Traders and misers
Posted by aogMonday, 22 January 2007 at 10:55 TrackBack Ping URL

Instapundit has been following the debate on DRM and its relationship to the current Microsoft operating system release, Vista. Much of the discussion has been driven by this paper which explores some of the security and robustness implications of the Dark Empire’s embrace of DRM in Vista.

What I find the most interesting aspect from a sociological point of view is the claim that Microsoft will achieve the result of making legal, professional content look worse than amatuer and pirated content. If so, that would represent a major triumph of paranoia over success for both Microsoft and the premium content providers.

It is useful to contrast this with Apple’s approach. This article is one I have been intending to comment on. It starts with the thesis that DRM is failing for the reason noted just previously, that it’s painful, risky, and delivers lower quality results for the consumer. This results in consumers avoiding DRM content in various ways, such as buying less or no content, buying niche content without DRM, or pirating. However, the article claims, Apple is single-handedly giving DRM a lifeline. Here is the money quote —

With iPods commanding such a large part of the player market, and iTunes integration so complete that it’s the easiest option for new iPod owners in search of more music, Apple can present the best case for DRM to the industry: the success of the iTunes Store. Given that iTunes is now the #5 music retailer in the US and rising, the Apple mantra isn’t pro-DRM or anti-DRM, but that “the experience is king.”

Apple is selling DRM content because it provides a superior experience at a reasonable premium. People are cheap, but not infinitely cheap. Yes, Apple will lose the hard core misers, but those sort of people will never spend much money on anything, no matter how compelling. The key insight of Apple is that it doesn’t make sense to compromise your overall product experience to chase after that sort, as you’ll never get serious cash flow out of them. Instead, Apple seems to have optimized for the average person, who will pay a decent premium for content if that premium guarantees ease of use and quality. This is the root of iTunes’ success. Everything is the same affordable price, the system as a whole (iTunes + iPod) just works, and the quality is top notch. Most people would rather spend the 99¢ and be done with it than spend a hour or two searching, downloading, and testing for quality.

Of course, a certain amount of piracy and cheating goes on. But Apple seems to have realized that from a business point of view, stomping out piracy is not a goal, but a means. The goal is to maximize the long term revenue stream and piracy suppression must be viewed as a tunable knob in service of that goal, not something that is intriinsically good of itself. Apple is clearly trying to find the sweet spot of price, service, and quality that does this, rather than the scheme that minimizes “lost profit”. Lost profit is theory, revenue streams are facts. Apple wants to do business.

In contrast, Microsoft and its backing content providers are acting more like misers, valuing the prevention of theft more than the increasing of sales. Better to prevent one act of piracy than sell a dozen tracks. That’s just not a model that will provide long term success in an information society.

Comments — Formatting by Textile
Michael Herdegen Monday, 22 January 2007 at 13:55

One issue, though, is that one pirate doesn’t necessarily mean one sale lost; it can mean 10,000 counterfeit copies competing with your legitimate issue.

Annoying Old Guy Monday, 22 January 2007 at 16:19

The kind of DRM discussed here won’t even slow that kind of pirate down. Those guys build their own hardware.

Jeff Guinn Monday, 22 January 2007 at 23:50

The other thing Apple seems to have taken on board is that if your music player holds everything you own, and if that player is equally capable of being used anywhere (my new car is iPod capable, for instance), then the whole notion of “fair use”, which AAC files certainly impede, simply disappears.

When people can, via an iPod, play their music anywhere in their house, or car, or out for a walk, in the gym, etc, what meaningful barrier does DRM present?

Tracked from The beat of a different DRM on 23 January 2007 at 06:28

I grumbled a bit about the Digital Rights Management system built into iTunes a few days ago, but I noted that this was the first time that I'd even actually noticed the darn stuff. Which seems to mesh with this:...

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