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Piracy Economics
Posted by
kdawson
on Mon May 21, 2007 10:48 PM
from the lawsuits-make-a-poor-marketing-strategy dept.
from the lawsuits-make-a-poor-marketing-strategy dept.
Reader Anonymous Coward the younger sends in a link to an article up at Mises.org on the market functions of piracy. The argument is that turning a blind eye to piracy can be a cheap way for a company to give away samples — one of the most time-proven tactics in marketing. The article also suggests that pirates creating knock-offs might just be offering companies market feedback that they ought to attend to. (Microsoft, are you listening?)
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Your Rights Online: Microsoft Cracking Down On Indian Retailers 427 comments
slashthedot writes "Microsoft caught some Indian retailers selling pirated copies of Windows by sending in a dummy customer to ask for a copy of Windows to be installed on their PC. The dealers claim that they are promoting MS software in this way. One retailer said: 'Since we are are not charging anything extra for installing the software, it means that we are actually not trading in pirated software. For us this is just a sewa (selfless act) that we are offering to our customers. Besides, the pricing of their operating systems is way too high for the Indian markets.'"
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Piracy is marker of immature market (Score:5, Insightful)
Once a market is mature and stable, each major supplier within that market will have a product for all market segments. ( With cars, almost every manufacturer has a cheap sedan, a mid-size, an SUV, etc. Books come in limited signed editions, then the hardcover, then the quality size paperback, then the pocket paperback. )
There are some markets that are inherently unstable - like fashion - in which illegal knock-offs will always be practical. But in most mature makets the legitimate sellers fill every niche so well that the marginal costs of piracy are not worth it.
MS will get pirated until they have half a dozen or a dozen versions of their product. It would be practical for them to give away the low end version.
PS: This even applies to labor markets. In that case we call the piracy 'slavery', and the low end versions 'volunteers'.
Re:Piracy is marker of immature market (Score:4, Interesting)
"
hmmmm I was under the impression that they *ALREADY* have a dozen versions of their product on the market, none of which are being given away... unless you want to run it for an education institute on cheap (OLPC type) hardware, for which you can pay a meager $3 or so.
The practicality of giving away the low end version won't make sense to MS as they would still have to support updates, security patches etc. I doubt they want to be known around the world as the makers of the least secure OS on the market. While they may have that reputation now, it would be solidified if they were to give away products and not support them.... oh wait, sorry, that model seems to be working if you support the product.
Now, just to figure out the steps to getting MS to do this...
1. design OS
2. support OS
3. give it away for free
4. pay lawmakers to make this legal (not sure about this step or how it might work)
5. ????
6. Profit !!!!
Parent
Re:Piracy is marker of immature market (Score:5, Insightful)
The developer studio and SQL server express editions. Slightly cut down, and I doubt that most people that would buy the full edition would opt for the express edition but its a perfect example the only realistic way to cut piracy, offer a free "good enough" alternative.
In those times when I have to code something on windows (a situation I try to avoid) its now easier for me to get one of the express editions than it is to get a pirate copy. And I can use the express editions in the office.
In this case its mainly self serving by microsoft, they want people using their developement environments, so they gain by offering a free version to those that would probably never buy a full version anyway. But did you really think any company is going to do something for purely altruistic reasons?
Parent
Re: (Score:3, Funny)
Re:Piracy is marker of immature market (Score:5, Insightful)
For a company like Microsoft, there are at least three or four different phases, and the implications of piracy are different in each.
1. Minor producer: if you're a minor producer with low market share, piracy may be good for gaining market share, as long as revenue from paying customers remains high enough to cover costs.
2. Dominant producer: if you're the dominant producer in your market, but perhaps still with only a minority share of the market, piracy is good, because most people pirating will be pirating the dominant product, This will spur a network effect, and any revenue implications are likely to be less important than for smaller producers.
3. (Near) monopoly, without regulation: if you've got a near monopoly, you'll gain the benefits of network effects. The network gains from piracy, and the extent to which it keeps out competitors, are both gains. Without viable alternatives, however, there is the potential for higher revenue from those who are pirating, but would pay if they had to. The network effect and the exclusion of new entrants might be worth more than the lost revenue.
