BSA Releases Latest Stats; Stands By Same Old Story

from the we've-heard-this-before,-haven't-we dept

Every year around this time, the Business Software Alliance (BSA) comes out with a report, put together for the BSA by IDC, about software "piracy" statistics. Every year, since 2004 I call them out on how misleading many of the stats are (or, more specifically, I jokingly refer to the BSA as Bogus Stats as Always). At times, even IDC, who puts the report together for the BSA, has admitted that the BSA has tended to misrepresent the results -- and yet IDC keeps putting together the report every year. The good news, honestly, is that over the past few years, we've seen a changing trend in the coverage of the reports on these numbers, in that more people are calling the BSA out for using the numbers in a misleading way. The BSA, to its credit, has at least tried to be more conscious of how it presents and explains its numbers... sometimes.

Perhaps because of this, in advance of the release of the latest report today, the BSA reached out to me (and I'm sure plenty of others as well) to talk about the report and address any concerns. I spent half an hour on the phone this afternoon with Neil MacBride, the BSA's VP of Anti-Piracy and General Counsel. With him was Marcel Warmerdam an associate VP from IDC. I really appreciate the two spending the time to discuss the latest study with me -- as (this should come as no surprise) we didn't agree on very much.

The report itself seems pretty similar to what's come out in previous years. IDC does a rather credible job in determining the rate of unauthorized use throughout the world. The report this year highlights the fact that the rate of unauthorized use appears to be falling in many countries while rising in a few rapidly developing ones (Brazil, Russia, India and China). This is no surprise, as it's pretty much what anyone watching this market knows happens. I have no problem with the reporting on the rate of unauthorized usage.

Where things get problematic, however, is when the report starts to look at the impact of such things. The report itself shifts back and forth between "retail value of the software" and "losses" as if they are one and the same. By now, it should be quite clear that they are not the same. My second problem is that the report also ties these faux "losses" to a separate IDC report claiming that a drop in unauthorized usage of software would increase jobs, increase revenue in the IT sector and increase taxes. That's inaccurate for a variety of reasons, specifically in that it double-counts the impact of certain things and also only counts the "ripple effects" in one direction.

I raised these questions to both Neil and Marcel, and the summary of the call as Marcel noted at the end is that we'll have to agree to disagree. We didn't discuss the ripple effects issue, because that's actually from a different study than the one released today (though, the one today does reference that report to back up its claims -- which is why I brought it up). However, Neil and Marcel defended the "losses" claim by pointing out that plenty of companies out there (they kept pointing to large companies) would go out and buy the software if they had no other option. Indeed. And, I would probably go out and buy lunch at Pizza Hut if I had no other options, but we don't count it as a "loss" for Pizza Hut when I go eat at McDonalds instead. The fact is that there are other options -- even if some of them break the license agreements. My point is that this is a business model issue that the industry needs to deal with by giving businesses positive reasons to pay, rather than threatening to whack them with a legal stick.

However, what became clear in talking to Neil was that the BSA really does seem to believe that the majority of these unlicensed uses really would be paid for -- which seems like a highly questionable claim. We also very much disagreed over calling unauthorized use of software "theft" (he says it is, and tossed out the old favorite about how it's no different than taking a CD or a pack of chewing gum out of a store). He specifically said "software is a tangible good." The problem is that this is simply not true. I'm sure plenty of software companies and the BSA itself would like it to be a tangible good -- but it is not, and no amount of pretending makes it so.

In the end, Neil suggested that maybe this is a "generational" thing (I guess I'm the young whippersnapper), which I don't think is accurate either. I think it's really more of a business model thing. The companies that make up the BSA have relied on a particular business model for many, many years. That business model depends on government-granted monopolies that allow them to create artificial scarcity. They like that business model and don't want it to go away. However, the market is shifting, and it's shifting due to companies recognizing the fundamental characteristics of software being infinite, which allows them to implement other business models that don't rely on artificial scarcity. We're seeing it all the time, even among some companies who are members of the BSA. IBM, for example, has learned that its real money-maker is in services, and free software helps build that market. Red Hat has shown a similar business model on a smaller scale. And Google, which is a software company (even if people don't realize it), has shown an entirely different model to make its software extremely profitable in a way that "piracy" is of no concern.

