Blog Entry

Dec 6
2010 

Quantifying & Managing Software Piracy in Developing Markets

BRIC countries (Brazil, Russia, India and China) offer tremendous growth upside for many companies. Independent Software Vendors are no different. This fact leads to familiar conversations happening inside many software companies. “We need to enter the high growth markets. However, we have no licensing or our current licensing is not designed to focus upon piracy. We don’t want to invest all that effort only to end up giving our product away”.

Now, to be fair, the risk of piracy differs significantly by country but either way it is a problem you need to tackle if you are entering these markets.

If you have robust IP and reverse engineering protection in place today it’s a relatively straight forward discussion. However, if you’ve felt like it wasn’t necessary based on the current markets you sell to then you’re probably looking at starting an initiative from scratch.

Typically, the approach might look something like this. You investigate third party software licensing and management solutions and add to that the internal costs of a project like this. Those numbers are fairly easy to put together. However, how do you place a value on the risk so that you can accurately measure that against the investment you’re not looking at? It’s not easy and arguably it’s not worth quantifying (I’ll dig deeper into that later) Traditional quantifying typically falls into trying to create a formula that follows a method like the below:

  • Developing Market/s you’re targeting
  • Piracy Rates in those regions
  • Established vs newly entering the markets
  • Consumer vs Enterprise?

Lastly, once you’ve determined how much you’d lose to piracy you have to decide how much you’d gain with protection. They’re not the same. Many end users will stop using a product altogether if protection arises vs suddenly becoming a paying customer. This is particularly true in the consumer space. At SafeNet we’ve worked with customers to help build these answers and it’s certainly a valid approach. One concern though should really triumph all others. Would a professional pirate target your software vs your competitors in your space?

Here’s one way to think of this. Pirates are Channel Partners who just happen to not pay you anything when they make a sale. If they target your product they could eat up 50% to 75% of potential sales in your market – that is, the doomsday scenario that you fear.

Pirates yes. Savvy business people making economic rational decisions? They’re that too. So, the question that you ask yourself is – how attractive am I to these Pirate Channel partners? Why would they look at my software vs all of the other options out there? There are usually four driving factors:

  • Is your space growing aggressively in that market relative to others? – Construction/Real Estate/Mobile applications etc = probably a strong yes
  • Are you thought of as an attractive leading offering in that space with a well known brand
  • What are your competitors doing when it comes to piracy protection?
  • What’s the direction of the governing authorities as it relates to protecting IP? Is it trending in a positive direction?
  • How good are your support policies?

The worst case scenario is this. Your competitors are much larger and have good protection in place. Your brand though is thought of highly and attractive to target customers. The current government policy it to turn a blind eye to such transgressions. Lastly, your support portal is very open in nature. Therefore, customers can still access documentation, FAQ’s, Tech Tips, Customer boards etc that really help them overcome some of the reasons it makes sense to buy directly from the ISV. This last area is often the most overlooked or misunderstood. This makes you overall a very attractive proposition to a professional software pirate outfit. Now you have a very direct competitor in the marketplace that equals a significant loss of revenues.

People purchasing your pirated software are making an economic decision too. You have to do what you can across the board to tilt the benefit in favor of spending the extra effort to make legitimacy have real benefits. That’s why we view a comprehensive software entitlement management system as being on par with piracy protection when it comes to a complete approach to developing markets.