Software Piracy

On November 25, the Associated Press ran an article the gist of which was, “targeting small businesses is lucrative for the Business Software Alliance, the main copyright-enforcement watchdog for such companies as Microsoft Corp., Adobe Systems Inc. and Symantec Corp.” The story stated that, “The BSA is well within its rights to wring expensive punishments aimed at stopping the willful software copying that undoubtedly happens in many businesses . . . But software experts say the picture has more shades of gray.” With this in mind it is interesting to take a look at the latest yearly report published by the BSA which came out this past summer. Though the numbers may or may not be spun to the organization’s advantage, it does reveal why it feels action is needed.

But of the 102 countries tracked by the BSA software piracy dropped in 62 and rose in 13. While these numbers may make it appear as though efforts are making a difference, a closer look is more revealing. The overall rate of pirated software installed last year was 35 percent, a number which has remained constant for the past three years. This constancy is largely attributed to the personal computer market growing more rapidly in piracy heavy countries. Emerging markets are notable for their high rates of piracy. Furthermore, as the overall market grew substantially in 2006 the money lost to piracy actually increased 15percent or $5 billion. While the actions taken to combat piracy in some of the worst offender countries have been effective, these countries’ share of the market also grew thereby preventing the worldwide average from dropping. “So it remains in 2006 that for every $2.00 worth of software purchased legitimately, $1.00 worth was obtained illegally.”

If 35 percent seems a high number there are some even more startling numbers in the BSA report. “While the worldwide weighted average piracy rate is 35 percent, the median piracy rate is 62 percent, meaning half of the countries studied have a piracy rate of 62 percent or higher. In just under one-third of the countries, the piracy rate is higher than 75 percent.” Even with the decrease in two of the worst offending countries, their rate of piracy is astounding. China’s piracy rate decreased by 4 percentage points yet still remains at 86 percent. Russia decreased its piracy rate by three percent but has still to drop below 80 percent.

The report notes that, “Software piracy has many negative economic consequences, including local software industries crippled by competition with pirated software from abroad, lost tax revenues and jobs from lack of a legitimate market and, decreased business productivity from using unsupported and often ‘buggy’ software.” The initial financial loss in North America, whose 22 percent piracy rate is the lowest worldwide, is over $8 billion. But the impact, according the BSA, goes far deeper than less in the pockets of Microsoft et al. “These costs also reverberate up and down the supply and distribution chains. According to IDC, for every $1.00 in software sold, there is at least another $1.25 in services sold to design, install, customize, and support that software. That software and those additional services then drive approximately another $1.00 of channel revenue.”

Though the amount lost to software piracy has increased, the fact that the actual rate of piracy has held steady does demonstrate that steps taken are at least partially effective. For instance, several countries with high piracy rates, notably China, Ukraine, Morocco, and Romania, are making significant progress towards reducing piracy. Also, as many countries with high piracy rates are members of the World Trade Organization or European Union, or that wish to be, “This is motivation to turn intentions and promises into more education and better enforcement.” Heightened awareness of the deeper implications, particularly at the local level, is also becoming a factor in piracy reduction.

However, despite the work being done to stem the tide, as the numbers above illustrate, there are still challenges ahead. Notable among the challenge are two factors: the increase in broadband Internet access and the emerging market. As broadband Internet access grows, “the increased availability of pirated software, particularly over the Internet and peer-to-peer (P2P) networks, is pushing piracy rates upward.” Making matters worse is the fact that much of the broadband growth is in emerging markets which are both targeted by legitimate software distributors and noted for their high piracy rates. “The issues in dealing with software piracy in emerging markets remain: a rapid influx of new PC users in the consumer and small-business sectors, the increased availability of pirated software over the Internet, and difficult enforcement and education over sometimes sprawling geographies.”

The BSA proposes five concrete steps for reducing software piracy and states clearly that such a reduction is imperative. “In order to unlock the new jobs, business opportunities, revenues, and economic growth that the IT sector can produce, tangible steps need to be taken to protect intellectual property and reduce software piracy.” Hopefully, the BSA will keep in mind the thoughts of Tom Adolph, an attorney who has defended against BSA claims and who is quoted in the Associated Press piece: “The software vendors have every right to collect the license fees they’re entitled to . . . It’s the tactics of the BSA that rankle me.”

Further reading:

Business Software Alliance Cracks Down on Small Biz
CIO Today, November 27, 2007
Software piracy is a serious problem not only in the U.S., but also worldwide. According to figures from the Business Software Alliance (BSA), some 35 percent of the software installed in 2006 on PCs worldwide was pirated, amounting to nearly $40 billion in global losses. An independent study by IDC found that 21 percent of software in the U.S. is unlicensed.

EU Urged to Push China on Piracy
Guardian Unlimited, November 26, 2007
The global music industry is pressing the European Union to follow the US lead and take legal action against China for turning a blind eye to record levels of piracy.

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