The Sad Truth about Software Theft

Using pirated technology is not only illegal, it results in billions in lost revenue and lost jobs

The high school in the small town in Colorado where I spend most of my time asked me recently to speak to a class of business students. When I inquired what might be a suitable topic, the instructor suggested business ethics. That seemed easy enough. Many themes came to mind, but I decided to cover software piracy because software is one of today’s most valuable technologies, running everything from computers to games to the Internet. Yet, because software is so essential, illegal copying and distribution continues to grow.

What I thought would be a fun experience turned out to be a real eye-opener for me. I brought three software application packages that I had purchased as props -- a popular Web site authoring package, a CAD package and Microsoft Office 2003. To my complete surprise, these were the first legitimate software packages many of these students had ever seen, especially the CAD package.

The students informed me that because downloading and trading music, other entertainment media and software is so prevalent and widespread, it’s perfectly acceptable to them. The students seem to feel a sense of entitlement to download software illegally because of the prohibitive cost of legitimate software and the students’ perception that the software developers are making so much money that it doesn’t matter.

If software piracy is a problem in the small town where I live, it must be compounded a zillion times throughout the world. It didn’t take me long to conclude that software piracy is not just a major problem in Asia and Eastern Europe -- as we often here in the news media -- but in the United States, as well. In fact, with a little research, I learned that in the United States, at least one in four software programs is unlicensed, and some estimates put it at one in two.

Many organizations and consumers consider theft of tangible property to be wrong, but many of these same parties consider software to be different, and they don't tend to regard it as they would other valuable assets.

Types Of Software Piracy

According to the BSA (Business Software Alliance, a global organization that represents software developers before governments and in the international marketplace) , there are five common types of software piracy:

• End User Piracy: This occurs when a user reproduces copies of software without authorization. End user piracy can take the several forms, including using one licensed copy to install a program on multiple computers, copying disks for installation and distribution or swapping disks.
• Client-Server Overuse: This type of piracy occurs when too many users on a network are using a central copy of a program at the same time. If you have more users than allowed by the license, that’s overuse.
• Internet Piracy: This occurs when software is downloaded illegally from the Internet. The same purchasing rules apply to online software purchase as for those bought in traditional boxes. Internet piracy can take different forms. Pirate Web sites make software available for free download or in exchange for uploaded programs. Internet auction sites offer software that's counterfeit, out-of-channel or that infringes on copyrights. Peer-to-peer online networks enable unauthorized transfer of copyrighted programs.
• Hard-Disk Loading: This occurs when a business that sells new computers loads illegal copies of software onto the hard disks to make the purchase of their machines more attractive. The same concerns and issues apply to value-added resellers that sell or install new software onto computers.
• Software Counterfeiting: This type of piracy is the illegal duplication and sale of copyrighted material with the intent of directly imitating the copyrighted product. Boxed counterfeit software can often include counterfeit software CDs as well as realistic packaging, manuals, license agreements, labels, registration cards and even security features.

Catch the Pirates

Every CAD company faces the piracy dilemma, but Autodesk has been and continues to be the most visible and vocal in confronting the problem -- and for good reason. The company estimates that for every legitimate copy of AutoCAD, there are between one and five illegal copies, maybe more. That’s a lot of lost revenue.

Autodesk has recovered more than $70 million in North America alone since its Piracy Prevention Program began in 1989, plus several additional million every year from settlements with companies using unauthorized Autodesk software. A founding member of BSA, Autodesk educates customers and the general public about software piracy and its damaging effects on the economy and product innovation, while aggressively seeking legal recourse against abusers.

The software industry suffers a much greater loss from piracy compared to other industries such as film and music. A BSA study puts the worldwide software piracy rate at nearly 40%, reflecting a revenue loss to the software industry of more than $35 billion. The software piracy rate in the United States alone is more than 20%, representing a $6.5 billion loss of retail sales of PC software. This translates into lost jobs, corporate and tax revenue and product innovation. In comparison, the MPAA (Motion Picture Association of America) estimates that the U.S. motion picture industry loses in excess of $3 billion annually in potential worldwide revenue due to piracy, while the RIAA (Recording Industry Association of America) estimates its losses at more than $4 billion annually.

Software piracy -- OK, let’s call it what it really is: theft -- rose above $30 billion in 2005. This indicates that the value amounted to almost 60% of all legal global desktop software sales of $58 billion, according to BSA. With the onset of the Internet, software firms and media creators have suffered an acceleration in piracy as online file-sharing networks and pirate trading sites have made it much easier to exchange several types of copyrighted material, including software.

Approximately 40% of the mechanical CAD programs used around the world are illegal copies. A couple of years ago, those figure rose to 90% and higher in China, Vietnam and some countries in Eastern Europe. Those numbers have dropped considerably, however, due to a combination of vendor licensing efforts, government enforcement and piracy education efforts.

For general PC software, the lowest rates of piracy were the United States, New Zealand and Denmark -- all in the mid-20% range. Worldwide, though, the median piracy rate in 2005 was 64% -- meaning that half of world’s countries have a piracy rate of 64% or higher, while the other half of the world has piracy rates of 64% or lower.

Unfortunately, the high-piracy regions are also the high market-growth regions, according to BSA. Emerging markets account for more than 30% of new PC shipments, but less than 10% of PC software shipments.

Spur Growth by Buying Software

This disparity has a direct correlation to software piracy rates. At current rates, research firm IDC predicts the retail value of pirated software will grow to more than $40 billion as the legitimate market grows to $80 billion over the next five years. But if piracy could be lowered by 10% during the next four years, IDC estimates that more than one million new jobs and $400 billion in economic growth would result.

All in all, a lot of money is being lost on a lot of different levels, but this is something we can all become more aware of and respond to more positively, proactively and honestly.

I realize now that my day in the classroom was more educational for me than I could have ever imagined.

Further Reading

Following are additional Cadalyst articles on the topic of software piracy.

• Software Piracy Gets Florida Man 6 Years in Prison
• Hot on the Trail of the Software Pirate