Digital Rights Management?What Some of your Competitors Already Know

May 30, 2006

Digital Rights Management?What Some of your Competitors Already Know

Digital Rights Management?What Some of your Competitors Already Know
By Fran Howarth, Partner

In a normal healthy market, companies producing goods and services can generally expect average growth rates of 3% to 4% per year. Many emerging technology markets enjoy growth rates of nearer to 8%. But in the market for digital rights management (DRM) technologies ? analysed in a new report published by Hurwitz & Associates ? virtually all vendors are reporting double-digit annual growth in revenues, and some are reporting yearly growth of more than 30%.

Another prime indicator of the level of interest in a market segment is the merger and acquisition activity among the vendors involved?and this is certainly true in the market for DRM technologies. Until recently, vendors have been clearly differentiated by the flavour of DRM that they offer?enterprise DRM for protecting sensitive corporate assets, software DRM for protecting software licences, and content DRM for reaching new markets for selling protected digital content. But this situation has changed over the last 18 months and more change is still to come.

The market is consolidating as vendors from one market segment extend their reach into another area?and this is primarily happening by acquisitions. For example, software DRM vendor SafeNet has purchased content DRM vendor DMDsecure, software vendor Macrovision has acquired eMeta?s content DRM assets, and enterprise content management vendor EMC Corporation has entered the fray with its purchase of enterprise DRM vendor Authentica. At the same time, the remaining smaller independent vendors are taking large sums from investors for continued development. Avoco Secure, Navio Systems, Protexis and SealedMedia have all raised additional funding in the past year, with Navio receiving a whopping $25.4 million. In addition, most vendors are actively forging partnerships with technology vendors in complementary areas in order to extend their reach.

So what is driving this growth? In both our work and private lives, the use of digital goods and services is increasing exponentially. Virtually everyone starts their day at work by dealing with email and most of us use a wide range of enterprise business technology applications to perform our work. At home, computer usage has exploded, along with the use of consumer electronics and mobile personal entertainment devices.

But increasing dependence on digital assets brings its own challenges. Most notably, content that is produced, stored and communicated digitally is easier to misappropriate than physical assets and they are not always so easily missed. In a work environment, information produced electronically can easily be altered, copied, printed and stolen. And software and digital consumer content is routinely misappropriated owing to the ease with which software and digital files can be transferred over the Internet. Unless, of course, all these digital assets are protected.

Beyond theft and piracy, businesses are at risk if their business information is altered or defaced. For example, if financial results are altered a company?s reputation could be dragged through the mud and its executives could face serious penalties under laws such as Sarbanes-Oxley, HIPAA or Basel II that could even land them in jail. If intellectual property is stolen?such as the results of an expensive clinical trial undertaken by a pharmaceutical concern?a company?s competitiveness could be drastically impaired.

Simply locking down sensitive documents within an enterprise is not an option in today?s world, where employees often need to work remotely and companies increasingly wish to collaborate electronically with their business partners to achieve greater competitiveness. Instead, companies must take appropriate safeguards to ensure that sensitive information is communicated securely. For achieving this, enterprise DRM technologies are a key tool.

For software publishers and digital content producers the problem is different, but no less pressing?they are losing money from theft. Industry sources estimate that at least one-third of all software in use today is pirated and illegal file swapping is rife in the market for digital content. By applying DRM technologies to their products, companies operating in these market sectors can not only prevent theft of their goods, but can even increase their revenues. Opportunities exist to make more sales by selling through online channels, rather than just offering goods such as software and computer games off the shelf in retail outlets. Further, DRM technologies can be used to provide more flexible licensing models, such as giving consumers the chance to try a product for a limited period before deciding whether or not they wish to purchase it. And new ?super-distribution? possibilities are opened up to companies selling digital products?a kind of viral marketing model whereby consumers can not only recommend products to friends, but can send them a direct link to a site where they can purchase the item directly for themselves.

Across the board, companies in all industries are starting to see the benefits of deploying enterprise DRM technologies. Vendors are reporting that many of their customers are starting off by implementing a point solution to solve a particular point of pain?such as protecting information related to merger and acquisition discussions or sensitive board communications, or protecting intellectual property from misappropriation. Once companies become comfortable with using DRM technologies, deployments tend then to fan out to other areas as a more general security measure, such as allowing secure collaboration among parties involved in a supply chain. Companies that are embarking on such deployments are reporting that they are seeing their costs reduced through greater efficiency and through a reduction in mistakes, as well as increased productivity through the ability to allow parties to collaborate and employees to work remotely in a secure manner.

For software DRM technologies, software publishers and large corporations that either develop their own software or that need to control the use of software within their organisations to comply with contractual obligations are increasingly looking to deploy DRM to protect their products, or their rights to use those products. And publishers and distributors of digital content in all forms are showing a keen interest in content DRM protection. Both these technologies provide the benefits of not only reducing piracy and hence money from lost sales, but also allowing companies to increase the revenue that they generate by providing them with the ability to reach more customers through online sales channels and viral distribution, as well as to drive sales by offering more flexibly packaged items.

DRM in detail

Hurwitz & Associates has completed extensive research in the DRM space providing in-depth analysis of the issues facing DRM, its adoption and future. For this new DRM report published by Hurwitz & Associates, we have tested the software offered by the major vendors in the market and have evaluated them for, amongst other things, ease of use, scalability, application and device coverage. Detailed vendor profiles explain the positioning of each vendor, for which audience each is best suited, and what the strengths and weaknesses of each technology offering are. 


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