How Software Piracy In Developing Markets Creates New Customers

from the deal-software-like-drugs:-the-first-hit-is-free dept

Piracy as a symptom of distribution problems has a long history. When the "real" thing isn't available or only available at an unrealistic price, people all over the world have resorted to black market goods and file sharing to overcome this obstacle.

Over the weekend, Vlad Dudau of Neowin posted an interesting firsthand account of piracy as the only realistic option, detailing his early computing life as a Romanian citizen and his frequent infringement as a result of the extremely limited software options available in a fledgling, post-Eastern bloc country.
My first PC was a Pentium MMX which had an amazing 166 Mhz processor, 2 GB hard drive and 64 Mb of RAM if I remember right. At this time most of the folks around had 386 and 486 machines running DOS, so the blueish background of Windows 95 was kind of a big deal.

Now here’s the twist: that copy of Windows 95 I used was pirated. It came from a family friend who had it on a few floppy disks. It’s not because my family was cheap or wanted to commit a crime, it was because there simply wasn’t any alternative. Windows wasn’t sold anywhere in the country – at least not legally.
A few years later when Windows 98 came out the same thing happened all over again. The family friend came by with a bunch of disks and installed the OS on our PC.


By the time XP was rolling out, Microsoft had finally taken a real interest in our country, not to mention the fact that the free market was finally in full swing, so there were a lot of legitimate ways to buy the new OS. But here’s the catch: often times it was at least as expensive as the PC itself, so buying it would literally double your costs. Oh and in case you are wondering that would amount to about 3 months worth of salary. To give you a better idea, imagine Windows costing about $2000.
While it's good to see a software company attempt to make inroads into a new market, the positives of offering a legal option are largely negated when you immediately price yourself out of that market. What Microsoft thought was a "fair" price considering its investment in developing the operating system was simply out of reach for a majority of Romanian citizens.

It's not as though Microsoft doesn't recognize the hidden value of pirated software. It allows the company to build a set of potential purchasers ahead of entry into a developing market. As a commenter at Hacker News pointed out, Bill Gates has made some pretty pragmatic statements about the future benefits of presently pirated software.
"Although about 3 million computers get sold every year in China, people don't pay for the software. Someday they will, though," Gates told an audience at the University of Washington. "And as long as they're going to steal it, we want them to steal ours. They'll get sort of addicted, and then we'll somehow figure out how to collect sometime in the next decade."
Vlad Dudau points out that his early piracy led to careers in fields first tentatively explored via purloined floppy disks and file sharing. Adobe's Photoshop is another pirate favorite due to its high price, but in Dudaus's case, Adobe's products simply weren't available for legal purchase.
It is because of piracy that I had access to information that would have otherwise been impossible to find. It is because of piracy that I learned how to use Photoshop, how to edit movies, how to install an operating system.

And here’s the thing, it’s because of piracy that most of us have jobs today. Without all those hours spent learning the software, my friends and I would not have become graphic designers, or game developers, or technology writers. I daresay we would have been much less productive members of society.
If your software is either good enough or ubiquitous enough (and in rare cases, both), early experience with pirated software can lead to paying customers for life. In some cases, the former pirates purchase their own software. In other cases, they end up working for companies that purchase expensive site licenses. For Dudau, it's a bit of both.
I know I’ve said some pretty incriminating things but here’s the catch: none of us pirate anymore. Why? Because we always knew pirating wasn’t right, but we never really had any other choice. But now when we all have jobs, when the content is finally available, and when the companies have changed their business models to give cheap access to students and teaching institutions ($39 Windows anyone?) we all choose to buy our software, music, and movies. Oh and that family friend that always had hacked operating systems for us? Well he’s now a manager at IBM.
Establishing a foothold in a new market can be tough, but if the potential customers are already familiar with the products, it's a little easier. The trick is converting them to paying customers, something that can be aided by lowering prices to an affordable level in the market being entered. No one's interested in paying three month's salary for software, especially considering the alternative can be as low as $0. If you're used to charging $495 for a suite of office software, lowering it $40-50 might seem like you're just giving it away, but it's still $40-50 more than actually giving it away.

