The Real Problem with Software Piracy

Posted by Martin Vilcans on 1 February 2008

This continues my previous post Media Companies' Public Image Problem. Now I'll focus on the situation in the software industry, but I think the same reasoning can be applied to the media industries, and I'll get back to that later.

Just like in the motion picture and music industries, the software industry has problems with piracy. While digital technology for movies and music became widespread relatively recently (around 2000 and 1990 respectively), software is digital by its nature and has always been possible to copy without any quality degradation. So while software piracy is overshadowed by movies and music piracy in the public debate, software piracy is the old kid on the block and the media industries can learn from how piracy has affected the software industry.

In the previous paragraph, I said that the software industry has problems with piracy, but I didn't say what the problems are and who they affect. I'll come to that now, and - in my humble opinion - the nature of the problems and who they affect is not what most people think they are. So, here's my take on the real problem with software piracy.

Take a commercial application. Adobe Photoshop is a good example. Take a teenager. Let's call him Phil. Now, Phil wants to create some graphics for a hobby web page he's making. He browses some forums on the net and talks to friends to find out what software he needs. The answers he gets are consistent:

"You need Photoshop."
"Photoshop is the best software for working with graphics for the web."
"All the professionals use it."
"Heck, Photoshop is even a verb nowadays."

So Phil is convinced. He needs Photoshop. Happily he goes online to buy it, but when he sees the $999 price tag for the best version, he thinks again. He's a poor student. He's got plenty of time on his hands, but there's no way he'll spend that amount of money on a hobby. But he still wants to work with graphics. He needs Photoshop! What is he going to do? The natural thing now that piracy is widespread is to download a pirated copy, so that's what Phil does. Now he can create good looking graphics for his web page. At the same time he learns the industry standard for graphics editing. If he'll work with graphics professionally in the future, he'll probably buy a Photoshop licence. In the meantime, Adobe doesn't lose a sale because Phil wouldn't have been able to afford Photoshop in the first place. Nobody gets hurt.

Everyone is happy, right?

Wrong. Someone does get hurt.

In this scenario, Adobe are probably the winners. Because of piracy, they have gained a possible future sale. It's not a problem for them. But everyone isn't happy. Who gets hurt? Adobe's competitors.

Imagine that there was no such thing as piracy: that in some strange way it was impossible to run software without having paid for a license. In that weird parallel universe, what would Phil do when he realized that he couldn't afford Photoshop? He wouldn 't just forget about the idea of making graphics. He would do what people normally do when they can't afford something they need: Find a cheaper alternative. If you need a car and can't afford a Porche, go buy a Toyota or a Saab or a Fiat, whatever you can afford that suits your needs. It may not be as good as what you wanted, but it will do the job. Phil would find one of the other graphics editors out there, and there are others. Most if not all of them are cheaper than Photoshop. Some are free. They might not have all the features that Photoshop has, but perhaps you don't even need those features. (Some made-up statistics: 99% of Photoshop users never use if for anything above file format conversion and very simple editing.)

So while Adobe doesn't lose a sale from Phil running a pirated Photoshop, their competitors do. The competition can't compete with a lower price, since pirated software is even cheaper. And the competition isn't only commercial software. Free software, such as The GIMP also competes with Photoshop. But Photoshop is clearly better (if nothing else because it has a sensible user interface), and if both have a price tag of $0, which do you choose? If you're unscrupulous that is?

So the real problem with software piracy is that it stifles competition and creates monopolies. The biggest products get the biggest sales, and hence the biggest resources to continue to be developed. Competitors can't compete with a lower price, but must instead create products that are better than the market leader; something that is very difficult to do with limited resources. It's like a catch 22.

Now, don't read the above like I don't like Adobe or Photoshop. Quite the contrary. Adobe makes some great products, and Photoshop is in many ways the best graphics editor on this planet. I could have used Microsoft Windows as an example instead, but as Windows isn't clearly better than its competition (in many ways it's much worse), it would have muddled my argument. My point would still be valid though. What would happen to Microsoft's monopoly in the operating system segment if everyone that uses Windows actually had to pay for it? How many would switch to Linux instead?

In the media industries, we have a similar problem, but it's a bit different since the price ranges are different. I'll get back to that in the next post on this subject. In the meantime, I'd appreciate feedback on this post. There's no way my opinion is unique, but for some reason I never hear people think of piracy as a problem in this way.

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