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Keurig: We messed up

Keurig Green Mountain (GMCR) admits they blew it.

CEO Brian Kelley is offering a mea culpa to customers after the company reported disappointing fiscal second quarter results as sales of the new Keurig 2.0 sagged. The reason for the lackluster performance? The 2.0 doesn’t work with My K-Cup, the refillable pod that allows users to brew any kind of coffee they want. Instead, consumers had to buy the coffee Keurig sold…and they were furious, with many turning to social media to rip the company. Kelley now says Keurig heard the customers “loud and clear” and is changing the machine so it can operate with the My K-Cups.

Yahoo Finance Columnist Rick Newman points out Keurig Green Mountain has been trying to cash in off of what is known as the "razor blade" or “walled garden” method.

“You get a one-time payment for selling the device and then you get the recurring revenue by selling the stuff you need to operate the device,” he explains. “Everybody would love to have that business model.”

And Newman adds Keurig Green Mountain learned that it's a plan that oftentimes fails.

“Usually it doesn’t work,” he notes. “Even Apple (AAPL) can’t really operate a ‘walled garden’ and so they’ve had to open their device to others.”

Newman isn’t exactly shedding a tear for Keurig Green Mountain.

“They knew exactly what they were doing,” he argues. “They tried it and now they’re saying ‘our bad’ and are letting you make whatever coffee you want. That’s what they should do.”

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Yahoo Finance Senior Columnist Michael Santoli notes while the company has developed a big following, this stumble suggests it might have a more difficult time ahead.

“They do have great market share,” he explains. “But this exposes the economics of the business that consumers are not really happy with.”

And Santoli questions whether Keurig Green Mountain’s entire business model might be in question.

“It’s obviously threatened,” he argues. “They sell a commodity product with a machine that in and of itself is not very profitable, so maybe it’s not as dazzling a business as they promised.”

Newman points out for Keurig Green Mountain to succeed in the future, it has to get off its laurels.

“The product itself was innovative when it first came out; it was the first of its kind,” he says. “And what this shows you can’t have one innovation and coast on that forever. So they need to come up with another innovation.”