Nearly every study on piracy shows that conversion rates go up as prices go down. Holding steady at a price that many consider exorbitant tends to increase the number of unpaid users. As described above, this isn't always a bad thing, or a permanent thing, but as Dudau's story shows, experimenting with price levels in new markets could lead to a noticeable increase in conversions.


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  • This comment has been flagged by the community. Click here to show it
     
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    out_of_the_blue, Dec 3rd, 2012 @ 10:32am

    SO, let's ENSURE low prices result by taking excess profits away!

    Steeply progressive income taxes are the solution to nearly all in the field economics. Of course there are Ivy League apologists who've never had to compete, so are indifferent to the problems of the poor. Bill Gates does NOT deserve billions for his efforts -- that were no more valuable than millions of other people's -- society could get his best for far cheaper -- and likely better, because he wouldn't be able to sit back and turn his entire attention to sheer greed.

     

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      Anonymous Coward, Dec 3rd, 2012 @ 10:42am

      Re: SO, let's ENSURE low prices result by taking excess profits away!

      "he wouldn't be able to sit back and turn his entire attention to sheer greed."

      I'm just going to point out that Bill Gates has donated BILLIONS with a capital fucking B to various charities and has managed to get other people with similarly high amounts of wealth to do the same, going so far as to having them sign contracts to said effect (basically saying, "I'm going to donate millions/billions to charities and good causes").

      But I wouldn't expect you to know that, or acknowledge it even if you did. Because it'd kind of negate your rant against the rich.

      You're seriously fucking annoying/retarded. I hope a lion gets you on Lion Day.

       

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      Anonymous Coward, Dec 3rd, 2012 @ 10:45am

      Re: SO, let's ENSURE low prices result by taking excess profits away!

      For all the talk you have against corporations you have never, ever complained against the RIAA. Despite their CEOs getting progressively increasing year-end bonuses.

      You couldn't carry a coherent talking point in a warehouse, you bottom-feeding nutjob.

       

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      That One Guy (profile), Dec 3rd, 2012 @ 10:46am

      Re: SO, let's ENSURE low prices result by taking excess profits away!

      Of all the rich people you go after, Bill Gates is your target of choice this time around? The guy famous for giving away massive amounts to charity, to the tune of 28 billion as of 2007? That Bill Gates?

      A tip for the future: If you going to accuse someone of being nothing but a greedy SOB, might want to make sure they don't have a widely known reputation as a philanthropist first.

       

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        DanZee (profile), Dec 3rd, 2012 @ 10:56am

        Re: Re: SO, let's ENSURE low prices result by taking excess profits away!

        Actually Bill Gates has not given away much money. He's transferred a lot of his wealth to the Bill and Melinda Gates Foundation where it's able to sit and collect interest and dividends tax free. He's based it on the Rockefeller Foundation where it has many times more money today than Rockefeller ever contributed to it. It's just a way rich people preserve their wealth instead of letting the government take 70% through death taxes.

         

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          That One Guy (profile), Dec 3rd, 2012 @ 11:23am

          Re: Re: Re: SO, let's ENSURE low prices result by taking excess profits away!

          Hmm, looking over the wiki entry on the foundation, might be some truth to that, though the point remains that Bill Gates has still given away a pretty decent chunk of change to charities, and so hardly fits into the 'greedy SOB' that OotB is attempting to paint him as.

           

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          ldne, Dec 3rd, 2012 @ 11:26am

          Re: Re: Re: SO, let's ENSURE low prices result by taking excess profits away!

          And legally it must donate 5% of it's assets a year to charitable organizations, you know, those things that actually help people instead of giving it to the money wasting Feds to build empty airports in the middle of nowhere with no access roads? In fact, due to the terms of a big donation by Warren Buffet, as long as Bill & Melinda are directly involved in it the Foundation gets a big yearly Berkshire Hathaway stock donation, the value of which must be given away the next year on top of the 5% minimum to keep the next installment coming.

