How Many Questionable Assumptions Can You Layer On Top Of Each Other To Estimate Bogus 'Losses' From Unauthorized iPhone App Downloads?

from the let-me-count-the-ways dept

A while back someone had sent me to a website I’d never heard of called 24/7 Wall St. that had a post claiming how much certain top blogs were “worth.” The reason someone pointed me to it was because it had Techdirt in the list. What was amusing was that whoever wrote the article made a bunch of assumptions and every single one of them was wrong — and some of them could have been checked with a simple look at our website. Given that every single assumption was wrong, the conclusion was equally laughable. I actually emailed them to point out a few factual errors in the post — none of which were corrected. Since then I tend not to trust anything from that site — though it has a habit of getting attention for similarly ridiculous “estimates,” and people repeat them as if they were factual.

Allison K was the first of a whole bunch of you to send in the fact that the site is trying to “estimate” the “impact of piracy” of iPhone apps on Apple and app developers. While I commend the site on at least explaining its methodology, the more you read it, the more ridiculous it becomes. They simply layer questionable assumption upon questionable assumption upon questionable assumption, and when they get stuck, they pull out a random number. It’s almost comical to read. As Allison noted, it reminds her of xkcd’s famous comic of the Drake Equation, where one of the variables in the formula is defined as “Amount of bullshit you’re willing to buy from Frank Drake”:

It’s nice to have some sort of concrete numbers, because people like to have numbers to discuss. But when they’re based on so many layers of questionable assumptions, they tend to do a lot more harm than good. People will assume there’s some real basis for them when there is not.

And, of course, as everyone should understand by now there’s no such thing as “losses” from unauthorized access. There is only a failure on the part of the company to convince people to buy. There is no line in their financial reports on “losses” from such activities — with good reason. The only issue is a business model issue, which is that the company has not given users a good enough reason to buy, so they chose to get the product elsewhere.

Update: And it gets more ridiculous. 24/7’s response was a comment below that did not address any of the concerns but simply says that I must not have made it through my high school math class. Classy. Meanwhile, Dark Helmet points us to TUAW’s takedown of the numbers, where they note that based on the assumptions, 24/7 appears to be assuming that there are 510 pirated apps per device. Uh. Yeah. Check those assumptions, folks.

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Comments on “How Many Questionable Assumptions Can You Layer On Top Of Each Other To Estimate Bogus 'Losses' From Unauthorized iPhone App Downloads?”

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50 Comments
Marcus Carab (profile) says:

Re: Re:

Yeah, that whole paragraph is pretty weird, especially the kicker line for the article:

Apple intends to ignore the piracy of applications and will focus on the tens of billions of dollars that it makes on its hardware.

From these two lines alone I really wonder if they have anything beyond a cursory understanding of the issues. This reads like an answer on a high-school exam, not a real analysis.

lux (profile) says:

1 illegal download != 1 lost sale

I can guarantee with 100% I wouldn’t have bought any of the software I’ve obtained from free torrents. How do I know this? Because I haven’t bought the software. End of story. Get over it.

Microsoft knows this and would rather you use their pirated software than use another companies. BECAUSE IT’S ALL ABOUT POTENTIAL SALES.

PaulT (profile) says:

Re: Re: Re:

He put it badly, but it’s a point.

Many years ago, when I was first trying to learn basic web design, I got hold of pirated copies of Photoshop and Dreamweaver. Should I have done this? No. But, Adobe (and Macromedia, at the time) lost exactly $0. The reason is that those programs were far too expensive for me to be able to afford at full retail price ($400+ IIRC). If the pirated version were not available, there would not have been any income suddenly appearing in those companies’ bank accounts.

Now, if I had gotten into web design properly and perhaps made a career out of it, I would absolutely have bought copies of those programs. So, no losses for those pirated apps but a potential comeback if they proved valuable enough for me to spend the high cost.

Same with these iPhone apps. Very few people are going to spend the full retail price on, say, the TomTom apps. They’re extremely expensive, and you can buy the standalone GPS units for close to the same price. Most of the people downloading them illegally would not pay for them if the download were not available. Therefore, it’s foolish to say that these represent lost sales, and equally foolish to extrapolate financial losses from sales that simple would not have happened.

Anonymous Coward says:

Would any IPHONE user be dumb enough to download a pirated app for his phone? Downloading a pirated MP3 or bootleg movie online to your computer hard drive probably won’t cause any lasting damage to your PC, and if there is damage, it can usually be fixed.

If you download a pirated app that bricks your IPHONE and you can’t undo the mistake, you’re screwed, and you’re still obligated to pay for the time left on your mobile contract, even after you’ve irrevocably fucked up your phone. For this reason, I think the potential for piracy and financial harm to Apple and the app creators is highly overstated, and the author of this article greatly underestimates the intelligence, income and age of the typical IPHONE owner. Pirating crap is cool when you’re fifteen, even when you’re twenty, but then you reach an age where it’s easier just to pay for what you want.

telnetdoogie (profile) says:

Damn it!

