These are tough times for conventional wisdom. Steven Johnson's book, Everything Bad Is Good for You, argues that popular culture is making us smarter. A decisive, long-term study reports that low-fat diets don't make people healthier. And now there's a paper by a pair of business-school professors who say that effective campaigns to stamp out software piracy can actually hurt the vendors they are meant to protect.
An analysis of six years' worth of sales and piracy data from 50 countries, conducted by professors Bin Gu and Vijay Mahajan of the Red McCombs School of Business at the University of Texas at Austin, showed that preventing people from stealing software in competitive and highly price-sensitive markets may make those markets less profitable for software vendors. The study, "How Much Anti-Piracy Effort is Too Much? A Study of the Global Software Industry," concludes that many users of pirated software are unlikely to pay for it under any circumstance, so companies are merely limiting the popularity and mindshare of their products by going after unlicensed users.
"If a company like Microsoft faces a lot of competition in a country, they should not push governments too hard to enforce piracy laws," says Professor Bin Gu. "It makes more sense to focus on large corporations and not small players. The pirates are not going to convert and become your customers." The optimal strategy for enforcement depends on the wealth gap between rich and poor in a given country, he says; in countries where that gap is large, strict enforcement lowered vendor profitability.
The researchers suggest a country-by-country approach to piracy enforcement, rather than the blanket methods used today. The same logic holds true for other industries, including music and movies, concludes the study. Winning over users, then converting them to paying customers and maintaining pricing power in the marketplace, is more effective than going after the little guy who uses your product without a license. Counterintuitive, perhaps, but these days that's the trend.
This article was originally published on 03-06-2006