Part one of two on the vendor economy in laundry. Part two examines how percentage-based vendor fees compound as your business grows — and whether the vendor's product has grown with them.
On October 25, 2024, the United States Copyright Office issued a ruling that, on its face, was about ice cream. It granted franchisees and independent technicians the legal right to bypass the software locks on commercial food preparation equipment in order to repair machines they already owned.¹
For sixty-eight years before that ruling, McDonald's franchisees who owned a Taylor C602 ice cream machine could not legally circumvent the software protections that prevented anyone but a Taylor-certified technician from clearing an error code. They owned the metal. They did not own the permission to operate it.
A Lock Built in 1956
The relationship between McDonald's and Taylor began with a handshake in 1956 between Ray Kroc and the Taylor Company. The Taylor C602 was designed exclusively for McDonald's. As of 2021, approximately thirteen thousand of McDonald's forty thousand restaurants used it.² A 2000 internal McDonald's survey reported that roughly one in four of those machines was nonfunctional at any given time.³
When a machine threw an error code, the franchisee could not clear it. By federal law — Section 1201 of the Digital Millennium Copyright Act — bypassing the software lock was an act of copyright infringement. The franchisee called Taylor.
A Taylor-certified technician arrived. The technician charged three hundred fifteen dollars per fifteen minutes.⁴ By one published estimate from an iFixit teardown of the machine, approximately one quarter of Taylor's profits came from those service callouts.⁵
In 2019, a small company called Kytch released a third-party device that read and interpreted the machine's error codes without a Taylor technician. By November of 2020, McDonald's had instructed franchisees to remove every Kytch device, citing safety. Taylor sued Kytch. As of this writing, the lawsuit remains unresolved.⁶
The industry term for what the McDonald's franchisee experienced is vendor lock-in. The economists have a more precise name for it.
The Economists Named the Mechanism in 2007
In 2007, two economists, Joseph Farrell of the University of California at Berkeley and Paul Klemperer of Oxford, published a survey paper in the Handbook of Industrial Organization titled *Coordination and Lock-In: Competition with Switching Costs and Network Effects.*⁷