Umair Haque / Bubblegeneration

Wednesday, June 01, 2005

Plasticity

Dan says regarding my property rights arguments:

"...The thing about DRM is that with DRM the price goes down, so even though I may not be able reburn a subscribed song from Napster/Rhapsody onto a CD, it costs me a fraction of the cost to listen to it as it would to buy it (provided I listen to enough music)."

OK - price alone is irrelevant. It's an effect, not a cause. It's a function of supply and demand, in the simplest case.

The problem with DRM, in my analysis is simple: it imposes huge nuisance costs on consumers, which limits the amount of value they derive from consuming DRM'd goods. This, obviously, impacts demand for DRM'd goods.

Alternatively, you can think about it in terms of plasticity. Plasticity is one of the fundamental sources of value for digital goods. People want to do cool things with the digital goods they buy. What can you do with a DRM'd good? Not much - DRM limits plasticity.

So regardless of price alone, what's important, strategically, is the price/value ratio: in this case, the price has to come down massively to keep the ratio competitive.

Now, in most cases, that kills margins, which alone is enough for DRM to be a really bad strategy. Another not-so-great consequence is that this essentially amounts to price/quantity competition, which is never a very good idea.

But if you also consider the fact that no copy protection system has ever 'worked' - gray markets have always arbitraged them away (at least at the consumer level) - you can draw the conclusions that DRM's always and everywhere a (very) dominated strategy. You can read my nauseatingly geeky prop rights essays for more.

I know, I know, the response is that rights management systems are only supposed to be like speed bumps, not like roadblocks, etc...I think that's a specious argument.

-- umair // 10:59 AM // 1 comments

Comments:

Yes, I agree, the price/value ratio is whats important. However, I think you're wrong in saying that DRM has failed to deliver in that area.

The value/price ratio that I feel I get from Rhapsody is greater than I feel I get from buying CDs. But then again I sit in an office and I get sick of my music quick. :-)

And on Windows at least, I don't even feel annoyed at all by DRM. I just browse and listen to whatever I want. I then drag it onto my music player if I want to take it with me. Simple, easy.

Of course, thats just one area of DRM and you're probably right in that it hasn't caught on yet. I think also that the landscape will change and what you call "peer production" will definitely change things.

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Dan // 2:47 AM