Damn it! I’ve been jailbroken this whole time and I didn’t know I could download TomTom for FREE! Thanks 247wallst.com!

…Seriously. I’ve been jailbroken almost the entire time I’ve had my iPhone and so far I’ve spent more on jailbroken apps (PDANet, YouTube movie downloader) than I’ve spent on Apple Store Apps (…er… FlightTrack and… Ocarina…is that it? Oh no… Spacemonkey too. Yay Spacemonkey) …and other craptastic apps that were fun for all of four days.

So the only reason Apple ‘lost’ money from ME is because they limit app developers too much and the ‘rogue’ developers were able to provide what I wanted via other means. “Missed revenue opportunity” is what I’d prefer to call it.

…TomTom on piratebay? Really? Yoink.

Mike says:

Class action

There is no line in their financial reports on “losses” from such activities

This suggests a class action by shareholders of publicly traded companies. The record companies are claiming loss from piracy. Theft losses are deductible, to an extent, on income tax returns. Thus, if record companies are NOT claiming loss from piracy on their income tax returns, and those losses are real, then they’re paying more taxes than they should. This diminishes the value of the company, damaging the shareholders’ interests. That’s a valid cause of action. Q.E.D.

I’d be interested to see the I.R.S.’s response to a claim of billions/trillions/grillions lost. Or, the more likely outcome, an admission in the class action by the defendants that the “losses” are fictitious and have no basis in GAAP or law.

The Anti-Mike (profile) says:

Re: Class action

Lost sales aren’t “losses” in a way that can be applied to the balance sheet of a company. It isn’t any different from a snow storm that closes a restaurant for the day. There are lost sales, but you cannot claim that missing income as “losses” for tax purposes.

It’s fun to watch people trying to come up with the silliest ways to justify continued piracy.

Richard (profile) says:

Re: Re: Class action

It isn’t any different from a snow storm that closes a restaurant for the day. There are lost sales, but you cannot claim that missing income as “losses” for tax purposes.

Exactly right.

and just like the snowstorm it’s just something you have to learn to live with.

It’s fun to watch people trying to come up with the silliest ways to justify continued piracy.

It’s fun to watch people who think that snowstorms have to be justified.

Mike Masnick (profile) says:

Re: App Sotre

You clearly did not make it out of high school math class

Hey, everyone, it’s someone from 24/7 Wall St. who rather than defend his post came here to blindly insult me.

Now that’s convincing.

Do you have something to defend your post that goes beyond a ridiculous insult? You’re not doing yourself any favors in posting that comment.

B says:

Masnick's Bad Logic

Hey, I think it’s reasonable to point out bad math when it comes to estimating damages to piracy, but Mike Masnick doesn’t do logic any favors with this quote: “There is only a failure on the part of the company to convince people to buy… The only issue is a business model issue, which is that the company has not given users a good enough reason to buy, so they chose to get the product elsewhere.”

Er – what? Don’t fight stupid with stupid, Mike. If that argument was valid, then I could repeat the same statement about shoplifting – “Shoplifting happens because there is a failure on the part of the company to convince people to buy.” See, I just shifted the blame from shoplifters onto the stores! Isn’t bad logic fun?

Anonymous Coward says:

Re: Masnick's Bad Logic

Does the analogy make more sense if you consider the differences between physical and digital goods?

Is the store to blame if potential customers would rather go get their products for free from another vendor?

Remember that we aren’t discussing the morality of piracy or support of the product developers here– just the fact that users with a specific skill set (googling piracy sites they read about on wall st 247) and tolerance for risk (legal/technical) are choosing to get apps from the “free” vendor.

You can play games with the legal and technical (bricking/banning/etc) risks to dissuade people with a specific risk tolerance from grabbing the free version of your app or you can offer some sort of value to your customers that cannot be provided by the shady “free” vendors. This additional value takes many forms; multiplayer matchmaking, access to portions of your app protected by advanced (time/$$) piracy countermeasures, tech support or community membership.

B says:

Re: Re: Masnick's Bad Logic

“Does the analogy make more sense if you consider the differences between physical and digital goods?”

I’m saying that once someone has a pirated copy, there’s not much incentive to *buy* a copy. At that point, you’re expecting the pirate to just give away their money for no benefit. Yes, there are some ways to make software more valuable for buyers than pirates (depending on the type of software), though that’s not true for other digital media like music or movies.

You could also repeat Masnick’s argument for physical goods by saying that stores who have their physical products stolen means a “failure on the part of the company to convince people to buy.” Of course, that doesn’t work so well for most products. But, that’s blaming the store when their products shoplifted because “they should’ve provided free tech support with that computer, and then people would have an incentive to buy instead of steal the computer”. That logic is just messed up. Masnick is clearly trying to remove all moral judgments of pirates, and treat piracy as morally equivalent to a purchase. Based on other articles he’s written, I’m not that surprised – he obviously scoffs at the very idea of intellectual property; everything should be free, apparently.

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