A thief's hand in reseller's pockets

At Microsoft, we devote a lot of resources and energy into assessing the impact of software piracy.

There is no doubt that Microsoft has a vested interest in this issue as it goes to the very heart of one of our key strengths and assets: intellectual property.

But we are equally concerned with the impact that software piracy has on the integrity of the channel, including the bottom-line effect it has on the business interests of every legitimate reseller in Australia (whether they exclusively resell Microsoft products or other vendors’ products, a mix or indeed their own innovative software offerings), as well as the effect on the end consumers on whom we all rely as the lifeblood of our businesses.

Software piracy is not purely a Microsoft or big vendor issue, it is a channel issue.

In this sense, software piracy is a multi-faceted issue in Australia that affects the entire channel ecosystem.

From the channel partners who face stiff price competition from pirated goods to their customers who have battled identity theft after installing counterfeit software, piracy affects us all.

But while we often talk in qualitative terms about the impact of software piracy on the channel, the question often arises about what the quantitative impact is from a pure dollar perspective.

It’s easy to draw the conclusion that counterfeiting of Microsoft’s (or any large vendor’s) software primarily affects our bottom line.

Many consumers would also say that we have deep pockets, so what’s the big deal? The reality is that it is a big deal because it affects either directly or indirectly the bottom line and business opportunities of thousands of IT businesses across Australia.

In this sense, software piracy is like a thief’s hand in the pocket of every reseller in Australia.

Losses add up

So what is the financial impact of software piracy on the channel? What is the effect on the wider economy?

A recent study by IDC for Microsoft and the International Association of Microsoft Certified Partners found that for every dollar Microsoft realises when piracy is reduced, other companies in the global software ecosystem will realise, in aggregate terms, US$5.50.

The return for companies in the Asia Pacific region is even higher, with companies in our region realising US$6.84 for every one dollar that Microsoft realises in its revenue.

And these figures only cover Microsoft – logic dictates that if the study was extended to include every other major software company, the gains could be higher.

Multiply that by the software piracy rate in Australia, which according to the Business Software Alliance stood at 28 percent in 2007, these sums add up to substantial potential gains.

Delving deeper into the study, IDC found that of the US$5.50 in realised gains, US$4.37 would come from increased revenues, while US$1.37 would result from lower costs.

IDC also predicted that more gains could be clawed back through rectifying license misuse.

While we can now quantify the financial impact, according to IDC, software piracy and licensing misuse can also act as a hidden tax on the channel ecosystem. Some of the impacts listed by IDC in its study include:

• Competition from low-cost competitors using pirated software

• Limitations in the chance to upsell or cross-sell additional products and services

• Lost opportunity for services revenues in accounts running pirated software
The macroeconomic effects of software piracy are also not insubstantial.

It has been estimated that a reduction in piracy by 10 percent over the next four years would generate an additional 3929 jobs in Australia.

In addition, the reduction would result in AU$1.9 billion in local industry revenue and AU$4.3 billion in additional GDP (IDC Piracy Impact Study 2008).

How do we reduce piracy and realise the gains discussed above? Is it a case of going pirate hunting? One of the most challenging aspects of software piracy is it can happen in an innocent or inadvertent way.

For example, as a reseller, it’s possible to sell pirated software inadvertently.

Knowing how to spot the telltale signs of pirated goods is half the battle.

One reseller who inadvertently fell victim to software piracy is Glen Faulkner, owner of Computer Assist. He nearly lost his business when duped by pirates.

Glen has extensive training and a background in IT.

He completed two years of Bachelor degree study in IT at the University of Southern Queensland, two years of certificate study in IT at Wide Bay Institute of TAFE and received his diploma of Business Management (WBIT).

After founding Computer Assist, Glen stumbled upon a software distributor who he believed was selling legitimate, licensed software.

During emails with the distributor, Glen asked if the software was legal, as some of the software was unregistered.

The company assured Glen that the software was legitimate. Glen took their word.

Glen purchased software from the distributor and tried to re-sell it on eBay.

He became suspicious when his first buyer commented on the legitimacy of the product.

Glen refunded the buyer’s money and contacted Microsoft, but meanwhile, seven more copies of the software had been sold on eBay through ‘Buy it now’.

Glen received advice from Microsoft on how to spot counterfeit product and immediately realised that his software was pirated.

Glen voluntarily refunded all of his customers and, in the process, nearly had to shut down his business due to the enormous financial outlay.

Given his background in IT training, Glen was understandably frustrated for not having been able to tell that the software was pirated.

According to Glen, “If it’s too good to be true, it probably is”.

Spotting pirated software

Glen’s case is an unfortunate one but serves as an example of the insidious nature of software piracy.

It’s no surprise that reducing software piracy is one of Microsoft’s core priorities. We are joined in this purpose by many businesses in the channel, one of our common goals being to keep the playing field as level as is reasonably possible.

While many resellers are acutely aware of how to spot pirated software, here’s a few simple tips that may serve as a reminder:

There are five questions everyone should ask themselves each time they purchase software:

• Am I buying from a reputable reseller?

• Is a Certificate of Authenticity (COA) label included?

• Is a Hologram CD or Recovery

Media included?

• Are the product packaging and documentation high quality?

• Is an End-user License Agreement (EULA) included?

Microsoft receives between 50 and 100 emails and calls every month from customers unwittingly ripped off.

We are working with the channel to educate consumers and organisations so they understand the risks of pirated software and how to recognise genuine software.

Beyond our education work with the channel, Microsoft also undertakes training of customs officers and state and federal police to assist them in the detection of counterfeit software.

Training is done with a view to have illegal material removed from
the distribution chain before our channel partners and customers are duped by these disreputable counterfeiters.

We also work to ensure our channel partners are supported through our ongoing channel enforcement program.

You may have heard last year about a nationwide blitz that Microsoft initiated to investigate the supply of counterfeit software in Australia.

Channel vigilance about identifying pirated goods is critical, but we also understand that part of the responsibility lies with us to initiate action to stop pirates.

The following cases demonstrate how Microsoft is actively fighting piracy and represent only a small sample of legal actions taken against individuals and resellers distributing and selling unauthorised software.

• Thanh Phong Bui operates a computer store under the business name Coteco in Cabramatta, Sydney. Microsoft settled proceedings in the Federal Magistrates Court against Coteco, based on a judgment of $35,000 in damages for past copyright infringement, as well as Microsoft’s legal costs.

• Vy Duc Hien operates a computer store under the business name Softlink Computer from Sydney’s Fairfield. Microsoft settled proceedings against Softlink Computer, which was ordered to pay Microsoft $40,000 for past copyright infringement.

• PCE Computer & Communication Pty Limited operates a computer business in Capitol Square, Sydney. Microsoft reached an out-of-court settlement
for $50,000.

Microsoft is working hard to reduce piracy rates in Australia and, as a result, further secure the commercial integrity of the channel.

Thanks to IDC, for the first time we can quantify the impact of piracy on the channel and, through this data, tangibly demonstrate that we all have
a vested interest and role to play in fighting piracy.

Times are tough with the current economic downturn in Australia, demonstrated in part by the slowdown in Australia’s June quarter GDP growth rate.

We all work hard to earn a legitimate living, let’s work together to plug the software piracy leak and level out the playing field for all.