4. (Near) monopoly, with regulation: if regulatory restrictions are imposed on a firm with a near monopoly, that means the gains of network effects and the prevention of new entrants are offset by both the lost revenue and the costs of the restrictions (e.g. no bundling, limitations on pricing strategies, etc.). I this case, the more onerous the restrictions, the less value there is from piracy. It may be worthwhile to give up unpaid market share, in exchange for higher revenue, especially if this leads to a reduction in regulation.
In the late 1980s and early 1990s, Microsoft was in category 2, with a dominant position, but a market share near the middle: it crossed the 50% mark in 1990. During this time, piracy was arguably good for Microsoft. By the middle of the 1990s, however, Microsoft had moved to category 3, and so whilst piracy was no longer as clear a benefit, it was still arguably less bad than good.
With the monopoly ruling against Microsoft in 2000, it moved into 4, although the level of regulation has varied. With the regulatory costs offsetting some of the network gains, piracy arguably became less valuable to Microsoft, and this may in part explain the increase in anti-piracy measures in Microsoft's software since then. Giving up some non-paying customers to competitors, in exchange for converting some non-paying to paying customers, is arguably a good strategy, especially if it reduces the regulatory pressure.
An interesting point is whether people who pirate Windows, and would switch to Linux or something else if they couldn't pirate it, are willing to pay for other software. The expected answer is no, so Microsoft could arguably give up these low-value customers without losing the benefits of being the dominant platform for commercial software development. Producers of commercial software would have little interest in developing for Linux if Linux users wouldn't buy their software anyway, so a higher market share for Linux would have little impact on the network effect there.
From the above, the risk of giving up some market share comes from network effects other than those relating to commercial application development. For example, people who won't pay for software may still pay for products and services bought over the web, etc., in which case they'd be targeted by website developers. They might also still be willing to buy relatively expensive hardware, which could reduce the network effect regarding device driver development.
Parent
Re:Piracy is marker of immature market (Score:5, Interesting)
They have quite a few versions of Vista.
MS will always be pirated. If they give away the low end, people will pirate the high end because that's what they want. Paint is given away for free with every Windows computer, Gimp is free, yet Photoshop is probably one of the most pirated programs in existence, after Windows and possibly Office.
While the car and book analogies make sense, Microsoft isn't actually hurt by people pirating Windows. Windows has always been pirated and they're a billion dollar company. One of the reasons for this is that you can pirate all you want at home, but if you're a business caught pirating, you are going to get screwed. In an uncomfortable place. (and not like in a station wagon)
Short of giving all versions of Windows away, MS will be pirated. They might as well make the best of it and work it to their advantage.
Parent
Re:Piracy is marker of immature market (Score:4, Insightful)
I would suggest that piracy is associated with newer markets, not because the markets are immature, but because the newest markets are easily commoditized. Sure there was piracy long ago with books (since the printing press), and music (with sheet music), but we've found more efficient distribution methods go hand in hand with piracy. I don't think the music market is immature, music is just easily distributed.
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Re:Piracy is marker of immature market (Score:4, Funny)
You have obviously never heard of counterfeiting.
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Re: (Score:3, Interesting)
Actually, according to your definition, you can. You can copy the Honda Civic's design, style, trimmings, parts, etc. That's probably not the easiest thing to do, but ease is not only factor here. There used to be a time when one could easily get executed for trying to translate the bible, or even trying to copy the bible. That used to be a sacrilege, and an act of an heretic, but we soon g
Re: (Score:3, Funny)
As I recall... (Score:5, Interesting)
As it so happens, I used to sell a product which required a simple registration key to upgrade to the full version. (The free version never shut off, but it had fewer features.) After noticing a few Google searches for " crackz", I thought about seeding a few reg numbers to promote the product. Alas, I never got around to it, but it would have been a cool marketing trick.
