DRM gives companies security -- from competition

Last night, Rob posted a very good piece on Apple's new "Gatekeeper" technology, which defaults to warning users of Apple's new Mountain Lion OS that software from companies that haven't been officially recognized by Apple should not be installed (though users can still choose to override it, or turn it off).

But I have one rather large quibble with Rob's piece. He wrote:

The truth is that Macs don't currently suffer much from malicious software, and DRM-esque lockouts are always circumvented. So what's the point of a DRM-esque system for malware prevention?

I agree that DRM is always circumvented, and it is especially circumvented by copyright infringers and malware creators. But I think that Rob has misunderstood the primary value of DRM to technology companies: because many countries' laws prohibit breaking DRM even if you're not doing anything illegal, DRM gives companies the right to sue competitors who make compatible products and services.

The law has always recognized that interoperability is good for competition, markets, and the public. From generic windshield-wiper blades and hubcaps to third-party hard-drives and keyboards and inkjet toner, and software like Pages and Keynote, the law recognizes that there is a legitimate reason to reverse-engineer a competitor's products and make new products that replace, expand and augment them.

Companies don't like this. It interferes with the "razor blade" business model of subsidizing one part of a product and charging high margins on some other part. It undermines efforts to corner markets and freeze out disruptive innovation. It lowers prices and forces you to spend more money on R&D to get the next product out because the profits have started to fall on the old products.

But these are not bugs, they're features. High prices on inkjet cartridges and proprietary cables and other consumables and accessories hold us back from realizing the full utility of our property. Allowing carriers to lock handsets to prevent the introduction of VoIP and tethering software to preserve high tariffs is good for telco investors, but bad for those of us who buy their products, and it removes the incentive to improve voice-call quality to compete with VoIP. Artificially prolonging the profitability of last year's invention means that this year's invention doesn't get made as quickly -- or at all.

Locking devices to only accept software that has been blessed by the vendor has been a profitable anticompetitive strategy. It's allowed the iOS App Store to command high commissions on sales, and to expand those commissions to cover transactions after the initial sale (if you spend money within an iOS App, Apple takes 30% of that transaction as well -- like a cash-register manufacturer demanding a slice of each transaction after you've bought the register). It allows the company to freeze out apps it doesn't like, even if customers want them. It undermines copyright by making it illegal for someone to create and sell their copyrighted software to willing buyers without the approval of the company that made the hardware the software will run on -- because the unblessed software won't run without breaking the DRM, and breaking DRM is illegal.

Legitimate, lawful transactions are different from copyright infringement or disseminating malicious software. Malware writers aren't worried that they'll get sued for breaking DRM -- they're already breaking the law. Copyright infringers don't need to raise capital to produce software, and they don't need to have easy-to-track merchant accounts for their services, because they offer those services for free, by and large.

So while Rob is right to note that DRM-esque mechanisms have no effect on piracy and malware, they do effectively prevent legitimate businesses from raising capital, making products, advertising products and selling products. No one will invest in a company that will get shut down by the courts for breaking DRM. You can't maintain a low, anonymous profile and also advertise your products and take money for them.

I don't know whether Apple will expand its iOS platform-locks to the MacOS. But if they do, it won't be because they don't see any benefit from DRM-like measures. They assuredly do. That's why they asked the Copyright Office not to grant a jailbreaking exemption for iPhones three years ago, and it's why they're objecting to renewing and expanding that exemption to cover iPads now.

And these exemptions are far more narrow than the freedom that the law, absent rules protecting DRM, would give to competitors. When the Copyright Office grants a three-year jailbreaking exemption, it doesn't make it legal to make, describe, sell or give away tools to jailbreak. Effectively, they only make it legal to figure out how to jailbreak your own phone or tablet, but not to tell anyone else how to do it, and certainly not to create a jailbreaking service. This is very different from, for example, making a commercial offering like Apple's Keynote (which reverse-engineers and provides interoperability with Microsoft's PowerPoint), producing an advertising campaign for it, and selling it in boxes at the Apple Store.

