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MS piracy losses claims don't stack up

Contradictory claims and dubious statistics underpin them. Not.

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In trying to scare consumers, businesses, governments and institutions into having licensed software, Microsoft is making unsupportable claims about the jobs that it says have been displaced as a consequence of the piracy, and the ensuing loss of taxes to the state or country. Microsoft's new anti-piracy campaign is being so badly executed that its seriousness must be questioned.

Steve Ballmer, in a curious signed comment on software piracy on Microsoft's Web site, overstates the case: "You might think that software theft hurts only those of us who create software. But the truth is, the damage goes much further, impacting jobs, wages, taxes, and retail sales right in your community."

Microsoft's Web site currently claims that "American software companies lost $11 billion in revenue in 1998 due to global software piracy." This assumes that every pirate would otherwise have bought the software. Many computer users cannot afford to buy software at Microsoft's prices, so any dollar value for supposedly lost sales is meaningless.

Also unsustainable are the claims that piracy cost 100,000 jobs in the US, and $1 billion in tax revenue. For the main part there's probably not much loss, and a fair case to be made that pirate users are more likely to influence the purchase of legitimate copies of the pirated software in the future, because of familiarity. Strangely enough, in the Czech Republic, Linux is hardly used because of the ease of obtaining a pirated copy of mainstream operating systems and applications - an anti-Linux story that Microsoft does not use.

There's a need for distinctions when talking about piracy, starting with the difference between the counterfeiting industry (probably bad) and users putting a copy of software used at work on a home computer or notebook (probably good - and there is a case for modifying software licences to allow this). There are great problems in arriving at any rational estimate for the amount of pirated software, and the usefulness of such data is doubtful, as well as uncheckable.

Global piracy statistics have been produced by International Planning & Research jointly for the Business Software Alliance and the Software and Information Industry Association (formerly SPA) for the last four years. IPR does make an effort at providing a rationale and using consistent methodology in developing its statistics on piracy, but quoting estimates of piracy losses to seven significant digits and not discussing the probable error range is statistically unsound.

Amusingly, although IPR is headquartered in Maynard, Massachusetts, Microsoft press releases describe the company as being "of Redmond, Washington" which gets the conspiracy theorists working overtime. IPR has assured The Register that it so happens that the person doing the research lives in Redmond, and that the organisations are quite separate.

Microsoft is a client of IPR for a separate study of piracy in US states which Microsoft uses in campaigns to draw attention to the effect of piracy, although surprisingly it does not seem to have released the report. Following Microsoft radio advertisements in Illinois urging listeners to "bring in their software" so that Microsoft could check if it was legal, Don Crabb asked in the Chicago Sun-Times last week "When did God appoint Microsoft as the supreme validator of all software?"

Crabb went on to question the basis for Microsoft attorney Nancy Anderson's claim to him that "software piracy robbed the Illinois economy of nearly $560 million and caused the loss of more than 5,600 jobs in 1997." He was told that Nathan Associates of Arlington, Virginia was commissioned by the Business Software Alliance to produce the figures, but they refused to discuss the basis with Crabb.

It is also odd that Microsoft did not mention the more recent IPR study. We checked the Nathan Associates' June 1997 report and found that the data tables are not included on the BSA site, and that the text and contents of the report gave no details of the methodology, beyond claiming "a careful analysis", and identifying some data sets. Crabb remarked that "unverified conclusions are ... being used as immutable fact to scare people", and resented the guilt-by-association that resulted.

On Sunday, the Chinese news agency Xinhua noted that Illinois lost $241 million and 5,400 jobs in 1998 as a result of piracy. Now that was strange. A few days earlier, a Microsoft attorney had given Crabb completely different results: financial losses of more than double the 1997 figure, but job losses of 200 less than the previous year. There have also been some shameful instances of Microsoft settling claims of alleged governmental piracy in Southeast Asia and South America in exchange for contracts for Microsoft software, as part of its National IT Plan initiative.

Dean Schmalensee, Microsoft's tame economist in the antitrust trial, testified that pirates are a major Windows competitor, along with the installed base. It seems probable that Microsoft will address the installed base problem in the future by introducing a subscription pricing plan for Windows 2000, but do little about piracy other than to raid counterfeiters and dodgy resellers.

Many users' privacy concerns are probably related to a desire to curb the detection of unlicensed software on PCs, but it is most unlikely that Microsoft would be heavy-footed with them. There is a case to be made that Microsoft's anti-piracy work is mostly a marketing exercise that gives Microsoft the possibility of posing as a champion of justice (more jobs, more tax revenue - both false), and does wonders for the Microsoft brand name (reinforcing the notion that software = Microsoft).

But in the eyes of many consumers and businesses, Microsoft has lost any moral high ground already. ®

Related stories:

BSA accused of dancing to Microsoft's tune

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