Looking on the Bright Side of Software Piracy

This story was originally published on Aug. 6, 2009, and is brought to you today as part of our Best of ECT News series.

There’s a rumor that honor exists among thieves, but outside of Robin Hood, no one considers them a bunch of do-gooders. Yet there may be a bright side to their shadowy work, at least in terms of enterprise software. It could very well be that they will drive the prices down.

“Microsoft is attempting to combat the temptation for consumers to use black market versions by releasing less expensive ‘starter’ editions in heavily pirated markets, though they are not available in the United States, Canada and the European Union,” Preston Lee, chief executive officer of OpenRain, told the E-Commerce Times.

The Open Source Menace

Why has Microsoft, a company known to be almost brutal in its license-protection practices, softened its approach to piracy? For several reasons: Chief among them is the rise in popularity of open source and the ever-shrinking cost of programmers.

“Info-Tech Research Group has seen a trend toward more open source development of enterprise software in developing countries,” Howard Kiewe, senior research analyst at Info-Tech, told the E-Commerce times. “With wages for software developers low and programming skills improving, some local companies simply hire an outsourcer to produce custom ERP software rather than pay a licensing fee that would have a significant impact on their bottom line.”

Microsoft doesn’t want open source to get a strong foothold in those markets.

“This is certainly helping the spread of open source software globally as local developers gain competency in open source solutions,” explained Kiewe. “It will put downward pressure on ERP pricing, especially if vendors follow the trend established first by mobile phone providers and now by computer manufacturers in targeting the huge underserved market in the developing world.”

Indeed, open source is taking hold in the marketplace in the exact same way Microsoft once did.

“Bill Gates had a stroke of genius, and it made his fortune: He realized that the battle was not about features or usability, but about users’ habits,” Bill Horne, systems architect at William Warren Consulting, told the E-Commerce Times.

“When Microsoft Office first came out, the company specifically allowed users to copy their office software onto their home computers, thus assuring that an entire generation would grow up knowing how to use Microsoft products,” explained Horne. “However, in the long run that meant business customers had to buy Microsoft Office, because they couldn’t afford to train users on competing software. It was only after it owned the majority of the market that Microsoft demanded that home users buy separate copies.”

An open source infiltration will likely lead to a software regime change.

The Big Squeeze

Microsoft is hamstrung in protecting its licensing by pirates on one side and open source competitors on the other.

“Red Hat, Linux and, soon, Google Chrome are hoping to snatch market share from Microsoft by emulating a user-friendly feel, but also utilizing a user-friendly pricing and licensing strategy,” Bruce Campbell, vice president of marketing at Clare Computer Solutions, told the E-Commerce Times. “Whether or not this will severely impact Microsoft remains to be seen, but expect Microsoft to react aggressively — and probably effectively.”

In some ways, Microsoft has already reacted and moved ahead.

“A similar dynamic is playing out in the virtualization marketplace, only this time, Microsoft is the upstart, releasing a very low-cost virtualization product, the HyperV, to challenge the 800-pound gorilla, VMWare,” explained Campbell.

Even so, the pirates have left Microsoft walking the plank.

“In essence, Microsoft is fighting a rear-guard action in the international marketplace, trying to walk a tightrope between encouraging young users to learn its products while avoiding piracy by corporations,” said Horne. “The long-term outcome favors open source.”

Pirate Hackers

Of course, Microsoft is not the only victim of piracy or the only software company to feel the open source squeeze. Practically all efforts toward licensing protection in underdeveloped countries have totally flopped and left software producers, both large and small, at their wits’ end.

Many see redemption in Software as a Service (SaaS) formats. The software is cheaper and the code harder to steal — or so the theory goes.

“There will always be piracy in some shape or form,” said Vaclav Vincalek, president of PCIS.

“I would agree that SaaS and/or open source can prevent illegal copying of software. To get support, help, or updates, you have to be a paying customer. Examples include Red Hat or SuSe Linux Distro,” he told the E-Commerce times.

“Software pirates will, in the case of SaaS, try to break into a system to bypass regular registration and create a free account. Pirates will thus morph into hackers,” said Vincalek.

Sell Knowledge

It could very well be that the only way to stop piracy is to simply have nothing to steal. In essence, to follow a version of SugarCRM’s model and base most of the customer’s cost on the knowledge rather than the product.

“By giving software away for free, pirates have nothing to gain,” explained Vincalek. “Value is now in the knowledge of how to use the product — using proper processes, implementation and support. These can remain as the domain of a for-profit company, and they are much harder to steal.”

There’s a built-in buy button in this model, though, so the software freebie is no real loss for the open source software producers.

“Open source gives anybody access to high quality code and systems,” Vincalek pointed out. “It is a risk for any organization to use open source software in production without proper support.”

The pirates-turned-hackers thus provide a catalyst for sales rather than a drain on profits.

So, maybe pirates are not as smart as they think they are — and neither are behemoth legacy giants.