Tag Archives: Digital media

The economics of software piracy

One year ago this time was World Cup season and Mondial fever put a lot of regional conflicts on the back burner for a month – not to mention put a dent in a lot of family budgets (husbands buying the latest 60 inch Sony Bravia and wives on retail therapy while the guys are watching football)

It is ironic that the FIFA 2010 World cup computer game doesn’t run on Ubuntu.  It would have been a huge marketing coup and poetic justice if the game software was released for Ubuntu in a GPL license.

This got me thinking about open source licensing and it’s advantages for developing countries, which really got my hackles up  after reading the Seventh Annual BSA and IDC Global Software Piracy Study – that screams:  Software Theft Remains Significant Issue Around the World

The rate of global software piracy climbed to 43 percent in 2009. This increase was fueled in large part by expanding PC sales in fast-growing, high-piracy countries and increasing sales to consumers — two market segments that traditionally have higher incidents of software theft. In 2009, for every $100 worth of legitimate software sold, an additional $75 worth of unlicensed software made its way onto the market. There was some progress in 2009 — software rates actually dropped in almost half of the countries examined in this year’s study.

Given the global recession, the software piracy picture could have taken a dramatic turn for the worse. But progress is being outstripped by the overall increases in piracy globally — and highlights the need for governments, law enforcement and industry to work together to address this vital economic issue.
Below are key findings from this year’s study:

  • Commercial value of software theft exceeds $50 billion: the commercial value of unlicensed software put into the market in 2009 totalled $51.4 billion.
  • Progress on piracy held through the recession: the rate of PC software piracy dropped in nearly half (49%) of the 111 economies studied, remained the same in 34% and rose in 17%.
  • Piracy continues to rise on a global basis: the worldwide piracy rate increased from 41% in 2008 to 43% in 2009; largely a result of exponential growth in the PC and software markets in higher piracy, fast growing markets such as Brazil, India and China.

I would not take the numbers IDC and BSA bring at face value. The IDC/BSA estimates are guesses multiplied several times. They start off by assuming that each unit of copied software represents a direct loss of sale for software vendor – patently a false assertion.

If it were true, then the demand for software would be independent of price and perfectly inelastic.

A drop in price usually results in an increase in the quantity demanded by consumers. That’s called price elasticity of demand. The demand for a product becomes inelastic when the demand doesn’t change with price. A product with no competing alternative is generally inelastic. Demand for a unique antibiotic, for example is highly inelastic. A patient will pay any price to buy the only drug that will kill their infection.

If software demand was perfectly inelastic, then everyone would pay in order to avoid the BSA enforcement tax. The rate of software piracy would be 0. Since piracy rate is non-zero, that proves that the original assertion is false. (Argument courtesy of the Wikipedia article on price elasticity of demand )

Back when I ran Bynet Software Systems – we were the first Microsoft Back Office/Windows NT distributor in Israel. I had just left Intel – where we had negotiated a deal with Microsoft that allowed every employee to make a copy of MS Office for home usage. Back in 1997 – after the Windows NT launch, the demand for NT was almost totally inelastic – Not There, Nice Try, WNT is VMS + 1 etc. We could not give the stuff away in the first year. Customers were telling us that they would never leave Novell Netware. Never. But, NT got better from release to release and the big Microsoft marketing machine got behind the product. After two years of struggle and selling retail boxes and MLP for NT, demand picked up. Realizing that there IS price elasticity of demand for software – Microsoft dropped retail packaging and moved to OEM licensing, initially distributing OEM licenses via their two tier distribution channel and later totally cutting out the channel and dealing directly with the computer vendors like HP, Dell and IBM for OEM licenses of NT, XP and 2000, 2003 etc. Vista continued with this marketing strategy and most Vista sales were not retail boxes but pre-installed hardware. After Windows 7 released – users have been upgrading en-masse, proving once again the elasticity of demand for a good product.

Microsoft (who are a major stakeholder in BSA) probably don’t have a major piracy problem with operating system sales. Let’s run some numbers. In 2008 –  Microsoft Windows Vista sales were at about a 9 million unit/quarter run rate. Microsoft June 2008 quarterly revenue was $15.8 BN. Single unit OEM pricing for a Windows operating system  is about $80 and in a volume deal – maybe $20. Let’s assume an average of $50/OEM license. This means that the operating system  accounts for about 50*3*9/15800 = 8.5% of Microsoft revenue.

The BSA Global Piracy Study states that the “median piracy rate in is down one percentage point from last year” – 1 percent of 8.5 percent is meaningless for Microsoft – in dollar terms – BSA work to reduce piracy is less meaningful than a 7 percent drop in the US Dollar rate in 2009.

Microsoft might have a problem with their cash cow – Microsoft Office. Microsoft Office 2007 retails for $450 but is available in an academic license for less than $100. Open Office 2.4 runs just fine on Windows 7 and XP and retails for $0. At those prices, sizable numbers of users are just sliding down the elasticity curve – calling into serious question the IDC/BSA statistics on software piracy.

