Bill Gates isn't too bothered by Piracy...

[tlogank]

I found this article to be very interesting, and in many ways, very sensible....I guess that is why he makes the big bucks.

Source: http://www.latimes.com/business/la-fi-micr...,0,414067.story

Bill Gates on Piracy: "They'll get addicted, and then we'll collect"

Bill Gates may not be entirely dismayed by software thieves. They seed the world market and make Microsoft a standard.

By Charles Piller

Times Staff Writer

April 9, 2006

Microsoft Corp. estimates it lost about $14 billion last year to software piracy ? and those may prove to be the most lucrative sales never made.

Although the world's largest software maker spends millions of dollars annually to combat illegal copying and distribution of its products, critics allege ? and Microsoft acknowledges ? that piracy sometimes helps the company establish itself in emerging markets and fend off threats from free open-source programs.

The gist of the beneficial piracy argument is that the retail price Microsoft charges for signature products such as Windows and Office ? as much as $669, depending on the version ? can rival the average annual household income in some developing countries. So the vast majority of those users opt for pirated versions.

The proliferation of pirated copies nevertheless establishes Microsoft products ? particularly Windows and Office ? as the software standard. As economies mature and flourish and people and companies begin buying legitimate versions, they usually buy Microsoft because most others already use it. It's called the network effect.

"The first dose is free," said Hal Varian, a professor of information management at UC Berkeley, facetiously comparing Microsoft's anti-piracy policy to street-corner marketing of illicit drugs. "Once you start using a product, you keep using it."

Even as the Internet makes global piracy easier than ever, Microsoft's revenue and profit have risen steadily. It earned $12 billion on $41.4 billion in revenue in calendar '05.

That record of success has led many experts and software companies to regard piracy as less of a problem than initially assumed or even part of a comprehensive strategy, said Eric Goldman, a law professor at Marquette University in Milwaukee and the former chief counsel of a Silicon Valley Internet firm.

"Is widespread piracy simply foregone revenue, a business model by accident or a business model by design?" he asked. "Maybe all three."

Of course, Microsoft executives prefer that people buy, but theft can build market share more quickly, as company co-founder and Chairman Bill Gates acknowledged in an unguarded moment in 1998.

"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."

That's exactly what has happened around the globe, according to the Business Software Alliance, a Microsoft-backed anti-piracy group. Even Vietnam, which at more than 90% has the highest piracy rate in the world, has improved from 100% in 1994. The No. 1 software firm in Vietnam: Microsoft.

Closer to the company's Redmond, Wash., headquarters, the decline of piracy in the United States has tracked Microsoft's rise. Stratospheric 25 years ago, the U.S. piracy rate dropped to 31% in 1994, then to 21% in 2004 ? the lowest in the world.

Microsoft's public posture on piracy is one of zero tolerance.

"We're all working five days a week and getting paid for three," said Cori Hartje, the company's director of license compliance. "We do everything we can to stop piracy."

The company sues online auctioneers and computer makers that supply pirated products, including Windows, the operating system for more than 90% of the world's personal computers. It cooperates with law enforcement agencies to seize pirated discs and warns users around the globe that counterfeit programs may destabilize their systems.

The effort even prompted Islamic clerics in Saudi Arabia and Egypt to declare fatwas, or religious edicts, against software piracy.

Microsoft, like most other software companies, has experimented with technical tricks to prevent copying, such as discs that could be used only once and hardware "dongles" that had to be connected to the PC before a software program could run.

Legitimate users complained bitterly. Such methods caused software bugs and prevented customers from reinstalling programs when their computers malfunctioned, yet hackers quickly subverted each new attempt.

"Copy protection is a balancing act because it always reduces the value of your product," said Bruce Schneier, chief technical officer of Counterpane Internet Security Inc. "State-of-the-art copy protection makes your customers hate you."

By 1986, like most other software companies, Microsoft abandoned copy protection.

Now it attacks piracy with technical and legal carrots and sticks. In 2004, it launched the Windows Genuine Advantage program, which offers special features and updates for legal users. It also requires a product activation key ? a string of letters and numbers the retail buyer of Windows or applications such as Word must enter to install the product on a computer.

Experts applauded the approach as thoughtful, given past problems with copy protection. But it does little to deter piracy, because thousands of activation keys ? stolen or generated by software programs ? can be found easily on the Web.