The more the BSA talks up fundamentally flawed "losses" the more difficult it makes it for many of its members to recognize that the market is changing, and they need to change their business models with it. The less these companies focused on made up "losses" and the more they focused on creating business models where there are good reasons for companies to pay money, the more they'd realize that unauthorized use isn't the problem at all. With the BSA reports on losses, though, too many of these companies are taught to think that the problem is elsewhere (those darn pirates), rather than in how they view the market themselves. And, that, fundamentally, is dangerous for the BSA's own members. So, I very much appreciate both Neil and Marcel for reaching out and taking the time to talk with me, and responding to my criticisms -- and I hope to continue the conversation with them. But, they did little to change my feelings about the BSA report and its misleading nature.


Reader Comments (rss)

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    eleete, May 14th, 2008 @ 4:08pm

    The best solution.

    Open Source Software wherever possible. Their philosophy is the 180 degree turn here. Share and Share Alike.

    eleete

     

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    Beefcake, May 14th, 2008 @ 4:15pm

    Tallying lost sales

    Perhaps you should commission IDC and a parallel entity unrelated to the discussion to each perform a study comparing so-called lost sales because someone has a pirated copy of something versus the lost sales because BSA's strategy makes customers angry.

     

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    Carter, May 14th, 2008 @ 4:31pm

    Losses Vs Gains

    A good argument against theoretical losses would be to show the decline in sales from software companies. If they can track unauthorized use, they should be able to track authorized gains.

    Take a look at authorized gains in relation to unauthorized use for software companies who experience different levels of unauthorized use. There should be a proportional relationship showing that greater unauthorized use comes with greater sales and vice versa. Granted this probably couldn't be 100% empirical since a crappy piece of software could account for low sales regardless of unauthorized use - though if this were the case there probably wouldn't be much unauthorized use for the crappy software.

    Are there any reliable reports showing the positive results of unauthorized use? Or is that what the author here is even trying to say?

     

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    Rose M. Welch, May 14th, 2008 @ 4:32pm

    They are so wrong.

    I don't pay for software if I don't have to. At all. I look for free software that does the same thing (but sometimes aren't as pretty) on download.com and I am usually successful. In most of cases, if I can't have it for free, I simply don't want it. In other cases, I might buy a smaller, less functional program for fifty bucks or less, but generally only if it's business-related so I can write it off.

    I'm not saying that no one should ever pay for software. Obviously alot of software is so useful that it's worth the money. Like the OS I'm using right now. (Yes, Linux and Ubuntu users, MS does suck but it is pretty easy to use and I'm too lazy to change.) But I am saying that most software costs more than it's worth to me as a consumer. I'd be happy to use a free version, but would not pay for a cost version. So they can claim me as a loss all they like, rofl.

     

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    Overcast, May 14th, 2008 @ 4:36pm

    The BullSheet Alliance?

     

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    Not suprised, May 14th, 2008 @ 4:42pm

    A report is only as good as the qualifiers that were used in the creation of the report.

    In this case I have a feeling that they did not include those who maybe were introduced to new software through piracy. For instance several people who love music and cannot get over the huge price of a modern DAW. Piracy opens the door to try out several DAW platforms in order to see what best fits the persons needs and once they understand the program many times these same criminals do the craziest thing....they go out and buy it.

    The reason for this is the fear of loss (money) is surpassed by the pleasure of gain which is getting a fully operational non-buggy version of a product they have come to enjoy and rely on.

    People are lazy for the most part which is why windows still works and is also why once someone gets used to a technical product and understands it they wont want to switch since who really wants to learn a new product after they already use something that works and its already known.

    Piracy is a double edged sword and a great tool which shows up when current models fail miserably. I work with execs all the time and one thing most have in common are they all need to act like they know what they are working with although the majority of them dont have a clue in hell.

    Rant off.. IMHO

    Piracy serves a purpose and forces change, introduces people to products, creates brand loyalty, creates new products and services, creates innovation instead of stagnation and most importantly forces people and corporations to think.

    Its needed in an age where Americans is being affected by fear tactics from its own government to unknowingly give up civil liberties by screwing with our bill of rights amongst other things.

     

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    Neil MacBride, May 14th, 2008 @ 8:05pm

    Mike, we also appreciated the opportunity to discuss the IDC study on 2007 global software piracy rates with you today. We especially appreciated your comments that “IDC does a rather credible job in determining the rate of unauthorized use throughout the world” and that you “have no problem with the reporting on the rate of unauthorized [software] usage.” That means we actually both agree on the main “headline” of today’s study – that the unauthorized use of software around the world is rising, with almost 4 in 10 copies of software worldwide being unlicensed.

