How Software Piracy Hurts VARs

The cost goes far beyond revenue from lost initial sales.

PC software piracy, an endemic global phenomenon of multiple proportions, is a $50 billion-dollar business that poses problems to governments, software companies and, yes, VARs and distributors who lose millions in annual revenue from sales and service. The problems are particularly acute in the United States, which incurs the largest dollar losses from piracy, $9.1 billion, because this country is by far the biggest software market.

These are among the key findings of the sixth annual BSA-IDC PC software piracy study released recently by the Business Software Alliance (BSA). The study was conducted by researcher IDC.

Other findings: In 2008, the rate of PC software piracy dropped in 57 of the 110 countries studied, remained the same in 36, and rose in just 16 The worldwide software piracy rate rose for the second year in a row, from 38 percent to 41 percent, as PC shipments grew fastest in high-piracy countries such as China and India, overwhelming progress elsewhere.

“Perhaps the most staggering statistic is that the monetary value of unlicensed software – “losses” to software companies – broke the $50 billion mark for the first time and approached the $88 billion value of the legitimate software market in 2008, said John Gantz, chief research officer at IDC.

While the United States has the lowest PC software piracy rate in the world at 20 percent, losses continue to hurt vendors, VARs, distributors, and government tax coffers, he said.

“Piracy hurts VARs in a number of ways,” said Gantz. “It reduces their income from software sales and service, and can delay or derail projects with clients.”

For every $1 of software sold there is another $3 to $4 of revenues for local IT service and distribution firms, said Gantz.

Problems, and opportunity

Clearly, software piracy denies sales opportunities to VARs, vendors and distributors, said Stacy Nethercoat, vice president, software product marketing at Tech Data.

“But aside from those initial software sales, piracy also kills renewal revenue that we and our partners enjoy from subscription and maintenance, as well as services fees to support software deployments,” she said.

Gantz said that when a prospective client with pirated software – which is obviously unsupported by service – wants to hire a VAR for a new software project, the VAR is confronted with both problems and opportunities.

The problems include being unable to support any pirated software and having to tell the client to dump the pirated stuff because it is illegal and because the new software probably won’t work well with it anyway.

Piracy’s biggest opportunity for VARs is selling clients software asset management programs to help them better manage, deploy, maintain, and dispose of their software, said Gantz.

Piracy undermines local IT service firms, gives illegal software users an unfair advantage in business, and spreads security risks, said BSA president and CEO Robert Holleyman.

TAGS: security,services,software,VARs,channel

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