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ARCHIVED  February 1, 1997

Software firms exaggerate costs of piracy worldwide

The Software Publisher’s Association recently published a report concerning the costs of software piracy. According to the SPA, more than $13.1 billion was lost worldwide in 1995 thanks to software piracy. Lost by whom? Well, that’s not exactly clear. The implication seems to be that software publishers lost $13.1 billion, though that’s not expressly stated anywhere in the report. (However, in another SPA document, discussing losses in 1989, the phrase “lost revenues for software publishers” is used).
Such software-piracy figures often are reported by the media as software-publisher losses, and if you’ve always thought that’s what the figures were, you might be surprised to hear that they’re not.
Take a look at the report (http://www.spa.org/PIRACY/RELEASES/SPA_BSA.htm), and you’ll find, on the Report Methodology page, that the figures are based on the “wholesale price estimate” of the pirated software. However, over on the Piracy Study Results page, the losses are described as based on retail prices. Which is it? When I checked with the SPA, I was told that in earlier years they’d reported wholesale prices, though in the current report the prices were actually retail.
Ah, so it’s not a $13.1 billion loss to the software companies. Then what is it? $6 billion to $7 billion, perhaps? Of course it’s really not that much, either, for two main reasons
First, the true loss to the software companies would be the loss of profit, after paying incremental costs for manufacturing, packaging, shipping, and so on. But perhaps more importantly, the SPA seems to think that people buying pirated software would buy legitimate software if the pirated stuff isn’t available. That just isn’t so.
Undoubtedly, more people will buy something when it’s dirt cheap than when it’s highly priced. If the piracy market dried up, many users wouldn’t have the money for the legitimate software. Many others would simply make do with cheaper software, perhaps shareware. What are we left with out of that $13.1 billion? Nobody really knows, though I wouldn’t be at all surprised if it’s really only a tenth of the SPA’s figure.
Now, I’m not trying to say that software publishers don’t have a legitimate concern about software piracy. Obviously, they do. But I am saying that the problem has been exaggerated by organizations such as the SPA. And once we realize that the losses are nowhere near as high as is often stated by the press – who are relying on the SPA’s inflated figures – maybe we can step back and take a fresh look at what’s going on.
The first thing to consider is that a significant portion of these piracy losses are in the Third World and Eastern Europe … where, paradoxically, software is often more expensive than in the United States. Trying to get these people to pay is like trying to squeeze blood from the proverbial stone – in most cases they simply don’t have the money.
And to be quite honest, I can’t get particularly upset about the poor nations of the world playing technological catch-up by using Western technology, at no direct cost to the West. Perhaps the major software publishers should be looking at the Third World with a different attitude.
There’s no way they can get the Third World to pay full price for their software anyway – especially when software prices, calculated on a proportion of average income basis, are many times more than the same product in the United States. But what they can do is build a great deal of good will.
Tens of thousands of Chinese computer users are working with Microsoft’s software, at no direct cost to Microsoft. In years to come, as the Chinese economy grows, these people will become a Microsoft vanguard, using and recommending Microsoft software and even, as the price of the software becomes more realistic in comparison with wages and corporate budgets, paying for it.
Which brings us to another aspect of software piracy. Pirated software often acts as shareware. Many users who begin with pirated software get used to its intricacies and idiosyncrasies, and eventually can’t do without it.
That’s when they may upgrade to the legitimate product. I know there are no studies on this (I don’t expect the SPA to fund such a study anytime soon), but I’m sure there’s a lot of anecdotal evidence to back this theory up.
My first taste of Microsoft Word, for instance, was with a pirated copy. But after using it for a few months I bought the real thing, and have been a dedicated Word user ever since. Microsoft has been getting my upgrade dollars now for almost a decade.
Why did I “borrow” the software? Because I wanted to try it before I bought it. And because I knew that most software doesn’t achieve what the publisher claims it will (my basement is full of software I’ve bought, used for a while, and discarded). When I found that the program was really worth having, I paid for it.
Perhaps the major software publishers need to look at the shareware model a little closer. Give away scaled-down versions of software, make contact with people, and then go for the upgrade.
Software companies could be selling their software at rock-bottom prices, and encouraging users to register. That list of users may not be very valuable today, but maintain contact for 10 years, and watch it grow in value.Peter Kent is the author of “The Complete Idiot’s Guide to the Internet, 3rd Edition.” He can be contacted at geek@arundel.com.ÿ

The Software Publisher’s Association recently published a report concerning the costs of software piracy. According to the SPA, more than $13.1 billion was lost worldwide in 1995 thanks to software piracy. Lost by whom? Well, that’s not exactly clear. The implication seems to be that software publishers lost $13.1 billion, though that’s not expressly stated anywhere in the report. (However, in another SPA document, discussing losses in 1989, the phrase “lost revenues for software publishers” is used).
Such software-piracy figures often are reported by the media as software-publisher losses, and if you’ve always thought that’s what the figures were,…

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