Microsoft Outlines The Hidden Costs Of Piracy

The study found that for every $1 reduction in software piracy, the Microsoft ecosystem, including channel partners, gained $4.37 in new revenue and $1.13 in lower costs for a total gain of $5.50, said Michael Beare, Microsoft director of license compliance. Microsoft announced the findings at its Worldwide Partner Conference in Houston this week.

While the link between lost sales and software piracy is clear, Beare said he suspected through conversations with solution providers that piracy also led to higher costs, but until now the evidence was only anecdotal. The study found that pirated software creates problems for resellers such as software incompatibility, the need for more troubleshooting services and longer sales cycles—all of which increase costs. A service call triggered by an illegal application that is missing critical patches is one example.

Less tangible—but no less important—is the friction that can occur between a solution provider and a customer when pirated software creates technical and business problems, Beare said. But he also noted that in many cases the use of illegal software is often inadvertent, and in such cases helping a customer clean up licensing problems can be a service opportunity for a trusted solution provider.

The estimated gain of $5.50 for every $1 reduction in pirated software is a worldwide figure. In North America the gains were $3.81 in new revenue and $1.01 in reduced costs per $1 of reduced software piracy. But the numbers were much higher in other parts of the world: In Eastern Europe, the Middle East and Africa the total gain in new revenue and cost savings for every $1 reduction in pirated software was a whopping $8.17.

The largest portions of potential revenue increases came from faster sales cycles (31 percent) and faster product and delivery service (40 percent). The analysis was conducted by market researcher International Data Corp.

Beare said Microsoft, known for aggressively fighting against unlicensed and illegally copied versions of its software, will use the study findings to make its channel aware of the costs to them of software piracy.