Monday, March 5, 2007

The Economics of Why DRM is Unsuccessful

A fascinating post over at TechDirt analyzes the economics behind DRM, and why on paper, DRM is bad for business. The author compares creative content to raw ingredients for cooking, and the ways of marketing that content as the recipe. Over time, raw ingredients don't change, but recipes utilizing those ingredients do to better adapt to technological and cultural shifts. Each recipe has to be seen as an upgrade upon the last one, otherwise, it will fail as a business model.
Note that it's the non-scarce products, the recipes and the ideas, that helps expand the value of the limited resources, the ingredients. You expand value by creating new non-scarce goods that make scarce goods more valuable -- and you can keep on doing so, indefinitely. Successful new business models are about creating those non-scarce goods and helping them increase value. Any new business model must be based around increasing the overall pie. It's about recognizing that creating value isn't about shifting around pieces of a limited economic pie -- but making the overall pie bigger.

DRM is fundamentally opposed to this concept. It is not increasing value for the consumer in any way, but about limiting it. It takes the non-scarce goods, the very thing that helps increase value, and constrains them. Those non-scarce goods are what increase the pie and open up new opportunities for those who know where to capture the monetary rewards of that value (within other limited resources). DRM, on the other hand, holds back that value and prevents it from being realized. It shrinks the pie -- and no successful business models come out of providing less value and shrinking the overall pie. Fundamentally, DRM cannot create a successful new business model. It can only contain one.

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