Software Piracy Hits $29 Billion in Losses
BY Matt Quinn
July 9, 2004 -- The software industry is caught in a twisted cycle: People pirate software because it costs so much and software developers charge more because so much is pirated.
In a new study, the Business Software Alliance estimated that 36 percent of all the software installed in 2003 was pirated, resulting in a loss of $29 billion in revenue. Small businesses were cited as a factor often contributing to piracy.
The study, conducted by research firm IDC for the group, found that piracy rates varied worldwide due to factors such as software prices relative to income, the availability of pirated software, cultural mores and the strength of intellectual property laws. Countries with a significant number of small businesses and consumer PC users were also hotspots, according to IDC.
The problem, at least in terms of revenue, is expected to become worse as the areas with the highest piracy rates also tended to be high-growth areas. IDC predicts the PC software market to grow from $50 billion to $70 billion over the next five years, which means lost revenues could grow to $40 billion at the current rate.
Such extensive lost revenue means lost taxes, lost jobs, and stilted innovation due to the fear of losing control of products.
The United States and Canada had the lowest piracy rate of the six global regions the surveyed tracked, with a 23 percent piracy rate. While a low percentage, because those areas purchase so much software, pirated software resulted in an estimated loss of $7.2 billion, the third highest dollar loss by region.
The highest revenue loss was in Western Europe, where a 36 percent piracy rate meant $9.6 billion in lost revenue. The Asia pacific region was second in lost revenue, with $7.5 billion in lost revenue and a 53 percent piracy rate.
Eastern Europe had the highest piracy rate at 71 percent, or $2.1 billion in lost revenue.
By country, the U.S. had the lowest piracy rate at 22 percent and China had the highest with an astounding 92 percent piracy rate.
MATT QUINN contributes to the Wall Street Journal's corporate finance blog. He has also written extensively about banking and corporate finance for publications including Inc., American Banker, and Financial Week. He lives in Brooklyn, New York.