Digital Coffee

Unless you have been extremely fortunate over the past decade or so you have probably already encountered Digital Rights Management (sometimes parodied as Digital Restrictions Management) or DRM technologies. These come in a variety of flavors, depending on the media and the platform they intend to restrict, but all of them serve the purpose of controlling (or attempting to control, anyway) the use and distribution of digital content after it has been purchased. This is usually defended by the people who make money on digital content – who should not be confused with the people who actually make digital content – as being the only way to combat the specter of copyright piracy; it is usually decried by people who believe in freedom of speech, or just in being able to use content you have purchased when, where and on whatever platform you like as invasive, manipulative and generally evil. But whichever side of the debate you happen to be on, I’d be willing to bet that you never imagined anyone applying the idea to coffee…

An article on the Tech Dirt website from earlier this month describes how the Keurig company – which makes a line of coffee makers that use single-serving cartridges, or “K-cups” – is planning to release a new line of machines that will not accept product from any other company. In effect, if you have one of these machines, your choices will be to use genuine Keurig reloads or throw it out and get something else with which to make coffee. The same report also claims that Keurig has been signing exclusive deals with various coffee suppliers so that they will be the only ones who carry those brands of coffee – meaning that in addition to preventing customers from using cheaper cartridges from third parties, the company will also become a monopoly source for some popular types of coffee. This has given rise to protests, outraged news stories both online and also in the real world, and at least one actual lawsuit (see the linked story). Federal sanctions may or may not be in the works as well…

Now, there is no mystery as to why the company would want to restrict customers to purchasing coffee from them in addition to the coffee machines: the reload cartridges or “pods” are the most lucrative part of the entire system. Much like printer link, or software applications for computers and smart phones, the coffee machines themselves are mainly a platform from which Keurig can sell products at much higher margin to what will now effectively be a captive market. Nor is there much question as to why the company would want to bring out new machines and attempt to take control of their corner of the market. With competing single-cup brewing systems and third-party companies offering “pods” now flooding the market (to cash in on the single-cup fad) Keurig’s original competitive advantages are being eroded. One has to wonder how well their efforts to make up those losses will work if the company ends up being sued, sanctioned by the government, and mocked by millions of scruffy bloggers…

At the same time, it’s hard to see how else Keurig is going to dig itself out of the hole in which it has landed. Using the brewing machines as a loss-leader and making money on the cartridges won’t work if there are cheap third-party cartridges on the market; raising the cost of the brewing machines won’t work if there are similar machines or knock-off units on the market, and it was clearly naïve of the company to assume that monopolistic business practices like cornering the market on coffee brands wouldn’t be challenged in court and disallowed by the government. I don’t believe there is any way to prevent them from releasing machines that will only work with supplies that they also sell, but this won’t keep them from losing market share to similar systems or to more traditional forms of coffee maker…

Of course, there is also no way of knowing how long the single-cup fad will last, or if it will become a dominant segment of the coffee market going forward. It is possible that once it becomes too expensive and inconvenient to use the K-Cup system and its imitators the entire segment will simply die off – which will solve Keurig’s problems. Just not in a good way…