That being said, I don't agree with piracy in general. Only that it can fullfill certain market needs. If it gets too out of hand, though, it can become a serious problem to the producer. (e.g. Napster) Of course, you don't get in that position unless you're failing to meet your customer's needs in the first place. (e.g. lack of legal MP3s)
Re:As I recall... (Score:5, Insightful)
I think this is the biggest stumbling block to free software. No one wants to use the GIMP because they can get Photoshop. If fewer could get Photoshop, fewer professionals would have Photoshop experience, and more would be willing to contribute to GIMP. Why use Ubuntu when you can get Windows?
But you are right, if any program can be pirated without any repercussions, it WILL hurt both the company and the product's future. It is too costly to stamp out ALL piracy--costly to the produce, the enforcer, and the legitimate customers who will get some spill over--so determining the right amount is tantamount to success.
Parent
Re: (Score:3, Insightful)
I'd like to think that's true, but a very large number of people who make very good money using software like this (or 3D Studio MAX) never buy a legit copy, even when they can afford to.
Re:As I recall... (Score:4, Interesting)
Do you think Photoshop would be one of the most pirated software in existence if they sold it for $60-80 instead of $600? Probably not, and they'd likely make more than 10x the $$$ off of sales than they do now.
Parent
Re:As I recall... (Score:4, Insightful)
At every single price point, a product is a bargian for some and overpriced for others, and in every single price point, there are people at both ends saying "why dont thsoe idiot businessmen realise that..."
Theres a reason these people have huge successfull software businesses, they arent as stupid as people assume they are.
Parent
Re: (Score:3, Interesting)
No, Microsoft became dominant because they were the operating system for the IBM PC, the computer used by business. Businesses back then were the same as today in that they tend to not pirate software. Microsoft became dominant because they were pirated less than the rest.
Re: (Score:3, Informative)
That doesn't make any sense. Apple, Commodore, and Amiga software were highly pirated as well. Piracy certainly didn't help them. Apple limped through the '90s. Commodore and Amiga both died.
You can't make that comparison as both Apple and Commodore's OS only worked on their own hardware. So, there was no point in pirating AmigaOS since it already came with the machine. Ergo, it was not "highly pirated" at all.
If you are going to compare with other platforms, you can compare Deluxe Paint. This was probably the most pirated software program on the Amiga - everyone and his uncle had a copy. Still, sales from this program helped propel a small-time software company named Electronic Arts to great
Re:As I recall... (Score:4, Interesting)
I have to disagree. MS won because of their relationship with IBM. I worked in IT during the 80's, and IBM's market share was huge. So when employees started requesting PC's, IT managers bought IBM PC's which came bundled with DOS. IBM helped considerably by creating FUD that using "clones" would destroy the network, and that connecting them to the mainframe would cause compatibility problems. MS won their market share by piggy-backing on IBM's market power.
After that, it was simply the "network effect" - it was easier to share information, programs, etc., if everyone in the organization was using the same software. So even the the Mac was considerably more advanced - Christ, I am the only one who remembers the problems with getting past the 640k barrier, or "TSR" programs instead of true multi-tasking? - no IT manager would OK one for use outside of areas where its graphics abilities were needed.
Of course, if by "better managed", you mean used illegal anti-competitive methods, then I do agree with you.
Parent
Microsoft exec says piracy can be good for MS (Score:5, Insightful)
Microsoft just won't be able to compete against a developer and testing community as large as the FOSS community. We are everywhere. And I dare say we are having more fun than the Microsofties.
Pop music's quality doesn't match it's price (Score:5, Insightful)
The author's assertion was that the innovator produces the initial, high quality product. Then the pirates produce low quality knock-offs to fulfill a market segment the initial innovator isn't fulfilling. In the case of the record industry, I'm afraid they're well past the point of innovation and the production of high quality products (at least as far as pop music is concerned). In that case they're selling a low end version of their music, but still deluding themselves into thinking it's a quality product.
Either the quality has to go up or the price has to come down.