Instead, this impoverished permission to interoperate dooms the public to shop in still-illegal black markets for jailbreaking tools, with no recourse if the software breaks their phone or installs spyware on it. Even when the Copyright Office creates exemptions to the protections for DRM, they still leave an anti-competitive landscape intact.

(Image: Monopoly in the Park, a Creative Commons Attribution (2.0) image from harshlight's photostream)

• [show me]

  Nerd fight! Get the popcorn!

• [judf]

  My name is now boingboing..boing. You can call me Mr. Boing.

• [OgilvyTheAstronomer]

  Competition isn’t affected. If “openness” is more valuable to the public than protection, then free and open products will dominate the market. Like the OpenPandora project, utterly crushing its rivals, or Linux on the Desktop, currently consigning all competing OSs to the dustbin of history.

  • [Nioui]

    Well, it depends what you try to compete against.

    I can create an iPhone competitor, but I cannot create an AppStore competitor for iPhone users.

    • [OgilvyTheAstronomer]

      Indeed – and the iPhone owners appear to be overwhelmingly satisfied with this situation, since they are failing to vote otherwise with their wallets.

      • [Donald Petersen]

        “Overwhelmingly satisfied”?  When 45% of smartphones sold in the U.S. are Android-based vs the 30% that are iPhones?  When Apple had a 16-month head start?

        I’m far from any kind of expert, but it seems to me that Apple’s market share would be more dominant (and you’d certainly hear less grumbling) if these policies were different.  Then again, that doesn’t address the sheer profitability factor.  As long as they can milk more money from their users by doing things the Apple way, then I can’t imagine they’d bother to change for any remotely altruistic reason.

        • [Arvin Alba]

          iPhone users are overwhelmingly satisfied. What’s Android got to do with Apple owners being satisfied with Apple products?

          Also, when 30% of the market is owned by Apple, when 45% is divided among dozens, maybe even hundreds, of manufacturers? Also, considering that iPhone is priced premium? I don’t really understand why people belittle Apple on such front – that’s actually pretty impressive for a company. Remember that Apple also owns the majority of profits from handsets.

      • [Rachel]

        It’s more like they /can’t/ vote with their wallets. Apple has made it nearly impossible for competition on this front to tale place. What true options are there? 

        • [OgilvyTheAstronomer]

          Well, I personally fully agree, but Android fans are very vocal about it being a valid alternative to iOS, so if you want full freedom to install any apps you want, that’s probably the way you need to look.

• [PapayaSF]

  Nitpick: the App Store does not “command high commissions on sales.” Standard retail markup is 50%.

  • [Arvin Alba]

    Also, large portions of those 50% go to manufacturing costs, compared to almost negligible for apps and digital content.

  • [trai_dep]

    Book authors get roughly 10% of SRP from publishers. 30% seems much smaller than 90%. And that’s only if authors charge for their product, otherwise, the Apple cut is 0% (try asking Random House to agree to that).  iTMS is a great value.

• [retepslluerb]

  But the profits from the App Store are really miniscule.  The only digital store where Apple makes some real money is iTunes Music – and that one comes w/out DRM.

  And as fas as I know, Apple’s FairPlay has not been broken, or am I mistaken?

  • [xian]

    There’s been a number of ways to strip the drm from iTunes purchases over the years, jHymn comes to mind. I’m not sure of the current state – but not that it really matters anymore anyway.

    • [retepslluerb]

      Well, videos, books and software are still FairPlay encrypted. 

• [Pee]

  “and it is especially circumvented by copyright infringers and malware creators”. Boo, there are also legit users who want to use a product to the fullest as they want to. And not just how the manufacturer thinks we should use it.

  • [OgilvyTheAstronomer]

    Well, aren’t those legit users capable of choosing a different product instead? As far as I know, the right to have your cake and eat it isn’t enshrined on the Constitution.

    • [lkjhglkjhg]

       Ok, so if you buy a house from me, I get to tell you what to do with it for the rest of your life? Can I install special locks on your doors that you are not legally allowed to remove?

