Hell is beginning to freeze over. Microsoft today announced that it’s doing an about-turn on two big DRM decisions it had made in Xbox One -
- Earlier, Microsoft had said that there would be an ‘always-on’ requirement to play games. Now it’s saying there won’t be.
- Earlier, Microsoft had said that there would restrictions around used games and there would be a fee involved. Now it’s saying there won’t be. Used games will work just as they do now.
Of course, a lot of this has to do with Sony’s Playstation 4 not having these twin DRM restrictions.
Sony had won a lot of plaudits and Microsoft had gotten a ton of criticism. Preorders for Xbox One and Sony Playstation 4 are live now, and perhaps Microsoft got more direct feedback from the preorder rate.
Whatever the reason, Microsoft has made two very good changes. These changes might very well be what save Xbox One. It had seemed, based on users’ reactions to the DRM restrictions on the Xbox One, that Microsoft would lose the console wars even before Xbox One arrived.
Now it has as good chance to win as Sony Playstation 4, perhaps better because we tend to value people/companies who correct mistakes more than those who don’t make mistakes (yes, strange but true).
Lessons for Publishers
You have four categories of readers (roughly) -
- Readers who won’t pay for books and will pirate them. No matter what.
- Readers who won’t pay for books if it’s easy to pirate them. These will also not pirate if there is some penalty attached i.e. they might get caught and punished.
- Readers who won’t pirate.
- Readers who don’t know the option to pirate exists.
The first category can never be ‘converted’. The second category of people are what Publishers are hoping to ‘protect’ from piracy by having DRM. There’s also the rather interesting idea of having ‘variable’ books that allow Publishers and Stores to find who started the piracy – I LOVE that idea.
DRM greatly inconveniences the third category and also somewhat inconveniences the fourth category.
If Publishers drop DRM, it does two big things -
- It makes the 3rd and 4th category happier and MORE likely to buy books from Publishers.
- It makes the 2nd category likelier to steal books. Unless Publishers attach some ‘you might get caught’ qualifier like water-stamped/word-stamped digital books.
Of course, dropping DRM does one more thing -
- It kills the ability of ereader makers to use DRM as lock-in. It effectively equalizes book stores. Why? Because if there’s no DRM, then any book store can sell Kindle format books without DRM. They would work and then users would not be restricted to buying just from Amazon.
This is very important. Because then it blows a giant hole in the closed Kindle ecosystem and it allows ANY author and ANY ebook store to sell directly to Kindle owners. Currently, only indie authors can sell DRM-free books to Kindle owners. Quite a few do.
The downside is that we don’t know the size of the 2nd category (people who will pirate ebooks if it’s simple to do so). If that’s large, then dropping DRM would be madness unless Publishers could introduce the threat of a penalty for stealers.
Lessons for B&N
B&N is already making some aggressive moves -
- Huge price drop on Nook HD and Nook HD+.
- Periodic sales on Nook Simple Touch.
- Huge price drop on Nook Simple Touch in the UK.
- Adding Google Play Store to the Nook HD and Nook HD+.
If it were to somehow convince Publishers to drop DRM, it could start selling books to Kindle owners.
The downside is that B&N probably likes the lock-in it gets by using a variant of Adobe DRM that Kobo and Sony don’t yet support. So it has just as much to lose as Amazon if DRM is dropped completely.
Dropping DRM is a move B&N really should consider.
Lessons for Amazon
Amazon is in a tough situation. It definitely does not want to unlock its ecosystem and let everyone easily buy books from elsewhere to read on Kindles.
The lesson for Amazon is to be prepared for this to happen. Publishers and B&N and Kobo and Apple could team up and drop DRM (it’d be funny if Apple helped drop DRM on books, given that Amazon caused DRM on music to get dropped).
In a world where ebooks are sold without DRM, anyone could buy from any store. Would Kindle owners still buy from Amazon? Perhaps they would. What if some crazy new start-up started offering books for cheaper? What if it started offering Publishers and authors 90%?
Keep in mind that an ebook store would not have all the infrastructure costs that Amazon has i.e. free 3G downloads, all the services, delivering data to all these Kindles. It would just be a website selling ebooks that users would download to their PC via their standard Internet connection, or to their Kindles using WiFi.
Amazon would be in a bit of a bind if DRM were to be dropped from ebooks.
The opportunity for Amazon would be to sell ePub format books to owners of non-Kindle eReaders. The downside is that Amazon probably wants them locked into its ecosystem and buying Diapers and Pink Tutus.
Lessons for Indie Authors
Sony was going to win the Console Wars just on DRM and used game sales. Think about that for a minute.
Microsoft was forced to rescind its two big DRM measures.
Indie Authors have the advantage of being able to sell their books without DRM and for all the stores. There has to be some way to leverage that. There’s also the set of people who are anti-DRM. If Indie Authors can reach those and sell them DRM free books, they can get one competitive advantage Publishers would be reluctant to match.
Lessons for Kobo
Very similar to the lessons for B&N.
Kobo has to be thinking about how much money it could make if it could sell to Kindle owners. If the war came down to ‘selling the cheapest books’, Kobo can fight with Amazon far more effectively. The entire market share lead for Amazon is based on locked-in users. If all those users could suddenly buy from any store, a large portion of them would buy from the cheapest store.
Kobo’s problems would be reduced to – Become the ebook store with the cheapest prices. Kobo already does this well by using coupons and catering to quite a few Nook owners.
At best - removing DRM lets Kobo sell to Kindle owners. At worst – it kills profit margins for Amazon (if it matches Kobo) and thus makes it somewhat meaningless that Amazon has larger market share.
There’s a certain beauty in it – Kobo could cut prices to the point that it makes zero profits. Amazon would be forced to match. The loss for Kobo is perhaps $20 to $40 million. The loss for Kindle is $300 to $400 million.
If Amazon doesn’t price-match, then people start buying from Kobo.
DRM is going to decide the eReader & eBook Wars
People fixate a lot on things like convenience and customer service. They are discounting human nature.
Everyone wants to eat their cake and have it too. If readers get a chance to get an eReader from Amazon and get Amazon services and customer service, and then turn around and get cheap ebooks from Kobo – 90% of them will take it.
90%. Not 10%. Not 25%. 90%.
Sooner or later, Publishers will be forced to drop DRM. At that point a lot of possibilities open up - There’s always someone crazy enough to try things the market leaders never would. Readers, due to being human, will gladly embrace any company willing to take losses to give them better prices. You could argue that’s the entire Unique Selling Proposition of Amazon. That might very well be the best way to compete against Amazon.