of course, if diversification isn't exactly an option, then it's probably not that hard to stay on top of one market, as you're not messing around in a multitude of others.


  1. Love the way you intermingle the two. I have several profs, but I think I'll work on finding one or two (controllable) things to specialize in each prof while staying diversified. Thanks!

  2. I believe it is impossible to be a huge gold earner without diversification. Being able to intermingle the benefits of Mining, Prospecting, Jewelcrafting, Enchanting and Blacksmithing means that when any one part of the chain becomes more profitable I can focus on that. Likewise, I can avoid the valleys too.

    Within a profession there are some sweet spots that have to be managed carefully. The rep based patterns for every profession are harder to come by and thus their products usually are more valuable, or expensive. Your Essence of Air example is great, but it is almost singularly unique. The dragonscales are more broadly farmable so at some point farmers will see a 'gap' in the supply and pump in more for you to buy.

    Nice overall post. Glad I found your site via the Carnival.