The ‘cost’ of piracy

A claim that the annual costs of piracy to the software industry has topped $50 billion for the first time highlights a major flaw in the way such ‘costs’ are estimated.

According to the Business Software Alliance, 41 per cent of software worldwide is pirated. It argues that this represents losses to the industry of approximately $53 billion.

However, there are two major problems with this analysis. First, the calculation of the piracy rate itself is questionable. The Economist has previously accused the BSA of relying on “sample data that may not be representative, assumptions about the average amount of software on PCs and, for some countries, guesses rather than hard data.”

It appears the BSA’s method involves estimating how much software is installed around the world, subtracting the known legal sales, and taking the remainder as piracy. Clearly any calculation which involves the relationship between solid numbers and an estimate is prone to inaccuracy.

But it’s the lost revenue figure which is the more dubious. The formula here is simple: the losses are the number of pirated copies multiplied by the retail price.

That’s a virtually meaningless figure as there is no way to know how many people who use pirated software would have otherwise paid for it. Many people who use copied programs do so because they literally can’t afford the retail price. Many others do so because they only need to use a program occasionally or for a few features and thus don’t consider it worth the price. And others have no interest whatsoever in paying even a cent for the program and have only acquired an illegal copy because doing so is free of charge.

This is not to say there is any legal or moral justification for software piracy. And the losses are probably (proportionally) higher than with movies and music where some people download more ‘free’ content than they could ever listen to, let alone consider paying for.

But groups like the BSA have legitimate points to make about the genuine costs of piracy: not just whatever lost revenue exists, but in increased security risks, lost business for third-party retailers, and even lost tax revenues from legal sales. Trotting out a figure which is clearly a ludicrous overstatement based on a fallacy simply undermines this message.

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4 Responses to The ‘cost’ of piracy

  1. I keep wondering if I should get a pirate copy of the software I'm using at school for just the summer. There's no 90 day trial version I can use instead.

    If I use a pirate copy for three months and then delete it, is it still a lost sale?

  2. I keep wondering if I should get a pirate copy of the software I’m using at school for just the summer. There’s no 90 day trial version I can use instead.

    If I use a pirate copy for three months and then delete it, is it still a lost sale?

  3. @SamH,obviously you and I will probably have a different opinion than will the BSA.. ;-)

    Their contention will be that any software that you install, whose normal acquisition process is to purchase it first, must be purchased, or it is piracy, therefore illegal, and a 'lost sale.'

    One might also counter that, because of its price, that there was never an intent on your part to buy the product, therefore, no sale was ever lost. "Sort of" like checking a book out of the library. Please note, I'm not even attempting to debate the moral or legal issues or to divert the discussion, just pointing out the difference in the point-of-view between an individual user and the BSA.

    Long ago, once or twice, I 'borrowed' a copy of a particular piece of software. The first episode resulting in me discovering that the software did what I needed, and that it did work. I bought a legitimate copy, and kept up a paid license through several revisions thereafter. Had I never borrowed it, as long as I had no way of finding out that the software did do what I needed it to, and I wasn't buying a non-refundable 'pig in a poke,' I'd have never spent money on the app. So there was no lost sale from me. Ultimately, they had a sale from me. The second time, I 'borrowed' an office application suite, because I had a requirement placed upon me. There was no way that I'd ever have paid the over $500 price tag. A couple of months later, I found a suitable free substitute, deleted the borrowed app, and have continued using FOSS software to this day.

    I do occasionally buy commercial apps to fill a purpose. But I will *never* be in the market for a piece of software that costs several hundred dollars. I'll either find a suitable lesser-priced substitute, a FOSS application, or do without. I haven't borrowed an app in years.

    It would be in software companies' interest to allow people to try something before they buy. They have to bear part of the responsibility for their predicament, precisely because they've insisted on shrink-wrap licenses that state that 1) We don't warranty that our software fits your purposes 2) We don't warranty that the software actually does what we say it does, or that it even does anything at all, and 3) Once you open it, it's yours, no matter what, no take-backs. I'm not that much of a gambler. If I'm going to be stuck with something, I'm either going to find a way to check it out first, or I'll never buy it. So, there's no lost sale from me. They didn't earn the sale in the first place.

    If the BSA set up shop in China or any of several other Asian countries, there'd be enough cases to keep them busy into the next millennium. Oh, wait, their government officials aren't owned by the software companies, so they don't play that game. Those government officials either turn a blind eye to the whole thing, or are willing and eager financial partners to the enterprise.

    Software patents and software licenses have been subverted into rather damaging entities. They need to be examined and re-evaluated world-wide.

  4. @SamH,obviously you and I will probably have a different opinion than will the BSA.. ;-)

    Their contention will be that any software that you install, whose normal acquisition process is to purchase it first, must be purchased, or it is piracy, therefore illegal, and a ‘lost sale.’

    One might also counter that, because of its price, that there was never an intent on your part to buy the product, therefore, no sale was ever lost. “Sort of” like checking a book out of the library. Please note, I’m not even attempting to debate the moral or legal issues or to divert the discussion, just pointing out the difference in the point-of-view between an individual user and the BSA.

    Long ago, once or twice, I ‘borrowed’ a copy of a particular piece of software. The first episode resulting in me discovering that the software did what I needed, and that it did work. I bought a legitimate copy, and kept up a paid license through several revisions thereafter. Had I never borrowed it, as long as I had no way of finding out that the software did do what I needed it to, and I wasn’t buying a non-refundable ‘pig in a poke,’ I’d have never spent money on the app. So there was no lost sale from me. Ultimately, they had a sale from me. The second time, I ‘borrowed’ an office application suite, because I had a requirement placed upon me. There was no way that I’d ever have paid the over $500 price tag. A couple of months later, I found a suitable free substitute, deleted the borrowed app, and have continued using FOSS software to this day.

    I do occasionally buy commercial apps to fill a purpose. But I will *never* be in the market for a piece of software that costs several hundred dollars. I’ll either find a suitable lesser-priced substitute, a FOSS application, or do without. I haven’t borrowed an app in years.

    It would be in software companies’ interest to allow people to try something before they buy. They have to bear part of the responsibility for their predicament, precisely because they’ve insisted on shrink-wrap licenses that state that 1) We don’t warranty that our software fits your purposes 2) We don’t warranty that the software actually does what we say it does, or that it even does anything at all, and 3) Once you open it, it’s yours, no matter what, no take-backs. I’m not that much of a gambler. If I’m going to be stuck with something, I’m either going to find a way to check it out first, or I’ll never buy it. So, there’s no lost sale from me. They didn’t earn the sale in the first place.

    If the BSA set up shop in China or any of several other Asian countries, there’d be enough cases to keep them busy into the next millennium. Oh, wait, their government officials aren’t owned by the software companies, so they don’t play that game. Those government officials either turn a blind eye to the whole thing, or are willing and eager financial partners to the enterprise.

    Software patents and software licenses have been subverted into rather damaging entities. They need to be examined and re-evaluated world-wide.