You know Keurig’s machines. The company's squat black coffee brewers have become fixtures in offices, hotels, and homes around the country, as have garbage cans heaped with the spent plastic pods they use. Purely on the strength of those machines — or more accurately, the relatively expensive pods they use — Keurig transformed its parent company, Green Mountain Coffee, from a small regional brewer to a major corporation doing over $4 billion in sales each year.
Late last year, Keurig announced a new machine, the 2.0, calling it the "future of brewing" and touting its ability to make both small cups and large carafes. But another, less-publicized feature has been getting most of the attention: the brewer’s advanced scanning system that locks out any coffee pods not bearing a special mark. It’s essentially a digital rights management system, but for coffee, and it’s proving to be the brewer’s downfall.
"Talk about GREEDY corporate ridiculousness."
On an earnings call Wednesday the company announced that brewer sales fell 12 percent last quarter, the first full quarter for which the 2.0 was on sale. "Quite simply our 2.0 launch got off to a slower start than we planned," said CEO Brian Kelley. He said the company had been too slow to get 2.0-compatible cups onto retail shelves and "confusion among consumers as to whether the 2.0 would still brew all of their favorite brands."
Indeed, the 2.0’s Amazon reviews overflow with caffeine-deprived fury, the idiosyncratically capitalized wrath of people who bought 2.0 machines only to find that their old cups don’t work. "Talk about GREEDY corporate ridiculousness," said one guy who tried to use his refillable pods. "On principle alone, I hate that they are dictating which coffee I'm using in my machine," said another. "It is a HUGE SHAME that the company decided to remove the ability to use your own coffee grounds in the home brew k-cup. ...They should have just said we made these changes so our products would sell more so we could make a bigger profit," reads a typical review. "They took a potentially killer machine and added horrible DRM - a rights management system, in the greedy attempt to get all other coffee pod manufacturers to pay them so their pods work," reads another of the hundreds of one-star reviews. Many lamented the ability to give no stars. If you Google "Keurig 2.0," the first thing that autocompletes is "hack."
"I hate that they are dictating which coffee I'm using in my machine."
The funniest thing about the backlash is that it was entirely predictable. Consumers hate DRM — in music, in movies, in anything — but applying it to coffee feels especially galling. It’s the most open caffeinated beverage there is; all you need is beans and hot water and, I guess, a vessel to brew it in. Locking it up in plastic cups was already a little silly, though something lots of people were happy to buy for the sake of convenience. Building a complicated infrared scanning system so that you can only use Keurig-approved cups was a step too far.
At a Keurig 2.0 launch event last June, company representatives demonstrated the DRM system using old Keurig pods, without the scannable ink markers. If you tried to use one, the machine displayed a message saying "oops" and did nothing. It was designed to lock out cups made by third parties, but obviously it also locked out old Keurig ones, as the demonstration made clear. I asked whether that would be a problem, and no one seemed to think it would be. The old cups would be phased out, and retailers would carry only the new ones, Keurig said. That turned out to be wrong, possibly because so many Keurig users buy their cups in bulk, and probably because unlicensed pods were cheaper. Maybe the problems will subside somewhat now that retailers are stocking the new cups, but as Kelly acknowledged in the call, the initial angry response did a lot of damage.
It’s the most open caffeinated beverage there is
Keurig says the scanning system allows the machine to optimize brew temperature for different types of cups, and to tell the difference between carafe-size cups and regular ones. But at the event, a Keurig engineer said the technology is based on anti-counterfeiting technology used by the US Mint, which surely is not the simplest way of distinguishing between one pod and another.
At a corporate level, Keurig’s attempt to make a DRM system for its coffee is understandable. The company’s business model depends on selling its brewers cheap and making money selling pods, a model reminiscent of printer manufacturers and their marked-up ink cartridges. It’s a tremendously lucrative business. Of Keurig’s $1.4 billion in sales last quarter, $1 billion came from selling cups. But in 2012, key patents on its cups expired, and competitors rushed in, selling compatible cups for cheaper and quickly eating into Keurig’s market share.
You shouldn't have to hack your coffee
Many of these companies have declared their intention to make 2.0-compatible cups. Others have sued. Yet another third-party cup manufacturer is giving away a free clip that it says tricks Keurig’s scanner. And YouTube is full of videos showing how to hack the system.
Whether this stuff works is sort of beside the point. You shouldn’t have to hack your coffee, and that’s especially true for a company whose entire success is based on being super easy and convenient. Keurig’s latest earnings report proves that.
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