Competition on the basis of (fewer) use restrictions: “The best devices have no limits.”
I’ve been waiting for this for quite some time. Use restrictions (in the form of digital restraints management aka DRM, technological crippling of devices, restrictive architectures or contractual terms, etc.) diminish the value and thus raise the net price for a device. Here, Nokia is aggressively advertising the openness of its phones as a feature. “Open to anything.” I like it! (HT: BB).
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October 1st, 2007 at 4:04 pm
Perhaps the word “net” saves your comment, but the claim that the specific combination of price and DRM in any given device is inherently less valuable than any alternative price and no DRM would seem to value the absence of DRM just a tad too high (at, say, infinity). The implicit claim that consumers necessarily lose when manufacturers sell products with DRM is absurd, if for no other reason than if it were really true manufacturers would stop doing it, and anyway, the claim fails to take realistic account of price. Can you really be sure that DRM’d music at $.99 a pop is a worse value for consumers (some consumers? all consumers?) than DRM-free music at $1.99? That seems like an impossible claim.
October 1st, 2007 at 6:05 pm
What’s wrong with the claim that use restrictions diminish the value of a product? A .pdf file that I can’t print is less valuable than one that I can print. A phone that I can only use with one carrier is less valuable than one that I can use with multiple carriers, etc. It is because restricted goods are less valuable than unrestricted goods that DRM-crippled music sells for $0.99 and DRM-free music sells for $1.39. What I find interesting about the Nokia ad is that a major device maker, for the first time that I’m aware of it, advertises the absence of use restrictions as part of its products’ value proposition. Advertising informs consumers and shapes preferences. If better informed consumers start placing higher value on restriction-free devices (and music, etc.), then we can expect a market response in the form of fewer use restrictions at the same price or lower prices for restricted products. Given my preference for restriction-free products, that’s something I like. Where’s the absurdity in that?
October 1st, 2007 at 7:53 pm
There’s nothing wrong with the claim that unrestricted goods are worth more to you than restricted goods. The problem is with the claim that this is true at any price. I, for one, would prefer to have restricted iTunes files at, say $.50 each than unrestricted ones at $1.00. You may feel differently. You claim in your post that DRM reduces value and thus raises net price. My claim is just that if there is a sufficient offsetting price reduction to accompany the restriction, no such “net increase in price” is required, unless DRM has an infinite cost. And I really don’t think that’s true.
October 2nd, 2007 at 3:22 pm
The problem with Geoff’s approach is that it defies economic logic unless it is (a) anti-competitive or (b) rationally related to anti-piracy. To take his example, take an existing file at $1.00, add to that the cost of imposing restrictions that limit its intrinsic value, and sell it for $.50. There can be no question that the revenue per file is less. If the loss in per-file revenue is recovered in sufficient suppression of piracy as to generate additional sales, then that might be a wise use of DRM. If, on the other hand, the DRM is simply intended to tether or time out a work such as to prevent competition from lawful secondary sales (or gift, trade or lending), or to use technology to capture a “right of private performance” denied to the copyright owner, then it is anti-competitive. If a retailer were imposing the DRM of its own volition (such as a bookstore requiring book purchasers to promise that the book will not be read more than once), the market will take care of it, but if a copyright owner were to use DRM (such as to make the ink disappear after the book has been read) there is no other source for the book — the copyright it leveraged into control beyond the limits of the copyright grant.