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Amazon Hands A Digital-Resale Blueprint To Chains, But It’s Trickier Than It Looks

Written by Frank Hayes
February 12th, 2013

Amazon’s newly issued patent for reselling digital goods raises some interesting concerns. The least interesting: Holy cats, Amazon (NASDAQ:AMZN) has patented the idea of selling used e-books! (No, it hasn’t.) Much more intriguing: What happens when many retailers have their own online digital resale shops? To resell or give away that digital copy of Nineteen Eighty-Four I bought from Walmart (NYSE:WMT)—or Barnes & Noble (NYSE:BKS) or Target (NYSE:TGT)—will I have to get the original retailer involved?

Short answer: apparently so. And with digital content a potential CRM goldmine, more chains may soon start selling digital books, movies, music and audio books—which could get very sticky, for both customers and retailers.

Amazon’s patent—U.S. Patent #8,364,595—was issued on January 29, and the patent text does a good job of laying out how Amazon sees this process working. The goal is to prevent customers from simply making lots of copies (“maintaining scarcity” is how the patent delicately puts it), so Amazon would control the digital content either using DRM or by storing it in the cloud for streaming.

When a customer wants to transfer a “digital object” to another customer, Amazon would handle the transfer, removing it from the original customer’s device or cloud account, then putting it in the new customer’s account or on that customer’s device. Amazon’s system would also handle any special requirements, such as keeping track of how many times the content has changed hands, if that’s supposed to be limited; handling the money, if it’s a sale; and, potentially, charging a fee for the transfer.

That’s a very appealing blueprint for how to get the most from a digital content business. The retailer gets CRM data from a customer when it first sells the digital content. It gets more CRM data every time the content is given or sold to a new owner. And, all along the way, the content—and the customers—are tied to the chain. If they want any flexibility in dealing with that digital content, they’re stuck. For a retailer, what’s not to like?

Well, OK, a 1-Click-style patent campaign by Amazon wouldn’t be so likable. However, it’s safe to assume there will be workarounds (or licensing) that will leave digital content a potentially lucrative business line, especially for chains already selling physical books, CDs and DVDs.

Of course, if a chain goes out of business, the customers of that digital content could be left high and dry unless someone in the same line scoops up that part of the business. (Then again, if a chain goes broke, that falls into the same category as customer data: somebody else’s problem.)

And if a chain doesn’t go belly-up, but decides it wants to get out of the digital-resale business? That could be messy. It turns out we’ve already seen what happens in that case.

Back in 2007, Walmart was selling digital music that was protected with DRM. Like other music sellers at the time, it decided to shift to protection-free MP3s. A year later, the chain announced it would be shutting down its DRM management servers that allowed customers to move their music to a new computer.

Two weeks after that, Walmart had to reverse course and announce it was keeping its DRM servers going, so customers wouldn’t be stuck with DRMed music they either couldn’t move or couldn’t play. Walmart couldn’t say how long the DRM servers would keep running—just that, “based on feedback from our customers,” those servers weren’t going anywhere. The one thing Walmart could be sure of: If customers couldn’t play their music, they’d know who to blame.

Of course, Walmart is now back in the DRMed-content business—this time in the form of videos stored in the cloud by its Vudu subsidiary. For all we know, those music DRM servers are still running, too.

Digital content is really attractive—no big warehouses required, no shipping costs, lots of CRM to be harvested and customers tied to the retailer. The catch is that retailers end up tied to those digital purchases, too. Amazon and Apple aren’t likely to shut down their digital-content businesses. But if you’re a retailer flirting with the idea of a digital-resale business, just remember: This sideline could easily turn into a lifetime commitment.


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