Distributing Linux (Score:5, Insightful)
Re:Distributing Linux (Score:5, Informative)
Was a time when WINE was distributed under a BSD-like license. A few developers decided they didn't like Open Source anymore, so they split off and formed this company, Transgaming, taking the code base with them and slapped a slightly more restrictive license on it (restrictive enough that you couldn't call it Open Source anymore).
Their idea was that people pay a subscription which gives them voting rights. Whatever they voted on, the developers would work on. The big thing the users wanted was DirectX support for popular games. So that's what they worked on. Then the problem was copy protection systems.. so they started bundling some proprietary components with the software which made the copy protection work under Linux.
Meanwhile, over in the WINE camp, they decided to switch their license to GPL because the Transgaming people (and the cross-over Office people) weren't giving their changes back. In fact, the next time someone asks you why the GPL is more popular than the BSD license, tell them about WINE. Anyway, all that work that Transgaming and the others did really inspired a lot of people to join the WINE project. It provided proof that WINE could do what people had been saying for years that it could do.
As yet, WINE is still not at the 1.0 stage.. It's still not easy for users to get an obscure "vertical market" piece of software working under WINE.
I know this isn't exactly what you were thinking.. but it does show that the ability to take Open Source in directions that the original authors are reluctant or otherwise slow to go really is a great strength.
Parent
Microsoft already sells a Pirated Edition (Score:3, Insightful)
Microsoft _have_ to know this goes on: If they wanted to they could make their educational program so draconian no one would use it, but households shrugging and installing Ubuntu on their machine is Microsoft's worst nightmare.
easy distribution get you market shares (Score:4, Interesting)
When you installed that operating system
there was no activation.
There was also no
serial number verification
since you could just enter
an empty number and the system would install.
That was still not corrected with Windows 98.
When it is so easy to install
an operating system,
it helps to get of market shares.
What about piracy psycology though? (Score:4, Interesting)
Thing that worries me about piracy is that people get used to it. Maybe MS can get market share through piracy. Maybe the RIAA can get viral marketing through piracy...
...but I know a guy who makes a living by creating drum and other sounds that people use to make electronic music. It's not a big operation, just him and one other guy. When you order a DVD he burns one by hand and mails it to you. Anyway, someone just uploaded ALL their products to Bittorrent, and he can see all these people posting about how cool they are and how they can't wait to download them. Needless to say he's pretty despondent.
And before people start with the 'information wants to be free' and 'find a new business model' - why should he? This is what he's good at, people want his stuff, why shouldn't they pay him for it? I mean, I have written free software... while earning a fat salary working on other stuff at a hitech corp. It's not so easy in other areas though.
</RANT>Re: (Score:3, Interesting)
..but I know a guy who makes a living by creating drum and other sounds that people use to make electronic music. It's not a big operation, just him and one other guy. When you order a DVD he burns one by hand and mails it to you. Anyway, someone just uploaded ALL their products to Bittorrent, and he can see all these people posting about how cool they are and how they can't wait to download them. Needless to say he's pretty despondent. And before people start with the 'information wants to be free' and 'find a new business model' - why should he? This is what he's good at, people want his stuff, why shouldn't they pay him for it?
People think his work is cool and can't wait to get hold of it, and he's despondent?
Okay, people are downloading his stuff illegally, but would any of them have paid for it (or even have heard of it) otherwise?
And remember they can't use the sounds on music they sell, if they do, he can charge them ten times as much for his work.
As always, when you are being pirated, you need to change your business model. He should give all his stuff away for free for 'personal use' and make his profits from redis
Re: (Score:3, Insightful)
Even if he could think up some business model where he did something tangential and gave away the sounds, isn't that a waste? Shouldn't he be spending his time doing what he's best at? Shouldn't people be paying for the bit of what he does that they want (the sounds!)? It just seems so inefficient.
