The cost of software piracy

Software (as well as other intellectual property) piracy is a bad thing. Though – in contrast with musicians, writers and other artists – the programmers right to lifelong income from a stroke of genius is usually a lot more limited.

What bugs me, however, is reading about the “losses” that piracy incurs. Today I saw an IDC figure rating it at $33 billion in 2004. Didn’t these people ever go to business school? Didn’t they ever hear of supply and demand curves? Everybody else knows that when the price falls towards zero, then demand grows towards infinite. So even if software piracy could be 100% wiped out, the software industry could never gain 33$ billion in extra revenue.

Rather (economic theory again) people would substitute with products at a price that closer matches their marginal value (as in: when the price of butter rises we buy margarine instead). So, to the dismay of software vendors, for instance the more the price of MS Office and the cleverer the copy-protection gets, the more people will turn to alternatives such as Open Office – or, as we are already seeing – the traditional suppliers will segment their products by customers and price.

I’m sure that both the industry and their customers, with the aid of market forces, will find the right balance – but that the cost to the industry 33$ is a lie that probably only politicians will ever believe.


One thought on “The cost of software piracy

  1. Tim Wirtz

    An excellent point Per. Further proof that raw statistics should not be blindly accepted without a little thought put into them.

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