Microsoft's legal approach differs sharply with that of the music industry, which sues as if it were in the fight of its life, said John G. Palfrey Jr., director of the Berkman Center for Internet & Society at Harvard Law School.

"They put Napster out of business and sued Grokster to the Supreme Court," he said.

Like Microsoft, the music industry sees network effects from piracy. For little-known artists who have trouble getting airtime, piracy can be crucial to create buzz. But instead of generating revenue growth, pirated music generally replaces a CD purchase. In most countries, music revenue is falling.

In a loudly public campaign, music publishers have pressed more than 15,000 suits against individual pirates worldwide. Microsoft and the Business Software Alliance have rarely sued individuals, instead making claims against dozens of distributors and institutional users of illicit products.

More commonly, according to industry observers, Microsoft has cut pragmatic deals to convert institutional piracy into standard sales. Instead of suing, it asks organizations found to use illicit copies to replace them with licensed, paid versions. Microsoft wares become entrenched without competitive bidding, via piracy, and formal forgiveness cements the commercial relationship.

Microsoft declined to comment on how often it uses this approach.

Piracy also prevents free, open-source alternatives such as Linux from chipping away at Microsoft's monopolies, especially in developing nations.

China, for instance, promotes Red Flag Linux ? a local, open-source competitor to Windows. As Gates concluded in 1998, piracy may be the only way Microsoft can stay in that market, embracing the opportunity to gradually convert pirates to payers. If Microsoft launched a draconian crackdown, UC Berkeley's Varian said, it would provoke the obvious reaction: "People would just switch to open source."

In China, pirated versions of Windows are easy to find on the street for 5 yuan, or about 62 cents. Why doesn't Microsoft put the thieves out of business by giving away or deeply discounting local-language versions of its products? The strategy would offer network benefits while providing better data on users.

Consistent global pricing reduces confusion for multinational buyers, Hartje said.

Experts believe high prices encourage piracy but offer the company offsetting advantages. If Microsoft sold Windows for, say, $10, it would lose money on every copy because of manufacturing, distribution and support costs. At zero cost to Microsoft, piracy enhances network effects by getting Windows out to users who can't or won't pay, without undercutting normal prices.

"Microsoft benefits from piracy, then says, 'If you think prices are high, blame the Chinese, because they are the thieves,' " said Ariel Katz, a law professor at the University of Toronto and an expert on the economics of piracy.

"They like us to feel guilty ? to think that piracy is wrong and immoral. Economically, it's not necessarily true, but it resonates with the public."

[Berserk87]

i guess it makes sence....

although if u were a small software designer, trying to make some extra cash to increase ur living, and ur spending ur time and effort making it, that dosnt really work....

[primexx]

i guess it makes sence....

although if u were a small software designer, trying to make some extra cash to increase ur living, and ur spending ur time and effort making it, that dosnt really work....

you wont be pirated anyways

[acoustikrage]

Microsoft's legal approach differs sharply with that of the music industry, which sues as if it were in the fight of its life, said John G. Palfrey Jr., director of the Berkman Center for Internet & Society at Harvard Law School.

haha, well put.

[chopyaedoff]

Good ol' Microsoft - now why don't you completely forget about piracy (sice you have enough money anyway) and focus on more important things like making a good OS.

[MiG-]

well if i was worth a sum in the billions, i wouldnt give 2 monkeys about piracy neither.

[Veedems Veteran]

Good ol' Microsoft - now why don't you completely forget about piracy (sice you have enough money anyway) and focus on more important things like making a good OS.

Because if they don't fight it, more and more people will illegally obtain their products? This is a business, not a charity.

[Mx]

Good ol' Microsoft - now why don't you completely forget about piracy (sice you have enough money anyway) and focus on more important things like making a good OS.

Thats what they are doing, and what they always have been doing. XP is a great OS in my mind, like any system it needs to be patched, but that doesn't make it not a good OS.

[lhnz]

Because if they don't fight it, more and more people will illegally obtain their products? This is a business, not a charity.

I agree. It is right though that a small ammount of piracy makes your product more popular and in the future earns you more money. But you still have to stem it.

[Dr.Jones]

getting addicted makes you buy it ?

If anything, it got me addicted to warez and NOT paying for software - says someone else ?.?

[madnuke]

Sounds like a good plan, I mean WGA was laugh that got cracked with 24 hours.