I never said he shouldn't be paid for making sounds. I get paid for the work I do, he should get paid too if his services are valuable. The problem he is having is getting paid over and over again for work that he
The obvious flaw (Score:3, Insightful)
The solution seems to be to offer limited versions that will show the client how great the product is, and how much greater it would be if they buy the official release. Say music in 96kbps mp3, it's ok on your iPod in the subway, but put it on your stereo and it sounds awful. Or the word processor with reduced dictionary, limited fonts and doesn't support large fonts - say above 18pt, or doesn't contain the print facility.
Crackers won't add missing data to a trial version of a song, and they won't add missing functionalities to a program.
Stop with the Johnny Depp nonsense (Score:3, Interesting)
I am absolutely sick and tired of hearing people justify their *ILLEGAL* copying activities which achieve *ABSOLUTELY NOTHING* for me as an honest consumer of music and movies.
For starters, the movie and music companies are nasty and greedy multi-national conglomerates who would like nothing more than to force every consumer into a rental model for their media so that they have a nice, regular revenue stream for basically doing nothing. All that piracy does here is to give those same companies the justification they need to do what they were going to do anyway - it just makes it easier for them to do it because piracy turns it into a political agenda meaning that governments can get involved in pushing DRM and the like through.
Secondly, there is the issue of the poor quality of movies and music in general today. Far too much of the populace believes the hype and marketing lies surrounding the release of new albums and movies which invariably leads to them being duped and paying out good money for rubbish. Consequently, people are wary of paying money for CDs, DVDs and cinema tickets so they justify piracy as a defence against not being ripped off. This, of course, leads the media companies to churn out the same rubbish but with tighter restrictions for all users, whether they are honest or not.
The idea that CDs and DVDs are overpriced is utter drivel, quite frankly. If you spend time looking for good music and movies at good prices, you become a discerning consumer who rapidly becomes pretty satisified with the quality of the albums and films that you buy. If an album has just one or two good songs on it then you don't buy it, it's that simple - and you never buy a CD or DVD until you are sure that it is worth the money.
Unfortunately, too many consumers have become far too liberal with their "disposable income". They're constantly buying new stuff, maybe to impress peers, without thinking about it, they end up getting ripped off and to ofset their anger at being ripped off, they go off again and treat themselves to more overhyped rubbish...
The solution is simple - if it's not worth the money, don't buy it. If it has DRM on it, don't buy it.
Feedback for you, and maybe even a solution (Score:3, Interesting)
This is harder for music or movies, granted. But given that the "pirates" are usually relying on the 'net, here's an idea. It's even free this time: Give the legal customer additional value through the 'net.
What would come to mind is that with every CD you hand out login info for your site, where the legal user can download wallpapers, autographs or other knickknack from his star. Maybe give meet&greet sessions every few months, but of course only to those that legally bought the CD.
The cost for such additional value is minimal. What's the price of some hypestar, hmm? But the true fans of him will first of all love you for it, and (and that's maybe more interesting for you), they will buy his stuff to get access to the page, just to be "close" to their star.
You bet this would curb piracy.
Re:wtf? (Score:5, Insightful)
Parent
Re:wtf? (Score:4, Insightful)
NO! Please don't stop confusing legality with morality. That's not the answer. The answer is to bring the law back in line with what the populace believes is moral. The fact that legality and morality are so far divorced today is a sign of a corrupt sick society. If the large companies played fair with pricing and proof of copyright infringement, and if the penalties for piracy weren't inflated so much (an ineffective deterent!) the argument that you should be allowed to get a copy of the fruits of someone else's labour without contributing something back would be much harder to rationalize.
Parent
Re:wtf? (Score:4, Insightful)
If we're going to call for legal reform (and we should be, I agree) then let's call for a dedication to liberty. Live and let live. If you wanna do something that I consider immoral, and you're not hurting anyone, then I should have no say over what you do. Unlike the world we currently live in where the law has a say over what you do with your body, your mind and your copying devices.
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Re:wtf? (Score:5, Insightful)
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Re: (Score:3, Informative)
The law can be just as shady, like prohibition, for example, or DMCA... or for that matter, copyright...shady law that steals from the public disguised as "incentive".