           

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        Anonymous Coward, Dec 3rd, 2012 @ 5:25pm

        Re: Re: SO, let's ENSURE low prices result by taking excess profits away!

        That only happened only after he quit Microsoft. Before that he wasn't like that at all, and even he admitted he hated the idea of donating money before, until his mother put some sense into him before she died. His wife also played an important role in convinced him of this.

        So NOW, Bill Gates may be a very different man than he was when he was CEO of Microsoft, but back then he was every little bit as people portray him to be.

         

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      Zakida Paul (profile), Dec 3rd, 2012 @ 10:55am

      Re: SO, let's ENSURE low prices result by taking excess profits away!

      The same Bill Gates who gives a small fortune to various charities? The same Bill Gates who got to where he is through hard work and intelligence? You really are an idiot.

      I am no Microsoft fan but I respect what Gates has achieved because he has worked hard all his life to achieve it.

       

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        John Fenderson (profile), Dec 3rd, 2012 @ 11:39am

        Re: Re: SO, let's ENSURE low prices result by taking excess profits away!

        I don't respect Bill Gates because he amassed his wealth through sketchy business practices rather than real accomplishments.

         

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          Keroberos (profile), Dec 3rd, 2012 @ 1:58pm

          Re: Re: Re: SO, let's ENSURE low prices result by taking excess profits away!

          You mean those practices used by just about every other multi billion dollar corporation?

           

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          btrussell (profile), Dec 4th, 2012 @ 6:31am

          Re: Re: Re: SO, let's ENSURE low prices result by taking excess profits away!

          I don't respect Bill Gates because the billions he donates, while still maintaining billionaire status, proves how much he was overcharging.

          He could have charged less, allowing billions of people to donate to charities, instead of taking all the credit for the donations.

           

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    Designerfx (profile), Dec 3rd, 2012 @ 10:52am

    missing the obvious

    "How Software Piracy In Developing Markets Creates New Customers"

    Every country has developing markets - they're constantly evolving. Just because we may refer to first world markets as "Established" in some sense doesn't mean they should be treated any differently than developing markets in this sense.

     

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    Mike Raffety (profile), Dec 3rd, 2012 @ 10:54am

    You recommend lower prices in Romania?

    "lowering prices to an affordable level in the market being entered"

    And then what happens when an enterprising young person buys up thousands of copies of this discounted software to ship over to the U.S.?

     

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      Joe, Dec 3rd, 2012 @ 10:56am

      Re: You recommend lower prices in Romania?

      Hilarity ensues as thousands of Americans try to install said software in Romanian (if we're going with the article).

       

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      crade (profile), Dec 3rd, 2012 @ 11:09am

      Re: You recommend lower prices in Romania?

      The birth of region restrictions?

       

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      Mike Raffety (profile), Dec 3rd, 2012 @ 12:02pm

      Re: You recommend lower prices in Romania?

      Doesn't most software for a global market include all languages, then ask you which one to use when you install it?

       

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        Anonymous Coward, Dec 3rd, 2012 @ 12:15pm

        Re: Re: You recommend lower prices in Romania?

        Installations (at least in the case of Windows) usually start off in the language it's marketed for, you typically get the option to add secondary languages right before you create user accounts.
        However, that might only be for input language, i'm not sure since i always forego my native tounge in favour of English versions of Windows.

        iirc though, Microsoft have localized authorization servers.

         

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      Anonymous Coward, Dec 3rd, 2012 @ 2:03pm

      Re: You recommend lower prices in Romania?

      Nothing happens, except the software company sold thousands of copies.Who cares what the buyer does with it.If he/she can resell it and make a profit, more power to them.

      For such a smart guy I'm surprised you couldn't figure this out.

       

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      John Fenderson (profile), Dec 3rd, 2012 @ 2:31pm

      Re: You recommend lower prices in Romania?

      And then what happens when an enterprising young person buys up thousands of copies of this discounted software to ship over to the U.S.?


      Hopefully, it would cause the manufacturer to rethink their pricing strategy.

