How to fix the graphics card market... (IMO)

It'sa raining them, hallelujah!

The last few years have shown something dire affecting the computer gaming market: complete lack of control surrounding graphics card pricing, availability and segmentation. 

Contrast this with virtually every other component in the construction of an individual gaming PC, where pricing and availability have fluctuated far less despite there being a similar lack of manufacturers present in the supply of those components.

We all know the parts of the industry that aren't working out but rarely does anyone try and "fix" what's wrong - at least on paper or in theory. 

Well, I'm about to do that with this fluffy thought piece of a blogpost. So buckle up for a wild ride into the lush forests of my imagination, where GPUs roam free for the gaming hunter to shoot them with their own BFG and take home to display on their mantlepiece.

The setup...

Let's get the obvious things out of the way first:

• This is all in my semi-informed opinion. 

I've never worked any graphics company or semiconductor company so maybe my opinion is worthless. However, as a consumer of numerous graphics cards throughout my life from the early 90s until today, I think I have a pretty good handle on what makes a healthy market that lets an industry survive.

• Both Nvidia and AMD are pushing for higher ASPs (average selling prices) for their range of products. 

I'd say that Nvidia has been outright the worst in terms of dropping currently selling products in order to increase the price using the same silicon on a higher-binned part. However, AMD is not in the clear either, since their less capable cards (with the single exception of rasterisation performance) are priced very closely to Nvidia's parts... which, again - IMO, does not make them good value. Not to mention that they don't manufacture enough graphics cards to even be relevant, anyway.

• Digital currency mining is a large part of why sustained higher selling prices are even viable for these companies.

Look, I'm not going to pretend that cryptocurrency mining isn't affecting the supply of GPUs. It clearly is - especially when these companies/people are managing to reach deals with distributors before the cards even ever reach stores. However, I think that we've seen continued supply of GPUs in-stores over the last six months... just not at prices that many are willing to pay. But the people who are paying, and continue to pay, sky-high prices for these products are either influenced by mining mentality or mining themselves. 

The fact that a product can be purchased and then made to make profit on top of its purchase, before finally being resold at a later point for even further profit makes it a financial no-brainer for anyone with money to invest in the enterprise.

That's it. There's nothing more complicated to the scenario. This is the literal, real-world example of having your cake AND eating it.

What I will say is that there was already a high, pent-up demand from actual gaming consumers for the products - even if the miners weren't present at all. Scalpers only scalp in-demand products and professional miners aren't buying at scalped prices. That's a fact. But we'll come back to this point, later.

We have empirical evidence that AMD have been pushing the prices of their lower end cards (well, their cards - natch) higher than Nvidia. This is a chart showing the cost of the "required" average GPU to play the games released in each year... i.e. we're measuring a price to performance ratio

The problem...

I'll be as blunt as I was in the intro screed - the issue we face as consumers is that the graphics card industry is not controlled: It is out of control by design and, as such, it is anti-consumer and potentially anti-competitive in a legal sense.

Let's look a the industry as a whole before we get into the individual problems at each level as far as I can see them:

Ah! The classic hourglass supply chain structure... :/

There are two main issues with the current GPU industry - first it's that neither AMD or Nvidia actually control the products that they release or are released in their name. Geforce and Radeon are both trademarks and product families ostensibly controlled by both GPU designers but, in reality, the Add-In Board (AIB) partners can do whatever the hell they want with those products.

It's akin to having a car manufacturer allowing a middleman to configure a car however they wish, at the same time, allowing the middleman to price those products however they wish. Sure, the Ford Focus is $20,000... but from ASUS, it only is sold from $25,000. That MSRP is meaningless and Ford has ZERO control over the product being sold to consumers and thus zero control over the consumer experience and therefore zero control over their own brand image*.

These "partners" have effective control over the brand image of both AMD and Nvidia and that's a terrible relationship in a business sense.

*There is a caveat here and it's that both AMD and Nvidia do have control over their brand image - they just don't care enough about the consumer experience to do anything about it.

Secondly, the AIBs (and in the case of reference cards: AMD and Nvidia) allow a network of regional and sub-regional distributors control over release and additional distribution price so that they get their own cut. These distributors control the release of products to retailers and custom PC build shops so that they can then sell them on to the consumers.

As it turns out, these unscrupulous distributors also only care about money (as do AIBs and the GPU designers) and so they will offload these GPUs in the most efficient way possible - i.e. they've been caught selling truckloads of GPUs, by the pallet, to miners instead of the retailers and custom PC build shops that traditionally make up their customers.

However, because nobody is monitoring where and how these distributors get rid of these products, these distributors are ALSO damaging the brand image and reputation of not only the GPU designers but ALSO the AIB partners. It's a double whammy!

