Keurig, the manufacturer of a machine that makes a single cup of coffee, recently implemented Digital Rights Management (DRM) (and oxymoron of a term, I know) on its latest model to prevent users from using cheaper third-party coffee grounds in the machine. This did not sit well. In its lust for money by forcing people to buy its overpriced coffee in addition to its coffee maker Keurig managed to pummel its stock price:
Sales of Keurig brewing machines and accessories tumbled 23% in the first quarter compared to the prior year.
The company had a lot of excuses, but the basic problem is there are too many Keurig machines in stores and people aren’t buying them, especially the newest Keurig 2.0 model.
“We do have some headwinds,” said Chief Financial Officer Fran Rathke on a call with analysts.
Investors are fleeing the stock. Keurig (GMCR) dropped 10% Thursday when the market opened for trading. Shares are now down more than 25% this year.
It’s a big change for the company which had been one of the hottest stocks in 2013 and 2014 and does over $1 billion in sales.
CEO Brian Kelley says he’s listening to consumers and is ready to make changes. The biggest frustration for customers is that the 2.0 model only brews Keurig branded coffee cups.
Let this be a lesson to other companies. If you try to control how your customers use your product you’re going to have a bad time. Companies like to use the combination of DRM and selling a device that relies on consumables at a loss. The most famous market that has built an industry around this combination are printers. Most printers are solder either at a loss or for no profit with the expectation customers will buy overpriced printer ink from the manufacturer. DRM is usually used to prevent third-party ink cartridges from functioning although the schemes are almost always bypassed.
Keurig thought it could get away with such a scheme for its coffee maker. But I think Keurig made a fatal mistake. If you’re going to use DRM you really should use it from the start. When consumers are used to using your product in a certain way they probably won’t be happy if your change the rules on them. And when entire companies exist from selling a product that’s used in you’re device you’re going to have some major players investing resources into bypassing your DRM scheme.
Keurig really fucked up and their stock price shows it. This should be a lesson to every company that DRM is something you shouldn’t even try once.