Prohibition was and the DMCA is bad, but copyright itself is not bad. The only bad thing about copyrights as it stands now is that the copyright term is way too long. By giving writers and artists a limited monopoly on what they create gives them an incentive to create. If there is no incentive, financial, to create then many things won'
Re: (Score:3, Insightful)
I guess that depends on how much you like the idea of a free market.
It is a fact that copyrights are monopolies in the market. Monopolies are incompatible with a free market. If you try to combine these two, piracy is an inevitable result.
Re: (Score:3, Funny)
So, in short, you didn't create anything under copyright, but
Re:copyrights (Score:4, Interesting)
Sure we may not have 100 mil movies... but do we NEED 100 mil movies? Do we need all this FX-saturated tripe? Sure, sometimes something good comes around... but almost always in addition to, not because of, that 100 mil FX.
And as an "artist" (though this term I think is used far too liberally) I can say that nothing can be made without copying or at least seeming similar to something else. Copyright and patents in the end will stifle art and invention. What if the use of dwarves and elves similar to those in LOTR was strictly controlled? It would have been unlikely to promote any new creations, but it would have caused the stillbirth of whole genres of books, movies and games. What if the mouse was patented and they company refused to license it? This is where our idea-control focused society is quickly spiraling to.
Have you ever created anything? If you truly think what you say is true, I am guessing you haven't.
Parent
I commercially exploit a copyright, am not a thief (Score:3, Interesting)
Its not like people were happily playing bingo for free one day and then, in Carmen Sandiego-like fashion, I just grabbed the entire concept and absconded with it, then hid clues to my location while confounding the player with a series of inept accomplices. There a
Re: (Score:3, Insightful)
(However if it's immoral, that's a reason for you to stop doing it.)
Re:wtf? (Score:4, Funny)
Parent
Re:wtf? (Score:4, Insightful)
Not sure who modded you insightful but I assume they work for a corporation. You are using the Fox News style of argument. Reduce everything to black and white / good versus bad / legal versus illegal.
Also, please stop using words like "illegal". That's also a simplification and, in many countries in the the World, wholly and utterly incorrect. You may be American (I assume you must be), but it's a big planet, your laws apply to your country alone. Please try to remember that, and remember that you are speaking to a global audience here.
The truth is that this is not a black and white subject, it is a grey one. It is not a rationalization to consider alternative economic strategies with regard to this. In fact, if software companies, the MPAA, and the RIAA, actually started doing more of that kind of thinking, then the need for piracy might be alleviated.
Keeping an open mind and exploring new directions is the only way media producers are going to win in any way that is sustainable.
My friend Ozymandias... that is not justification. That is not rationalization. That is reality.
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Re: (Score:3, Informative)
copyrights are an illegitimate law (Score:5, Insightful)
The reason why anti-copyright behavior works so well in the free market is simply because copyrights are anti freedom and anti free market. http://davidlita.googlepages.com/copyrights/ [googlepages.com]
Rationalizations? WTF! How about Copyrights are not "rights", theft and stealing is not copying, copyrights are monopolies and not "protection", and intellectual property is not "property". Hell, piracy isn't even piracy.
Parent
Re:wtf? (Score:4, Insightful)
Just because we already have policy on something doesn't mean we shouldn't constantly re-evaluate that policy to see if it makes sense.
Parent
Re: (Score:3, Informative)
Okay, this seems kinda bullshit to me... Why are we trying to prove that piracy, an illegal act, is somehow "good"?...
The human power of rationalization is quite strong indeed; no one is stupid enough to think that piracy is legal, and obviously people feel bad about it, so they try and make up stories saying how they're actually helping people by doing it. Yes, there are definitely valid points that need to be examined, as I said before, but still, it's illegal, and everyone knows it, so stop trying to ju
Re: (Score:3, Insightful)
If you create unlicensed copies you owe the copyright holder proper compensation, but you have committed no crime. There are currently laws under way in the EU and US that will change this, but status right now is that copyright infringement is not a crime, and not illegal!
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They do (Score:3, Informative)
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