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.

Filed Under: developing markets, piracy

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  1. icon
    Keroberos (profile), 3 Dec 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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