08/28/2014

Last March, when we first reported that Keurig planned to require RFID-limited K-cup pods for its upcoming version 2.0 machines, we rhetorically asked “Will coffee drinkers be stupid enough to fall for this? Stay tuned.”

Now it's almost six months later, and the answer appears to be “No, coffee drinkers will not.” And there's two different reasons why.

You're probably familiar with Keurig and its K-cup single-serving coffee, tea or cocoa pods. (The company has, in the past year, also announced intentions to branch out into the single-serving soup and at-home soda fountain markets.)

And over the past couple of years, ever since Keurig's patent on filtered K-cups expired, you've also become familiar with the non-Keurig-branded coffee pods that work equally well in the original Keurig machines, usually at a fraction of the price.

Java-bean DRM

Which is why Keurig announced, last March, that it would change its machines and pods, to require what TechDirt called “the java-bean equivalent of DRM” (digital rights management), to ensure that only official Keurig-branded or -licensed K-cups could be used in the next generation of Keurig coffee makers.

That next generation of DRM-limited Keurig machines is on the market now. How's it working out for Keurig? Arguably not as well as they'd hoped. First of all, TechDirt reported this week that Keurig competitors Mother Parkers and TreeHouse Foods have already figured out how to crack Keurig's DRM code. More specifically, they know how to produce pods that are compatible with Keurig 2.0 machines.

Although such news should not be surprising. As early as June, the Motley Fool investment blog warned current and potential Keurig investors that “TreeHouse foods CEO Sam Reed said his company could replicate the next-generation K-Cup technology in less than one year. If Reed is correct, Keurig may encounter stiffer competition from unlicensed brands in the years ahead.”

If this week's reports are correct, TreeHouse actually needed less than one summer to crack the new Keurig code.

How does the Keurig “DRM” system work, anyway? It's not literally a digital rights management system, which usually refers to computer software, encrypting or watermarking data so that it cannot be accessed by unauthorized users.

The Keurig “DRM” actually involves printing the pods with a special ink. When the company revealed its version 2.0 coffee machines and K-cups last June, The Verge reported:

When the Keurig employee tried to use an old-model pod, one without a new ink marker on the foil top, the brewer wouldn’t run. "Oops!" read a message on the touchscreen display, explaining that the machine only works with specially designed pods and directing the user to a Keurig website and helpline. The employee wouldn’t elaborate on how it worked, except to say that the ink is proprietary and inspired by counterfeiting technology used by the US Mint. Ian Tinkler, Keurig’s vice president of brewer engineering, went into a bit more detail, explaining that an infrared light shines on the ink marking and registers the wavelength of the light reflected back.

But just how proprietary is that ink, in a legal sense? Can Keurig sue to prevent competitors from reverse-engineering the ink (or at least its infrared-reflection qualities), and would the courts side with Keurig if they did?

It's still too early to tell, but the fact that Keurig's “DRM” can be cracked with such ease doesn't seem to bode well for the company.

So that's one reason Keurig might be in trouble: because it bet everything on imposing a technological barrier which turned out to be ridiculously easy to get around.

The second problem is simpler, involving human nature rather than technology: Keurig customers plain don't seem to like the version 2.0 pod restrictions.

Remember our report about Keurig DRM pods from last March? Just this week, that six-month-old story suddenly started collecting a string of fresh comments from disgruntled Keurig customers who don't like their new machines. On Aug. 26, for example, regular commenter Rich Long remarked: “My old Keurig gave out so I bought a new Version 2.0 at Costco. Finding that my old cups don't work on it, I searched it on the internet. Price increases, freezing competition out, etc., I'm taking it back to Costco today and buying a Mr Coffee or equivalent.”

Only an hour earlier, commenter Shannon Steffin remarked: “I received the 2.0 machine as a Klout Perk (I'm a coffee addict) and I have to say: how disappointing! None of my other K-Cups can be used in the machine, a family member cannot use the reusable filter for her needed low-acid coffee brand …. I spoke with a VP at a coffee roaster yesterday and he told me that, in order to have your coffee in those nifty new K-cups, you have to sign over rights to have Keurig roast your coffee in their own plant - highly diminishing the quality of coffee roasted at speciality roasters. How annoying! I'm just going to put my 1.0 machine back on the counter and give the 2.0 away as a gift – although I'd hate to stick someone I like with such a limited product.”