    Where you and BSA differ is whether the global piracy rate of 38% is a big deal or not. You said today that a business which takes desks (which don’t belong to them) to outfit their office is committing theft, while the same business which takes software (which doesn’t belong to them) to outfit their computer is not, because a desk “can’t be copied” while software can. Respectfully, BSA thinks both examples are wrong, because the business is getting to enjoy the use of something they didn’t pay for and which doesn’t belong to them. For the same reason, we teach school kids not to copy someone else’s homework (even though it doesn’t “deprive” the other kid of their intellectual property in a pure zero-sum sense) simply because it’s wrong, because it provides a benefit which doesn’t belong to the cheater.

    We also differ on whether piracy results in “real” economic loss (and not merely some speculative or hypothetical loss) to the software industry in terms of revenue foregone. Every market study which BSA has ever seen clearly finds the following direct correlation: when piracy rates drop (when the supply of pirated software falls) businesses and consumers respond by replacing their unlicensed software with legitimate stuff. Stated differently, folks who use pirated software are actually quite willing to pay for it when the source of unlicensed software starts to dry up. But these studies only confirm what strikes us as pretty self-evident: when some folks choose to use unlicensed software, rather than buying it like everyone else, the software industry loses that sale; as Elvis Pressley once said (in another context): “why buy a cow when I can get milk through the fence?” (For that reason, we think the better lunch-time analogy goes something like this: if I’m prevented from shoplifting groceries from the supermarket, then I’ll start buying my lunch at Pizza Hut or McDs (though I’m personally a Chipotle fan…))

    Regarding your point that “industry needs to deal with [piracy] by giving businesses positive reasons to pay,” we respectfully would note that the majority are doing just that. Today’s IDC study notes that the US has a 20% piracy rate, which means that the other 80% of US businesses customers – tens of millions of PC users – are doing the right thing by paying for their software (the same as they would for their desks).

    I suspect that no amount of fact-based argument will persuade you that software companies should stick to any business model in which they are paid for their products. But that business model works pretty well across virtually all industries (and across the globe), and until someone comes up with something better to replace it, we’ll keep chugging along. Thanks for listening.

     

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      Lawrence D'Oliveiro, May 15th, 2008 @ 1:55am

      Re: Piracy Loss Equivalent

      Neil MacBride writes:

      Every market study which BSA has ever seen clearly finds the following direct correlation: when piracy rates drop (when the supply of pirated software falls) businesses and consumers respond by replacing their unlicensed software with legitimate stuff.

      So what are the proportions involved--percentage of replacement of pirated software by legitimate versions--and can you give references? Because if it's not close to 100% replacement, then you don't have justification for treating every pirated copy as a lost sale.

       

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      Mike (profile), May 15th, 2008 @ 2:49am

      Re:

      Neil, glad you responded.

      Where you and BSA differ is whether the global piracy rate of 38% is a big deal or not. You said today that a business which takes desks (which don’t belong to them) to outfit their office is committing theft, while the same business which takes software (which doesn’t belong to them) to outfit their computer is not, because a desk “can’t be copied” while software can. Respectfully, BSA thinks both examples are wrong, because the business is getting to enjoy the use of something they didn’t pay for and which doesn’t belong to them.

      Neil, your statements are again off-point. You claim that the problem with the use of unauthorized software is because it (1) wasn't paid for and (2) isn't owned by the user. That's rather arbitrary and meaningless. Do you own English? You are enjoying the use of the structure of the English language even though you didn't pay for it and it doesn't belong to you. Yet, do you see people whining about that?

      Of course not. Just because something wasn't paid for and isn't owned doesn't mean that it's wrong. I imagine there are many things in your life that you haven't paid for and don't own, which you use, and no one accuses you of theft or being wrong.

      For the same reason, we teach school kids not to copy someone else’s homework (even though it doesn’t “deprive” the other kid of their intellectual property in a pure zero-sum sense) simply because it’s wrong, because it provides a benefit which doesn’t belong to the cheater.

      Actually, we've discussed this point as well (though, I'm guessing you're not going to like this answer). There's a growing trend towards recognizing that getting students to collaborate on their homework is actually a good thing, because it's much more like the situations they would face in real life:

      http://www.techdirt.com/articles/20070308/184312.shtml

      But, even if we take your assumption that it's "bad" the reasons are quite different than the reasons concerning copying software. The reasons why some folks believe that copying homework is bad is because the entire point of school is to get the students to learn. There isn't a commercial aspect to this (for the most part, at least). So, the issues are quite different.


