December 8, 2005

Rampant Software Piracy Stifles Economic Growth

AMSTERDAM -- Software piracy is rampant and hampering economic growth, and it is increasingly in the hands of organized groups which are regarded as legitimate businesses in some countries, a survey said on Thursday.

The global piracy rate is currently around 35 percent, coming down only 1 percent a year, research group IDC found in a study commissioned by the Business Software Allliance (BSA) which represents around 50 software firms.

"A key trend over the last two or three years is organized piracy which has become a legitimate business in some countries," said Duncan Brown, IDC's consulting director.

The study, covering 70 countries which represent 99 percent of the world's information technology spending, said that a worldwide reduction of software piracy by 10 percentage points to 25 percent could generate 2.4 million jobs and $400 billion of economic growth.

The battle against software piracy has been relatively successful over the last 15 years, with the piracy rate in Europe dropping to 35 percent from almost 80 percent in 1992 when the European authorities adopted special legislation.

Still, a 35 percent piracy rate is more than 20 times higher than the percentage that retail stores lose through shoplifting, said Beth Scott, European vice president for the BSA.

While software pirating 'steals' a copy and therefore differs from stealing material goods, it has a real effect on the economy by cutting revenues and limiting software companies' ability to invest in products, she said.

"Some companies know they are losing 40 percent of their business. If they could recoup that, they could employ more people," she said.

Dominique Pouliquen, chief executive of French image-based creation software firm Realviz estimates it misses out on as much as 50 percent of sales.

"Without piracy we could increase revenue by 30 to 50 percent. At the very least, this would mean that there would be fresh funds available for investment to hire 7 to 10 additional staff in research and development," he said.

At its worst, piracy runs as high as 90 percent in China and 87 percent in Russia. The United States has a modest 21 percent piracy rate.

China is already one of the world's biggest personal computer markets, but does not even make it into the top 20 of software markets because so much software is illegally copied.

The Chinese government has said there will be no illegal software in its institutions by the end of 2005, and that it will ban illegal software from all state-owned companies by the end of 2006.

The BSA requests governments lead by example and it also urges countries to upgrade laws, improve policing and raise public awareness.

Technological solutions, while useful, are mainly interesting for the longer term.

Digital rights management (DRM) software for example, which is already restricting copying and sharing of songs on Internet music stores such as iTunes, run by Apple, may have its weaknesses, IDC's Brown.

"I'm skeptical about whether DRM will be a flawless project," he said, adding that it may stop casual copying by individuals but not by groups of organized software pirates.