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| Screwing over the little guys |
May 7, 2004 |
By Paul Lima
Almost 40 per cent of business software in Canada is pirated, and if you’re not shedding tears for Microsoft and IBM, you might at least feel badly for the other victims.
When a customer lays down $250 for a used computer, he does not want to hear, ‘Oh, by the way, that will be another $450 for Windows and $490 for Office. So sales staff load hard drives with just about anything customers want,” said a sales representative for a computer store in Quebec, who spoke on the condition of anonymity.
The reseller has nine employees and sells refurbished computers to consumers, small and medium businesses, and schools and educational institutions. The company also ships fully loaded systems overseas “by the container full,” said the source.
While he asks his customers to consider free open-source software such as Linux, they get Windows and Office if that’s what they want. “We preinstall — the same as big manufacturers. It’s a grey area,” the reseller said.
“No, it’s not grey, it’s theft”, said Diana Piquette, compliance manager at Microsoft Canada. While software piracy may save consumers money upfront, costs software developers, legitimate resellers and the economy. And it can bite customers when they need technical support.
According to a study released by the Maynard, Mass.-based International Planning & Research Corporation, 39 per cent of all business software used in Canada is pirated. And the Canadian Alliance Against Software Theft (CAAST) put the loss the Canadian economy at $289 million last year. Globally, losses due to software theft exceeded US$18 billion, an estimate that does not include dollars for operating system piracy. And for every dollar software developers lose, retailers and resellers lose three, according to CAAST estimates. As products move through the reseller chain from manufacturer to buyer, each stage adds some value — technical expertise, retail shelf space — so a sale lost to piracy hurts the members of the distribution chain even more than it does the original manufacturer.
Also, start-up application developers who are trying to establish themselves can be hit particularly hard as the piracy rate delivers negative impact to sales, research and development, and employment.
THE FINANCE SQUEEZE
While many businesses and consumers blissfully steal software, companies that sell software experience no bliss, said Ken Jung, president of Patch Computers Ltd., a computer system builder and Microsoft reseller based in Richmond, B.C.“We can compete if we are all playing by the same rules,” he said.
However, whenever Jung loses a business bid to a reseller whose price he can’t match, he generally finds Microsoft’s operating system is not included in the price quote, even though it is loaded onto the systems. There are financial pressures on both sides of this piracy play. Resellers have seen hardware margins drop precipitously, and they need to close sales. Small business owners are struggling to make ends meet, and schools often have to choose between PCs and books.
“It’s at the point where [software] licenses cost more than the computers,” said the anonymous Quebec-based software pirate who has seen sales walk out the door when staff members resist requests to load hard drives.
“It’s difficult to say no to a sale.” However, consumers and businesses who accept illegal software, wittingly or unwittingly, need to know they are not covered by support from the original equipment manufacturer or the software developer, said Microsoft’s Piquette. That can lead to costly support calls down the road. In addition, buyers who accept counterfeit software or illegally download applications can end up loading “buggy” or virus-laden products.
THE FACE OF CRIME
Many see software piracy as a victimless crime, said Hugh P. Gunz, professor of organizational behaviour with the University of Toronto’s Rotman School of Management. “The victim is faceless and, in the case of those such as Microsoft, incredibly wealthy.”
People see a CD-ROM that costs a buck. They don’t see the investment of time, money and intellect that makes the application on the CD valuable. “Clearly, when it’s easy to do, that doesn’t help either,” he added.
Several individuals who routinely pirate software claim prices are way too high. “If we stopped pirating, would prices plunge by 40 per cent?” asked one reseller. “I think not.”
That argument is fallacious, said Jacquie Famulak, president of CAAST and manager of legal and government affairs with Apple Canada. She readily admits prices would not drop by 40 per cent if piracy ceased, but argues they would come down. In addition, more money would be spent on research and development, new companies would stand a better chance of surviving, and more jobs would be created, particularly in retail and enterprise sales and customer support.
CAAST is working to educate consumers and businesses about the value of software and the problems associated with software theft, but Famulak believes the Canadian government could better protect intellectual property. “If 40 per cent of the cars went missing from a car dealership, it would be considered a huge problem,” she said.
Some consumers complain that software licenses are unfair and complicated, driving consumers to theft. Intuit’s Quicken XG, for instance, lets consumers download bank statements from the Internet for 365 days. After that the user has to upgrade the software. Consumers can subscribe to Quicken Advantage for ongoing access to upgrades and they receive several reminders a year that their online banking access will expire. “It’s not really an anti-piracy feature but it helps us enforce the licensing agreement,” said Intuit spokesperson Brad Stromberg. “We try to strike a balance between our customers’ needs and protecting intellectual property.
”Intuit, he points out, lets individuals and couples with a net income of less than $20,000 calculate and file taxes online at no charge through http://www.quicktaxfreedom.ca. “It’s our way of giving back to the community,” he said.
INADVERTENT CRIMINALS
Some software theft is unintended, such as when companies accidentally overstep the bounds of their software licenses. Companies add employees and computers and roll out applications across networks without checking how many software seats they have purchased. Or employees download upgrades and new applications off the Internet without thinking about the impact on licenses.
Last December, after CAAST was tipped off by anonymous calls to its piracy hotline, three companies agreed to pay $77,000 to settle piracy claims even though management did not know they had exceeded their software licenses. Alberta Fuel Distributors, headquartered in Edmonton, paid $20,000 after a voluntary self-audit revealed it unknowingly had unlicensed copies of Adobe, Microsoft and Symantec programs installed on its computers. Focus Corp., an engineering consulting firm in Edmonton, paid $30,000 after a self-audit revealed it had unlicensed copies of Microsoft software on its computers. And PHH Environmental, an Edmonton consulting company, paid $27,000 after a self-audit revealed unlicensed copies of Autodesk, Microsoft and Symantec.
“We were unaware of the extent of unlicensed copies of software within our system,” said John Holland, president of PHH. “Having audited our systems we are now fully confident of our software management compliance.”
The settlements demonstrate that even reputable companies need to attend to software licensing requirements, said CAAST’s Famulak.
Software management issues have actually created opportunities for resellers. “Many senior managers with mid-sized companies don’t have policies and procedures in place to ensure they are compliant [with software licenses].
We take that job off their hands,” said Dave MacDonald, president of Toronto-based Softchoice.
Using LiveInventory, a software management application, Softchoice conducts software audits and compares the results to licensing agreements. LiveInventory can find software that employees have downloaded off the Internet. It can also sniff out movies and other questionable content on computer systems. This was the case for one customer, where illegally downloaded movies were found, and it was discovered that the bandwidth-consuming process was causing performance issues for the company network. LiveInventory has also located surplus software in some departments, allowing companies to provide applications to other departments without purchasing additional licenses.
NexInnovations in Mississauga, Ont., also offers a software management strategy that helps companies remain compliant with licenses and negotiate appropriate discounts with suppliers. “If you centralize your application environment, you will remain compliant and be better positioned to negotiate licensing contracts that take advantage of economies of scale,” said Todd Irie, NexInnovations director of marketing.
Although installing pirated software can expose companies to security risks and virus concerns, it will not be easy for CAAST and software developers to end piracy. A major attitudinal shift among consumers, coupled with more accessible software pricing, is required. Either that or a magic technological bullet that will eliminate illegal downloading, counterfeiting and copying of valuable software applications without making it more difficult for legitimate software owners to use their applications.
In short, the software industry has a long way to go.
Web piracy
CAAST http://www.caast.org
International Planning & Research http://www.iprnet.com
NexInnovations http://www.nexinnovations.com
Softchoice http://www.softchoice.com
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