      We also differ on whether piracy results in “real” economic loss (and not merely some speculative or hypothetical loss) to the software industry in terms of revenue foregone. Every market study which BSA has ever seen clearly finds the following direct correlation: when piracy rates drop (when the supply of pirated software falls) businesses and consumers respond by replacing their unlicensed software with legitimate stuff. Stated differently, folks who use pirated software are actually quite willing to pay for it when the source of unlicensed software starts to dry up. But these studies only confirm what strikes us as pretty self-evident: when some folks choose to use unlicensed software, rather than buying it like everyone else, the software industry loses that sale; as Elvis Pressley once said (in another context): “why buy a cow when I can get milk through the fence?” (For that reason, we think the better lunch-time analogy goes something like this: if I’m prevented from shoplifting groceries from the supermarket, then I’ll start buying my lunch at Pizza Hut or McDs (though I’m personally a Chipotle fan…))


      And, indeed, there's no doubt (as I said on the phone) that some folks will pay, but that's not the point I'm making. The point is that assuming the *problem* is that people are using the software for free, rather than realizing the *problem* is in how the business model is structured.

      Because no matter what the situation is with piracy, there are other companies out there who are figuring out business models where piracy isn't a problem (or is actually seen as a benefit) -- because the business model actually takes advantage of wider distribution. Focusing on piracy as the problem blinds software firms to the real marketplace they're in. And that's dangerous.

      Also, you still say the above as if every pirated software is a lost sale. That's simply not true, and you know it. That there are *some* users who would pay in absence of any alternative isn't particularly interesting.

      On top of that, we didn't even get into the historical evidence showing that piracy has helped establish certain software products as de facto standards, which later help them dominate a market and make plenty of money selling both licenses and services. None of your reports takes that promotional value into account.

      So, we're still left thinking that you're being misleading. You're falsely claiming that every unauthorized copy is a lost sale, and you fail to recognize that there may also be counterbalancing benefits from pirated software.


      Regarding your point that “industry needs to deal with [piracy] by giving businesses positive reasons to pay,” we respectfully would note that the majority are doing just that. Today’s IDC study notes that the US has a 20% piracy rate, which means that the other 80% of US businesses customers – tens of millions of PC users – are doing the right thing by paying for their software (the same as they would for their desks).


      Heh. That's not quite what I meant -- though I think you recognize that. And, I should note that you lapse into moral arguments repeatedly throughout this response (what's "right" and what's "wrong"). Lapsing into moral responses without addressing the economics is the wrong way to go about things:

      http://www.techdirt.com/articles/20061115/020157.shtml

      If there are business models that make everyone better off, then the moral question doesn't exist. Are Google and Red Hat (and IBM) "wrong" for creating business models where customers don't need to pay for the software? It's not a moral question of right or wrong -- it's an economic question.

      I suspect that no amount of fact-based argument will persuade you that software companies should stick to any business model in which they are paid for their products. But that business model works pretty well across virtually all industries (and across the globe), and until someone comes up with something better to replace it, we’ll keep chugging along. Thanks for listening.

      Neil, a fact-based argument would actually be quite helpful. My problem is that your argument is *not* fact-based. It's based on moral claims (right and wrong) and an awful lot of questionable assumptions and ignoring any impact that goes against your general premise.

      As for the business model where companies are paid for their products... when have I *ever* said I'm against such a thing? I'm 100% in favor of such business models. The *problem* is that such a business model is really only sustainable if the "product" you are paying for is scarce (econ 101, supply & demand, etc.).

      So my only problem is with an industry that doesn't realize the reality of the market situation it's facing -- and is looking in the wrong direction when trying to figure out the big challenge facing the market.

      Your organization is pointing its members in the wrong direction by focusing on piracy.

      As for the question of "until someone comes up with something better to replace it," that's already happening -- and the firms you represent should be looking to embracing those business models, rather than worrying about the bogus problem of unauthorized usage.

       

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      Anonymous Coward, May 15th, 2008 @ 3:08am

      Re:

      Neil,

      Glad to hear you’re a Chipotle fan. As you may know, Chipotle had its start in a small location in Denver. Every Chipotle I've been to has a black and white picture labeled "Store #1" in it, or "Colfax".

      What's interesting is how the younger college-age "whippersnapper" crowds that helped to fund and grow out the success of such an organization. Store #1 was located across the street from Denver University, and students shared this interesting and different experience with their families-- it is, quite simply, a well made burrito. It became one of the "Things to Experience" for friends and family in the area. It wasn't long before the company garnered the attention of McDonald's, who became a silent partner in it's expansion. Many things were learned during those days-- from both sides of the fence, and eventually, an IPO was announced. McDonald's sold it's share.