       

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      Capitalist Lion Tamer (profile), Dec 3rd, 2012 @ 4:17pm

      Re: You recommend lower prices in Romania?

      And then what happens when an enterprising young person buys up thousands of copies of this discounted software to ship over to the U.S.?

      So what.

      And then what happens when an enterprising young person ANYWHERE pirates a copy?

      In your example, the software company makes some money. In the other, they make nothing.

      In order to prevent abuse, the solution is to keep the product priced above what the market will bear? Just leave the piracy rate at 100%? You'd rather sacrifice 100% of the sales at a lower price simply to keep this "young person" from reselling your product at a profit?

      Every piece of software released gets cracked and pirated. If software companies are that afraid of "enterprising young people" and their piracy/resale abilities, why bother releasing software at all? Why not close shop and move into textiles or box making or whatever?

       

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    crade (profile), Dec 3rd, 2012 @ 11:00am

    Sometimes I which they would have gotten what they ask for..
    Imagine how much better off we would be if they somehow actually managed to prevent all piracy and Microsoft actually had to compete with Linux and FreeBSD and such instead of relying on piracy for their market saturation. They would be either dirt cheap or completely gone.. Then I wouldn't have to put up with their crap in business environments anymore.

     

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    Anonymous Coward, Dec 3rd, 2012 @ 12:04pm

    Thank god piracy allowed corporations to lock users into software like Windows and Photoshop instead of facilitating open source alternatives like Linux and Gimp.

     

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    anon, Dec 3rd, 2012 @ 12:12pm

    Piracy as the only solution.

    The worst is when you try your hardest to pay for a software package but they dont want to give any discount for personal use so that you can try it out. 5% discount on $1400 is not enough for me to try out software and in a call to one of these companies I advised them they are forcing me to pirate a copy as they had no working demo that I could test(3d cad software), they were not worried in the least.

    Now that is not the way to do business and is why I will use pirated copies and hopefully when I have come to the point where I do want to purchase and use it in a business environment I can find something a little better with people that are prepared to go to almost any length to help me, especially with the knowledge I will have then from using a free full cracked copy of there software.

     

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    silverscarcat (profile), Dec 3rd, 2012 @ 2:08pm

    Didn't Bill Gates once say...

    "As long as they're going to pirate, I'd like it if they pirate our stuff. Because, when we sell to them, they'll be used to our platform and will want to buy it over any competitor's platform."

     

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    Chun Jia Sio, Dec 4th, 2012 @ 1:35am

    I still believes that having a good support of your product and is the better way to gain market shares.

     

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    Logan, Dec 5th, 2012 @ 1:34pm

    Piracy

    I understand Vlad Dudau’s point and I can’t even imagine how frustrating it must have been to grow up in a country so closed to outside products and so restricted that the thought of them being sold legally was at one point unimaginable. However, he makes some very dangerous comments that I think are worth taking a second look at. Firstly, lets not blame companies like Microsoft for how they choose to price their goods: they have invested the time, money, energy, blood, sweat and tears into making that product and it is their right to price that product how they chose. They are not obligated to price according to what the consumer can afford. If that were the case, my closet would be replete with Burberry jackets, Christian Loubiton shoes and a mess of designer handbags. Alas, my closet does not even closely resemble such an image. And that is because those products are beyond my bank account and thus, I do not own them. To suggest that something deserves to be stolen because it is expensive is ludicrous. Moreover, to quote Bill Gates as understanding benefits of piracy is misleading. Bill Gates is trying to adapt his business model to the realities of the world and those realities include the existence of piracy. He is not implying that piracy is beneficial or that he hopes it continues. I am positive that if you asked Mr. Gates today if he could eradicate piracy, he would most happily oblige. I think the statement “we knew pirating was wrong but we didn’t have any choice” sums up my argument pretty well: people like to hide behind the excuse that they didn’t have a choice but our whole lives are about choices. What these people decided was that living without such coveted software was too high a price to be asked for following the law. So instead they stole so that they could avoid a life without software of the most elite kind. Now ask me again, how does that seem justified?

     

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