Factors affecting software piracy

The Financial Times, 15 May has a report on software piracy, estimating that software piracy last year reached a record high of $63.4bn.
The report and research by Business Software Alliance, estimates that 57% of world’s computer users admitted getting / downloading illegal software and that this figure was highest in the developing nations such as China where approximately 68% of software is obtained illegally as opposed to only 24% in mature markets.
Having dealt with end users for over 15 years and also being the owner of a Software as a Service that’s also available as a free version, I often ask myself why don’t the bigger companies see the need for lower prices in particular for the Small Office, Home Office, Student and Home use. While such pricing was almost none existent about 10 years ago, more and more companies are providing better pricing schemes for this market. However I believe one should ask the end user the value they give the product and why they would rather go for pirate compared to a legal license.
Let’s look at a simple example:
If you ask me, how much I or most of my home users would like to pay for an MS Windows license, the average price would be €25.00 and MS Office €50 to €75. In fact 75% of our customers prefer MS Office to Open Office, but are easily put off by the price and either request installation of Open Office which is free or suggest that they will find someone or somewhere a CD or in other words pirate version.
The maths to me is simple. If MS Office was available at 50€, I would be able to sell 1 with each PC. It costs Microsoft nothing extra, they can provide the reseller with a 25% margin and take 75% of 500 = € 375.00. However the steep price of MS Office drives our sales down to about only 10% of the PCs that we sell. This means that Microsoft sales only 1 license, instead of 10, equating to around €40 profit for Microsoft (if that’s the margin), we make about 10 euro, our distributor makes equally around 10 euro and Microsoft Spain probably takes a share as well. The overall to me is a big loss to Microsoft.
While big corporation and organizations can pay the high end prices set by software manufacturer, the Software piracy is probably highest amongst home and SOHO users, who maybe self employed or just occasional users, learners or just hobbyist that cannot justify the investment and resort to illegal versions and use.
Shareware was an amazing concept that was once a thriving industry, which is now being taken over by the Apps industry, but Software prices in particular from the major software companies, in my opinion, could do with a good revision and a direct sales channel to the smaller distributors who probably account for a good part of the unseen distribution market could help reduce software piracy.

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