      To this day, Chipotle has a constant struggle of "How do we keep it fun, informal, and profitable". This in itself is interesting, and speaking from my perspective, there seems to be some parallels to TechDirt as it continues to expand. I for one, wish TD commanded such an interesting audience such as yourself!

      It seems the days of seeing TD as a gripe blog are fleeting fast.

      It would be nice to have you join in here under an alias from time to time. Don't be a stranger!

      Mike's gonna send me to the corner now.

       

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    Jesse, May 14th, 2008 @ 11:04pm

    It seems to me the very fact that they needed to contact you before hand demonstrates that at least in some way, they recognize that you make good points. If they were so confident in their report, their methods and results, then one would assume they would let the numbers speak for themselves. To me, your conversation with these two shows a lack of confidence on their part.

     

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    Anonymous Coward, May 15th, 2008 @ 3:42am

    Tangible Goods vs EULAs

    The software companies try to have it both ways: Software is a tangible good when talking about sales and "losses" and is a limited use licensed "service?" when it comes to EULAs. As usual they argue the case using whatever model suits the current motive never mind the larger contradictions.

     

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    Killer_Tofu (profile), May 15th, 2008 @ 5:58am

    Very good point

    I very much so agree with AC #14.
    A very good point indeed.
    If they want to claim that it is a tanigble good, than they should kiss the idea of the EULA goodbye, as, with any tangible good, once sold, the seller has no control over it anymore. Ok, too many commas in that sentence ...
    So, if they want to treat it as a tangible good, they could prove this claim by never ever showing a EULA to anyone or including one anywhere.
    The fact that they include a EULA is already showing that they are not thinking of it as a tangible good.
    EULAs are preposterous to begin with in most cases, but that is my opinion and not the point here.

     

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    trish, May 15th, 2008 @ 10:42am

    Interesting

    (dictionary.com): tan·gi·ble 1. capable of being touched; discernible by the touch; material or substantial.
    2. real or actual, rather than imaginary or visionary: the tangible benefits of sunshine.
    3. definite; not vague or elusive: no tangible grounds for suspicion.
    4. (of an asset) having actual physical existence, as real estate or chattels, and therefore capable of being assigned a value in monetary terms.
    I find this very interesting, the dictionary says (the product) has to have an actual physical existence to be assigned monetary value. Like real estate. I may be nuts here, but I think that's because real estate is a finite resource. Like you've pointed out before, Mike, if there were a limitless number of people who loved music out there, each of them could potentially have a limitless amount of music to please themselves with. But they could only own so much land, before there was no more land to live on. Digital music is, in essence, 1s and 0s. And those numbers are ideas, intangible things, like the music or software they represent. They are not tangible, because I cannot touch a number, and neither can I touch the music. So once and for all, I think we've just seen why 'tangible' is not a word that can apply to software or music.

     

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    michael knight, May 15th, 2008 @ 2:41pm

    your article re piracy and BSA report

    Spot on! As a 56 year old computer support person, I am fully behind the opinion you've expressed here and totally believe the software industry is simply following the steel, timber, rail industries in that they simply want to squeeze more $ out of the consumer before their industry is forced to change.

     

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    Jeffrey Nonken (profile), May 15th, 2008 @ 3:39pm

    Another view on IP piracy

    Go to Baen Free Library and read Larry Flint's introduction. Then go read the Prime Palaver. The last, number 17, is particularly good -- it's written by Janis Ian who is in both the music and writing industries.

    Of course, that site is mostly about books, not software. Nevertheless it's an interesting counter-view of piracy.

    The rumour is that Microsoft, far from being upset about piracy of Windows and Office, is rather pleased. Every stolen copy of Microsoft software that's being used is one copy of some other brand that isn't.

    Here's an interesting economic model for you. The local video rental store will (for its older videos) charge a discount if you rent 5 at once. The discount brings the total down to a few cents more than renting 3, and less than renting 4. And the clerks will tell you this if you walk up to the counter with 3 or 4 videos, it's not something they hope you don't notice. So... what does it gain them to charge the same for you to rent 5 as for 3? Don't they lose money?

    Whomever gets the right answer gets to stay late and clean the erasers! ... Oh wait, schools don't use chalk boards any more. Oh well.

     

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