End of golden age of software piracy in sight

May 12, 2010

The golden age of software piracy is upon us. More than four in 10 computers run on illegitimately installed programs. And the figure is rising as the places where the fewest pay account for nearly all PC growth. The annual damage is more than $50 billion, according to a survey by the Business Software Alliance and research group IDC. The figure should be taken with a grain of salt, but there’s no disputing the industry loses plenty of money every year.

The growth of piracy in developing countries masks another important trend. Illegitimate use keeps falling in most places, even in some developing ones, such as China. This is partly down to better enforcement. Countries home to large software companies are pressuring others to crack down.

What’s more, piracy rates are inversely linked to per-capita income and the rule of law, which are intertwined. Rich countries tend to be orderly places and vice versa. As China, Russia and India become wealthier, piracy rates should fall. One way this happens is that as countries develop, more of their economic output relies on the production of intangible goods such as software. Developers like the idea of being paid for their work, which translates into domestic pressure to enforce copyright and patents.

This transformation can be seen in India. The piracy rate has fallen by 7 percentage points over the past four years. And leading the charge have been local governments in areas such as Bangalore, where the subcontinent’s software industry is based. Though the PC explosion in such developing nations is increasing the total amount of piracy worldwide, the rate there is still falling, and should slowly approach rates in Western economies.

Moreover, there’s a broader industrial evolution at work. Open-source versions of everything from operating systems to word processors are now available. And companies such as Salesforce.com <CRM.N> and Google <GOOG.O> are charging into Web-delivered software. This should be harder to steal. Indeed, much of it is based on the idea of being ad-supported and free to users.

It all suggests shifting economics and better law enforcement should doom this century’s nefarious pirates, just as they did their forerunners on the high seas.

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