Wednesday, October 31, 2007

Digital Rights Management (DRM) Decreases Sales and Increases Costs

(I've been meaning to write this post for some time, but there is just so much information to include to cover all the points. Therefore, I will begin this post and provide a basic framework for the reasons why DRM is wrong. This is a draft that will be added to as we go along. Feel free to play devil's advocate and bring up any issues I have missed.)

Digital Restrictions Management
DRM, or Digital Rights Management (Digital Restrictions Management for those in the know), is an attempt to limit the usage of a digitally delivered good to a single person- usually a person that has purchased a single copy of the item. Using these systems, the seller intends to prevent the item from being used by anyone other than the person that bought the item.

The fact is DRM systems are the furthest thing from being perfect. No system works on all computer platforms or all situations of the end-user. Whether it is attempting to secure a PDF eBook, a piece of software, or a pay-per-view movie file- no technology exists that will successfully allow a customer to view the file in all computer environments. What this means is that you are placing minimum technical requirements on your product as soon as you intend to use DRM. Even if it is something as simple as a password protected PDF, you have instantly reduced your potential sales market by excluding those end-users who do not have the minimum PDF viewer requirements that will allow the password to be entered properly. Only certain versions of PDF viewers like Adobe Acrobat will allow the use to enter a password to open a file. It gets even more restrictive across other product types like video files, especially those using a technology like Microsoft DRM. An unprotected PDF can be viewed by 100% of the Internet population using freely available software. When the seller puts DRM on the file, that number drops and no they have effectively eliminated a large portion of sales.

"They are Stealing from Me!"
That is the argument I hear most from small sellers. Most have never sold even one copy of their file, but they want to make absolutely sure that no one other than the customer can use their product. As we saw above, that is not possible as DRM systems are flawed fundamentally. A person who receives your file is not stealing from you. You may have not received compensation for your product, but since it is a digital good, available in infinite quantities without incurring additional overhead- it did not cost the seller any out of pocket expenses.

Limited File Sharing Increases Sales
If a customer who purchased a digital knitting pattern shares the file with their friend you now have the potential to gain a customer. The non-paying recipient never heard of the seller or their product and was likely never going to hear of them. By having the original customer send the file to the non-paying recipient, they can now determine the value of your product directly and are likely to do so because of the direct testimonial from the original paying customer who shared the file. Provided that the file has identifiable information as to where the item can be purchased in terms of either file properties (or in the case of this knitting pattern), a direct link to the seller's store with the ability to market similar products to the converted user.

Increased Support Costs
We sold DRM Windows Audio Files using MS DRM on our system a few years ago for a major recording artist. We sold the same exact song as an unprotected MP3 file on the same page. Not only did the MP3 file outsell the DRM file 15-1, but the costs incurred from providing end-user support for using the DRM file was extraordinary. Both files sold for $1.49. To this day, four years later, we get email requests from customers who purchased the DRM file asking to retrieve their DRM license for the file. That means we have to look up the order, generate a new license, deliver it, and troubleshoot any additional installation issues. That does not even cover the bulk of the support costs which occur immediately after the sale when trying to initialize the DRM on their computer. This again relates to the technological requirements or misconfiguration that occurs when dealing with the wilds of the Internet. Time spent supporting customers because of DRM is money lost. You are also likely to loose the endorsement of your product for every customer that has a problem with the file.

Nature of Digital Goods
This point has to be made as it may not be completely obvious to people unfamiliar with selling digital goods. It has to do with the impulse buy and the re-purchase behavior related to selling digital goods. The following describes the vast majority of downloadable good purchases. If a customer buys and item from a seller and they got value out of it and it was easy for them to use (no DRM), then that customer will likely go back to the seller's store and immediately purchase one or more related products they have for sale. In addition to this impulse buying behavior, the entire existing customer base of a digital good seller will be much more likely to buy any new product offerings from the seller in the future when compared with tangible items.

An Anonymous Coward writes:
"Actually, it did cost the seller; it cost the seller a potential sale."
Again, if you read above, it didn't cost the seller anything because the person was never going to pay you for the item anyway. If the person was not given the product by a friend, they were not actively pursuing the item. The exception is a person actively seeking the product on a warez site, in which case, no DRM would have worked since you see every piece of software ever made there. So again, it didn't cost a thing for not using DRM, however if you do use DRM, then it did cost you a potential sale.