Tech & Work

Talking Shop: The economic impact of pirated software on your enterprise

Assess the economic impact of software piracy


According to a recent Business Software Alliance (BSA) study, the U.S. piracy rate is running at around 25 percent. In other words, for every four copies of Windows 98 purchased, one is stolen.

What’s the economic impact of a 25 percent national piracy rate? This accounts for $2.9 billion in lost revenue to software companies. More importantly, it means 109,000 fewer jobs each year, $4.5 billion in lost wages, and over $1 billion in tax revenue (based on the lowered tax base).

Besides the economic impact, there are a couple of other compelling reasons to avoid piracy. First, many of you make money by selling intellectual property and would be negatively impacted by its free distribution. If you don’t make your money that way, you very likely own stock (directly or indirectly through a 401K or pension fund) in companies that rely on the ownership of intellectual property to drive their stock price.

Another simple reason—it’s illegal. It’s stealing, plain and simple.

How does most piracy occur?
There are some very obvious (as well as very subtle) forms of piracy in which each of us has an almost daily opportunity to participate. The most common forms include:
  • End user copying. Put simply, this is the act of copying software or installing software you didn’t buy. If you purchase a volume license but deploy more than you purchased figuring you’ll come clean in the next purchase cycle, you fall into this category.
  • Hard disk loading. Many dishonest system integrators or resellers will buy one copy and preinstall it on all the systems they send out or install at a customer’s site. Individuals may also figure that buying one copy gives them the right to install it on all the machines at home, or small business users may figure that since they’re using the program “one machine at a time,” it’s okay to install it on all their machines.
    Most software licenses do not allow the software to be installed on more than one machine at a time for any reason, nor do they have any concurrent use privileges. In most cases, the software is licensed for a single CPU and for one user at a time on that CPU.
  • Intentionally buying products licensed for a different channel. Many software manufacturers have licensing programs designed for specific scenarios. These may include licenses intended for academic institutions or for system integrators or builders. Businesses purchasing academic licenses and using them for business production work are violating the license because they’re not using the product in the scenario for which it was licensed.
  • Counterfeiting. Now that the federal government has made it more difficult to counterfeit currency, thieves have begun to use the currency of the new economy. Duplicating and selling software CDs of operating systems and applications has become easy and inexpensive thanks to CD-R duplication equipment and CD labeling technology. Companies like Microsoft are working to introduce technologies (like holograms on the media) that make it easy to identify copies, but users will still have to be willing to recognize and walk away from the temptation to buy counterfeit CDs.
    This is also the biggest problem in countries like China that don’t recognize our intellectual property laws. In China, you can go to any corner drug store and pick up the latest copy of the English language version of Windows 2000 Advanced Server along with a gallon of milk and a pack of cigarettes for less than $20 U.S.
  • Online pirate sites. A potentially more devastating distribution problem is the proliferation of rogue Web sites that allow surfers to download complete copies of copyrighted software. With broadband access in homes expected to grow dramatically, these sites will become more problematic. And many company T1s download as much pirated software as they do illegal MP3s and pornography. Unfortunately, most companies don’t warn their employees about these license violations in their Internet usage policies.

So what’s my real exposure?
It’s tempting to think, “Sure, this hurts companies like Microsoft, but I’m a small part of the problem and no one will try to come after me.” That’s what a local services company thought until one of their employees left and turned in the company for piracy.

Industry watchdog groups like the BSA make a living pursuing companies that violate intellectual property laws using disgruntled, ex-employees as the reporting mechanism. This particular company was found to have over $500,000 in software licenses at retail cost that had been stolen.

Why retail cost? Because the normal minimum settlement for these cases is the current retail cost of all the pirated software plus court costs and penalties. The local services company is now in Chapter 11 because it can’t afford to pay the BSA fine. How would you like to be the messenger who delivered the news to your CEO or CFO: “Sorry about the parrot on my shoulder and the scratches on your floor from my wooden leg, but I needed to get you this $600,000 damages award from the BSA quickly.”
We’ve heard from CIOs who come into their jobs and find that their predecessors gave tacit approval of piracy: They either had no written policy against it, or they didn’t enforce it. What do you do to discourage piracy? Do you have a policy you would like to share with us? Send us an e-mail or start a discussion below.

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