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Taking aim at the mod squads
Is it good business when customers modify a product or does it justify a cease-and-desist order?
October 14, 2002: 1:41 PM EDT

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NEW YORK (CNN/Money) - When video game enthusiasts talk about going "mod," they don't mean getting a shag haircut and zipping across town on a Vespa.

For them, the term is short for "modification," and it's what some love to do to game consoles and the games themselves. Like, for example, tweaking the operating system of the Xbox to run Linux, as some gamers have already done.

In this age of extreme sports, it's what you might consider an extreme hobby. But the act of modifying a game's code or a hardware console is polarizing for gaming enthusiasts, software makers, and hardware manufacturers.

Some believe it fosters sales and customer devotion, while others view it as an infringement strictly forbidden by 1998's Digital Millennium Copyright Act (DMCA). Most important, these modifications raise a question: In the digital age, is the customer always right?

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Microsoft (MSFT: down $0.21 to $48.66, Research, Estimates), it seems, isn't so sure. The manufacturer of the Xbox game console recently took legal steps to shut down a Hong Kong-based company offering "mod chips" that allowed Xbox users to alter the game's operating system and play pirated games.

While it's understandable that Redmond would shut down a company making money off unlicensed Microsoft knockoffs, the company doesn't believe that consumers have the right to tinker, even as hobbyists.

And Microsoft isn't alone. Last year Sony (SNE: down $0.30 to $41.95, Research, Estimates) forced a customer who had purchased its popular robotic dog, Aibo, to remove code from his Web site that would have allowed other users to program their pups to dance -- something not originally intended by Sony.

Bad call, in my opinion, since only a fanatically devoted customer would have spent hours writing code to make Aibo do the mambo. This kind of cultish devotion is every marketer's dream -- a product perceived as so cool that owners will subjugate their normal lives to embrace it. So what's the problem?

Valve Software, maker of the boffo hit videogame Half Life, had no problem with the millions of dollars in unforeseen bonus revenue it reaped selling Counter-Strike, a "modded" version of its popular game.

According to an article in the October issue of Business 2.0, Counter-Strike -- created by Half Life fans after Valve made the game's source code available for free -- has sold 1.3 million copies and is the most popular multiplayer action game in the world. In a telling glimpse at what may be Microsoft's true stance on modded products, a Counter-Strike version for Xbox will be available in 2003.

Valve isn't the only success story. In 1998, Lego allowed users of its popular Mindstorms robotic toy to program new uses for the product. The result? Something you literally can't buy: a fervent community of rabidly loyal fans.

"It's hard to say, but I think it's led to increased sales," says Soren Lund, a director at Lego in Denmark. "It has kept the product vibrant and alive, even today," four years after it was first released. "I still get amazed when I see what's going on out there."

Unfortunately, however, with the DMCA providing legal ammunition, companies are all too willing to clamp down on this unique-to-the-era form of customer loyalty.

Nowhere is this more apparent than in the entertainment industry, where, increasingly, any consumer use of a product that varies from the manufacturer's exact intent is met with a cease-and-desist order.

It's a troubling and shortsighted trend. Currently there is no convincing evidence showing that this kind of consumer behavior results in lost sales or trademark dilution.

Unfortunately it seems that many companies have abandoned the maxim that the customer is always right. Ultimately, on this issue, these firms will find out that they've been dead wrong.

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