[Bamsebjørn]

I'm glad I can use MSDN now... :) ...I don't have to pirate software anymore.

[Zirus]

Sounds like a good plan, I mean WGA was laugh that got cracked with 24 hours.

Well thats just like saying "I'm just going to leave the keys in my car, and my doors unlocked in downtown LA. If someone is going to steal it, they're going to steal it and theres nothing I can do, so why try?"

Some protection is better than NO protection.

[hotdog666al]

Now please, for gods sake remove activation!! :p

---

Microsoft Respect ++

[lnmnky]

"'If you think prices are high, blame the Chinese, because they are the thieves,'"

quote of the year.

[stgeorge]

I'm glad I can use MSDN now...:)) ...I don't have to pirate software anymore.

Read that license agreement, all of the MSDN products are for evaluation and testing purposes only. If you use them commercially or as a retail version, then you are still pirating.

Microsoft says they work 5 days and get paid 3... judging by how late Vista is, out of every 5 days, they work 1 day and get paid for 3.

[mikey]

You cant buy a retail PC without a copy of windows on it so 90% of people will purchase a copy of windows! I have 3 copies of XP Pro myself (provided when i got a job in a university) a copy of xp home on my laptop and my parents own media center edition. I used to run pirate copies of XP Pro on them all (apart from the laptop) and now they're all legal, which is something i didnt expect!

[Veedems Veteran]

Microsoft says they work 5 days and get paid 3... judging by how late Vista is, out of every 5 days, they work 1 day and get paid for 3.

Claming they aren't working on Vista is showing your lack of understanding of the situation. I'm pretty sure the programmers working their asses off wouldn't appreciate that.

[chimera963]

Well thats just like saying "I'm just going to leave the keys in my car, and my doors unlocked in downtown LA. If someone is going to steal it, they're going to steal it and theres nothing I can do, so why try?"

Hmmm, yes, and they will get addicted to your car and then buy one :shifty:

......... :no:

[+Nik Louch Subscriber²]

When JASC made PaintShopPro, the creator once said something along the lines of "I am aware that there are hundreds of thousands of copies that are non-registered, which could be seen as a lost sale. However, I look at it this way - everybody runs PaintShopPro"...

Yeah, that worked out well.

Anyhow, I'd not say MS are not bothered about piracy, more that they accept it as an evil that will always exist, and so are prepared to embrace the positive outcomes where possible.

[.Ark]

Read that license agreement, all of the MSDN products are for evaluation and testing purposes only. If you use them commercially or as a retail version, then you are still pirating.

Microsoft says they work 5 days and get paid 3... judging by how late Vista is, out of every 5 days, they work 1 day and get paid for 3.

Someone needs more to develop satisfaction skills! Its an operating system, its not like - Oh you put the dough in the oven for 12 mins and the cookies are ready! :rolleyes:

[markwolfe Veteran]

He's walking the line between allowing continuted use of and dependency on his Windows & Office products (at a loss, due to piracy), and making money on sales by forcing people to buy genuine retail products.

He's got a good deal in the works, as reported on the Neowin Front Page by gettign legislation enacted to make it illegal to sell a PC without an operating system. It will be easier for him to get retailers/OEMs to bundle Windows than it will be to convince individual users to buy it.

[jerzdawg]

I think MS is doing a pretty good job at lowering piracy each year. While the obvious "advanced" user can continue to download the newest WGA crack, it does eventually start to eliminate the more "common" user who may have had a friend install the corp edition on his pc and used to be able to get updates who is not as "savy" to get around the WGA. MS is hoping those users will purchase a new xp to avoid the hassle. I currently have 2 PC's, one running OEM Home and one running PRO(corp) and I already know that I will be purchasing Vista... so perhaps Mr Gates is right on this one....

[)-(orus]

This theory even works on a smaller scale. When I was a nipper...ok then, a few years ago while I was at university I couldn't afford all the latest software, but stil had an insance craving to keep up to date (stil got that craving!) now tho, I can afford the OS and all the tools I want so I buy them!

I have 1 pc running XP pro, 1 running XP home and 1 running server 2003 (that one hurt my wallet) all well worth the money - especially now that Microsoft seem to have left the "lets release an OS every other year" (Nightmare memories of ME) in the past.

[OOOOOOOO]

Good ol' Microsoft - now why don't you completely forget about piracy (sice you have enough money anyway) and focus on more important things like making a good OS.

Whatever.