The smell of ground beans in the air, the feeling of hot steam from the cup, the sound of the last few drops of caffeinated glory filling the cup — it’s all part of the timeless morning ritual. For millions of Americans who want to speed up the process, Keurig has been there with their line of single-serving coffee brewing machines. But Keurig has a problem. While the brewing machines are profitable, the real fortune is in the refillable “K-cups,” filled with coffee grounds. The profit margins on K-cups are so large that knockoffs proliferate store shelves. In the search for a solution, Keurig has made coffee the unexpected new frontier for the debate on digital rights management and consumer rights.
To solve this problem, Keurig has announced their new line of “Keurig 2.0” brewers will only work with officially licensed K-cup refill packs. To enforce this, every K-cup will come equipped with an RFID sensor read by the brewer, locking out third-party manufacturers. In an online FAQ, Keurig claims that “It’s critical for performance and safety reasons that our new system includes this technology.”
While the RFID chip does enable the brewer to auto-adjust to that coffee’s recommended settings, it’s not hard to see the real motivation for this DRM scheme. To ensure their profitability going into the future, the coffee king is taking a look at everybody’s favorite consumer product industry computer printers.
The home printing industry is one of the most frustrating in all of technology. According to Consumer Reports, printer ink can cost up to $75 an ounce. It’s easily the most expensive liquid on the market, costing more per volume than penicillin, vodka and human blood combined. Such high prices exist because ink is a monopolistic market: Only one type is compatible with any one given printer. Once a consumer finds themselves in this market, they’re unlikely to switch to a more efficient alternative, due to the common fallacy of “sunk cost.”
Accounting GTF, Adam Gallion, explained this fallacy.
“A sunk cost is a cost that has already been incurred and cannot be salvaged,” he said. “Sunk costs are never relevant in decision making.”
Even though the consumer has already bought the printer (and invested the time and energy into getting it working) and has no way no reclaiming that spent value, they will make purchasing decisions against their own best interest to justify their past actions. It’s a fallacy that Keurig will likely hope to exploit with their DRM-locked brewers. Sell the coffee machine at a loss, then trap consumers into buying a single brand of coffee.
The market for coffee is a far different beast from that for printing, though. While the options are mostly restricted to inkjet printers for desktop printing, coffee can come in many forms. Keurig is going to face an uphill battle, selling their closed-ecosystem brewer to a consumer base raised on choice. But if Keurig can successfully market their DRM scheme to the masses, they may be on the road to caffeine domination.
