Larry Blanford, who was GMCR’s President and CEO at the time, alluded to those agreements, as well as to the new technology, in a 2012 earnings call when he said that their partners were “in a position to take advantage of future single-serve…innovations.” One of those innovations turned out to be the next generation of Keurig brewers announced in their earnings call this past November, when current GMCR President and CEO Brian Kelley mentioned that the machines would incorporate “interactive readability” that would “deliver breakthrough benefits for the consumer.” He later explained that the new system would not brew non-Keurig packs. Much like the backlash from consumers who objected to similar tactics used by brand-named printers that required use of their own proprietary ink, many Keurig machine owners are furious about this development that would seemingly restrict them from using the cheaper unlicensed K-Cups.
As much as people are sounding off against the “digital rights management” of their coffee machines, there are proponents of the java giant’s decision, as well. The crux of their argument is the fact that GMCR does not actually have a monopoly over the single-serve brew packs, and thus, their decision doesn’t necessarily result in undue influence on the market. Just as customers are entitled to buy another comparable product if they dislike Keurig 2.0, so, too, can the brewer’s owner decide to pursue a business model that bolsters its bottom line. There is no law stipulating that all electronic devices and appliances be “open source;” Keurig’s margins are made via their K-Cups, and not the machines, themselves. If they decide that it is in their best interest to develop a system that they believe will keep their customer churn rate down, they are fully within their right to do so. They hope that there will still be consumers who see the value in a system where the same company who makes the machine produces the pods. Such customers would presumably be willing to pay a premium for the quality they’ve come to love, especially if there is a perception that the closed-loop system ensures a longer warranty on the product than if they’d be using third party (aka inferior) pods.
Even though there is a general expectation that there will be consumer drop-off due to the technology change, GMCR has reportedly found that Keurig-machine buyers are more likely to be brand-loyal customers. So, with the company selling approximately 32 brands and 200 varieties (including co-branding with big names like Starbucks and Snapple), they are counting on their embedded consumer base sticking with their preferred products, and plan to partner with more customer favorites in the future. Despite all the criticism, judging by Kelley’s boldly optimistic projections of consumer enthusiasm and adoption, coupled with the company’s stated intention of converting as many unlicensed coffee-pack producers to their system as possible, it is clear that GMCR expects their Keurig reboot to be a long-term success. Given that their stock price has been rising since that November earnings call, it seems that investors aren’t too worried, either. The Keurig makers undoubtedly have more in their patent portfolio than just the original (now expired) K-Cup platform design, and are ready to leverage whatever IP they have to strategically protect their standings on supermarket shelves and kitchen counters alike.