But there is more to software piracy than providing software at a reasonable price. In poor areas of the world – assuming that the BSA efforts at combating software piracy are successful – only the very rich would have access to applications like Microsoft Office. The middle and lower class people won’t have the opportunity to become MS Office-literate because the prices would be too high. For that I only have three words –download Open Office – the free and open productivity suite.

Finally – I can only anonymously quote a senior Microsoft executive who told me a number of years ago that off the record, Microsoft didn’t mind people copying the software and using a crack because it was a good way of introducing new users to the technology and inducing them to buy the new, improved and supported release a year or two later.

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Secure collaboration, agile collaboration

One of the biggest challenges in global multi-center clinical trials (after enrollment of patients) is collaboration between multi-center clinical trial teams: CRAs, investigators, regulatory, marketing, manufacturing, market research, data managers, statisticians and site administrators.

In a complex global environment, pharma do not have control of computer platforms that local sites use – yet there is an expectation that file and information sharing should be easy yet there are three areas where current systems break down:

1. People forget what files had been shared and with whom they have been shared

2. People have difficulty sharing files with colleagues in a way that is accessible to everyone – firewalls, VPNs, enterprise content management, DRM, corporate data security policy, end point security, file size – these are all daunting challenges when all you want to do is share a file with a colleague in Berlin when you are working in a hospital in Washington.

3. Notifications – how do you know when new information has been added or updated? Not having timely notifications on updates can be a big source of frustration resulting in team members pinging other members over and over again with emails.

Over the past 10 years a generation of complex enterprise content management software systems have grown up – they are bloated, expensive, difficult to implement, not available to the entire multi-center team and in many cases written by English speaking software vendors who cannot conceive that there are people in the world who feel more comfortable communicating in their native tongue of French, German, Hebrew or Finnish!

We are developing (currently in beta with a Tier 1 bio-pharma in EMEA)  a Web-based, agile collaboration system with a light-weight, easy to use, simple architecture, that saves time and reduces IT and travel costs – and literally gets everyone on the same page.

The system resolves the 3 breakdowns above while recording all user activities in a detailed audit trail in order to meet internal control and FDA regulatory requirements.

The system also provides significant cost benefits in addition to improving information collaboration:

• Reduces travel costs: Using online events, integrated media and file sharing and discussions, the clinical trial team and investigators can conduct program reviews, education activities and special events.

• Eliminates proprietary IT: No proprietary software or hardware and no IT integration. No extra investments in information technologies, CRM, sales force integration and data mining.

If this interests you – drop me a line!

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Part II – Why pharmas don’t do social networking

If you understand how pharmaceuticals are sold, this is not surprising.

What is surprising is that a lot of people seem to think it’s just a question of time before pharmaceutical companies like GSK get into social media.  I claim that a fashion trend doesn’t make a business case. The buzz of social media and Twitter in 2009 reminds me of the buzz on virtual worlds in 2008.

There are 3 fundamental reasons why  consumer-side social media is not a good fit for pharmas and they all relate to how prescription drugs are sold:

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Digital Terrestrial TV in Japan

A year ago, I worked with Joel Isaacson  on a VOD / IPTV project  – and I’m still pretty interested in whats happening in digital media – especially since we got to say “I told you so”. (we predicted the death of Blu-Ray and the rise of video download two years ago). This note is from my ex-Intel colleague and old friend Todd Walzer from www.iland6.com in Tokyo.

 


One would imagine Japan would be first in digital TV broadcasting, but actually it’s in the middle. Though trials have been running awhile in Japan’s cities, the date for nationwide cutover (when the analog signal stops) is July 24, 2011. That puts Japan behind Holland, Sweden, Finland, and the U.S., but ahead of Canada, China, etc.

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Technology innovation is not enough

This week, I met with one of my former clients who have done some innovative work in the digital media space.  They are a typical tech company  with typical problems  that create  typical opportunities for larger companies to buy them out for peanuts. This particular company operates in a difficult and competitive market with long sales cycles and a complex eco-system of publishers, vendors, resellers and systems integrators.

The textbooks all talk about focus, and even though the client recognizes that their main market is  in developing countries – they are dabbling in various projects and trying to sell into other market segments.   The problem is they don’t know how to go from point A to point B and they never will.

Venture capitalists look for the WOW factor, big market and sales cycles that run quickly for new ventures seek funding.

If you are a manager in a tech company in trouble – stop for moment, fire yourself from your job and start asking VC-style questions. Maybe you do  have a big market, but you’ve lost sight of the WOW factor going into those long messy sales cycles. Look for some of these symptoms in your company:

  • Managers that need outside consultants to tell them what time it is. It’s not uncommon for expensive organizational consultants to prey on companies in trouble.
  • Key people (like product managers) are marking time and not taking initiatives
  • Team members put off project status meetings.
  • Employee discussions  generate more complaints about the company’s situation, than active decisions.
  • Employees spend more time on office politics then planning and executing solutions of going from point A to point B.
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