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The Cost of Piracy to Partners

By: David Nagel

7/15/2008

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Worldwide, for every dollar lost to piracy, the cost to the partner ecosystem is more than five-fold--an aggregate of $5.50 resulting from $4.37 in lost revenues and $1.13 in higher costs. This according to a new study--the first of its kind focusing on the impact of piracy on partners--commissioned by Microsoft and released by IDC last week at the Microsoft Worldwide Partner Conference 2008.

According to the report, The Impact of Software Piracy and License Misuse on the Channel, in North America, the totals are a little bit smaller than the worldwide aggregate--$4.82 versus $5.50 per $1 of lost revenue--but the benefits to the ecosystem of decreasing piracy are obvious: For every $1 saved by Microsoft in pirated software, North American partners--which Microsoft and IDC define as "resellers, VARs, system integrators, service firms, and other ISVs"--would see $3.81 in additional revenues and $1.01 in savings. Nearly one-third of additional revenues (31 percent) would be realized in faster sales cycles, and 40 percent from faster product and service delivery. These figures, according to IDC, do not include unlicensed software that would not have been purchased in any case by the customer; the figures are an attempt to determine the actual costs of piracy to partners and the opportunities for actual increased revenues that exist when software piracy is reduced.

"Even in a healthy ecosystem, illegal software causes hidden costs and friction in the sales and deployment processes," said Michael Beare, director of License Compliance for Microsoft. "At its worst, rampant piracy in some economies is tearing down the opportunity for legitimate businesses to exist and thrive."

That sounds fairly gloomy. But according to IDC's John Gantz, senior vice president, there's a decided upside to taking action.

"The flip side of this is that within those hidden costs may lie hidden opportunities in helping these customers turn their licensing situation around," he said in a statement released with the report. "Much of the misuse, especially in developed countries, is inadvertent. A savvy vendor can realize an opportunity by helping customers to 'true up' their licensing, realizing that every dollar saved from software pirates can translate to over five times that amount for the channel."