Increasing Customer Value
I read a well-written article entitled An Economic Explanation For Why DRM Cannot Open Up New Business Model Opportunities. The thesis is simply that successful business models depend on creating value for the consumer when dealing with non-scarce goods. The article describes taking raw ingredients and producing cooked food as a classic example of increasing customer value. Then he concludes that DRM is not a viable business model because it opposes this, reducing value for consumers.
I think the author has a very good point here, but his scope is far too broad. The implementation of DRM on purchase models is flawed, but not DRM in general.
I fully agree, for example, that DRM for purchased music is a completely flawed model. Music is a non-scarce good, and the value of a song, from an LP to a tape, to a CD and now online has been steadily decreasing with each of these generations. An LP used to contain rich content and extras like stickers and liner notes and other goodies. Now you buy a song online and you are completely restricted in its use; DRM is decreasing customer value.
However, DRM enables many non-purchase scenarios that create a tremendous amount of value for the consumer. For the cost of a single CD a month, users can have access to the entire catalog of music available on an online store. The first time I tried a subscription service, I was amazed at the freedom I felt when I was given an unlimited number of downloads and could discover and sample any song freely. The only caveat is that the music goes away at the end of the month.
People are generally uncomfortable when they don't own goods. The scariest thing for people is that the music goes away when they stop subscribing. This is because they are not used to renting music. Consumers have no problems with cable tv, netflix, renting movies at the store, yet this model for subscription music is even more powerful because they are allowed to rent the entire catalog at once for a flat fee.
DRM can create value through rental models, but I am convinced that DRM on purchased content is far too restrictive and as it stands today, will lead only to failure unless a dramatic change is embraced by the content providers of DRM content.
I think the author has a very good point here, but his scope is far too broad. The implementation of DRM on purchase models is flawed, but not DRM in general.
I fully agree, for example, that DRM for purchased music is a completely flawed model. Music is a non-scarce good, and the value of a song, from an LP to a tape, to a CD and now online has been steadily decreasing with each of these generations. An LP used to contain rich content and extras like stickers and liner notes and other goodies. Now you buy a song online and you are completely restricted in its use; DRM is decreasing customer value.
However, DRM enables many non-purchase scenarios that create a tremendous amount of value for the consumer. For the cost of a single CD a month, users can have access to the entire catalog of music available on an online store. The first time I tried a subscription service, I was amazed at the freedom I felt when I was given an unlimited number of downloads and could discover and sample any song freely. The only caveat is that the music goes away at the end of the month.
People are generally uncomfortable when they don't own goods. The scariest thing for people is that the music goes away when they stop subscribing. This is because they are not used to renting music. Consumers have no problems with cable tv, netflix, renting movies at the store, yet this model for subscription music is even more powerful because they are allowed to rent the entire catalog at once for a flat fee.
DRM can create value through rental models, but I am convinced that DRM on purchased content is far too restrictive and as it stands today, will lead only to failure unless a dramatic change is embraced by the content providers of DRM content.
Labels: drm, economics, subscription, zune