Less than two years after announcing the release of Keurig 2.0 and the introduction of DRM (Digital Rights Management) into their new coffee makers, Keurig Green Mountain announced lagging sales, sending the company’s stock down 12%. Revenues are low, sales are down 23% and consumers are apparently tired of Keurig’s bullshit.
All this started when Keurig introduced features in their 2.0 brewers aimed at keeping third party “counterfeited” coffee pods manufacturers out of the market. Their 2.0 pods contain proprietary ink or RFID tags which are used by the coffee making device to identify Keurig-made coffee pods and allow the machine to brew only Keurig-licensed coffee. Third party pods are rejected by the machine, meaning that customers who have purchased after market pods are now stuck with pods they cannot use and machines which only work with very expensive, Keurig-only pods.
In version 2.0 Keurig introduced the ability for customers to brew a carafe as well, using larger pods. The “anti-counterfeiting” system doubles as a method to distinguish between carafe-size pods and regular ones. If the sensor detects a green dot that identify the carafe cups, it brews a larger pot. If it detects black symbols on the standard pod, it brews a smaller cup. If it doesn’t detect a Keurig-approved marking at all, it will not brew anything and will display an “Ooops” message to the user. The only thing missing is a big middle finger and a “F**k you!”
It’s impossible to imagine what transpired in Keurig board rooms and behind the doors of their engineering department when this system was designed, but one thing is certain: there was an underlying assumption that consumers were too stupid to understand how this system works or lack the ability to subvert it.
Within weeks, people were already posting online work-arounds, videos and instructions on how to defeat the system, making the entire R&D work and manufacturing costs associated with it pointless. Not only did Keurig spend time and money developing a DRM system that does not work, but in the process they pissed off a bunch of customers, vendors and partners who had in place channels for using and selling cups compatible with their machines.
Keurig blamed the lagging sales and lower profits on slow adoption of their 2.0 brewers and claimed that customers love their products so much that they are holding onto them for dear life. This would be like Honda blaming customers for using older vehicles too long and not buying new ones. Is anyone really buying this?
The Keurig Green Mountain CEO Brian Kelley said, “Quite honestly, we were wrong. We underestimated the passion the consumer had for this.” He cited “complex product transition” as another reason for the sales decline, and the company now is reversing course and trying to save face by announcing plans to bring back the My K-cup accessory to allow customers to brew other brands of coffee. But what customer will go and buy a DRM brewer just on the empty promise of a company who just screwed them over just a year ago?
Oh how quickly things change. Just a year ago, the same CEO was fawning over the DRM feature, bragging about how customers will fall over themselves to adopt a newer, crappier product:
The much-anticipated ‘Keurig 2.0’ single-cup brewing system with ‘interactive readability’ (that doesn’t work with unlicensed/copycat pods) will offer such “game-changing functionality” that consumers – and unlicensed players – will want to switch.’
In reality, customers are not adopting 2.0 brewers because they don’t want to be locked into a market that lacks flexibility and lacks the ability to purchase third party pods. One important reason for Keurig’s initial success was the consumers’ ability to go out to either Walmart or a local flea market and pickup third party K-cups at low cost. Keurig calls them “counterfeited” pods. They are not counterfeited; they are simply not made by Keurig and can be legally manufactured by anyone with the ability to do so. The pods could be purchased cheaply, and the Keurig machines provided the brewing convenience.
By introducing DRM in a coffee manufacturing process, Keurig killed their customers’ ability to save money, and are killing their own business in the process. The arrogance of not listening to the voices of customers is shining through their words and excuses, and while Keurig will likely be around for a long time, it will not be them, but the free market who will decide success.