The ultimate issue is that GPU mining is a transient period in time. PC gaming is (or could be) a sustained growth area. By not addressing the PC gaming market and not maintaining the growth of that market and pent-up demand, GPU designers are actively shrinking the market and causing animosity with their steady client base. By doing so they risk devaluing their stock and overall market value through shrinking their total addressable market.

In the same way that both GPU manufacturers were punished after the 2016 cryptocurrency crash because they overproduced and investors were unhappy with their lack of dependency disclosure, I foresee another dip in both AMD and Nvidia's stock in the near future when they will be unable to sell through their next generation RTX 40 and RX 7000 GPU stock.

Tremendous value! Incomparable cooling! Exhorbitant pricing!

The fix...

There are a few fixes that can be actively applied to the market. Both AMD and Nvidia appear to be able to assert some control over their AIB partners' actions. However, it seems that new contracts need to be drawn up or, potentially, (for my preferred option) remove AIB partners from the market entirely.

In the past, AIBs offered a level of customisation and overclocking potentiality that stock coolers and reference cards could ill afford to provide. However, as the stock coolers and reference designs provided by both AMD and Nvidia have improved, the relevance and reason for even requiring AIBs has also declined.

Given that AIBs have switched to a model of gouging the customer by over-inflating cooling solutions for every level of card performance and that, just like CPUs, overclocking potential* is severely limited on new hardware, it seems that the reason for the existence of AIB partners has come to an end...

*Also of note, custom OCs provided by the AIBs no longer have meaningful overclocks above stock settings

AIBs no longer provide any value to the consumer and are actively providing negative value to both AMD and Nvidia. It is in this light that I was extremely surprised and disappointed in the announcement that Intel would be utilising AIBs for the release of their Arc desktop cards instead of utilising their well-honed supply chain that has been previously used across both component and finished product releases. 

Further to this issue is that neither AMD nor Nvidia appear to dictate the ratio of various cards/products/price points! Each AIB can divert the silicon provided by the GPU designers into whichever stream of product they choose.... and there's no incentive to produce products at the MSRP - though this is primarily a problem with AMD and Nvidia, with the AIBs in place, both companies can hide behind the "plausible deniability" clause.

Fix 1: Get rid of AIBs

When you have essentially comparable TDP cards why is the cooling solution on one so much "bigger" and expensive? RX 480 vs RX 6600 XT

Next up, those ridiculous distributors.

I've worked in a number of companies in close support of purchasing and supply chain and the absolute dreaded worst thing that can happen to your consumable or process input is that it goes through a middleman, aka a distributor.

Seriously, I've never encountered a distributor that added any value to a product. The worst, as of my experience are the Italian distributors. These are the companies that instantly add a surcharge of 30% to a product for the mere privilege of them touching it, adding delays and making the product's usefulness be reduced because it has a limited shelf life and they brag about the fact that they keep it in their warehouses ready for the consumer to use.

Yes, you may detect some bitterness*.

*But well earned! If my consumable has a useable lifetime of 12 months and has a significant cost to each item and the manufacturer switches from direct supply to this distributor model, I now have to purchase items from a warehouse instead of "on demand". I'm buying a product with less lifespan thus less value... and the distributor added 30% extra to the cost for this privilege.

Intel and AMD already practice the actual fix for this issue for their CPU business and it's beyond me as to why neither is choosing to do this for their GPU business. The likelihood is increased revenue from each unit sold!

After you get rid of the AIBs, you have manufacturing contracts for reference models (which they had to design/produce in any case). These will not be more expensive than getting a multitude of unruly "partners" to manufacture the end product for them. Both AMD and Nvidia get to control the price, the profit AND the brand image.

Simple.

Moving to this model means that these companies get to control the interaction with the distributors. Do AMD's self-sold reference GPUs (from their own web store) cost more despite using distributors? No. But they still require distributors to function. The same logic applies to Nvidia - who require distributors to manage the interaction between their contract manufacturers and the retail outlets that will sell their reference products.

If both AMD and Nvidia can control their distributors, then so could the AIBs but, as noted above, the AIBs have become toxic to the industry and thus they do not control their distributors.

Fix 2: Expand vertical integration of the GPU designers

Conclusion...

And that's it. Simple as pie: the main problem with the GPU industry is the AIB model. They may have provided value in the past but no longer and it's time they are removed.

Yes, this is a problem of both AMD and Nvidia's making because they have both abused the AIBs throughout the last twenty years at various points and that abuse has come to bite both companies in the ass. However, I can see no fix for this issue. As long as AIBs continue to construct and sell farcical products they are a plague on the industry and it seems that neither GPU designer is up to the task of controlling their excesses in the ways that they need to be controlled.... so let's just rid ourselves of them.

Yes, this is the nuclear option... but we appear to be at that place in time. The nuclear option is the only way forward out of this mess.

If we don't pull the trigger then we risk the collapse of the PC gaming market as consumers flock to consoles which, ironically, are cheap as chips because CPUs (their pricing and availability) are controlled by both AMD and Intel.