Microsoft released a sponsored study this morning that aims to quantify the economic impact of piracy on related small businesses in the software ecosystem and identifies sales of software licenses to pirates as a key economic opportunity for small vendors.
Titled “The Impact of Software Piracy and License Misuse on the Channel,” the paper was released in conjunction with the launch of a new Microsoft site for “proactive partners” interested in helping Microsoft fight piracy. We’re generally skeptical of big company claims that piracy is a sin, but we can’t deny that this study is quite interesting and raises some valid concerns.
How They Say it Works
The press release issued this morning spells out some of the ways that software piracy hurts players large and small:
The velocity of sales, the life cycle of a project and the ability to fulfill contracts as negotiated can all be affected. During the course of a deployment project, for instance, consultants and solution providers may have to stop work when illegal software is discovered, or may be unable to sell their product at all upon learning that the customer’s underlying architecture is illegitimate. Worse, in many emerging markets where legally licensed software is difficult even to obtain, it can be next to impossible for a legitimate partner to operate.
All hope is not lost, however. Microsoft notes that rampant piracy also represents an opportunity for inconvenienced channel partners to sell licenses!
“The flip side of this is that within those hidden costs may lie hidden opportunities in helping these customers turn their licensing situation around,” said John Gantz, senior vice president of IDC. “Much of the misuse, especially in developed countries, is inadvertent. A savvy vendor can realize an opportunity by helping customers to ‘true up’ their licensing, realizing that every dollar saved from software pirates can translate to over five times that amount for the channel.”
Is Microsoft’s new strategy for dealing with unlicensed software in developing countries to deputize the good customers to sell licenses for them to the “inadvertent” pirates? We assume that would-be customers in developing countries know exactly why they are using unlicensed Microsoft software.
How the Numbers Break Down
The company’s study argues that “every dollar Microsoft loses to software piracy translates to $5.50 in lost opportunity for other companies in the partner ecosystem.” Those numbers seem pretty shaky to us, including would-be sales and benefits from predicted market expansion.
…for every dollar Microsoft gains from a reduction in piracy in 2008, the ecosystem that sells, services and develops products on the Microsoft platform could gain $4.37 from faster delivery and sales cycles, enhanced cross-selling and upselling, and the natural market expansion of having more legally licensed customers. In addition, the ecosystem could also realize another $1.13 in efficiencies from each of those dollars, primarily from a lower cost of goods sold, as well as lower development and testing, sales and marketing, research and development, and training costs.
While this presumes, as the music industry often does, that the alternative to piracy is purchase (instead of, for example, open source alternatives), there is some undeniable logic here – especially when it comes to efficiency if all other things remain equal.
Legitimate Concerns
We asked micro-ISV consultant Bob Walsh how these claims played out on the ground and he confirmed that they had some validity.
While the numbers are more spin than science, desktop software piracy is a major issue for small developers because it adds something like 8% to development time, a good 15% of tech support effort and can catastrophically gut sales overnight.
Walsh didn’t agree with Microsoft’s proposed solutions, though. “If they’re serious about this issue,” Walsh asked, “why don’t they sign on to Apple’s open source password management system Keychain and do the channel a huge favor?”
We’re not sure what the solutions are; we like to cheer for the little guy and for Open Source, but we recognize that there are big advantages to developing in the Microsoft environment as well. We’re not excited about the “Proactive Partners” program turning small players into deputies and sales people, either.
We like Microsoft better when they are opening up documentation for interoperability more than when they’re chasing around unlicensed software users.
None the less, we find the secondary economic and development consequences of software piracy to be an interesting problem to consider. Readers’ perspectives are more than welcome in comments.