      • [OgilvyTheAstronomer]

        If you buy a house, from me or from anybody, you’re supposed to do due diligence first, to see what both the zoning restrictions and the homeowners association allow you to do. If you jump in and buy it expecting that you can do whatever you want with it, and then it turns out you cannot, you have nobody but yourself to blame.

        • [Antinous / Moderator]

          Uh, actually most of the diligence is in the form of mandatory disclosure by the seller.

• [lavardera]

  and you really can’t get  Keynote in a box at the Apple Store any more. You have to download it, or order the boxed version online.

• [Chris-Mouse]

  @retepslluerb:disqus  – the BBC has a report of Fairplay being broken back in 2006.

   http://news.bbc.co.uk/2/hi/6083110.stm

  • [retepslluerb]

    Thanks.  I’ve reread the Wikipedia entry and it looks like FairPlay has been compromised a few times. 

• [Rob Beschizza]

  I wonder what delights await in the Gatekeeper-updated developer EULA!

  • [crimpers]

    Can’t we just hurry up and get to the corporate singularity where all our everything are belong to the 1 corporate overlord?

    I guess we should probably just root for Google then, because at least they’ll feed us all for free.

    • [Rachel]

      You are one scary person… Why do you want everything to be one big Facebooked kind of mess. i enjoy my privacy, and my right to choose what I consume as far as content goes, and my privacy, as limited as it may be. OCCUPY the internet, and go indie. 

      • [crimpers]

        Well, I was really being sarcastic, but I take no offense to being called scary either.

• [mkultra]

  The costs of running a moderated online app store and processing cc transactions are quite significant. 30% is a fraction of the markup traditional retailers charge. Of course, as a publicly-held company, those numbers are all public knowledge. iTunes profits are only a couple percent of their overall business ($2b revenue out of $46b overall, so about 4% That number includes all music, apps, and books.). Really the only reason they have an App store at all is as a service to add value to iOS devices  to attract customers.

  I honestly don’t know why I even bother reading Cory’s Apple posts. His criticisms are nearly always ill-considered and very nearly reflexive. If Apple cured cancer, he would argue that they are only doing it to take away patients choice to die how they choose.

• [Arvin Alba]

  Apple’s business model involves selling devices at high margins, using the content as lures. They don’t really care so much for profits from any of their iStores. Not exactly the razor blade business model you’re comparing Apple with.

• [Daniel Gibson]

  I regularly circumvent eBook DRM. I own a Kindle but not all the books I want are available from Amazon, so I also buy from Google Books and Kobo Books as well but obviously need to remove the DRM in order to covert them to Kindle format. Here, the DRM defiantly is protecting eBook publisher and manufacturers from competition.  I’m not supposed to be able to buy eBooks on the open market.

• [Thorzdad]

  I wondered how quickly Cory would aim his AppleGrar at Gatekeeper.
  Seems to me the fact that users have the option to turn Gatekeeper off should negate any supposed negative. But, rage on, if you must.

• [zk]

  Apple’s Gatekeeper is NOT DRM. 

  Anyone who writes suggesting that it is just does not understand.

• [Robert J. Berger]

  We should work to make it that locking devices and preventing “jailbreaking” is against the Law. Its not just Apple, its all the Telcos, CableCos and companies like Sony.

  We need to make the Makers’ Cred be the law. All devices must be able to be hacked by their owners.

• [trai_dep]

  I’m unsure if comparing the iTunes Music Store’s 30% distribution fee to cash register mfrs is fair. Compare it to book publishers  (or, really, any publisher) and it is a much closer fit. In exchange for the marketing boost, the bandwidth charges, the autoupdating features and having an experienced set of eyes to ensure your application meets their standards, Apple takes a cut. ONLY if you charge for your creation. If you don’t, it’s at no charge.
  How many book publishers offer a charge of $0.00 if the author decides s/he wants to give it out? Even digital ones?

  There are arguments to make pro/con ITMS, but this false comparison cheapens whatever argument the author makes.